Having a baby is a fun and exciting time, but with the excitement comes expenses that you should be prepared for. In this post, I share 7 things that you can do to financially prepare for a baby.
What should you do financially before having a baby?
1. Get life insurance
The first thing that you need to do in order to financially prepare for a baby is to get life insurance.
Life insurance is a way to cover end-of-life expenses and to replace your income in case of sudden death. It ensures that your children do not have to worry about finances and that they have money available to be taken care of.
There are many different kinds of life insurance policies as you can get—including term and whole life options.
Regardless of which type you choose, you want to have life insurance so that your children are financially covered in the case of an emergency.
2. Get a will & estate plan
A will outlines what happens to your kids in the event of your untimely death. Additionally, it gives direction on how your assets, including money, will be handled and who will handle it.
Though there are tons of websites online where you can create a will, it’s much better to have an attorney walk you through your specific situation and create a plan and just for you.
Even if your child isn’t born yet, you can still have your attorney draft your documents to include future children.
It isn’t the most joyous thing to talk about with your family and your friends, but it is a necessary conversation to have to financially prepare for having a baby.
3. Check your medical insurance coverage
The third thing that you want to do is to check your medical insurance coverage.
Before you have a baby, or if you’re thinking about having a baby, it is important to understand what is covered by your insurance and what is not.
This includes inquiring about prenatal doctor’s appointments, ultrasounds, labs, labor & delivery. You want to know if you’ll have to pay for these things upfront so that you can start saving and making adjustments to your budget in order to cover those expenses.
Ask what exactly is covered so that you’re not taken by surprise or paying for things that you don’t have to pay for.
The other thing that you want to understand is how much it will cost to add a dependent to your health insurance policy. This will be an additional expense that you’ll want to plan for, as your baby will need coverage once born.
4. Research daycare costs
Daycare costs will vary based on where you live. The average cost is a whopping $1200 dollars in my area, so research to find out what costs are near you.
If you’re not able to stay at home with your baby just yet, start looking into daycare costs as soon as possible. Daycares can book up quickly, so it’ll help to get a head start on saving and securing a slot.
Alternatively, consider if you want to hire a nanny. You may find that a nanny may actually be cheaper than doing daycare.
Do your research and understand what you can afford and plan accordingly.
5. Talk to your employer
The fifth thing that you want to do is actually talk to your employer about your options and your benefits.
Find out if you actually get maternity leave, if you have to take unpaid time off, or if you need to apply for FMLA. In either scenario, ask how much time you’ll actually get off.
These are all things that you need to understand before you have a baby so that you can make an informed decision.
If your income will be reduced while you’re out or if you won’t get paid, you’ll need time to save and/or pick up additional work to prepare for the income loss.
If you’re the father, go talk to your human resources department to find out if you get paternity leave and if it is paid. Or perhaps you have to take unpaid time, FMLA, or vacation. You won’t know until you ask.
You also want to talk to your benefits department, because there may be incentives that you get to help with costs, such as daycare reimbursement.
Make sure you talk to your employer to find out what your benefits and options are.
6. Save, save, save
It should go without saying, but you absolutely must start saving as soon as possible.
In addition to the aforementioned expenses, you’ll want to start saving for other expenses that you’ll incur.
Here are a few items that you’ll need to set money aside for:
You want to start saving for maternity clothes, as you’ll find that you may grow beyond your ability to wear your current clothes.
You’re going to have to get maternity bras, pants, and other items to help you through your pregnancy. I recommend buying things like maxi dresses because those are clothes that you can wear during pregnancy and after.
Baby items and expenses
There will be items that you must purchase for your baby before they are born. Namely, you’ll need a car seat to even leave the hospital, along with diapers, and clothes.
Though you may receive gifts from friends and family before your new arrival, it’s always a great idea to have the funds just in case you don’t.
I recommend opening a bank account specifically for baby-related expenses.
You can use this account to start setting money aside and as a place for monetary gifts that you receive specifically for the baby.
You’ll be able to make purchases directly from these earmarked funds—making money management organized.
Health Savings Account (HSA)
If you have a high deductible health insurance plan, you’re probably eligible for a health savings account (HSA).
An HSA is a tax-incentivized account that allows you to deposit funds tax-free while also reducing your taxable income. You are able to use this account exclusively for health-related expenses.
Each year, you can max out the savings limit on this account and allow funds to roll over to the next calendar year.
Ultimately, the more you can put in your HSA (to the allowable yearly limit), the more money you’ll have saved to pay for qualified medical expenses and the less you may have to pay in taxes.
7. Pay down debt
The seventh and final thing that you want to do to financially prepare for a baby is to start paying down debt to free up cash.
The best thing that you can do to prepare is to pay down debt so that it is one less financial burden to worry about.
You may not be able to pay everything off before the baby comes, but pay down what you can so that you can free up cash.
Ultimately, you don’t have to get into more debt in order to have a child. So freeing up cash will be critical to ensuring that you don’t. I share my tips for getting out of debt in my book, Dump Debt & Build Bank: The Everyday Chick’s Guide to Money.
Final Thoughts on Financially Preparing for Baby
These are the seven things that you need to do to financially prepare for having a baby. There are so many more things that you need to do to get ready for your baby’s arrival, so don’t let finances be a stressor.
I hope that this article was helpful for you as you financially prepare for your baby.