How to get your finances ready for a new baby

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Hanna Horvath, CFP®

Hanna Horvath, CFP®

Managing Editor & Certified Financial Planner™

Hanna Horvath, CFP®, is a certified financial planner and former managing editor at Policygenius. Her work has also been featured in NBC News, Business Insider, Inc. Magazine, CNBC, Best Company, and HerMoney.

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Preparing for a child can be a financially daunting task. It costs an estimated $233,610 to raise a child to age 17, according to the U.S. Department of Agriculture. And that’s not including college.

Before you start a family, it’s important to get your finances in order. Here’s a comprehensive financial guide to prepare for a baby.

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The first thing to do when preparing for a baby

Before anything else, sit down with your partner and map out your finances.

Talking about money is something many couples don’t do. A recent Policygenius survey found that one in five couples keep their money completely separate. An even greater percentage (24%) don’t share any major financial accounts with their partner, and 30% don’t know each other’s salaries.

A lack of parity in a couple’s finances can lead to dishonesty about spending habits, income or savings. Introducing a child to the equation can make your financial situation even more difficult. Rob Bertman, founder of the Family Budget Expert, said it’s important for couples to be up-front about their financial situation from the beginning before introducing another person into the mix.

“Money is the number one argument couples have,” he said. “A lot of them don’t have a good grasp of what they are spending on a monthly basis.”

A simple financial baby checklist

1. Plan ahead for maternity or paternity leave. Read over your benefits package to find out how much time you and your partner’s jobs allow for parental leave. If you need to take unpaid leave, factor that into your finances. If needed, begin planning for child care. It can take days or weeks to find the right daycare or babysitter. 2. Draft a budget. Record any recurring child care costs (think diapers and babysitter fees) in a spreadsheet to keep track of your money. Here’s a downloadable family budgeting spreadsheet to get you started. 3. Begin preparing for unexpected medical costs. Babies are expensive medically, even if you have insurance. Out-of-pocket medical costs for childbirth vary widely. Having an emergency fund comes in handy. 4. Start an emergency fund. If you haven’t already, start setting aside money for the unexpected. A rule of thumb is three to six months of expenses. One of the easiest ways to grow your savings is by opening a high-yield savings account. Learn more.

Start saving for college now (yes, now)

Though your child may not even be born yet, consider opening a 529 plan to begin saving for your child’s college education. You can see our state-by-state guide to 529 plans here.

What not to do

Don’t jump the gun on big purchases like a bigger car or home. Ellie Kay, co-host of The Money Millhouse podcast, said upgrading your residence immediately can put a major strain on your budget when combined with the cost of raising a newborn.

“There are so many expenses associated with having a baby that housing is not something parents should be thinking about before the baby gets here,” she said.

Kay also advised against buying every trendy item for your newborn. Your baby will likely grow out of many items quickly. Instead, buy secondhand. The only thing you should get new a car seat, said Kay.

If you’re having a baby shower, put some of the items you need on your registry.

“You shouldn’t be footing the entire bill if you don’t have to,” Kay said.

Insurance & a new baby

Insurance may not be the first thing on your mind when you begin preparing for a baby, but there are important insurance updates to make when they come.

Health insurance

Having a child is considered a qualifying event that allows for special enrollment. During this time you can add your child to you or your partner’s health insurance plan or switch health plans. It’s best to do this sooner rather than later. (We can help you compare health insurance plans.)

You will likely have to take your newborn to their first checkup in just a few weeks after birth, so confirm your pediatrician is included in your in-network benefits. You don’t want unexpected medical charges.

If you have a high-deductible health plan, Kay recommends putting the maximum amount into a health savings account (learn how to set one up). Contributions to an HSA are tax-deductible, and the money left over will roll over to the next year.

Life insurance

Next, consider purchasing life insurance, if you hadn’t already. Not only will it financially protect your partner if tragedy occurs, it can also financially protect your child by covering expenses like your mortgage and childcare. It’s important for both spouses to get life insurance to completely cover their assets. You can either shop together or separately.

If you already have a life insurance policy, re-evaluate it to ensure you have enough coverage for your expanding family. Experts recommend setting your spouse as the beneficiary instead. Learn more.

We can help you compare prices between life insurance companies.

Though it may seem depressing to think about tragedy right after having a baby, estate planning financially protects your child and makes things easier for your family if you die. You can designate a guardian for your child or protect their assets using a trust. You can learn more on estate planning here, and if you haven’t made a will yet, you can start with Trust & Will. (Editor's Note: Trust & Will is a Policygenius partner. You can use promo code "protectmylegacy" to get $10 off your estate plan.)

Disability insurance

Disability insurance protects your ability to earn an income. Today’s 20-year-olds have a one-in-four chance of becoming disabled before they reach retirement age, according to the Council for Disability Awareness.

Women who plan to get pregnant can get short-term disability insurance. It’s the most common type of short-term disability claim. A typical policy lasts only a couple of months, and it’s especially beneficial if your employer doesn’t provide paid leave. Check with human resources to find out if your company offers short-term disability, or purchase your own plan.

Long-term disability insurance, as the name suggests, financially protects you for a longer period of time — typically until you return to work or for a set number of years. You and your partner may want to purchase both long- and short-term disability insurance. (Find out more about disability insurance and pregnancy.) But remember that disability insurance doesn’t stand in place of an emergency fund. Read more on emergency savings accounts.

Having a baby can be financially overwhelming, but having a financial to-do list outlined before you give birth will give you the tools to tackle the most pressing money tasks first. Time flies with kids, so don’t wait to set up your family for financial success.

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Image: Wes Hicks

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