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Your family is growing! Whether this is your first time becoming a mom or not, preparing to have a baby brings a whirlwind of feelings, emotions, and worries.
One of the biggest concerns moms-to-be face is a financial one.
You may have seen estimates that it costs $233,000 to raise a child from birth to 17. It’s no surprise moms worry about money.
Thankfully, these steps will help you kickstart the savings process as you prepare financially for a new baby.
What Will My Maternity Leave Look Like?
To help you get a better picture of how to financially prepare for a new baby, you need to understand what your maternity leave will look like.
Of course, very few things in parenting ever go according to plan. But this is one instance where it pays to do some investigating and planning beforehand.
Asking these questions will help you get started.
1) What coverage does my employer provide?
It’s no secret maternity leave varies wildly by both country and company. Where you live and who you work for means that your leave might look dramatically different than the other mothers in your online mommy forum.
To get a clearer picture of your situation, you'll want to review your employee benefits, contract if you have one, and meet with Human Resources.
Depending on the structure of your workplace, there may even be a specific contact person who is in charge of handling leaves.
You may also want to reach out to other women at your workplace, especially those who have recently had a new baby.
They can alert you to anything they didn’t anticipate with taking maternity leave.
2) Will I qualify for FMLA?
Under the Family Medical Leave Act (FMLA) in the United States, some employees are eligible for 12 weeks of job-protected leave. To qualify, both the employer (that’s your boss) and the employee (that’s you, Mama!) have to meet specific qualifications.
The biggest stumbling block for many women is that you must have worked for your company for over a year. Check out all of the other specifications.
Even with this federal law, only 40% of American women actually qualify for FMLA coverage. If you do qualify, it merely guarantees a job upon return, not pay during leave. That means there’s a good chance some or all of your maternity leave will be unpaid.
3) Who will carry the health insurance?
Depending on the length of your leave, your insurance coverage and costs may change. If your employer picks up a portion of your premiums or covers all of them, you'll want to determine how long this continues during your leave.
It's also important to remember that both Baby and Mom will want coverage during your leave. Since the birth of a child is a qualifying life event, you do not need to worry about enrollment periods.
You will, however, want to work closely with your insurance provider to determine how to obtain coverage for your new baby.
It might also be worth exploring short and long-term disability and disability insurance you may have elected to take or are offered by your employer. Don’t get your hopes up, but it is essential to ask the questions.
Steps to Prepare Financially for a New Baby
Now that you know what your maternity leave will look like, you can start to estimate how much money you'll need during that period.
Various online calculators like this one from Baby Center estimate how much the first year will cost in terms of a newborn.
Thanks to garage sales, hand-me-downs, and gifts from family and friends, though, this cost might be a lot less.
Rather than getting hung up on the cost of bassinets and blankets, look at household expenses and compare them to the length of your leave.
- If you anticipate an eight-week leave, what bills will you have to cover during that period?
- Do you have any savings you can already pull from?
Answering those questions should help you get a ballpark idea of how much you want to put in a sinking fund.
Now that you have a number in mind let’s discuss setting up the perfect sinking fund. And how to fill it up to be financially prepared when your new bundle of joy arrives.
Create a Sinking Fund
By the third trimester, you may feel like you’ve been pregnant forever, but 40 weeks is a short amount of time when it comes to money.
That means you want to avoid investing in the stock market or even locking your money up into CDs.
To start building your baby sinking fund, you'll want to make sure you put your money in a savings account.
Since your goal is to get the most bang for your buck, you want to follow these four criteria before setting up your account.
1) Keep your account separate
Put your maternity leave money in a separate account. You may even want to put it in a separate bank.
That way, you’re not tempted to do any spending prematurely, no matter how compelling those emails from Target and Pottery Barn Kids are.
2) Make sure it’s federally insured
You want to look for an FDIC-insured account for this sinking fund. This way, you know your money will be there when you need to use it in a few short months.
3) Look for zero fees and high interest
It might be challenging to earn 2% on your money in a savings account in today's market, but you want to earn as much as you can. You also want to make sure you aren’t paying any account fees.
Online savings accounts are very competitive with interest, and the online setup process is a snap. The interest won’t add up to millions, but there’s no reason to leave any money on the table.
Credit unions are another option to consider as they typically offer low fees but not always the highest interest.
4) Shop around for bonuses
You might also discover certain online banks offer sign-up bonuses. You have to read the fine print to make sure you qualify.
