Hey congratulations! (or almost congratulations!)
Having a baby is truly EPIC.
I remember when we found out we were pregnant with our first child. I was scared.
I hadn't even gotten to the part about being a good dad or the first day of school or first dates or prom … oh no, that was next level panic stuff scheduled for later.
I was scared like the first time I got behind the wheel of my car and my dad said “put your foot on the brake and shift it to drive.”
I was scared because it was totally uncharted territory. I didn't know what I didn't know. Heck, I didn't even know what I did know. You know?
Normally, I don't know a lot of stuff (even if I won't admit it) and I don't usually freak out. So why did I get scared this time?
The stakes. You can fake through a lot of things. If things work out, hooray! If they don't, well, try again!
With a kid… YOUR kid, man that's different. You can't let chance have any role in it. You have to be ready. And there are things you need to get set up now so you will succeed the day the baby is born to the day he or she is ready to start a family.
This guide is the result of what we did to financially prepare for having a baby as well as what we would need to do once the little guy was here.
It's separated into two parts – Preparation: Before Delivery and Gametime: After Delivery. Some of the points can be done before or after but the key idea to remember is that you need to address them at some point.
(we write as though you're expecting but the information we present applies to current parents as well as soon-to-be expecting)
- Pack & Prepare for Delivery
- Calculate the Cost of Delivering
- Review Your Childcare & Pediatrician Options
- Saving for College? 529 Plans
- Increase Your Flexible Spending Account
- Increase Your Emergency Fund
- Get Life and Disability Insurance
- Update Your Health Insurance
- Establish or Update Your Estate Plan
- Get a Social Security Card
- Take a Look at Your Taxes
- Budget in Date Night
Preparation: Before Delivery
“No battle plan survives contact with the enemy.” — Helmuth von Moltke
Your baby isn't the enemy but you sure as heck be prepared for battle. 🙂
Pack & Prepare for Delivery
First things first, get your place ready for the new baby by ~6 months into your pregnancy. That means 100% set up – the baby could move in that day because babies show up early (they're on their own schedule, as you'll soon learn).
I won't go into what you will want for your nursery, you can Google that, but it's easier to pick stuff up like diapers, wipes, etc. before the baby shows up.
Test drive the route to the hospital or wherever you're delivering. You want to know the route and have done it a few times, just in case.
Pack a “go bag” that has everything you need so you can grab it at a moment's notice. You'll need this bag if you're staying overnight at the hospital (which you will be) and you'll want it ready to go.
There's so much more you can and should do to prepare for delivery, this was just the bare minimum for us. I trust you'll do your research, buy all the necessary books and talk to all your friends who are already parents, these are just the key points I felt obligated to mention. 🙂
Calculate the Cost of Delivering
Call your hospital to find out the ballpark amount you would be expected to pay.
Then, call your health insurance provider and ask them how much it will cost to have the baby. What you pay will depend on your plan, its deductible, co-insurance, blah blah. Call and you will get an answer that sifts through all of that.
(you can also read your insurance documentation but a phone call is much easier)
That should give you an idea of how much money you'll need on hand.
With our first baby, our insurance covered 100%. No deductible. It was amazing.
Our second child, we had a 10% co-pay. Our employer didn't change, but the insurance provider did and the new one, two years later, had a 10% co-pay. 10% isn't bad but this time we had to plan for a cost greater than zero (it was around $3,000). It was good that we found out about the increase earlier rather than just assumed it would be covered 100% like the first time.
Always call and be informed, the integrate it into your budget and financial plan.
Review Your Childcare & Pediatrician Options
Nanny? Daycare? Staying at home?
Start investigating your options today, before your child is born, because many places have waiting lists that are several months long. Even if you think you'll be staying home, I recommend doing the research just so you're aware of all of the options. It's better to be over prepared.
While you're in full on research mode, you'll need to find a pediatrician. Start by asking your local friends with children, they'll know some good names to filter the list down. If you don't know anyone, try the American Academy of Pediatrics search tool.
