When we think of a new addition to the family it brings up a lot of emotions. Joy and excitement. Fear and apprehension. It can be an overwhelming time for a lot of parents, especially new ones. In addition, the amount of work involved to plan and prepare for the expanded family gives you little time to sit back and see the big picture. Financial decisions are hastily made and often pushed off until things settle down. But it takes a LONG time for them to settle down. In the spirit of saving new parents time, here is
a quick list of ten financial issues to consider or questions to ask before your plus one arrives.
What financial issues need to be addressed when having a baby?
- Health Insurance (1) – Review your health insurance and know what your deductible and max out of pocket expenses might be. Pregnancies are expensive, even when they go as planned. Don’t get caught assuming insurance is picking up the bill.
- Health Insurance (2) – Whose health insurance will the new baby go on? Some companies provide for family health insurance, others only cover the employee. Know in advance what your options are.
- Child Care – Is one parent staying home with the baby long-term or will daycare be needed? The 2018 average annual cost of child care in the United States ranged from $4,822 – $22,631 per child. For reference, here in Indiana it is about $9,000 (higher if you live near an urban area).
- Pro tip – some daycare centers have waiting lists exceeding 6 months so don’t wait to decide this.
- Maternity / Paternity Leave – Does your work offer maternity or paternity leave? Is it paid or unpaid? If there are complications with a pregnancy that delay returning to work is your job safe (If your company has more than 50 employees read over FMLA rules on this. If not have the conversation with the owner or your HR department in advance)
- Disability Insurance – Do you have short term disability insurance that would help replace part of your salary when you are unable to return to work?
- Emergency Fund – Do you have an emergency fund in place? Make sure it is large enough to cover your max out-of-pocket limit on your health insurance.
- Life Insurance – Do you have enough life insurance in place? You will have less time to do this, not more. Also, women may have complications from pregnancy that impact the cost of life insurance in the future.
- Estate Planning – Do you have a will in place? You need to determine who would care for your child if something happened to you and make it official. Telling a relative or friend your wishes is not the same! Also, make sure to update your beneficiary designations to coordinate with your will and any trusts you may have established for the benefit of your child.
- College Savings – If you want to make this a priority doing it early is key. You need time to save and time for your investments to compound. Also be aware of tax benefits available in your state and ways to leverage your family to help you save. We wrote about this in more detail HERE.
- Budget – Expect to spend an additional $150 – $300 a month (not including daycare) in basic expenses. Know where your money is going so you can determine the best place for the additional money to come from (cancel subscriptions, eating out less, etc.). Use the pregnancy period as a trial implementing your new budget and save the additional $150 – $300 in your emergency fund.
Prioritize by importance, not how likely it is to happen
When we are faced with a list of things to do our natural instinct is to tackle the items that seem most likely to happen or are the easiest to complete. When it comes to financial planning that isn’t always the best course of action. While the death of a parent, especially both parents at the same time, is very unlikely, having adequate life insurance and a will in place are the most important in terms of impact.
Conversely, many parents today consider it highly likely their children will pursue higher education and an account can be opened in a matter of minutes. If the number of media articles were any indication you would think it was the single most important thing a new parent could do, yet if we were to rank these in order of importance to a family’s financial stability, it would come in last.
Becoming a new parent can be stressful, especially with so much out of your control. Getting your financial life in order ahead of time is one great way to take back control and let you focus on the more important experiences in life.