Prepare for Baby: A Financial Checklist.
The great thing about pregnancy from a financial standpoint is that any monetary goals that you might get to “someday” now have a non-negotiable due date. No pressure.
Baby Center estimates that baby’s first year of life will cost you around $10,000, while other sources claim that number is closer to $12,000. These numbers are scary, particularly if you are trying to pay off debt.
Babies are a huge financial commitment. You are agreeing to finance another life about 18 years (depending on how long you and your partner agree a child should be financed), which means that your own pre-baby finances need to be mostly in order before baby arrives. Depending on your situation this can be a great motivator to stop taking your time, or a downright terrifying moment where you wonder what you have gotten yourself into, and if you’ll ever be ready for this responsibility.
I can’t tell you if you’re ready, but I can give you tips on how to best prepare your finances for the newest addition to your family.
1. Make a list.
Now, more than ever, it is important to know exactly where your money is going every month. What do you spend on debt payments? How much of your income goes toward housing costs? What little “insignificant” amounts of money do you spend daily or weekly? Take a moment to assess everything you spend.
How much money do you have left over? If Baby Center is correct, you will need an average of $834 per month for baby’s expenses. If the money isn’t there, you need to make budgeting decisions to ensure your little one will be provided for throughout the years.
2. Cut out some expenses.
I don’t just mean your daily Starbucks (although research has shown you shouldn’t drink much or any coffee in pregnancy!). I’m talking about serious expenses, like the $300 per month you spend on debt payments. How much debt can you reasonably get rid of before baby comes without tapping into your emergency fund?
In order to determine which debt to target, you need to know a few things: the balance of the loan, the interest rate, and your monthly payment. The monthly payment of your loan may be the minimum balance, or, in the case of 0% interest credit cards, it may be the amount you need to pay in order to finish off the loan before the end of the grace period. In this case, you may want to make two separate columns: one for the actually minimum payment, and one for the amount that you choose to pay each month.
While traditionally it is best to pay off debt with the highest interest rates first, with baby coming it may be best to start with the debt that you pay the most toward each month. I recommend this method for those you who have a lot of debt and only a little money left over each month because it will free up the most money possible.
For example, I recently paid off a 0% interest credit card about 4 months before the grace period ended. While the debt was not collecting interest as my student loans are, this debt cost us $250 per month to pay off before the end of the grace period. When we had the extra money it made the most sense to pay off that debt, rather than putting $1,000 on a debt that would not be paid off. We now have an extra $250 per month to put toward a savings account or other debt.
3. Decide what upgrades are necessary.
If you and your significant other both drive Mazda Miatas, first: nice car choice. But second, and most importantly: you can’t put a baby’s car seat in a two-person convertible. It won’t work, and family trips will never happen. You may need to consider upgrading to a larger car, unless you live in an area where it is possible to take public transportation or walk to your most frequent destinations.
Do you live in a studio apartment? Upgrading will be in the cards for you eventually, but do you need to do it right now? Doubtful. With baby’s frequent needs in the first year it is very possible you would want baby beside you anyway.
Do you have a two bedroom house, and are expecting a second child? If your children are the same gender it is very possible for them to share a room harmoniously for years.
Overall, your goal during this time is to avoid unnecessary expenses. If an upgrade doesn’t really need to happen, don’t try to force it into existence. You can function with minimal changes to your life!
4. Understand your maternity leave.
This one is for the moms. Companies in the US have various policies on maternity leave. Some pay, and some do not. As a contract employee I am not eligible for paid maternity leave, which means that I need to make a decision: do I return to work quickly, and resume making money, or do I take time off? If you don’t understand what your maternity leave will give you, you might walk into a nasty financial shock. Don’t let yourself be blindsided.
If you do not get paid maternity leave, how much time off can you afford to take without pay? What are your options for child care? Can you have your child at work with you? These are all questions you need to find out the answers to before you reach that point in your pregnancy.
5. Is paternity leave an option?
Dads, take a look at what options you may have for paternity leave. It is not common in the US, but it does happen; if you are eligible for paid paternity leave, fantastic! If not, decide what sort of vacation time you can take and when it makes the most sense to do so. Some of you may want to take baby’s first week off, while others may want to take mom’s first week back to work off to balance out some of the child care responsibilities. Either way, knowing what options are available makes the transition into fatherhood that much easier.
6. Look into child care costs early on.
One of the great debates in having children is whether the cost of child care is worth one parent leaving his or her job. If you do not have friends or family members willing to watch your child for free or cheap, you are going to be stuck with some serious decisions and it is best to get these decisions made before baby arrives. The less you need to worry about in the first few weeks postpartum, the better!
The cheapest childcare center I have seen in my area is $800 per month. While I plan to save money by using cloth diapers, among other things (a post for a different day!), it is very hard to picture having an extra $800 lying around just for someone to care for my child. Many places are also unable to work with non-traditional schedules, so consider that when you are searching for a provider.
7. Check your employment benefits
You will need to look carefully into what services or support your employer offers to families. Some businesses have in-home daycare, or will offer assistance to parents needing to find outside child care. Employers may also offer flex time for parents, limiting the hours spent away from home and children. This is an excellent alternative to using personal time to stay home with a sick child.
8. Remember: emergencies happen.
Kids are clumsy. They fall down, break things, and generally end up hurting themselves at least once in their lives. Your emergency fund needs to reflect the needs of a child in addition to yourself.
Make sure that your emergency fund covers expenses for an extended period of unemployment. Factor in your child’s needs, too: can you afford diapers, formula, and clothes for a child who grows at a rapid rate in addition to your living expenses?
Children are a blessing, and do not need to be a financial burden. Take the time during your pregnancy to prepare for baby, and your postpartum self will thank you!
If you are trying to prepare for baby financially, what tips would you recommend? What other ways have you prepared financially for children?