Saving for College? 529 Plans
A 529 plan is a education savings plan, named after the section in the Internal Revenue Code that created these accounts. The main benefit of a 529 plan is that they are like an IRA in that they grow tax free. Contributions may be tax deductible at the state level and distributions are tax free if they are used for qualified education costs. If the beneficiary decides not to pursue higher education, you can change the beneficiary without penalty.
This means you can open a 529, set yourself as a beneficiary, contribute, and then change the name once your baby arrives. This is valuable if you are super forward thinking and want to get a tax deduction now but will have a baby in future years.
I'm not a 529 expert, other than contributing to 529 plans in Maryland, but Savingforcollege.com covers it extremely well.
Increase Your Emergency Fund
With your first child, it will feel like chaos. You won't get a lot of sleep, everything will demand your attention, and it's very important to boost your emergency fund to cover any other emergency that crops up.
When you're without a child, you have a lot more flexibility in how you respond to emergencies. Car breaks down? You start taking the bus or walk more. You can ask for rides or adjust your schedule. If your car breaks down when you have a baby, you are under far greater pressure to fix it and fix it quickly. Your emergency fund has to be ready to handle those situations.
Get Life and Disability Insurance
No one likes to think about it but if you die, someone needs to take care of your child(ren). If for some reason you can't work, whether it's disability or death, someone needs to take care of your child(ren). That's where life and disability insurance come into play.
You want to get enough insurance to make sure your family is taken care of in the event you can't.
Gametime: After Delivery
Here's where the real fun begins 🙂
Update Your Health Insurance
Let your insurance know you are officially a plus one. This will get you an insurance card for the new baby.
Having a baby is a Qualifying Life EVent, which is an event defined by the IRS, and it let's you change aspects of your health insurance, including…
Increase Your Flexible Spending Account
You will have a lot of out of pocket medical expenses, so take advantage of that FSA. Mom will have some checkups and baby will have a lot of checkups.
The American Academy of Pediatrics recommends a checkup at 3-5 days. Then 1, 2, 4, 6, 9, 12, 15, 18, and 24 months. Your pediatrician may not want to see you 9 times but the actual number will be pretty close because baby will need a lot of immunizations. Count up your co-pay, multiply it by 9, and you have yourself a baseline for how much all those visits will cost – not counting unscheduled extra visits.
Establish or Update Your Estate Plan
If you don't have an estate plan, you really need one now that you are expecting a child and not for the obvious reason. When most people think of an estate, they think of the money and the stuff. Yeah, that's in there but…
… once you have a child, it's about them. Who will be the child's legal guardian? To make the choice, you need to talk to potential candidates and find out who is willing and able to take on that role. These are important decisions and you will want your wishes codified so there's no questions about it. You want to make those decisions, not the state.
Get a Social Security Card
Once you have a copy of the birth certificate, follow these instructions for getting a Social Security Number and card.
Take a Look at Your Taxes
Your child is going to be your dependent and dependents are great for reducing your tax liability. Once your child has a Social Security number, you can claim them as a dependent on your taxes. Each dependent is worth an exemption and each exemption is worth $4,000 (2015 tax year).
If you are currently working, reach out to your company's human resources department to update your W-4 – Employee Withholding Allowance Certificate. When you started working, you claimed a certain number of exemptions. That affected how much your employer was withholding for income taxes. That number should go up by at least 1 once you have a child because he/she is an exemption. Speak with your HR representative for further instructions if you aren't sure, they've seen it all before and can help you out.
There are a few other credits and deductions potentially available and most tax software packages will cover them. For example, there's an annual child tax credit worth as much as $1,000 per child depending on your income. It's not worth the effort to research it all if you intend to prepare using software, they know all about it.
Budget in Date Night
This is listed last but probably one of the most important — take care of yourself and take care of your partner. You'll be tired from waking up at night, or being woken up at night. You'll be stressed from trying to figure out what the baby wants and why he or she keeps crying. All of these will take a toll.
Just remember to take care of yourself, your partner, and your relationship. Maybe that means date nights once a week or you take a sick day and just catch up on sleep. Whatever it is, carve out the time for yourselves or it will never happen. If it doesn't happen, your relationship will suffer and no one wants that.
That's it (for now) — congratulations once again and good luck!