Often, they expect a certain amount of money to be deposited or require it to be in the account for a particular length of time.
If you can meet those requirements, take the bonus. As long as you pay close attention to the interest and fees, though, your sinking fund will be in good shape with or without a bonus.
How to Fund a Sinking Fund
You created a brand-new savings account for your brand-new bundle of joy. That’s all there is to it, right? Not so fast. Now you have to figure out how to get funds inside your sinking fund.
The most important part of preparing financially for a new baby is to build your savings. While it's often said you have nine months to save for a baby, that isn’t always realistic.
No matter what your timeline is, these tips can help you fill up your baby fund faster.
1) Hold off on non-essentials
Examine your budget and review your spending to see how you might be able to hold off on some spending in the coming months.
That might mean scaling back on a special splurge, combing your expenses again to see where you can cut back, or it might mean pausing some of the other savings you are doing.
If you’re working on paying extra toward your mortgage or investing in a taxable account, you might consider holding off on them during your pregnancy. No matter how you come up with extra money, make sure you divert it into your baby fund.
2) Bank your bonuses
During your pregnancy, you will want to consider putting any raises or bonuses into your sinking fund.
This is the most straightforward kind of savings to do because you weren’t counting on it (or even expecting it in some cases). That means it shouldn’t have any bearing on your overall budget.
What if you don’t get bonuses in your career?
The first thing to do is raise your coffee mug with me in solidarity. The next thing you can do is expand your definition of a bonus.
When you find yourself in nesting mode, toss any cash you make decluttering into that account as well.
3) Be strategic with gifts
If you have a baby shower and you happen to receive any cash or checks, think through how you'll spend that money.
The marketing geniuses behind the baby industry don’t want you to know this, but you need very few things when your baby first arrives.
You can always bank the money now and decide how you want to spend it once Baby arrives.
Ensure Your Emergency Fund is Flush
Having a sinking fund specifically to cover the welcoming of your baby and your maternity leave prepares you to cover your regular expenses during this time.
Building an emergency fund will prepare you to cover the unexpected expenses that may arise. Perhaps a costly extra day or two in the hospital may be required. Or you or your spouse will want or need to extend your leave time. Having these additional savings will be priceless.
Explore Child Care Options
There are a variety of childcare options to consider, from one parent staying-at-home to daycare or nannies. The earlier you begin exploring the various options, the better. It takes time to interview, visit, and discuss alternatives.
Additionally, some daycares or in-your-home providers may have an approval process or waitlist.
Options to consider:
- One parent stays home
- You all alternate shifts/days with the other parent, so one is always with your child
- A grandparent or other relative provides childcare
- You utilize a daycare provider:
- daycare center
- in-home daycare
Knowing your daycare needs and exploring the costs early will help you prepare your budget for after your new baby's arrival.
Tip: Check with your employer/spouse's employer to see if they provide a Flexible Spending Accounts (FSA) For Child Care to help you save money when going that route.
Steps to Take After Your New Baby Arrives
- Add them to your health insurance. You should have a 30-day window to add your new dependent, but this is something you don't want to procrastinate on.
- Secure your new baby's birth certificate and Social Security card.
- Write your will or adjust a current one to include your new heir and designate their guardian in case something happens to you.
- Obtain or increase your life insurance to ensure your coverage amount will provide financial security for your family. A term life policy is often a good option. You can quickly obtain a free quote from Lemonade – rates start at just $9 per month.
- Adjust your monthly budget to account for new expenses arriving with your new baby. Now's a great time to also automate your finances as much as possible, if you're not already doing so.
- Begin a savings account for your new offspring. Consider a 529 or other college savings plan. No matter how small the amount you start with, the early you can begin saving and investing for your kids, the more you can capitalize on the benefits of compounding.
- Raising Special Needs Child: How does it impact your finances?
- How Much Should We Save for Our Kid’s Education?
Final Thoughts on Financially Preparing for a New Baby
There are plenty of things to keep you awake at night when you’re expecting.
There are heartburn and hip pain, registries, and nursery arrangements. Plus, there’s figuring out how exactly your little peanut managed to wedge its foot just so into your rib cage.
Before you know it, they'll be learning to walk, talk, ride a bike, and understand money.
One of the best things you can do for them is ensuring your financial house is in order.
By starting a sinking fund now and following these savings tips and financial checklist, hopefully, finances will be one less thing on your mind at night. Now, if you could just decide on a name.
Article written by Penny