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 what about your money?
How do you prepare for weeks away from the office while managing all of the expenses that come with a new baby?
Much like your birth plan, the best way to prepare is by planning ahead. Follow these 4 steps to get your finances in order before taking your parental leave.
1. Figure Out How Much Time You Will Take (And What It Will Cost You)
Is parental leave paid?
Find out what your parental leave rights are by researching your company’s parental leave policies and investigating the state laws on parental leave where you work. If you’re lucky, you may work at one of the companies, or in one of the states, that offer paid family leave.
It may be necessary to borrow money to handle some of the new, major expenses that come with a newborn. Major expenses may include the nursery, doctor visits as well as all the accouterments that come with a new baby, from car seats to pack n’ plays. You can benefit from using a personal loan to get finances in order before the baby arrives by consolidating credit card debt. This will also help managing your finances with a predictable fixed monthly payment. (And once you’re a parent, you’ll probably appreciate the predictable all the more).
Going weeks or months without an income (or a reduced income) can put a strain on any budget, but if you explore your options now and develop a plan for any lost income and added expenses coming your way, you can spend less time stressing about your finances and more quality time with your new baby when that time comes.
2. Project Your Medical Costs
Even with health insurance, birth can be expensive. Understand the details of your health coverage and your birth plan to project your total out of pocket costs for delivery, keeping in mind the potential added costs if your delivery has complications and your baby needs special care.
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 for coverage post-delivery, like pediatric care.
3. Calculate Your Parental Leave Savings Goal
To figure out how much you need to save for your parental leave, combine your total 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.
4. Get Your Financial House In Order
Once you see the total savings you need to afford your parental leave, you may feel overwhelmed. Here are a few strategies to 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 – and consider consolidating any higher interest debts with a personal loan that may offer a more favorable interest rate. The money you save on interest is money you can reroute directly to your parental leave savings.
- Build a New Budget
The expenses of a new baby add up fast – and it’s not just the medical costs. Recurring expenses like diapers and formula can get pricey too, plus the cost of new essentials like a crib.
Be sure to build these new expenses into your overall household budget, and consider where in your current spending plan, you can make trade-offs to afford this new spending – cutting back in some areas to accommodate the new ones. 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 some of their time for childcare when you return to work. They also may have perfectly good baby clothes, linens and other childcare essentials they can offer you second hand.
Many retailers also offer welcome kits for new mothers 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.
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 of the best ways 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 start this 4-step process as soon as possible. The earlier you start saving, the more time you have to build your cash cushion.
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 your paycheck lands in your checking account. 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.