Aug 14, 2023

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Little girl resting ear on pregnant mom’s belly

You’ve read all the baby books. From what to wear to what to eat, you know what to expect when you’re expecting. But have you considered how to financially prepare for your maternity or paternity leave?

How do you prepare for weeks away from the office while managing all the expenses that come with a new baby?

The best way to prepare financially for a baby is by planning ahead. Follow these four steps to get your finances in order before your bundle of joy arrives:

Table of Contents

  1. Figure out how much time you will take (and what it will cost you)
  2. Project your medical costs
  3. Calculate your parental leave savings goal
  4. Take action to get your financial house in order

1. Figure out how much time you will take (and what it will cost you)

Is your parental leave paid? Research your company’s parental leave policies and investigate the state’s laws on parental leave where you work to understand your rights. If you’re lucky, you may work at one of the companies, or in one of the states, that offer paid family leave. Even so, you may only receive partial pay and have a limited number of weeks.

Going weeks or months without an income (or a reduced income) can put a strain on any budget. Understanding what you’ll face will help plan financially for your parental leave. That will let you spend less time stressing about your finances and more quality time with your new baby.

2. Project your medical costs

Even with health insurance, birth can be expensive. Understand the details of your health coverage and your birth plan so you can project any out-of-pocket costs for delivery.

Keep in mind the potential added costs if your delivery has complications or your baby needs special care. If you’re planning to use a doula, midwife, or go to an alternative birthing center, it’s crucial to know if your insurance covers your ideal birth scenario.

Now is the time to check your plan’s coverage and get on the phone with your insurance company to get the exact breakdown of what to expect in those bills — not just for delivery, but also possible post-delivery expenses, like pediatric care and feeding support.

3. Calculate your parental leave savings goal

To figure out how much you need to save for your parental leave, combine your projected costs for your delivery and post-delivery care with the total loss of wages you and your partner expect to incur and the regular living expenses you’ll have on leave.

Once you’ve taken all the factors and costs into consideration, calculate your total parental savings goal by subtracting total expenses calculated from remaining income and savings. Remember that unexpected expenses come at the least convenient time, so if you can have your parental leave savings in addition to an emergency fund, that would be ideal.

Create a new account for your parental savings goal and set up an automatic transfer directly from your checking account to your new savings account the day after you get your paycheck. If you don’t see the money sitting in your checking account, you’re less likely to think of it as money you have available to spend, and you’re more likely to build the savings you need to afford the parental leave you really want.

4. Take action to get your financial house in order

When you start planning financially for a baby, you may feel overwhelmed. Here are a few strategies that may help you reach that savings goal more quickly and make achieving it more manageable:

  • Consolidate high-interest debt

Before taking on the added expense of a child and time off work, make sure you have a plan in place for paying off past debt. Consider consolidating any higher-interest debts with a personal loan that may offer a more favorable interest rate. The money you may save on interest is money you can reroute directly to your parental leave savings. A personal loan can help manage your finances by giving you a set regular monthly payment for which you can budget. (And once you’re a parent, you’ll appreciate predictability even more).

  • Build a new budget

The expenses of a new baby add up fast. In addition to the medical costs of pre-partum care and delivery, you’ll need to furnish a nursery, purchase a car seat and stroller, and more. And then count on pricey recurring expenses like diapers, formula, clothing, books, and toys. As you go back to work, you may need to budget for daycare and babysitting.

Be sure to build these new expenses into your overall household budget. Then decide if you need to adjust your current spending plan to afford your new expenses. You may need to cut back in some areas to accommodate the costs of your growing family. For example, in the first few months post-baby, you might not need quite as much of an entertainment and travel budget, freeing up funds for diapers and baby supplies.

  • Take advantage of your network and resources

There’s no better time to ask for help from friends and family than after a new baby. Even if they can’t chip in financially, they may be able to volunteer time for childcare when you return to work. They also may have perfectly good hand-me-down baby clothes, linens, and other childcare essentials.

Many retailers offer welcome kits for new parents that provide free samples and money-saving coupons for baby supplies. And government programs like WIC and SNAP may be able to help with food and other costs during an unpaid parental leave.*

Don’t have friends with kids? Join a local parent group on social media and talk to faith-based organizations in your area. Check out the local community groups and nonprofits in your neighborhood to see if they offer any additional support and resources for new parents.

  • Boost your income now

One way to supercharge your savings for your parental leave is by giving yourself an income boost with additional part-time work or more hours at your existing job.

You may also want to consider building up an additional income stream  so that you have the option to earn some cash while on leave, which can help lessen the financial strain.

The best thing you can do to financially prepare for your parental leave is get started as early as possible. The better you understand the financial implications of having a baby, the sooner you can take action; and the earlier you can start saving, the more time you have to build your cash cushion.

No matter how well-prepared you are, you may still face baby-related expenses. A personal loan could help you bridge the gap. With our personal loan calculator you can enter an estimated loan amount and your and credit score, and determine if Discover® Personal Loans can help you prepare for your parental leave.

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*WIC refers to Special Supplemental Nutrition Program for Women, Infants, and Children. SNAP refers to Special Nutrition Assistance Program.