5 Financial Moves to Make Before Having a Baby

So, you think you are ready to take on the next chapter of your life? Having kids is a game changer, not just for personal reasons, but for financial reasons as well.

United States Department of Agriculture has recently released that a family will spend approximately $284,570 (with projected inflation) for food, shelter, and other necessities to raise a child through age 17. So are you wondering where all of this money goes? According to the study, the cost of raising a child are broken into these percentages:

• 29% goes towards housing
• 18% goes towards food
• 16% goes towards child care or education
• 15% goes towards transportation
• 9% goes towards health care
• 6% goes towards clothing
• 7% goes towards miscellaneous expenses

After reading the full study, I was surprised to find out that the study does not include the costs related to pregnancy or college costs. With the rising cost of college, you can expect the cost of having a child will increase substantially.

Before having my son, I was completely unprepared on how much my financial situation would change. To me, the costs included small clothes and jars of baby food. There is a lot of financial preparation that needs to happen before having kids. In this article, I will lay out the financial tasks I completed before having my son. Now, I am not going to lie and say that you will have everything figured out before having your first child. That would be unrealistic.

• Read: How Spare Change Is Helping Me Teach My Son about Money

There are plenty of things that will come up along the way that every first parent must experience. Hopefully, this article will give you the head start you need to start preparing your finances now so that things will be a little easier later.

UNDERSTAND YOUR HEALTH INSURANCE

There is no doubt that having a baby is expensive. Even with health insurance and an uncomplicated pregnancy, I was still left with a pretty big hospital bill. There is nothing more important than forecasting your expected costs early. Health insurance is a somewhat complicated subject. It varies drastically depending on which health insurance you have and even where you live. The best thing you can do right now is understand your coverage, and know what costs to expect.

Before having my son, the first thing I did was contact my health insurance carrier. Educate yourself and learn the vocabulary terms of your health insurance. Some vocabulary terms you might run into are:

• Deductible
• Out-of-network / In-network
• Co-insurance
• Copays

The best resource I have found to help you prepare for medical costs of having a baby is Nerdwallet's Medical Bills 101. The most valuable information in the article is the list of questions it gives you to ask your health insurance provider. When you don't know what to expect, knowing which questions to ask is difficult. Get a pen, call your insurance provider, and start asking questions.

• Read: Yes I Am That Mom – And I'm OK With It

If you are uninsured, keep in mind that pregnancy is not considered a “qualifying event.” This means that you can not get insurance through the Affordable Care Act until after your child is born. When I found out I was pregnant with my son, I did not have health insurance. There are options out there if you are uninsured. For me, I was already planning on getting married and was able to get on my husband's insurance at the time.

If you are under the age of 26, you may be able to join your parent's health insurance plan as a dependent. If you fall below certain income restrictions, Medicaid might be another option for you. Make sure to check out Nerdwallet's Medical Bills 101 for more helpful information about having a baby when you are uninsured.

PLAN FOR MATERNITY/PATERNITY LEAVE

Does your work allow paid time off for having a baby? This is the first question you need to have answered. Some workplaces may or may not have an official maternity leave policy, and even if it does, it might not be paid. If you are compensated for taking time off, it might not mean it's fully paid. Luckily, I was able to get six weeks paid maternity leave through my work. At the time, my husband was able to use some vacation for paid time off. If you are not happy with the length of maternity time you get off, don't be afraid to ask if you can also use paid vacation time as part of your maternity time.

When planning for time off, make sure your bills and all other essential expenses are covered. When planning for my son, I was able to calculate how much our essential expenses were going to cost, and subtract them from our expected income at the time. It's never too early to start crunching numbers to figure out exactly where you stand on finances during your time away from work.

If you are lucky enough to get paid time off for maternity leave, keep in mind that the money you receive is just like any other paycheck. You will have to pay taxes on it just like it was your regular salary.

• Read: How to Find Extra Money Hidden in Your Budget

CREATE A NEW BUDGET

It only makes sense that your finances will change after you bring your baby home. There are new costs that must be added to your budget such as, diapers, childcare, and extra food. Now is the time to take a close look at your current budget and create a post-delivery budget that you can stick to. Can you afford the extra costs? If not, take some time to look over areas where you might be able to cut back. The first place I was able to reduce expenses was in our food budget. Taking the time to cut costs now, will save you some money in the future.

It's so easy to go overboard when buying things for your new baby, but remember, they grow fast. So, splurging on designer baby jeans and that high-end stroller might not be worth it. I was able to save money by shopping second-hand, and it was the best decision I could have made. You may not realize it now, but your new baby will probably only wear the clothes you buy them once or twice before they outgrow them. So buying used is a smart way to go.

Creating your new budget with a baby in mind is done using the same steps as a pre-baby budget. Here are some step-by-step guides to help you get started:

• Personal Budget Categories (Organizing Your Budget)
• Our 2017 Budget Binder (A Plan for Every Dollar)
• How to Create a Budget (When You Really Don't Want To)

START AN EMERGENCY FUND

If you haven't already, now is the time to start an emergency fund. I will be the first one to tell you that children have accidents, and it's time to start anticipating unexpected expenses. The general rule of thumb is to have at least three to six months of living expenses. Though this is a solid number, if you are just starting out, I recommend having a smaller goal of $1,000. For me, saving money is done in baby steps. It's easy to get overwhelmed and discouraged when your savings goal seems unreachable.

• Read: How to Build an Emergency Fund (Step-by-Step Guide)

Expecting your first baby is exciting, but it can also be overwhelming financially. The first thing I looked into when I found I was pregnant was health insurance. It's so important to know and understand your coverage so you can get an accurate estimate of what you will pay for out-of-pocket expenses. Make sure you understand your maternity leave options and the coverage you will receive when you take time off work. Look over your existing budget and create a new one to prepare for your new baby at home. Finally, make sure you lessen the stress by making sure you have money set aside to cover unexpected costs. (Check out CIT Bank's Savings Builder account.)

As a new mom, it's frustrating to figure out how to handle having a baby at home. You will find yourself asking questions like, “Am I doing this right?” “What do I do now?” and “Are you sure I should really be doing this?” Make things easier by being prepared financially.

GET TERM LIFE INSURANCE

If you have read about how I got my start with my business, you know my son means the world to me. As painful as this is to write, as you prepare to bring a new baby into this life, it is critical to start thinking about what happens when you are no longer here. Life insurance is a great tool to help ensure your loved ones who depend upon you financially are taken care of when you are gone.

Death is never easy to talk about, particularly with a new baby on the way. However, these discussions need to take place. One of the most economical forms of life insurance is term life insurance. Think of this as car or home insurance, but for your life. With term insurance, you do not build up any equity. You pay a monthly fee for a particular term of time (maybe 5, 10 or 20 years). If you survive beyond the term, there is no payout. There is no cash built up.

A good place to get quotes for term life insurance is through Bestow. You don’t have to go through any lab tests or medical exams. It is a quick, painless way to start protecting your family.

While the goal of life insurance, in most cases, is to replace income so your survivors can have peace of mind, some new parents want to know whether they should have life insurance on a child. This is a good conversation to have in person with a life insurance agent. Some people do not see a reason to have a lot of insurance on a child, so they will have a smaller policy to cover funeral expenses if a child were to die.

How did you prepare your finances for your first child? Let me know in the comments below?

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