Thinking about having a child? Or maybe you’ve recently found out you’re pregnant! A range of emotions hit you — excitement, bewilderment, surprise, and anxiety — but after some time, your rational mind kicks in and asks, “Wait, can I even afford to have a child? How much should I save? Does my job even have paid maternity leave?”
These are the questions my wife and I had when we first started to think about having our first child. There’s so much involved with bringing new life into the world; we really didn’t want to add financial stress to the list. We knew we would have to rip off the band-aid and talk honestly about what would be ahead. So first, we did some research, and we came across some disheartening news:
1. According to a newly released US Department of Agriculture study, the average cost of raising a child from birth through age 17 is $233,610 for a middle-income married family with two children (not including college or vacations). The average middle-income family will spend $12,680 on child-related expenses in their baby’s first year of life.
2. According to Pew Research, The U.S. is the only industrialized nation in the world that does not mandate paid leave for new parents.
3. Family Medical Leave Act (FMLA) requires certain companies to offer 12 weeks unpaid. However, the vast majority of families cannot afford to go without a paycheck for three months, so many are forced back to work much sooner.
Pretty bad, right? The good news is that, despite the costs and unfavorable policies, there are millions of American families raising happy, healthy children. Below, my wife and I came up with the most important things to do (and not do) to financially prepare for maternity leave. We also created a free Baby on the Way! financial checklist, which covers many of the items below and more, with additional resources.
1. DO: Check with your employer(s) for their maternity and paternity leave policies.
You’ll want to check with your human resources department to understand what their policies are, and how they’ll apply to you. Maternity leave is actually considered to be a short-term disability, so you will want to understand whether you have or are eligible for short-term disability coverage, how long it lasts, and how much of your paycheck it will pay out (typically 50-60%). My wife was only eligible for short-term disability after being at her job for a full year. We started trying once we knew she would be eligible.
You’ll also want to understand if any of your benefits will be impacted while you’re out. Accrued vacation? Sick days? Bonus? Health insurance? Life insurance?
2. DO: Evaluate your health insurance coverage and check with your health insurance provider about maternity benefits they offer.
Along with speaking to your HR rep, also check with your health insurance provider. Many insurers offer benefits to assist you during pregnancy and the post-childbirth process, which can save you time and money. Benefits such as consultations, educational courses, breast pumps, and lactation consultants are just a few examples. The lactation consultant that my wife used two weeks after birth was, as she claims, “a life saver.” Also, make sure all healthcare providers are in-network. For example, make sure your obstetrician and their attending hospitals are in-network. There is nothing worse than getting a $2,000 bill for your hospital stay that also comes home with you.
3. DO: Have a written monthly budget.
Whether you have had a written budget before or not, it’s time to buckle down and write and stick to a monthly budget.
First, you’ll want to save as much as you can to prepare for a potential loss of income during pregnancy. You can start by cutting out non-essential spending to reallocate those dollars toward savings. Cutting cable, cooking at home, and reviewing monthly memberships is a good start. As a personal finance nerd, I was able to convince my wife to set up a baby fund before we even started trying. It certainly came in handy when we discovered how expensive daycares were in our area.
Second, you can’t change what you don’t measure. You’ll likely have to reprioritize certain aspects of your finances. For example, if you were making additional payments on your student loans to pay them off more quickly, you may want to reallocate that money towards an emergency fund, or a separate baby savings fund.
Third, you want to have a pre-delivery and post-delivery budget to understand how your resources will be allocated before and after pregnancy. Particularly if your income will be impacted by short-term disability. What will it look like to live on 60% or less of your salary for a few months?
4. DON’T: Assume you can work up until pregnancy.
Pregnancy can be quite unpredictable, so make sure you have flexibility in terms of your planning. You may be planning to work until your due date, but your little bundle of joy might have other plans! Understanding the financial implications of leaving work earlier will curb any additional anxieties if the situation arises.
5. DON’T: Go it alone. Lean on your village.
Finally, and most importantly, you are not alone. Oftentimes we have trouble asking for help, but this is an undertaking that is beyond one individual. The African proverb, “It takes a village to raise a child,” is so accurate. You’ll need to lean on others during this process. We forget, the vast majority of the time, that people are ecstatic to help. Put yourself in their shoes. If you had a pregnant friend or family member ask you to give them a ride to a doctor’s appointment, how would you feel? Likely, you would be happy to help!
Financially speaking, baby showers are a great way for the “village” to help you get what you need to prepare for the child’s arrival, but be sure to focus your baby registry on needs, not wants. Also, barring safety concerns with items such as cribs and car seats, second-hand items are a great way to save money. For those in your village that may not be able to afford more expensive items on a baby registry, diapers, baby clothes, home-cooked meals, and babysitting are great low-cost substitutes. Allowing people to help and contribute brings them joy and gives them a stake in the process, and takes some financial burden off of you. Find out who in your village has had a child three to six months ahead of you — they may be looking for someone to unload all of their baby clothes that no longer fit onto!
Again, millions of people have gone through this process and came out the other side, and many of them have small financial resources. The best thing to do is to plan ahead, and get organized. We wish you good luck!
For more additional tips and resources, be sure to get your free Baby on the Way! checklist.
The Money Speakeasy is about breaking taboos and tackling money topics for young professionals with no BS and no jargon. Money isn’t everything, but mismanaging our finances can impact nearly every aspect of our lives. Their mission is to create savvy consumers and wealthy producers who can become the CFO of their finances and achieve their goals. For more, check out their website and follow them on Instagram, Facebook and Twitter.
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