Finding out you're pregnant and expecting a little bundle of joy will probably go down as one of your best days ever. The excitement and joy over adding a new little member to your family are what makes all the tough stuff in life worth it.
Then reality sets in. The costs of having a baby, let alone raising to age 18 – which can cost nearly $250,000 – is doable but can be overwhelming. You're going to need to purchase so many little gadgets and gizmos for your baby, not to mention expanding your budget for things like diapers, daycare, healthcare, and food.
If you’re starting to get nervous about all things you have to think about, we’ve got some great tips to help you prepare financially for what comes first: your maternity leave.
Understand your health insurance policy
Medical policies should come with a secret decoder ring. There are so many different health insurance plans and a lot of details that you've got to sort through when preparing for your maternity leave. Understanding all of the ins and outs of your health insurance maternity coverage will help you be able to plan your budget ahead of time, so you're ready to go when maternity leave rolls around.
Before you check out of work for your maternity leave, spend some time with your Human Resources rep to find out a few key particulars to your policy, like:
- What is the deductible amount that is remaining for your health insurance?
- What is your coinsurance or co-payment amount that you’ll responsible for?
- What is your out-of-pocket max? In 2016, the out of pocket max if you’re on an Obamacare policy is capped at $6,850 for a single policy or $13,700 for a family policy.
- Will you be responsible to pay any additional amount towards your health insurance while on maternity leave or refund any premiums paid by your employer?
When you’re preparing for maternity leave it’s crucial that you find out exactly how much money you will need to spend once you have your baby. You will be responsible for paying your deductible and may have to cover your out-of-pocket max when you have your baby. In addition, your company might require that you pay back your health insurance premiums they covered if you don't return to your job after your lave. When the average employer contribution for health insurance is over $12,000 a year, this could be a huge blow to your budget.
Each health care plan has different rules and regulations around well baby care, so you need to make sure you check with your health care company before giving birth. But, the good news is your baby is covered under your health insurance plan for the first 30 days after you give birth.
Under the Affordable Care Act, you must decide to keep your baby on your health plan, or move them to another plan, within 30 days of being born, and doing so will make coverage effective as of your baby’s birth date. If you don’t sign your baby up for health insurance within 30 days – by adding them to your existing plan, changing your plan with your existing carrier, or shopping for a new plan – you could face a penalty for not having health insurance and will pay for medical costs out of pocket, with one caveat: giving birth qualifies you for a Special Enrollment Period under the Affordable Care Act. That means you can enroll your baby for health insurance outside of the normal enrollment period, and if you do so you have up to 60 days after your baby’s birth to add them to your plan for immediate coverage.
Build your budget
Unfortunately, we happen to live in the only developed nation that does not guarantee paid maternity leave. In fact, California, Rhode Island, and New Jersey are the only states where paid leave is guaranteed, however Massachusetts, New York, and Connecticut have recently made a push to get on board as well. So where does that leave you when you're prepping for maternity leave?
The Family Leave and Medical Act (FLMA) requires certain companies to offer up to 12 weeks unpaid leave after the birth of a baby or adoption, but most companies require that you fully exhaust all of your vacation and paid time off prior to the FLMA benefits. Although, not all new parents will qualify for FLMA benefits. You’re not eligible for FLMA leave if:
- Your company has fewer than 50 employees within 75 miles of your workplace
- You have worked for your current employer for fewer than 1,250 hours over the past 12 months
- You have been employed less than 12 months with your current employer
Even if you do qualify for FLMA, your biggest expense will be preparing to lose a paycheck during maternity leave for some period of time.
To begin setting up your maternity leave budget, you'll need to decide how much time you'd like to take off. This can be tricky because there are so many curveballs you can't plan for – needing a cesarean section, for instance, or a medical problem arising when you give birth.
First, start with your pre-determined company and paid leave that has been laid out for you in the employee handbook or employer benefits package – however short it may be. Schedule some time to talk to your Human Resources rep to find out a few important details about your leave options:
- What paid leave options are available to you through your employer?
- How will your health insurance premiums be paid when you’re on maternity leave (will you need to pay for the premiums if you are on unpaid leave)?
- How many vacation days are available to you? Some companies will even allow you to "buy" more vacation days or borrow from the next year to give you more paid time off during your maternity leave.
- Does your company use a short-term disability policy to provide maternity leave? If so, how does that work?
Once you find out how many days you will need to cover financially, you can begin to build that into your budget. You'll want to make sure you build in an extra buffer as well, maybe 10-20% over what you think you'll need to save to cover any extra time that you may need to take off.
Your savings account will also be a star player during maternity leave. Try to boost your savings as much as you can before the baby arrives by setting goals around common budget expenses such as eating out, travel, and entertainment.
Create a needs versus wants list and detail out all your expenses so you can find ways to creatively save money. The more money you can save before the baby arrives the better.
Your maternity leave budget should also include an expense line for all the baby purchases you will need to make; parents will spend an average of $12,000 on their baby the year after it’s born, so diapers, furniture, baby nurse, child care, and extra food costs all add up.
These are a few very important financial items to consider as you prepare financially for maternity leave. Maternity leave should be a happy and joyous time, and the last thing you should be worried about is if all of your finances are in order. If you spend some time on maternity leave checking these items off your to-do list, you’ll ease right into parenthood.
You’ll still be sleep-deprived, but you can rest easy knowing your finances are in order.