Preparing for a baby financially can seem like a daunting task. You may feel like you should put off having a child until you’ve achieved certain financial goals. Unless you’re struggling to pay the bills, it’s probably not necessary to achieve all of your financial goals prior to having a baby. We’ll create a plan to get everything in order so you can focus on the excitement of awaiting the arrival of your baby.
Review Your Health Insurance
Prenatal, delivery, and post-delivery medical expenses can be extremely expensive. Medical costs will grow even higher if a caesarean is necessary over a natural birth. It’s important to review your health insurance coverage. This can be accomplished by reviewing your employer’s insurance handbook. After you’ve had time to review the available literature it’s a good idea to schedule a meeting with your benefits representative. The benefits representative will know all of the ins and outs of your policy.
The best case scenario is that all costs are covered. Here are some possible expenses to watch out for.
Co-Pays: A fixed fee paid for medical services. This should be a familiar expense experienced when visiting a general doctor. Co-pays may vary for maternity related expenses.
Deductible: The amount of money that you must pay before your insurance covers expenses.
Co-Insurance: A percentage of a medical service that you’re responsible for. This is an important expense to watch out for. An example of co-insurance is 10% of a hospital stay. If the allowable amount billed by insurance was $10,000, the insured would be responsible for $1,000 (10%), and the insurance would pay $9,000. The percentage will vary from company to company.
Maximum Out of Pocket: This is the maximum you’re responsible for on an annual basis. The exact definitions will depend on your employer but typically the maximum out of pocket is defined as a cap on the amount you pay in deductibles and co-insurance. After the maximum out of pocket is hit all in-network expenses are typically covered. If you have co-insurance the maximum out of pocket will be very important. Maternity related bills will be expensive and co-insurance will add up.
In-network VS Out-Of-Network: This will vary from policy to policy. Typically you want to stay in-network to maximize your insurance benefits. You need to verify that all of the doctors you’ll be seeing and the hospital you’ll be staying at are in-network.
Pre-Authorization: Your insurance carrier may require you to contact them and let them know that you’ll eventually be visiting the hospital to deliver. This should be one of the items you discuss with your benefits representative. A call to the insurance company would also determine if this is required.
Maternity and Paternity Leave
Now is the time to discuss if mom is returning to work after the baby is born. If mom is returning to work you need to determine what your employer’s maternity policy is. Ideally, a company provides a paid maternity leave. Unfortunately, this is not the norm.
Typically to obtain paid maternity leave a mother is required to use either their sick or vacation time. Consider how much is available and how much can be used at once. After sick and vacation time is expended, a mother would most likely be in a no-pay scenario. If your employer allows this you need to ensure that you’ll still have a job to return to if they allow you to take an extended no-pay period. These discussions should be had with your manager and/or HR department.
Dad may be allotted paternity time or use his sick/vacation time to help take care of mom and the newborn. This is something he should review in his employer’s benefits literature.
Understand Your Current Expenses
If you’re not already on a budget, now is a great time to get on one. It’s important to understand what your current expenses are. The benefits of this are two-fold. First, you’ll be able to determine how much money you can free up to save for the upcoming expenses. Second, you’ll know what your current expenses are on a monthly basis. This will be used to determine how much may be necessary during maternity.
Save For The Baby
Let’s create a baby savings fund. We now know what is required for out of pocket medical expenses as well as out of pocket maternity and paternity expenses. If this amount is not readily available it’s time to reduce expenses and any unnecessary spending before the baby arrives.
This may be a good time to stop pursuing other financial goals. If you’re paying off debt, it may be a good idea to reduce your payments to the minimum. Any large expenditure unrelated to the baby should be put on hold. I would not recommend reducing or stopping retirement contributions. All money should be put into the baby savings fund. If you exceed your target, leave the money there until after the baby is born.
The baby will require a fair amount of initial expenditures. Plan for the nursery – You’ll be buying a changing table or dresser, a crib, and maybe a glider. Outside of furniture, you’ll need car seats, bottles, diapers, toys, etc. If you’re having a baby shower take full advantage of a baby registry. When you’re buying and registering for all of this gear focus on necessities and stick within your means. Go register with a recent mom – she’ll be most familiar with what is actually necessary and what will get lost in a closet or drawer and eventually be thrown out.
While not as expensive another initial expenditure to consider is maternity clothing. The mom-to-be is growing and will need new clothing to remain comfortable during the upcoming months.
Now you have a grasp on pre-baby expenses and what it’ll take to get through maternity. Consider in your planning the new expenses you’ll have when the baby is a newborn. These expenses could include formula, diapers, and clothing as the newborn quickly grows. Daycare can be a large expense. This all needs to be planned for as part of the post-baby budget.
Over the next few years, your expenses will be changing year to year. Your baby will transition off formula, become potty trained, and eliminate diapers. Soon after that, you’ll be faced with new expenses such as pre-school or toddler sports and group activities.
After The Baby Has Arrived
The hospital should provide you with the documentation necessary to register for your child’s birth certificate and social security card. This will be required to add your baby to your insurance. During the review of your insurance, you should’ve been able to find out how quickly after birth your child needs to be added to your insurance policy. It’s probably within 30 days of the birth. Contact your insurance company to complete this step, they’ll ask for the proof of birth from the hospital.
Understand the bills that you’ll be receiving from your insurance. It may take up to a year to receive all of the bills but the amounts should be available within a month or so on your insurance company’s website.
If mom and the baby are home and healthy it’s now time to reduce the baby savings fund you’ve set aside. Pay the medical bills and use the remaining funds to pursue the goals you put on hold pre-birth.
Update the beneficiaries and co-beneficiaries on retirement accounts and other assets. If you have a spouse, he or she may already be the beneficiary on these accounts. If that is the case add your new child as a co-beneficiary or secondary beneficiary.
It’s time to create a will and make sure your baby is in the right hands in the unfortunate scenario that something happens to both parents. You don’t want this to become a battle within the family or decided by a court.
Prior to having a child having life insurance was not as important. Now that you’ll have a dependant, what would happen if your income was lost? You have a baby and a spouse that depend on your income. It’s important to have life insurance in place to replace your income.
Invest For Your Child’s Education
With time on your side, now is the best time to get a jump start on your child’s education fund. Even if you can’t budget for monthly contributions, you could set up an educational investment account and deposit gifts you may receive from family.
Enjoy the time with your newborn. It’ll be exhausting but each day will be a new adventure.