There are a lot of financial changes that come along with having a baby. It’s important to analyze your finances before your baby comes or even before pregnancy in order to best prepare for this life change. You want to know the costs of having a baby to make sure you will be ready to support your whole family, and luckily, you have 9 months to plan ahead.
It’s important to know what additional expenses you will be incurring, as well as ways to save money. As much as there are additional costs incurred with having a child, there are also tax advantages in which you will get more money back for the expenses you pay to have a child.
Here are some important financial must-dos and how to best prepare yourself for the new baby.
Get to know your health insurance policy
This is a big one that most people don’t know and could incur you a hefty expense if you’re not careful and do our homework. Make sure all your maternity and delivery expenses will be covered, including ultrasounds, labs, and prenatal visits. Confirm and then double confirm your insurance is accepted at your OB/GYN, maternal/fetal medicine (if you are referred there for ultrasounds), hospital, labs, as well as pediatrician.
Don’t assume that because your OB takes your insurance, that the ultrasound tech, blood labs, and other specialists do too. Your insurance is your responsibility and the doctors and receptionists are not looking out for you. They all are billed separately so be sure they are accepted by your insurance. Even if your OB accepts your insurance, that doesn’t mean the lab or ultrasound technician that they send you to does. You don’t want to end up with bills for $900 and trust me, it happens.
After my delivery, I found out the anesthesiologist (for epidural), hospital OB, pediatrician, and hospital stay are all separate bills and they all accept different insurances. Luckily, I had my husband’s insurance as a secondary so they covered the $300 I would have had to pay because my insurance was not in-network for the anesthesiologist. A friend of mine was also billed $2000 for ultrasounds that she was sent out for, not knowing they didn’t accept it.
Also, find out how much you will be paying out-of-pocket for the delivery and prenatal care. Under most insurance policies the majority of your hospital visit is covered, but you could still have a pretty large copay. If you have a primary and secondary insurance, make sure you submit your costs to BOTH insurances to ensure all your bills get paid.
Don’t forget to contact your insurance and add your baby onto the policy within 30 days of the birthdate to make sure he is covered and order your free breast pump through insurance, as well! Some policies also offer additional incentives during pregnancy besides the pump, but you have to call and ask. Mine sends 150 free breast milk storage bags every 30 days and sent me a pregnancy gift bag with some good products. Other insurances I have heard will pay for childbirth classes, give out gift cards, and other pregnancy or baby-related products.
Confirm Your Work Maternity Leave
If you will need to take time off of work, figure out exactly how long you will be paid for and how long you can afford to take off with out pay, if necessary. Some companies offer a generous paid maternity/paternity leave, but many do not. Even if your company does, it can be confusing as to how you will be paid during this time. Make sure you look into exactly how many weeks you will get, whether you will need to take out short term disability insurance, use sick or vacation time, or if your company just gives you the paid time off. It’s important to understand their policy so you’re not stressed after the baby is born with how you will be paid.
Budget How Much You Will be Spending After Baby Comes
To the best of your ability, figure out how much you can afford to increase your spending from your current income. Childcare expenses will be your largest expense and the added costs of just formula, diapers, and wipes, your budget will need to increase a hefty amount.
Start an Emergency Fund
If you don’t already have at least 2 months of living expenses saved up, you should definitely start that now. Kids are unpredictable and you never know when you’ll need some extra cash for an unexpected expense like a hospital visit or taking time off work.
Begin Stocking up on Baby Items
If you see good deals on diapers and baby gear, don’t hesitate to stockpile. It’s estimated you will use about 3,000 diapers in baby’s first year, so they’ll never go to waste! Make sure you figure out if someone is throwing you a baby shower and how many items you think you will receive as gifts or what you will need to buy yourself. This way you can spread out the costs for baby over a longer period of time. Check out my post on The Ultimate Baby Registry Guide to see what items you will need to purchase.
Start Saving for College
If you really want to get a head start in saving for your baby’s future, you can open a 529 Account in their name. A 529 account is a college savings/investment account for your child. If you choose to put money away for your child’s future, that money will be invested and grow for the next 18 years and hopefully be a great way to help them down the road when paying for school.
There are many options to choose from, but what’s most important is to check if your state offers tax incentives to invest in their plan. If they do, your total taxable income will be decreased for the amount of money you invest into the 529 account, if you work in that state. However, if your state doesn’t offer these incentives, it may not be as helpful for you to open up this kind of account. If so, maybe a savings account or even your own retirement plan may be a more beneficial investment, but look into all of your options. Check this website to see if your state offers the tax deductions.
Life or Disability Insurance
If you haven’t done so already, it’s a wise decision to invest in a life insurance policy for the head of household. There are different types of policies that you can look into, but you want your family to be taken care of in the event of an unforeseen death or disability. Having a baby now means that you have a family relying on your financial support, so it’s just best to be prepared.
Know the Financial Benefits
Child Tax Credit for Adding a Dependent
If your income as a married couple is less than $400,000, you would qualify for $2,000 back on your taxes, per child! This is a tax credit which is a dollar-for-dollar give back in your taxes instead of just a reduction of your income.
Tax-free Childcare Expenses
Look into if your employer offers a FSA (Flexible Spending Account) or Dependent Care Account and if they do, contribute to it! This allows you to put away money from each paycheck into a small account that is then used as a tax free way to pay for daycare or childcare expenses. This could save you 20-30% off of childcare costs! Also, if you’re a military family, you get a large discount on daycare expenses so make sure you look into that.
Tax-free Healthcare Expenses
Also, if your employers lets you contribute to an HSA (Health Savings Account), that you can use to cover health care expenses related to pregnancy and your child, as well. You can submit receipts for all your copays and other pregnancy related costs, such as pregnancy tests, fertility monitors, prenatal vitamins, acupuncture, prescriptions, childbirth classes, etc. With the additional healthcare costs you should definitely max out this account. You will be reimbursed for all of those medical expenses tax-free, which can also save you 20-30% on these costs. You are also able to carry over a portion of money that you didn’t use to the following year if necessary.