Six Financial Steps to Consider Before Baby Arrives
While money may not be the ultimate love language shared between you and your partner, it still speaks volumes when it comes to your commitment to take care of your family, one thoughtful decision at a time.
You’ve picked a name, pledged a nursery theme, and scheduled a hospital tour well ahead of time—you’re getting prepared! While being totally ready for a baby is a bit of a moving target, there are important moves to make—and conversations to have—during pregnancy that will help you better plan for parenthood. This especially applies to your money, as more than 50 percent of new mothers in the U.S. experience the burden of financial stress, according to a study in the journal JAMA Network Open.
But plenty of moms-to-be and their partners don’t know where to start the conversation of long term money management and how it affects their family’s future. For professional guidance, we connected with the wealth management advisors from William Blair on key topics to cover that will help you avoid financial missteps while simultaneously growing your brood.
Forecast Your Expenses
Adding a wee one to the mix changes your overall budget and spending habits, which in turn can raise outgoing expenses. Formula, for example, is an item you may potentially use every day through your child’s first year, costing somewhere between $1,200 and $2,900 in total. Diapers and wipes are other must-have products you’ll need to factor in, but these items are used well beyond the year mark.
Doing your best to map out a bigger financial picture ahead of time will give you the chance to adjust spending accordingly. Have a discussion with your partner about projected income after birth, possible childcare needs, your desires for baby’s education and even extracurricular activities that will pop up later on. If you anticipate any of these factors to be a major cost, weave them into your fiscal strategy.
Build an Emergency Safety Net
Have three to six months (or more) of your total living expenses available in a low-risk account (such as a money-market deposit account or a savings account), in case you or your partner loses a job or experiences an unexpected health issue. This will prevent you from going into debt for your basic needs while also providing time to get back on your feet.
The first step is to solidify your monthly budget. Once you know how much you spend, you can start working toward that number in monthly installments. Your emergency fund can be minimal (covering essentials like housing, food, transportation and medical needs) or maximal (including everything you typically spend in a month, plus any added expenses from step one above). If you have an emergency fund already in place, take time to review it and make any necessary changes.
Get Life Insurance
It’s counterintuitive to think about death when new life is coming into the world, but life insurance provides important protection for your loved ones. Both you and your partner should consider getting covered to ensure your surrounding family (or guardians) would have the funds needed to maintain your child’s quality of life.
If one of you is planning to be a stay-at-home parent, you should still get covered. You’ll be providing valuable services (such as child care and home maintenance) that the surviving parent would have to pay to replace moving forward. With life insurance, there are options for length of coverage as well as opportunities for ensuring future expenses are paid for, such as your child’s tuition.
Review Your Health Insurance Coverage
Once you and your newbie are safely home is not the time to start understanding your insurance benefits. A lot of unknowns can happen in birth and during recovery, like an emergency C-section or an unexpected stay in the NICU, both of which can have huge financial implications. Know what’s covered, what’s not, and what potentially could be an out-of-network expense.
Here’s a tip: Just because a medical professional works in the hospital where you’ll give birth, doesn’t mean they work for the hospital group. This means the anesthesiologist performing your epidural, for example, may be contracted for this service and not within your network. It’s on you to ask questions during your stay and plan for unanticipated charges.
You’ll also want to make sure that you have the right amount of coverage for you and your new baby. Take time to compare maternity plans (if you and your partner both have separate coverage) and coordinate with your co-parent as needed to decide whether your whole family will be on one plan, or who will provide coverage for baby.
Look Into Employer Perks
Many companies offer benefits for new parents that can reduce the costs of caring for a child. Check with your employer on the following options:
Health Savings Account: This is a type of savings account that lets you set aside money from each paycheck on a pre-tax basis to cover the costs of qualified medical expenses. Using untaxed funds may lower your health-care costs overall.
Medical Flexible Savings Account: An FSA account allows you to pay for many out-of-pocket medical expenses with tax-free money. These expenses can include copayments and deductibles, as well as prescriptions, medical devices and more.
Dependent Care FSA: This is another pre-tax benefit used to fund eligible dependent care services, like preschool, before- and after-school programs, summer camps and daycare. This helps you utilize care services for loved ones while continuing to go to work.
Adoption Assistance: Adoptions and associated costs (agency fees, legal fees, travel) are sometimes partially covered by employers.
Other perks, like doula coverage and free diaper subscriptions (!) may also be options, so don’t be shy when inquiring about your company’s benefits.
Save for College
It’s no secret that higher education is more than expensive. While college certainly isn’t for every person or career path, it’s a potential you’ll need to start planning for earlier rather than later.
According to the National Center for Education Statistics, the cost of a four-year education at public institutions rose 13 percent between the 2010-11 and 2019-20 school years, and growth rates are only getting higher. It’s been estimated that a baby born in 2019 could need as much as $500,00 to attend college in 18 years—yikes! While certain factors largely impact total costs (in-state versus out-of-state attendance, public versus private, scholarships, etc.), it doesn’t hurt to assume it will be an investment.
A tax-advantage account, such as a 529 college savings plan, is your best bet at saving more effectively for education. This allows parents to invest after-tax money into low-cost stock and bond funds that can be withdrawn for education purposes. Mom and dad are the overseer of the funds and can change the beneficiary at any time.