The birth of a child is a joyous occasion, so don't let your first precious months together be marred by avoidable financial duress. If you start setting aside money as soon as possible, you'll likely be better prepared to tackle the expected and unexpected costs associated with having a baby.
Maternity and family leave costs of living
Once you know that you're expecting, you and your partner should both investigate your respective employers' maternity/family leave policies. If you've been with your employer for over a year, your employer has over 50 employees, you should be eligible for at least 12 weeks of family leave, thanks to the Family and Medical Leave Act. You'll still need to find out whether that leave is paid or unpaid, and if your employer requires you to use your paid leave before using your family leave. It's also a good idea to get the answers to these questions well in advance of the big baby drop so you can start setting money aside to cover three to six months of expenses if necessary.
Budgeting for medical bills
It's important for expecting couples to know just how far their health insurance goes. Healthcare plans vary greatly and you will want to understand what your plan covers related to prenatal care expenses, i.e. prenatal doctor's visits, ultrasounds, and other diagnostic tests. However, depending on your coverage, you may be on the hook for co-pays at each visit, depending on how far your plan extends. If you don't have any health insurance coverage whatsoever, Nerdwallet1 reports that these expenses could add up to around $13,524 for mothers and $3,660 for newborns.
The costs of hospital childbirth vary greatly according to where you live and your hospital of choice. That amount can easily hit five figures for those without health insurance who also experience unexpected complications. Learn more about your options by understanding the Affordable Care Act. If you're under age 26, you might consider getting back on your parents' family health insurance plan. Low-income expectant parents may also be eligible for Medicaid.
The nursery on a budget
All of those one-time expenses for outfitting your baby's nursery really add up, and you can easily spend thousands if you're forced to source all of your must-haves for baby from a retail store. Fortunately, the world is full of second-hand nursery furniture and baby supplies. Baby showers can go a long way toward easing the financial strain of outfitting your first nursery. For a full list of baby nursery basics, consult this helpful “Baby Basics Shopping Checklist” from Parents magazine.
If you're worried about furnishing your entire nursery in time for baby, you may need to prioritize. Just remember that your top priority items should be the car seat, feeding and diaper changing supplies, and somewhere safe to sleep.
Budgeting for diapers, food, and everyday baby supplies
Many first-time parents can't even begin to fathom the ongoing expense of diapers, formula, baby food, and other everyday baby necessities, but these items can add up quickly, taking several thousand dollars out of your annual family budget. (Buy in bulk whenever you can. A warehouse club membership can go much further during the first few years of child-rearing.) Breastfeeding, cloth diapers, and homemade baby food can help stretch your dollar. To get a more precise idea of exactly how much you'll spend on supplies and other first-year expenses for baby, be sure to check out Babycenter's excellent First Year Baby Costs Calculator.
Budget for childcare
What happens after your maternity or family leave is over? You and your partner will need to have your childcare options sorted out before you both return to work. The costs of full-time childcare can be exorbitant for some, especially in major metro areas. Does it make sense for one of you to take a break from your career and become a stay-at-home parent? Does your employer have a daycare center? Do your friends have a nanny co-op? This time can allow you to look for tips on how to afford childcare while living on a budget.
Life insurance and long-term planning
Once your baby is born, you'll need to add him or her to your health insurance plan. Inquire with your employer to see if a Flexible Spending Account (FSA) or dependent care account is an option to help with additional first year healthcare expenses and/or childcare. An FSA allows you to set aside $2,650 per year per employer. If you're married, your spouse can put up to $2,650 in an FSA with their employer as well. If you're already thinking about baby's college plans, talk to a financial advisor about setting up a 529 Plan* so you can set aside any cash gifts for baby's future college tuition. When tax time comes around, don't forget to claim your annual tax benefits for having a child.
For last but certainly not least, make sure your new little family is protected against worst case scenarios by considering a life insurance policy for you and/or your partner, if you don't have one already. If you're currently uninsured, you can find out how much life insurance you may need in the Protective Learning Center. You can also read more about how much life insurance is appropriate for the primary breadwinners in your family or for stay-at-home parents.
*As of 2018, the IRS has amended the term “qualified higher education expense” to include a limited amount of annual expenses from a 529 Plan for tuition at an elementary or secondary public, private, or religious school. Source: www.irs.gov/newsroom/529-plans-questions-and-answers.