Parenting guide: How to financially prepare for a baby

"Having a baby is like falling in love again, both with your partner and your child. And just like in any relationship, financial planning is crucial to build a strong foundation for a happy and secure future together." - Kelly Whalen

Parenting is many things: rewarding, exciting, fulfilling. 

One thing it’s not - "Cheap".

We live in a society where having a kid is still considered the most logical and predictable step after a couple of ties the knot. But many couples willingly made the decision to live a child-free life. It is huge commitment and in fact, a burden to shoulders was they are not ever prepared to bear. The reasons for going child-free are not limited to financial constraints, high level of responsibility or lack of family support. A recent survey found that 42% of parents say they were not financially prepared to have a child. Whether you are expecting a new baby or are in the midst of raising a child, there are plenty of financial implications to consider, from saving for college to budgeting for child care to tax and insurance changes.

While there is no one way to raise a child, it’s important that you and your partner have a financial plan before expanding your family. Here’s a complete guide to money and parenting, with tips, tricks and advice for new and existing parents.

Before you have a baby

How to get your finances ready for a new baby?

Before you have a baby, it’s important to plan ahead. Sit down with your partner and discuss your finances. Talking about money before a new baby can help avoid negative surprises.

One of the best ways to foster financial transparency? Building a budget together. Today in the digital world we have plenty of apps to help monitor your spending. Record any recurring fixed monthly expenses, like child care and mortgage payments, and discretionary spending. Track how much you’re spending and adjust when necessary.

Make sure you’re also saving for a rainy day. It’s important to have three to six months of expenses saved for emergencies. If you have any lingering debt, make a plan to pay it off as quickly as possible. Consider the avalanche method, which has you pay off debts from highest interest rate to lowest. It’s one of the fastest ways to get out of debt. Just make sure you’re making the minimum payment on all your accounts.

Preparing for parental leave and picking the right health insurance plan when pregnant

Next, prepare for parental leave. Read over your benefits package to learn how much time your job allows you to take to care for a new child. Women who plan to get pregnant can get medical insurance also. To avoid a dreadful situation, maternity insurance plans come in as a boon for those couples who are planning for kids. There are important health insurance updates to make when you and your partner are expecting. Having a child qualifies you for special enrollment, during which you can add your child to your or your partner’s health insurance plan or switch plans. It’s best to do this as soon as possible.

Delivering a baby is expensive, even if you have insurance. Out-of-pocket costs vary widely across the country. Having an emergency fund comes in handy, but a good first step to getting quality care at an affordable price is to do your research. Confirm your obstetrician and the hospital where you plan to deliver are included in your in-network benefits. If you have a high-deductible plan, contribute the maximum amount to a tax-deductible health savings account. Any money left over will roll over into the new year. The maternity health insurance is a kind of insurance which provides coverage for maternity and other supplementary expenses. This insurance provides both pre and post-natal care, the birth of a child (either through Normal or C-Section/ Cesarean Section). The services offered under maternity health insurance are supervised by the Maternity Benefit Act.

Consider purchasing private life insurance, if you haven’t already. Life insurance financially protects your family if a tragedy occurs, helping to replace your income and covering expenses like a mortgage and childcare. Workplace life insurance coverage is often not enough, so it’s important that you and your partner get life insurance to completely cover your assets. If you already have a policy, ensure you have enough coverage for your expanding family. According to the survey, parents without private life insurance felt less financially prepared than parents with private life insurance. The same goes for parents with an estate plan. So while you’re at it, make sure your estate is in order. Estate planning financially protects your new child if you should die — you can designate a guardian for them and pass down assets using a trust. Lastly, make a will, if you haven’t already.

After you have a baby

Day-care

Choosing to go back to work or stay home with the kids isn’t an easy choice to make. Whether you return to your career out of choice or financial necessity, daycare is an enormous expense to add to your budget. Families often pay a large percentage of their annual earnings just to cover the cost of child care. Depending on the state, the average cost can reach nearly 18% of the state median income for a married couple. It can also often take days or weeks to find the right daycare or babysitter. Home daycare provide a more affordable alternative to regular daycare. If you’re using a nanny, consider a nanny share or host an au pair to save on costs.

Summary