Financial Tips When Preparing For Your First Child
I will never forget the moment I learned that my wife was pregnant. It was something that we had discussed many times before, but it still managed to surprise me. As I drove to work that day, I thought, "how in the world am I going to focus on anything else today?" The next few weeks were filled with baby announcements, exciting talks of baby names, discussions on what color to paint the nursery, and dreams for our-soon-to-arrive little one.
Then it hit me one day: How much does it COST to have a baby? It is obviously not free, but costs can easily be overlooked when making family plans. According to a 2019 report by Business Insider, the average cost of having a baby in the U.S. is $10,808 — and which can increase to $30,000 when factoring in care provided before or after pregnancy. The cost of a cesarean section or complications during delivery can often further increase that bill.
Luckily, there are a few financial moves that you can make to be sure that you are prepared for the arrival of your newest addition to the family:
- Check your health insurance options during open enrollment. Health insurance often covers a significant amount of childbirth costs, but you will want to know exactly what you are responsible for. If your employer offers multiple plans, be sure to investigate what your out of pocket maximums are for each. Knowing that you will be facing a large hospital bill in a few months, it usually makes sense to choose the plan with the lowest deductible and out-of-pocket maximum. The only trade-off: you will want to make sure you can afford the new, most likely higher, monthly premiums taken from your paycheck.
- If you are enrolled in a High Deductible Health Plan, be sure to contribute to your Health Savings Account (HSA) that comes with it. In 2020, individuals can contribute up to $3,550 and families up to $7,100. All contributions are pre-tax, which reduces your taxable income for the year. To make it even better, HSA funds roll over year after year, so it is never too early to begin contributing.
- The new expenses that come with a baby can often be a shock to many families' cash flow. The added cost of diapers, formula, clothes and doctor check-ups can easily be a few hundred dollars a month. A simple way to prepare is to use the envelope system. Whether it is $20 or $1,000, determine what you can set aside consistently each paycheck, and put the cash in an envelope with your baby's name on it. When the baby arrives, you will have an earmarked set of funds that you can use for baby expenses over the first few months as you adjust to your new budget.
- If you are beginning to consider saving for education, a 529 plan is a natural place to start. In 2020, the state of Georgia gives a state tax deduction on the first $4,000 contributed to the plan annually or $8,000 for joint filers. Also, savings grow free of federal and state taxes, and withdrawals are also tax-free if used for qualified education expenses. In addition, the Tax Cuts and Jobs Act now allows for withdrawals up to $10,000 per year to be used for elementary and high school tuition if you are considering private school, and grandparents can contribute if they wish as well.
You may also want to consider asking for hand-me-downs from family and friends whose children have outgrown their baby clothes (they will thank you for the closet space), as well as begin to consider your options for childcare if both parents are employed full time.
As you enter this new and exciting chapter of your life, it is important to remember that a few months of preparation can minimize stress and keep the focus on the health and happiness of baby and mother. Use the tips above to set yourself up for success, and most importantly, enjoy as much time as you can with your new addition!