You get 9 months to prepare for an arriving baby. Well in true sense its 8 months. You’ll make the nursery, you’ll buy clothes, blankets, baby’s furniture, medicines ,toys and what not. But are you financially prepared to meet the demand of a child birth? In US, a child birth is costliest in the world.
Average cost of raising a child hits $245,000 in 2014 for the first 18 years of their life, excluding cost of college education, fertility treatment, adoption, private education,etc. For many its like having another mortgage to pay off in 18 years. You can declare bankruptcy and forego your mortgage, when going gets tough. You can’t abandon a baby!
Where from you get $245,000 in 18 years?
Answer lies in planning. Planning on how to meet the demand. Planning to cut down on other expenses and planning to lower the cost of raising a baby. While proving the best to your baby.
Let me tell you, without planning you’ll have to either compromise on the baby raising or on your standard of living. You have to buy cheaper items for your baby, you’ll have to sacrifice on providing nice experiences to your baby and your overall family.
If you’re expecting a baby, take out some time from your busy schedule and have a deep look into your finances. Find this time between reading pregnancy and baby related articles and watching videos. Financial planning is not that much fun, compared to watching birthing and pregnancy videos, but its as essential as those other things.
This is a fact that money is a taboo, and most of us don’t discuss money (especially the problems with it) with others. We hesitate to ask others for solution. Pregnancy is a high time you break the shackles and approach other new parents and seek advice.
Steps to prepare financially for a baby
1. Know where you stand
I assume that the pregnancy happened before you took a stock of your current financial situation. if you are trying to be pregnant, it’s better to do the financial planning before you get pregnant.
Check your savings, investments, retirement account. Calculate how much money you can afford towards the baby per month. See how much one time cost you can bear to bring the baby home. Medical cost, furniture, nursery are all essential on-time cost.
Last thing you’d want is, to buy stuff on borrowed money. A baby shouldn’t put you in debt but at the same time you should provide the best to your little teddy bear.
2. Calculate cost of pregnancy
There is a cost of fertility treatment, if you need to go though that. The cost of which can easily go as high as $15,000 a year., especially if fertility treatment is not covered in your insurance plan. The when you or your significant other gets pregnant then there are numerous costs associated with it.
Prenatal medicines, supplements, OB visits, cost of ultrasound. Due to aversion and cravings, there will be food wastage. You may need to prove the mother with better life style and food. Don’t forget the cost of pregnancy gift. You may want to bring a gift for the would-be mom (for all the pain she’ll face to bring you the most precious gift).
Last but most significant cost will be the wage loss. Now is the time to check your company policy. How much maternity and paternity leaves you are entitled for. Where I work mom gets 3 months and daddy gets 3 weeks of leave. If your OB asks you for a bed rest during pregnancy, or you need to take more days off after birth, you may face loss of wage situation. So, talk to your manager now.
This is very important – For the working mom to be, get a short-term disability insurance coverage, if you don’t have. In every employer sponsored group health policy, this is an optional item and requires a very small premium.
3. Find out cost of child birth
Include every cost you can think of. A couple we know went to stores many times while they were pregnant, just to research the cost of baby items. From Diapers to Dr. office copay, you’ll have to spend money on your baby at a consistent rate.
You can wear a shirt costing only $10 in a thrift store (or Wal-Mart), but a baby’s blanket will cost you $25. Daily 4-8 times diaper change would drain your money in no time, if you’re not prepared.
The most important aspect though, is cost of medical care. Do call your insurance company (not just surfing your insurance provider’s website) and find out total cost of child birth. You should have that money handy. If not start arranging for it now.
If you have no issues with your child wearing washed but used baby clothes and furniture, try to buy them whenever you get a bargain. You can find out within your friends and family, if any one willing to donate those things.
You may need to move to a bigger home, that has its own huge cost. If possible try to move before baby arrives.
On a high level these are the typical child birth expenses. And how to find approximate numbers
- Pre-natal care (including fertility treatment) – Upon first OB visit check with Dr. office for the overall estimate
- Delivery related medical bills (OB, High-risk, hospital, midwife, surgical procedures) – Call up your insurance company and discuss with the rep.
- Additional cost if NICU care is required – Talk to the insurance company about it, now!
- Clothes and diapers – Ask a new parent you know
- Toys and furniture – Depends on what you want for your little precious, do a thorough research online
- After birth medical bills (Pediatrician) – Talk to new parents
- Home renovation/moving to a new home – Depends on your need, can find this out on sites like Zillow
- Childcare expenses – Check with someone who uses child care, or simply call up a facility and ask for price
- Baby food – Ask a new parent you know
Rule for most caring parents, don’t go over board with buying baby items. I know you must be itching to buy every tiny things you see these days. But hold on till you set a budget. Once you have the budget ready, see how many onesies, blankets and teeny-tiny shoes you can afford.
4. Create a mommy-baby fund
Based upon your calculated immediate expenses for pregnancy, child birth and baby’s first few months of expense and your total save. You need to devise a strategy to cough up the amount. A simple strategy is to divide the total amount by number of remaining months, to derive at monthly target save.
I’d suggest an additional savings account to be set up. It’s as easy as few minutes of your time online to open a new account. Look for no fee accounts with debit card/checking feature. Setup an automatic withdraw from your checking account to this new account. You can set the amount as per the monthly target.
Unless you do this automation, it’ll be difficult to save extra money every month. It’s a simple hack towards maximum saving. Now you have a mommy-baby fund set up!
5. Re-shuffle investment
Especially if you have some taxable investment out of your retirement account. You may need to consider those to be converted to college saving funds. You may want to buy a term life insurance policy as well.
In any case, check your life insurance amount, if something happens to you your child and your partner should have sufficient money to survive.
Depending on the money you need in your mommy-baby fund, you may need to sell off some taxable investment. This also becomes an essential step if you need to move to a larger and pricier home. Don’t forget to pay additional taxes when you do sell your taxable investment (capital gains tax).
6. Health insurance and Taxes
This is a good hack to reduce your child birth expenses. Switch your health insurance provider. Medical cost is the largest cost associated with pregnancy and child birth. You may have spent least with a copay based plan. But, during pregnancy, it’s wiser to switch to a HMO plan. They’ll require higher premium from your paycheck. But remember your baby will need medical attention very frequently till he/she is 5 years old.
A HMO plan works based for people needing greater medical care. These plans come with a flexible saving account or health saving account, where employer also contribute some money (in most cases). You can set aside money to FSA/HSA account from your paycheck, to cover for the annual deductible amount.
I have a HMO plan, with $2,500 deductible, my out-of-pocket maximum is $5,400. So no matter what treatment we do or how many days we spend in hospital, our medical bill in a year can’t go beyond $5,400. With a PPO kind of insurance plan, you’ll end up paying higher bill for the delivery.
Get acquainted with the tax codes related to child birth. Claim your new child tax credit. Be sure to change the W4 form and change the tax withholding. There are various tax advantages you can claim, including a different rate for earned income tax credit. You can even claim most homestead exemption for your property tax bill, in certain states.
There is no dearth of expenses related to pregnancy and childbirth. Only proper and timely planning would cut cost and make your family financially prepare to welcome its newest member. Let the child birth be a sweet memory of fun, laughter, touches and kisses. It shouldn’t be a memory of constant financial worry.
6 steps mentioned above should serve as the guide to a financially responsible parenthood.
I am writing about financial things to take care of after a child birth. Which will cover savings for college, adjusting beneficiaries, and preparing your will, etc subjects. Do look out for it.
Readers, share your experience of an arriving baby, how did you ensure that it’s only the sleep that was affected and not your finances?