Preparing Financially for Having a Baby

February 10, 2020

ARCHIVED BLOG, PLEASE NOTE:  The information below was posted prior to any affiliation with LPL Financial and is posted here for historical purposes only

As I prepare to have my second child, this feels like the most appropriate time to provide some insight to those that are going through the same experiences. There are many fears that come along with becoming a parent. How will I survive pregnancy and labor? How will I know if I will be a good parent? What if my baby is born with a disability or illness? And thus, begins our tendencies to spiral out of control. There are a lot of unknowns associated with having a baby that we have no control over, and therefore we should all work not to stress over (as much as possible). Being financially prepared is one area where we do have control. Taking appropriate precautions can help ease some unnecessary stress. Here are a few areas I recommend addressing first to ease some of those tensions.

 Maternity and Paternity Leave

 An important first step is determining what your maternity and/or paternity leave situation will entail. Fortunately, as of September 1st, 2018, the University of Michigan now provides eligible faculty and staff maternity leave of up to 12 weeks and leave for non-birth parents of up to 6 weeks. If you choose to spend even more time with your newborn, you can opt for up to 6 months of unpaid leave without putting your position at risk. You can extend this option to 12 months, but you could be putting your position at risk for when you try to return.

Rainy Day Fund

While having a Rainy Day Fund is important for everyone at all times, it is even more important for new parents. You have probably heard that babies are unpredictable. As it turns out, the expenses that come with them can also be unpredictable. This could be anything from your car breaking down and no longer being safe for baby, to having to run to the emergency room in the middle of the night because your baby is suffering from a high fever. Building a Rainy Day Fund doesn’t need to be as impossible as it sounds. I recommend starting regular savings through direct deposit right out of your paycheck. Better yet, have the direct deposit go to a bank that isn’t your everyday bank. The more you can get the money out of sight and out of mind, the more successful you will be in accomplishing your goal. A good goal to work towards is having set aside somewhere between 3 and 6 months of your committed expenses.

Childcare Expenses

It is time to address the elephant in the room. How will you pay for childcare when you go back to work? There are many options from which people choose: leaning on the support of family members, utilizing daycare facilities, finding an in-home daycare, or hiring a nanny to come into your home. As you might imagine, these different options have a vastly different range of monthly costs associated with them. The important first step is determining what type of care you feel is going to be best for your family and then to start researching options available. Finding a nanny or a daycare facility is not an easy task. Many options come with very long wait lists. It is important to start the search before the baby comes along, so you can find a solution you are happy with in the timeline that you need it. Now, how to pay for the care? It is important to take a close look at your monthly cash flow to see what might need to be adjusted to account for this new expense. One tool that can help is utilizing your Dependent Care Flexible Spending Account (FSA) at the University.  For married couples, you can defer up to $5,000/year into your FSA to be used for childcare. While most parents are paying more than $5,000/year, paying as many of those costs on a pre-tax basis as possible is always ideal.  

Insurance Review

There will be a lot of potential changes to your insurance needs and options after having a baby. Here are a few areas you might want to review ahead of time.

  1. Health insurance

After the birth of your baby, a new enrollment period will open for you at your employer to make changes as needed. While you can’t make the changes until after the baby is born, it is always helpful to get a good understanding of what the changes will include and the costs associated with them.

  1. Life insurance

This is one of the areas I find a lot of people starting to view differently as soon as they find out they are expecting. There is a natural tendency to worry about how your baby will be cared for if something ever happens to you. I recommend that both parents complete a review to make sure they have all the coverage they need before the baby is born. Sometimes, it can be difficult for the birth parent to obtain coverage while pregnant (especially if suffering from a pregnancy complication such as gestational diabetes). However, I still recommend seeing what you are eligible for prior to the baby being born. Trust me, after the baby comes along, just about everything else on your to-do list will be pushed to the back burner.

  1. Disability insurance

Sometimes just as concerning as what happens if I am not longer around, is what happens if I can no longer work? If you were to find yourself in a position of suffering from a long-term illness or injury after having a baby, you will most likely not be able to work or care for your child(ren) full time. This will be an easier type of coverage for the non-birth parent to obtain while expecting. Generally, pregnant women are not insurable while pregnant. They would either need to obtain coverage prior to getting pregnant or after the baby is born.

I know this list can feel daunting! I promise you that once you start crossing a few things off the list, you will realize it is not as overwhelming as it sounds. For those of you currently expecting or who already have children, I am sure you can agree that knowing the answer to any question is always better than the feeling of the unknown.

Best wishes to all the expecting parents reading this post!

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