Budgeting for a Baby
Having a baby is a joyous occasion, but it’s no secret that children can be costly. However, revisiting your financial plan and establishing a new budget for something like this is a celebration in and of itself.
Expecting a baby is an exciting time—and one that’s filled with many emotions. While it's easy to get swooped up in the showers, the ultrasound photo-sharing moments and the gender-reveal, it’s important to maintain focus on another significant aspect of the planning process—the finances.
Having a baby is a joyous occasion, but it’s no secret that children can be costly. Like with any major life event, you should revisit your financial plan and establish a new budget, taking into account your new addition before baby arrives.
Four Critical Tips for a Baby Budget
- Know your insurance and healthcare provider option—and medical costs
- Research various costs associated with a baby
- Adjust, and continue to adjust, your budget
- Do not forget long-term costs and goals
Consider the following tips you can take now to make sure you’re financially sound when the baby arrives, as well as the years to follow.
Know your insurance and healthcare provider option—and medical costs
Both mom and baby will be visiting their doctors frequently and understanding your insurance policy is key to ensuring you’re financially prepared for the weeks, months and years to come.
The health and safety of your newborn is where your top-priority focus should be placed. With so many options available to you, choosing a pediatrician, can be nerve-racking but it helps to do your research. Start by reviewing providers that are in your insurance network and then look for reviews, ask for recommendations from people you trust and once you’ve narrowed down your options, if it makes you feel more comfortable, meet with several providers prior to delivery.
When speaking with your insurance company verify the doctors you selected are within your network, ask about out-of-pocket maximums, what visits and services are covered and what options you have for adding a dependent under your policy. Having these questions answered will not only give you peace of mind, but it’ll help you plan accordingly so there are no surprises when those medical bills start to arrive.
Also, consider saving for medical costs with a Health Savings Account. An HSA allows you to put aside money in a tax advantaged account to use toward qualified medical expenses including costs associated with pregnancy and well-baby visits.
All the research and talk about medical costs might be overwhelming but getting a picture of your medical costs will be beneficial in the long run.
Research various costs associated with a baby
Before baby has even arrived, you’ll be spending money on all sorts of things you weren’t previously. Research the cost of basis essentials (car seat, crib, diapers, wipes, formula) for baby and for mom (pre-natal vitamins, maternity clothes) and take into account some nice-to-haves such as a maternity and newborn photos. Friends and family are a great resource at this time to gain some insight into the must-haves and nice-to-haves – are store brands as good as the brand names?
Also, consider that depending on your, or you partners, employee benefits you may have a lowered income for a period time. Contact your Human Resources Department to understand their specific plans or policies on maternity and/or paternity leave.
You’re not the only one who’s excited for baby. Friends and families will likely be excited for baby to come and will want to chip in. Before someone throws you a baby shower build a baby registry. Most stores offer an online registry which can be search by your name and allow you to register for all sorts of must-haves and nice-to-haves. Once you’ve added items, friends and family members are able to buy directly from your registry, helping you prepare for baby.
Look for a baby budget worksheet online and start building out the costs so that you can establish your new budget based on your findings. Like anything when it comes to planning, the earlier the better.
Adjust, and continue to adjust, your budget
Once you have an understanding of what to expect in terms of cost, it’s time to get going on modifying that budget, keeping in mind you will likely have to adjust this budget as the months pass by. Remember, a budget should match your lifestyle, and yours is about to go through some major changes.
If necessary, open new accounts such as a savings account to allocate money to go toward certain goals or expenses. Or consider a Health Savings Account as mentioned earlier to set aside funds in a tax advantaged account for medical expenses.
If you have not been building an emergency fund now is the perfect time to start. On the other hand, if you’ve already been building your emergency fund, way to go! But, consider increasing the monthly amount you put away. As you’re learning kids can be expensive so it’s better to add a little cushion to your emergence reserves. Firm up your emergency fund so you can be prepared for whatever your child brings your way.
Don’t forget long-term costs and goals
When planning for a baby, there are many new expenses that will be part of your day-to-day life. However, don’t let those immediate expenses, even though important, make you forget about long-term goals. After all, when the baby arrives, it’s only the beginning.
Education, for instance, can be costly, and you should start saving for it right away to allow interest to compound over the next 18 years, rather than just a few. Taking these steps now will lighten your load in the future, and will pay off in the long run. When researching educational savings options, consider 529 plans, which are specifically designed to help you save for education.
It’s exciting to think about savings for your child’s education but you can’t forget about your own savings goals, such as retirement. Saving for yourself doesn’t end when a child comes along, which is why it is so important to have a financial plan and working budget in place. Navigating additional goals will be a learning curve as you find the balance that is right for your growing family. Use our college savings calculator to estimate how quickly those funds can add up. You might be surprised!
And the sooner you start, the sooner you will find this balance.
Open a savings account today to start saving for baby!
Sources:
“Expecting a Baby? Here are 9 Personal Finance Tips for His or Her Future,” Mint, December 2020
https://mint.intuit.com/blog/personal-finance/financial-preparation-for-baby
