How to prepare financially when you’re having a baby

Bringing home baby without breaking the bank

Having a baby? Congrats! Get ready for toys underfoot, no sleep, and your Instagram feed going from food and travel shots to adorable baby pics. Nothing will be the same—including your finances.

“When having a baby, it’s very tempting to think of year one or month one,” said Amy Brackett, CFA, a financial advisor at the Solaris Group who writes on family issues. But “it’s really important to think a little bit further on.”

Raising a kid from birth through age 17 costs a middle-income, married household more than $233,000, according to the USDA.

It’s no wonder that parents have at least 14% more debt than the average American—and slightly lower credit scores. And then there’s the small matter of paying for college. So how do you prepare financially for this life-changing bundle of joy?

Crunch your numbers

While you’re making your home safe for your new roomie (little fingers find electrical outlets, so plug ’em up!), baby-proof your finances, too. If you haven’t done so already, pay off your high-interest debt (I’m looking at you, credit cards) and build an emergency fund of about six months’ worth of living expenses, to cushion against unexpected costs. Then, sit down with your partner and take a hard look at your cash flow. You want to be sure you’re working with real numbers before you make any adjustments for baby costs, which we’ll get to below.

Fund the nanny

If you need professional childcare, brace yourself. In major cities, daycare or a full-time nanny can cost tens of thousands per year. But there are ways to take the edge off. Consider a nanny share with a nearby family or two. And, if possible, ask your employer to rearrange your hours so you can take on more caretaking responsibility yourself. You could also call on a relative for babysitting help one day a week. (Camp Grandma, anyone?) And inquire with your employer about a dependent-care flexible spending account that can be used for childcare or take advantage of the childcare credit—both of which will lower your tax bill.

Recover your income

Whether you’re taking unpaid leave for the baby’s arrival or a parent is staying home to care for your child, the blow to your family’s income could be more than short-term. Women in particular may find it difficult to return to the workforce at the same earnings level at which they left. (It’s called the “mommy penalty” for a reason—it doesn’t apply to men, who in fact enjoy a “daddy bonus.”) To avoid jumping off the career train, mothers can take advantage of the 12 weeks of unpaid leave required of large companies by federal law. And you should ask if your employer offers paid leave—which isn’t federally required just yet. If the answer’s “no,” it can’t hurt to keep nudging. In the longer term, you can support legislators and presidential candidates who are behind paid leave.

Pay the doctor

Your insurance might not cover all the expenses associated with a delivery or adoption. If the fine print on your policy doesn’t make clear what you’ll owe (ask for a plan document called the Summary of Benefits and Coverage), be sure to call your provider as well as your hospital to nail down how much you’ll be paying out of pocket for the delivery, whether certain charges need to be pre-authorized, as well as what you’ll need to cough up for postnatal and pediatric costs. If you have a high-deductible health care plan, setting up a Health Savings Account—which allows you to save pretax dollars to use on qualified medical expenses—might help. And don’t forget to switch to a family insurance plan—and be prepared for increased premiums. If you’re insured under the Affordable Care Act, there’s a special enrollment period provided for new parents. If you’re insured through your employer, talk to HR for help picking the most affordable plan for your needs. Last but not least, draw up a will and get a life insurance policy. Both are musts.

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Play needs vs. wants

Of course, junior is going to require loads of stuff, like a crib, a stroller, a car seat, diapers, some Versace baby suits…. Actually, hold off on designer onesies. Cute baby swag will eat up your budget if you’re not careful—and your kid will grow out of it within weeks, anyway. Focus your spending on the needs, rather than the wants. (A baby bottle is a need. A steam heat bottle warmer-slash-nightlight? That’s a want.) Look on local parent message boards or Facebook groups for used stuff that’s often free, and hit up friends dying to get rid of the things their own munchkins have grown out of. Just make sure the stuff isn’t outdated or unsafe.

Save for the next move

Will you need more space, or will you want to relocate to a neighborhood with better schools once your child is older? Those questions will present themselves sooner than you think. Start putting money away every month now (remember, you should aim to save 10% to 15% of your take-home pay), so you can have a home down payment ready by the time your kid is ready to ace the ABCs.

Press go on the college fund

Starting a 529 plan is a smart and relatively easy way to save for future education costs in a tax-favored way. But don’t make the common mistake of neglecting your own retirement savings in favor of your child’s college fund. Remember, your kid can always borrow money for school. No one is going to lend you money to retire.

Take a breath

Yes, there’s no question having a baby is going to change your life, financially and otherwise. But they have so much to teach you. With the right planning, you can sleep well knowing you’ve prepared yourself financially for all the sleepless nights ahead.

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