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Couples & Money

Steps to Take Before Having a Baby

Planning for a baby can be an exciting and busy time for families. Follow these steps to get prepared before baby arrives.

Review Your Benefits

Thinking about having a baby? Before you get pregnant, review your health care options to ensure you are adequately covered. Talk to your human resources department and take advantage of open enrollments at work to sign up for the right coverage.

Health Care

To better understand what costs you’ll have to pay for your health care during and after pregnancy, review your health care benefits to find out what tests, appointments, screenings, etc. are covered and what isn’t. You may also ask your human resources department if they can help you better understand your costs.

Questions to research:

  • What does your health care plan cover? Is there a co-pay or a deductible?
  • Is your doctor in or out of network?
  • Do you have to pay by appointment or a flat fee? If you have a high-deductible plan, what’s your deductible? What’s covered once you meet your deductible?
Maternity/Paternity Leave

Talk with your human resources department about your company’s family leave policy. Some may offer paid time, others may not. Under the Family and Medical Leave Act, most employees are eligible for up to 12 weeks of unpaid time for birth or adoption.

You will also want to ask about using sick time and/or vacation days. Additionally, you may be able to use Short Term Disability coverage for your time off after birth or adoption.

Life Insurance

Now that you’re going to have a dependent, you’ll want to make sure your child and partner are taken care of if something should happen to you. Life insurance can act as an income replacement for your partner and your child.

First, check with your employer to see if they offer life insurance, the cost, and if it’s enough to meet your needs. You may need to look into additional sources of life insurance.

Income

Talk with your spouse/partner to determine your income situation after the baby arrives. Will you have income from a job coming in during the maternity/paternity leave? Will someone stay home full time? Reduce hours? Work from home? How will these changes impact your household’s income?

If one parent decides to stay home, it can helps save on day care costs, but it will also reduce your household income. It could also impact Social Security and other retirement benefits in the long run. It’s a decision you and your partner need to discuss and make together.

Day Care

In Texas, a two-parent household can expect to pay about 10-12% of their income on center-based child care. Single parents pay a much higher percentage of their income on day care.

Begin researching day care options and costs if you and your partner are both planning to work after the baby is born. Start asking for recommendations, reading up on different facilities, and calling for prices.

Options to research:

  • Relative
  • Home daycare
  • Day care center
  • Live in nanny/part time nanny

You and your partner need to select the option that works for you. You may find that a combination of the above options works best.

Finances
Budget

When did you last review your budget? Do you even have one?

Before the baby arrives, track and review your expenses to build a budget using our Build Your Budget guide and the Baby Budget worksheet. Follow this budget as close as possible.

Know that your spending (and possibly, your income) is going to change once the baby is born. You and your partner need to adjust your budget to cover these new, on-going expenses. Costs will depend heavily on where you live and the choices you make. On average, it costs new parents $12,000 the first year (this includes furniture, housing, supplies, etc.).

Ongoing Costs Average Cost
Formula $60 – $120 per month
Diapers $30 – $85 per month
Clothing $60 per month
Food $50 – $100 per month
Toys/Books/Entertainment $20 – $40 per month
Child Care $800 – $1000 per month

These costs are all estimates and will depend on what you and your partner decide. For example, you may decide to use cloth diapers or to breastfeed instead of using formula.

You also need to take into consideration how your income will change after the baby is born. If one parent plans to stay home, you’ll need to reduce your income when building your budget.

If one partner is planning to stay home after the baby is born, try living on one income during the pregnancy to see what works and what doesn’t. Use the second income to pay down debts and save for the baby.

Debt

One of the benefits of following a budget is finding extra money to either pay down debt or save. Once you have your budget, look for ways to pay down your high interest debt as quick as possible.

By paying down debt, you can use the money you were making in payments to pay for the added costs of having a baby.

Save

Another benefit of a budget is making a plan to set aside money for savings. Ideally, you should have an emergency savings that covers 3-6 months of expenses.

But with a new baby, your goal should be to have at least 6 months of expenses set aside in an emergency fund. This will help keep you from using debt if a financial emergency occurs.

Steps to Take After Having a Baby

Bringing your new baby home can be an exciting and busy time for families. Follow these financial steps after the baby is born.

Get a Social Security Number

Once you’ve picked the baby’s name, apply for a Social Security number. This number allows you to claim your new baby as a dependent on your taxes and qualify for various tax benefits.

Having a Social Security number also allows you to open savings accounts for your child.

Add Your Baby to Your Health Insurance

Be sure to check with your health insurance provider to find out the rules and details you need to follow to add your new baby to your health insurance. If you wait too long and miss the deadline, you may have to wait until open enrollment to add your baby.

Set Up a Will or Update Your Will

If you don’t have a will, now is the time to get one set up. You can use an online program, follow a book, or consult an expert. You may also want to check with your employer to see if they offer discounts or have a partnership with a company (possibly through an employee assistance program) that can assist you in writing a will.

In the will, you’ll want to designate a guardian for your child. This protects your child in case something happens to both parents. If you don’t designate a guardian, the state will make the decision for you. Each state has its own guardianship rules and priority lists (the order in which guardianship is granted).

