By Lindsay Tigar, Her Money featuring Cecilia T. Williams, CFP®, AIF®, Director of Investment Operations/CCO at Halbert Hargrove
Calling all parents-to-be: Here’s how to prep for your new little love and all their big expenses. With a little planning, their arrival can be joyous + stress free!
The first few moments you know you’re expecting are a whirlwind of emotions: excitement, shock… and, very quickly, panic. In addition to anxieties over the health of mother + baby, and the fear of the uncharted territory you’re about to embark on, many women (and men!) worry about their financial ability to care for their family and save money while pregnant. The good news is pregnancy is a nice long stretch of time — 40 weeks — which gives you time to dig deep into your money situation and prepare for the arrival of your little love. By breaking down your bigger financial goals into month-by-month milestones, you can make it easier to shoulder the expenses of the new member of your household… Because your bundle of joy shouldn’t be a bundle of financial stress.
MONTHS 1 TO 3: TAKE A LOOK AT YOUR OVERALL FINANCIAL PICTURE
First things first: congratulations! You’re expecting a baby! Yes, go ahead and buy that onesie to celebrate, but try to refrain from diving into the deep end with baby shopping. You have plenty of time for that, and hopefully a shower or two in your future that will help you stock up on the essentials from friends and family.
Once you know you’re expecting (which for many women is by the time they are already 2-3 months along) it’s time to take a long, hard look at where your finances are right now. Begin by outlining your current income and expenses, so you and your partner (if you have one) have a solid understanding of where your money goes each month. “The key here is making sure you focus on eliminating any bad debt like high-interest credit cards — and ensuring you have a proper emergency fund before starting to save for baby expenses,” says Cecilia Williams, director of investment operations and CCO of Halbert Hargrove.
During these three months, you’ll visit your doctor to hear the baby’s heartbeat and see how the pregnancy progresses. Before you head in, Williams suggests reviewing your health insurance, so you know what’s covered, what’s not, and gather all the necessary information on your deductible. Your goal for saving is to figure out exactly what you’ll be paying out-of-pocket during pregnancy and childbirth.
For example, suppose you have a high-deductible health plan. In that case, Williams says you’ll likely be responsible for paying in full for many healthcare services until you reach the stated deductible and your insurance coverage kicks in. “If this involves a large dollar amount, break it up, so you’re saving for it month-by-month during your pregnancy,” she says.
MONTH 4: THINK ABOUT MATERNITY AND PATERNITY LEAVE
Unfortunately, there’s still no federal requirement for paid leave after childbirth in the United States, so you’ll need to have a full understanding of the coverage you’ll receive from your employer, or via your state, Williams says.
“Even if your state offers paid time off, there could be a cap on how much of your salary your company will payout,” she says. “Contact your human resources department; they should be able to walk you through what your time off and salary will look like. Once you have that, adjust your budget accordingly.”
Then, of course, after maternity/paternity leave ends, you’ll need to have a plan for who will care for the baby. If both you and your partner want to return to work, you will want to prepare for the cost of childcare. According to Williams, this averages around $990 per month in the United States but can be higher in urban areas. “If you or your partner choose to stop working completely, you should adjust your budget now to determine how you can make ends meet with only one income,” she adds.
MONTH 5: THINK ABOUT WHAT THE BABY NEEDS NOW — AND IN FUTURE
If you decide to do genetic testing via blood work, you will know by now if you’re having a boy or a girl. And sometimes, your 20-week ultrasound will reveal the gender, too, if your baby isn’t too shy. Of course, this will encourage you to think about all of the items your baby will need, so it’s a wise time to start your registry. Williams recommends focusing on the essentials that you’ll need, like diapers, a crib, a car seat, and so on.
“As months go by and you see those items purchased, add more items that the baby can use in later months,” she continues. “One example: Larger diapers and clothes will be needed eventually — gifts of these will be one less cost you’ll need to budget for later.”
But beyond baby supplies, it’s also helpful to start researching the long-term cost associated with having children. “Among other items are ongoing food, housing, transportation, and school,” Williams says. “The average total cost of raising a child as estimated by the USDA is $233,610.”
MONTH 6: LOOK FOR FREE STUFF
Fun fact: Nearly every single company that sells baby products — from diapers to formula and beyond — will do everything they can to make you a loyal customer. After all, you’ll use their stuff for months, if not years, and potentially through multiple pregnancies. They want you to become a brand ambassador, so they push free trials like crazy, says Jeanniey Walden, the chief innovation and marketing officer at DailyPay. “This isn’t just for baby products; it includes spas, facials, clothing, sheets, and so on. A few quick google searches and you can fill your home with great products for free,” she adds. This is also true for registries via sites like Target or BuyBuyBaby. They will offer you 10%-15% off everything left on your list, so make sure to add the high-dollar items (like strollers!) to reap the benefits.
MONTH 7: THINK ABOUT LIFE INSURANCE AND YOUR WILL
While no one wants to think about the worst-case scenario, soon you’ll have a dependent, which necessitates taking a critical look at life insurance, estate planning and your will. “You and your partner should discuss the possibility of something happening to one or both of you after the baby is born. Purchasing life insurance can help ensure that the other parent or a guardian has the funds needed to continue proper care for your child,” Williams says.
If you haven’t established a will or trust, consider it a priority now. In these documents, Williams says you’ll be able to document your wishes concerning who will care for your child and who should be the beneficiary of your assets.
MONTH 8: EDUCATE YOURSELF ON YOUR NEW TAX + BUDGET PICTURE
For all the money new must spend, there are thankfully some tax savings associated with parenthood, which will help balance things out, at least a little bit! Chat with your accountant to determine if you’re eligible for the Child Tax Credit. Now is also a brilliant time to research if your employer offers any Flexible Spending Arrangements (FSAs). “With a Dependent Care FSA, you can use pre-tax dollars to pay for qualified out-of-pocket childcare expenses,” Williams notes.
If you know you’re going to need extra money for your baby fund, now is a great time to consider new sources of income that might work well with your new lifestyle, recommends Joyce Marter, a licensed psychotherapist and author of ‘The Financial Mindset Fix: A Mental Fitness Program for an Abundant Life.’
“A part-time, flexible data entry job might be perfect for you to do during nap times,” she continues. “One couple I counseled picked up a paper route that the dad did while the mom was feeding the baby early in the morning, and it brought in another $25K per year.”
MONTH 9: TRY TO RELAX — AND OPEN A 529 ACCOUNT
You’re in the home stretch! Take this time to try and relax, prepare for childbirth and get as much rest as possible. If your budget is on track, now is a great time to open a 529 account for your child that you can begin contributing toward for their future. “One of the big benefits of a 529 is that it allows your contributions to grow tax-free, and the money will not be taxed when it’s taken out to pay for college,” Williams says. “Grandparents and relatives can contribute to a 529 as well — so spread the word!
Congrats on your new bundle of joy! You got this!
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