Welcoming a child into the world can be a life-changing experience, but a new family member also means a fresh set of financial responsibilities. As you count down the months until your child arrives, the large number of purchases you need to make, from baby clothes to car seats, may feel overwhelming.
The good news is that you have a lot of flexibility in how you spend your money on your growing family. Here are some steps you can take to determine your financial priorities, develop a budget and create a savings plan well before your baby arrives.
Before you start adding up costs, get a handle on the full scope of your employee benefits and health insurance coverage. You may have more benefits than you realize — or they may not be as robust as you thought.
“Speak with your human resources department to figure out your benefit options so you can create a savings plan based on those,” says budgeting expert Andrea Woroch. In addition to your health insurance coverage, benefits to explore include parental leave, tax-advantaged savings accounts, and help with adoption expenses. “Not all companies are willing to subsidize parental leave, and that means you may have to increase your savings to make up for the gap in income you experience when taking time off,” Woroch adds.
Next, check with your health insurer to see what labor and delivery hospital expenses you might incur, as out-of-pocket costs associated with pregnancy, childbirth and post-partum care average $2,854. And remember to prepare for the unexpected. “Ask about the potential increased costs for a cesarean delivery and aim to save for that just in case,” advises Woroch.
Once you have a baseline of your available paid time off and health care coverage, start thinking about upcoming purchases you need to make. Furniture, baby gear and daily essentials like diapers and wipes are probably on your shopping list. To save money, you can purchase some items used, such as changing tables or strollers.
Avoid the comparison game. “It’s easy to get caught up in what other families are doing, but don’t feel that you have to take on an extra expense — like a parent-baby bonding class or baby gymnastics — to keep up with other parents if it isn’t in your budget,” Woroch says.
The same holds true for larger expenses. While it might be nice to have the extra space of a minivan or an additional bedroom in a new home, assess how much of a financial stretch those major decisions would represent.
Next, consider your future child care needs — and the sooner you start planning, the better. “It’s not uncommon for child care centers to have a waitlist for infants and most will require a deposit,” says Dana Oliver, a child care expert and the founder and CEO of Adventure Kids Playcare in Lewisville, Texas.
Start your research early to make sure your child care is lined up and fits your budget before you return to work. In addition to daycare centers, consider less traditional options, like a nanny share or flexible child care that lets you drop your baby off on your own schedule.
Once you know how much you need to save, create a new budget to help you divert funds to those extra goals.
First, list your monthly expenses, starting with your essential fixed expenses, like housing and insurance. Then look at your variable expenses — these are the ones that change each month, such as groceries and transportation. You can check recent bank and credit card statements to estimate how much you currently spend in each area. Then add in new expenses you expect when your baby arrives, including child care, diapers and extra savings like a 529 plan for college.
If your projected total spending exceeds your expected take-home pay, you know how much you need to cut back to make your new budget work. For instance, maybe you could scale back on your phone plan or cancel some subscription services. “Other ideas include bundling insurance plans and increasing insurance deductibles for savings of up to 20 percent,” Woroch says.
With a revised budget and list of your must-haves, you’re ready to work on your savings plan. You may be facing a short timetable before a birth or adoption, so the sooner you execute your plan, the better. But also remember that some of your expenses may not be immediate.
Out-of-pocket hospital costs, for instance, likely won’t be due the day you go home. Instead, the hospital will probably work with your insurance company first, then send you the bill for the balance. That may give you an extra couple of months to save. Make your health care savings go even further by opening a health savings account (HSA), if you’re eligible, or a flexible spending account (FSA) to set aside pretax income for medical expenses.
Finally, remember to save extra cash for unexpected expenses. “Make sure you have a healthy emergency fund set aside for those unexpected baby bills like that middle-of-the-night ER visit,” Woroch says.
With some early planning and decision-making on your growing family’s priorities, you can better focus on the joy your new child brings rather than the extra expenses.