There’s a lot to expect when you’re expecting — not the least of which is a dramatic uptick in expenses. Children are a blessing, to be sure, but any parent will tell you those blessings aren’t cheap. According to the latest data from the USDA, the cost of raising a child to adulthood tops $230,000.
You’ll certainly have more than your share of things to think about during the nine months leading up to the birth of your new family member, and budgeting might sound like just one more chore. But tackling monetary issues up front can help dissolve some of the overwhelm and stress, which, after all, will only increase once you’re also dealing with midnight feedings and diaper changes.
Here’s an easy month-by-month breakdown to simplify your growing family’s finances.
Month one: budget
A budget is critical no matter where you are in your life cycle, whether you’re a singleton just out of college or a married couple with an established family.
But for those just about to welcome a baby into the world, the flow of money is sure to change — which means it might be time to take a second (or third) look at your ledger. You’ll want to adjust your current categories (like groceries) to include new recurring expenses (like diapers). Kids also grow out of clothes like wildfire.
Budgeting can seem intimidating for those who’ve never done it, but there are a wealth of free budgeting apps that can help you get started or improve what you’ve already got.
Month two: augment your emergency fund
Keeping an accessible cash cushion is another money move that’s a good idea no matter how big or small your family may be. But once kids enter the picture, it’s that much more important.
You may want to adjust your current emergency fund from a three-month supply of cash to one that could cover six months, including the additional expenses Junior will incur.
Early on in the pregnancy is a great time to get aggressive with saving, since you’ve still got time before there’s an extra mouth to feed. Moving your cash into a high-yield savings account can also help you build your emergency fund faster.
Month three: plan for health insurance
Hopefully, you’ve already got yourself covered as far as health insurance is concerned — after all, giving birth is a major medical procedure. But the delivery is just the beginning; your kiddo is going to need their own insurance, too.
The Affordable Care Act requires employers with 50 or more full-time employees to offer those employees health care, and those plans are also required to cover dependent children until the age of 26. However, if you are not insured through a workplace, you may be eligible for coverage through the federal Children’s Health Insurance Program.
Health Savings Accounts, or HSAs, are another option to consider when you’re expanding your family. These incentivized accounts allow you to use untaxed dollars to pay for medical expenses, including copays and deductibles. However, you’ll need to enroll in a High-Deductible Health Plan, or HDHP, in order to be eligible. There are also limits to how much you can contribute to your HSA on an annual basis. For 2020, you can contribute up to $3,550 for an individual and $7,100 for family coverage.
Month four: tackle parental leave
Although U.S. parents are guaranteed up to 12 weeks of unpaid time off for parental leave through the 1993 Family and Medical Leave Act (FMLA), paid parental leave is a far rarer beast — and those who work for small firms with fewer than 50 full-time employees might not even be covered under FMLA.
You definitely want to figure out your employer’s policy on parental leave sooner rather than later, whether that means planning for a gap in your income or just getting your ducks in a row at work. Fortunately, a few states do legally require employers to offer paid parental leave, and other states are considering such legislation for the future.
Month five: figure out childcare
Even if your workplace does offer parental leave, you’re likely planning to go back to work someday, which means someone’s going to have to be responsible for your bundle of joy during the day.
With average American childcare costs ranging from about $5,000 to over $10,000 annually (depending on which state you’re in), you’re talking about basically paying the equivalent of rent each month for your babysitter. Make room for that expense before the baby is born. If possible, shop around to find the most affordable, yet reliable, option — it could make a major difference down the line.
One vehicle for accumulating the savings is a dependent care flexible savings account (FSA), or DCFSA. Typically offered by your employer, these tax-benefitted accounts allow you to use pre-tax dollars to pay for qualified out-of-pocket expenses related to caring for a dependent, including preschool, after-school programs, day summer camp and daycare.
Month six: get ahead of education
As expensive as a newborn is, that cost grows exponentially by the time they reach 18 — thanks in large part to one particularly hefty bill, which is the cost of a college education.
While not every parent plans on paying their childrens’ way through college, if you do, opening a 529 or Roth IRA could help. You might also want to earmark state-sponsored programs that can help ease costs, like Florida’s Bright Futures Scholarship.
Month seven: prepare for tax time
The third trimester is in full swing, and chances are taxes are about the last thing you want to think about — even if it’s April.
But having a kid does change your tax situation, and often in a positive way. For instance, you may be eligible to claim the child tax credit, which can reduce your tax burden by up to $2,000 per child under 17.
You’ll also be able to claim your child as a dependent, which may qualify you for an exemption decreasing the amount of your income subject to taxation in the first place. Finding some extra money in your taxes is never a bad thing — especially two months before you have a baby!
Month eight: consider life insurance
It might not be something you particularly want to think about, but planning for the worst-case future scenario is an important step toward living in a peace-filled now.
Depending on your financial scenario, it might make sense to consider purchasing life insurance for your baby. Some people consider life insurance just another savings vehicle, which might eventually cover costs like college or a home down payment.
But financial planners warn these coverages may be unnecessary — and overpriced. If you do opt to buy a plan, give yourself time to find one that won’t lead to you paying more than you need for insurance.
Month nine: last-minute essentials
As the big day draws near, chances are you’ll be pretty busy. But fortunately, if you’ve followed this guide, you’ll also be in pretty good shape money-wise.
That frees you up to focus on bringing new life into the world and making sure you’re completely ready, stocking your house with the necessities, like diapers and bottles and toys and onesies, you’ve so carefully budgeted for.
Then, when the time comes, head to the hospital (or wherever the delivery is to take place) with as much serenity as possible. Your money is covered, so you can focus on your family — which is the whole point of getting your finances in order in the first place.
Once baby is home safe and snuggled in their bassinet, the parents’ work is just beginning. Even with as much forethought as possible, you’ll still have some money-related tasks to tackle after the delivery, such as:
- Creating an estate plan. You’ve tackled life insurance, but you’ll also want to make sure you create or update wills, powers of attorneys or trusts now that your baby’s in the world.
- Continuing to fund your retirement. It’s easy to get wrapped up in your child’s expenses, but don’t forget to save for your own retirement so you can take advantage of compound interest.
- Updating your listed beneficiary. If a parent or other family member wants to name the new child as a beneficiary to an insurance policy or investment account, now’s a good time to make the change.
Oh, and don’t forget to get at least a little bit of sleep every once in a while.