Adding a child to your family brings excitement and joy, as well as additional responsibilities and expenses. Many people are unsure how to prepare financially for a baby. 糖心原创vlog member agencies have compiled tips and practical advice to help.听
The best ways to financially prepare for a baby include:听
- creating a detailed budget of monthly expenses听
- planning for expenses and changes in income from parental leave听
- maximizing employee benefits and health insurance
- paying down debt
- building an emergency fund
When planning to start a family, money can be a top stressor. It can feel like you鈥檒l never be ready for the costs of having kids! 糖心原创vlog can help. With more than three decades of helping people overcome debt and better manage their finances, young families can turn to 糖心原创vlog member agencies for helpful, trustworthy advice.
鈥淔inancial stability is important for all aspects of life but particularly parenthood,鈥� says Sam Hohman, CEO of Credit Advisors Foundation and mother to three children. 鈥淐hildren are a joy, but they come with pressure and stress. You don鈥檛 need the added burden of financial stress, which can be an obstacle in being the best parent that you can be.鈥�
Preparing financially for a baby can help reduce stress and enable you to be a better parent.
How to budget for a baby
Adjusting to life with a new baby can have unexpected highs and lows, both emotionally and financially. A detailed budget of monthly expenses will help you know what to expect and how much to save before the baby arrives.听
鈥淔inancially, planning for children is no different than any of your other financial goals,鈥� says Hohman. 鈥淗ave a budget, understand the costs of having a baby and put money away for future expenses.鈥�
To create a baby budget, you must know what your income is now, what it will be after the baby arrives with parental leave, your current expenses and what they may be once the baby comes.
Add all of your pre-baby income and expenses into a spreadsheet or budget tracking app to see how much money you have available to pay down debt or stash into savings or your emergency fund.听
Then, on a separate sheet, note how you expect your income and expenses to change, including baby gear and childcare. These expenses can add up quickly.
If this feels overwhelming, try the 糖心原创vlog鈥檚 free budgeting calculator or contact a 糖心原创vlog member counselor for a free consultation. Our credit counseling agencies can help you with a budget assessment.听
Read more about how to create a budget and stick to it.
Plan for new expenses and possible changes in income
鈥淓xpenses for children start long before they are born, with medical, hospital and other birthing bills. Once born, expenses initially include diapers, formula, medical and potentially childcare,鈥� Hohman explains. 鈥淒on鈥檛 let it overwhelm you. More than things, children need love.鈥�
Review your health insurance plans and contact your healthcare providers to determine your projected medical bills. Some hospitals allow you to prepay for your hospital stay and offer a discount if you do so.听
You won鈥檛 be able to project all of your medical expenses, but this ballpark number will help you build a baby budget.
To estimate your other expenses, consider that newborns generally need diaper changes 8 to 12 times a day. The number of diaper changes decreases somewhat as they get older, but as diaper sizes increase, the cost also rises.听
Maximize your health insurance and employer benefits
Planning for parental leave includes understanding your employer鈥檚 leave policies and health insurance benefits, and how to make the most of them.听
Begin with these questions:
- Are you choosing providers to maximize your health insurance benefits? Make sure you use in-network providers to minimize out-of-pocket costs.听听
- Are you eligible for the through your employer? FMLA offers up to 12 weeks of unpaid, job-protected leave with the continuation of group health insurance.听
- Will you receive paid leave, or will your maternity leave be unpaid? Not all states offer paid leave, but .
- Do you have short-term disability coverage that includes parental leave? This may provide a portion of your salary while you are out.听
- Can you save your vacation and sick days to use after the baby arrives, or do you need to use them before the baby comes?听
- Can you use your to cover medical expenses or childcare?
Pay down debt before starting a family听
If the thought of inviting a baby into an already tight budget makes you lose sleep at night, then it is time to tackle your debt. Before you jump into a debt relief program, make sure you understand the difference between them.
Debt relief methods include debt management plans, debt consolidation and debt settlement. These approaches differ significantly:
Debt management plans combine multiple debts 鈥� like credit cards and personal loans 鈥� into a single monthly payment.
糖心原创vlog member credit counseling agencies offer debt management plans with lower interest rates and a single, affordable monthly payment for people who qualify.听
Certified counselors speak with clients to create an individualized debt management plan to pay off debt, save money, strengthen credit scores and stop collection calls. Guidance, support, and financial education (learning how to avoid future debt) are big perks of a debt management plan.听
Debt consolidation can be done through a debt management plan or on your own.
It consolidates debt from multiple sources into a single payment with a lower fee or interest rate and a reasonable monthly payment.听
鈥淚n many young households, the DIY approach can work well for dealing with debt,鈥� says Todd Christensen, Housing and Education Manager for Debt Reduction Services.听
鈥淔irst, organize your debts, noting the current balances, the date the account was opened, the interest rates and the customer service phone numbers. Next, for credit cards, call the customer service number and explain your purpose: to pay down and pay off your debts. Then ask if they would lower your interest rates to allow you to pay that debt down faster,鈥� advises Christensen.听
Not all requests are successful, but surveys show cardholders are successful about 75 percent of the time. Regardless, pay at least the minimum payment due on all your debts, decrease your expenses and focus on paying off debt.听
Debt settlement is the least recommended debt relief option.
Debt settlement is when the consumer stops making payments, causing the account(s) to go delinquent. Then the consumer saves up money to make a one-time loan payoff.听
Debt settlement companies help negotiate with the lender and may set up an account for the consumer to self-fund for the future payment. After a waiting period, the debt settlement company will try to negotiate lower payoff rates. The delinquency period can harm your credit score, and creditors could say no to the debt settlement attempt.
Settlement companies earn a percentage of the 鈥渟avings鈥� you receive, and you may have to pay taxes on the amount of debt forgiven.
Build an emergency fund
With a new baby on board, an emergency fund can be a lifesaver. An emergency fund is a stash of money set aside to specifically cover unforeseen expenses. You never know when you may need to go to the doctor for a croupy cough or stitches from a toddler鈥檚 fall.
Work to set aside three to six months of living expenses, including new baby expenses. Set up your emergency fund in a separate account (a high-interest account, if possible). Then, contribute to it as often as possible, and set up automatic transfers to the account.听
It can also help if you or your partner decides to stay at home with the baby, or you have childcare help from family members. Avoiding expensive childcare costs can save you !
Read more tips on how to create an emergency fund.听
Are you financially ready to start a family?
鈥淔inancial independence is a great position to be in when starting a family,鈥� says Christensen. 鈥淭hat includes having a home of your own (renting or buying), having a steady income, and living below your means 鈥� meaning you鈥檙e able to put something extra toward debt payments and into savings and investments each month.鈥�
A steady income does not mean a fully funded college education or yearly Disney trips, Christensen says. Instead, spend responsibly to live within your means.
It is also important to be on the same page with your partner, both emotionally and financially, when deciding to have a child.
鈥淪tarting a family and raising children will be a joint effort. If the would-be parents have not worked on combining their finances to some degree or are unwilling to share their personal finances with their partner, they鈥檙e probably not ready to share in the joint responsibilities of having a child,鈥� Christensen said.
Remember, though, you do not need to be in perfect financial shape before you have children. 鈥淚f you鈥檝e done your homework, understand the costs of raising kids, and have done your best to eliminate your current debt, you are likely ready,鈥� says Hohman. 鈥淐hildren are one of life鈥檚 greatest joys, but take the plunge with eyes wide open.鈥