A will goes beyond just appointing a guardian for your children. It is also a tool to designate who will inherit certain assets and property if something happens. There are other assets that have separate beneficiary designations that you’ll want to update as well.

Update any Beneficiary Documents

In addition to your will, review all of your beneficiary designations to ensure they match up with how you want your assets divided. These include your life insurance, retirement accounts, and others.

While you may have your spouse or partner designated as the primary beneficiary, you may want to add your new baby as a secondary beneficiary on these documents.

Consider Saving for your Child’s Future

While it may be tempting to begin saving for your child’s education, you need to make sure you are contributing and maxing out on your retirement savings first. You also want to make sure you have a healthy emergency fund of at least six months of expenses.

If you have both of those started and you have room in your budget, begin setting aside money for your child’s education or future. Consider meeting with a financial advisor to discuss special education savings accounts.

Baby Budget Worksheet

Use this monthly budget worksheet and the Guide to Building a Budget to compare income and expenses before and after baby.

This worksheet can also help you and your partner examine the costs and benefits of one partner staying home with the baby long-term after birth.

Can You Afford to Stay Home?

Is one parent planning to stay home after the baby arrives? This is a discussion you and your partner need to have way before the baby arrives.

Planning to live off one income isn’t something that you can adjust to overnight. It requires thought and planning. Parents need to take a good, hard look at the numbers to evaluate and justify the pros and cons.

Obviously this isn’t a decision that will solely be based on financial considerations. There are many factors that go into the decision. We’ll focus on the financial ones.

Income

When a parent decides to stay home that most likely means leaving a job and the income that comes with it. Sometimes, a stay-at-home parent may decide to work part time from home or take on freelance work to bring in some income.

When looking at the numbers, it’s best to first determine how much the total income loss will be. In the next section, where we look at expenses, you need to make sure your monthly expenses do not exceed the monthly income.

Expenses, Part 1

Your first step is to get an accurate picture of everything you are currently spending money on. This includes your mortgage/rent, groceries, clothing, transportation, etc. Make a list of everything you spend money on and then track your expenses for 1-2 months to verify your numbers.

Once you have all your expenses, identify the ones that will remain the same no matter if a parent stays home or continues working. For example, your mortgage or rent payment is likely to stay the same.

Once you know where you are currently spending money and what expenses you need to consider, it’s now time to examine how your expenses are going to change when you have a baby.

Expenses, Part 2

When it comes to making the decision to stay home, you need to take into consideration how your expenses will change. While certain expenses will decrease, some will go up. You also have to look at the long-term costs of not working.

Expenses that could decrease/disappear:
  • Child Care: with one parent staying home, the need to pay for regular child care disappears. This isn’t to say that you’ll never need a babysitter, but rather that you won’t have to worry about paying as much as $1,000 every month.
  • Transportation: one less person commuting to work could equal savings in gas, repairs, and insurance. If the car is no longer being used to commute, call your insurance company to see if your rate will go down. Another possibility is going down to one vehicle to save even more.
  • Work Related: with one parent staying home, there may no longer be the same work-related expenses that existed before. Things like going out to lunch regularly, buying work clothes, picking up food on the way home, etc. You may still have these expenses, but they will likely decrease.
  • Taxes: one less income may push you into a lower tax bracket which could reduce your overall tax burden.
Expenses that could increase:
  • Utilities: staying at home during the day means the air conditioner/heat needs to run regularly throughout the day. You’ll also use water and electricity more frequently.
  • Groceries: eating and cooking at home more means paying extra for groceries, but this will likely lead to lower eating out expenses.
  • Child related: you now have an additional person in your household that requires very different food, clothing, and items to survive. Things like diapers, formula, clothing, toys, and more are all new expenses that you need to make sure to add into your new budget.
Long-Term Costs and Considerations:
  • Retirement: not working for a long period of time can have a significant impact on your ability to save money for retirement. Without a job, you no longer get employer contributions or 401(k) or other tax-deferred employer-sponsored accounts. You also need to be aware of how many credits you have earned in order to remain qualified for Social Security benefits.
  • Employability: if the parent staying home does eventually plan to go back to work, you also need to consider the potential loss in employability when they return to the job market. Many parents re-entering the work force have to start at a lower paying job or even in a different industry than where they were before.
  • Divorce: while no one wants to think that they will get divorced, it does happen. If the partners decide to divorce, it can be much harder financially on the one who stayed home with the kids.
Putting it Together

Once you’ve looked at how your incomes and expenses will change, you need to see if the numbers match up on paper and in real life. On paper, can you make it work? Can you and your partner pay all your bills, expenses, savings, debt, etc. on one income?

If it looks alright on paper, put it into action. Try to live on one income for as many months as possible before your baby arrives.

Instead of spending both paychecks, save the entire paycheck of the partner that is considering staying home in your emergency savings account or use it to reduce debt. Then use the remaining paycheck to live. See what works and what doesn’t. Look at the areas that you know you’ll need to work on – maybe going out to dinner or buying a daily coffee.

Even if you find that you are able to live off one income, make sure you have enough cushion in your budget to handle the increased expenses that come with having a baby.

Living on one income isn’t impossible, but it does require a lot of planning and a lot of discipline.