Budgeting for a Baby: What you need to Know
Finding out that youâ€™ll soon have a baby on board can bring about a whole new set of questions, concerns and plans about your familysâ€™ futureâ€”and how you should rethink managing your finances. Hereâ€™s a quick checklist to ensure your financial life is primed for parenthood and should help make budgeting for a baby easier.
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Assess the costs of maternity leave.
New parents (including those that are adopting, and in same-sex relationships) are entitled to 12 workweeks leave under the Family and Medical Leave Act (FMLA),Â Â provided they meet certain eligibility criteria. What the FMLA doesnâ€™t legally mandate, however, is that the time off is paid.
Soon after learning of babyâ€™s future arrival, you will want to familiarize yourself with your employerâ€™s policies about paid maternity/paternity leave, and/or short-term disability options for which you may be eligible. Inquire with your human resources department about opportunities to supplement unpaid portions of maternity leave with earned vacation and paid time off. Ask when you can adjust your pre-tax contributions to health care flexible spending accounts (FSAâ€™s) and any dependent care plans your employer offers to offset forthcoming expenses. (Some employers may dictate when you may adjust these contribution amounts during specified periods of â€śopen enrollmentâ€ť).1
Whether you qualify for FMLA or not, contact your health insurance provider to inquire about policies and coverage related to pregnancy and infant care, including deductibles, out of pocket responsibility, and policies about coverage for specialists.
Identify where your budget currently stands.
On average for a child born in 2015, parents will spend nearly a quarter of a million dollars raising the child to the age of 18, according to a recent USAA study.
Overwhelming as that figure sounds, try to put it into context: The financial impact a baby has on your life has a lot to do with your current financial reality, lifestyle and spending habits (and the degree to which youâ€™re willing to adjust them), whether both parents intend to work full-time once baby arrivesâ€”and the costs and opportunities those choices present.
Start your baby budgeting process based on what you know now: Your monthly household income, and your fixed, variable, and non-essential monthly expenses. Subtract total monthly income from total monthly expenses. If the resulting number is negative, you may need to eliminate or reduce some expenses, or generate more income, to prepare for the new financial demands of parenthood. If you have money leftover once you subtract monthly income from expenses, identify the optimal places to dedicate your surplus cash:
Medical expense for delivery:
Be sure to check with your health insurer to understand what will be covered when it comes to delivery costs as well as mother and newborn care in the hospital. If you donâ€™t have insurance, the average cost to deliver and care for the mother is $13,524. The average cost for post-natal care for a newborn is an additional $3660. Make sure you are planning to efficiently cover the costs based on your healthcare plan or lack thereof.2
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Create a savings plan to supplement any portion of your leave that will be unpaid. Need a simple strategy? Arrive at the total amount of your lost income (how much you won’t be paid during leave), and divide it by the number of weeks until you expect to give birth. Establish an automatic transfer into a savings account (ideally, one that pays you interest) from each paycheck. For example, if you’ll lose $5,000 from unpaid maternity leave and are due to give birth in 16 weeks, strive to save $313 a week from now until baby’s birthday to account for the paycheck(s) you won’t receive.
Budget for predictable new baby needs.
Diapers, nursing supplies, formula and food, carriers, cribs, play mats and car seats, these can all add up quickly. Add larger items like cribs and strollers to gift registries to save on those expenses. Look for savings on disposable items like diapers by ordering in bulk or clipping coupons.
Create a new parent budget.
A few months after baby arrives, you may find that budget areas that once accounted for most of your spendingâ€”like travel, dining and entertainmentâ€”are replaced with new expenses (like childcare, diapers, food, and medical bills). Once youâ€™ve settled into your budget plan for the here and nowâ€”take steps to ease your financial future. In a 2015 poll conducted by Nerdwallet nearly 44% of moms to kids who are now teenagers said they wished theyâ€™d started saving for college immediately after their children were born.Â Some college savings vehicles (like College Savings 529 plan or aÂ ROTH IRA), may offer tax benefits for your contributions, and qualified withdrawals.3
Plan to protect your family long-term.
A new baby may present the need to purchase longer-term financial protections, including life and disability insurance, wills, and estate plans.Â Because such items can be complex to decipher, seek the help of a qualified financial professional. He or she can advise you in selecting the products that fit your current finances and future goals, so you can feel confident that your family is financially prepared for whatever the future may bring.