Financial prep to do now if you plan to have kids in the future
It takes a lot to be a parent. A lot of energy. A lot of patience. And — let’s be honest — a lot of money. Haven Life wants to lend a hand. No, we’re not available to babysit, but we’ve spoken to some experts (plus a few moms and dads) to get their advice on starting a family, raising a family, and yes, paying for a family. These are their stories, and this is our “Growing Family” series.
As a financial planner, I often meet with couples who are planning to grow their family in the near future and are wondering how much it actually costs to have a baby. I’ll be honest — the costs associated with physically having a baby coupled with the mounting expenses that come after your bundle of joy joins your family is enough to make anybody’s head spin. When I’m working with clients who are in the process of family planning, there are a few things I recommend they do to get their financial ducks in a row.
Understand your insurance
No matter the stage you’re in, get a clear understanding of what your health insurance will and won’t cover. Every plan is different, but in almost every case should address maternity care. Most employee plans will cover between 15-90% of your total costs in the months leading up to delivery day. The costs associated with delivery and childbirth are a bit different. Your first step is to get on the phone with your insurance provider and ask the following questions:
- What maternity services are covered, and what can I expect to pay out of pocket for appointments?
- Are breastfeeding support and supplies covered by my plan?
- What kinds of screenings (including ultrasounds), and how many, are covered?
- What’s my deductible, and what’s my out-of-pocket maximum?
- Are fertility treatments covered by my plan?
- What can I expect to pay out of pocket for delivery?
Depending on the type of health insurance you have, different percentages of your care will be covered. For example, if you have a High-Deductible Health Plan (HDHP), you may have to pay up to your out-of-pocket maximum.
Start saving now
Once you have a better understanding of your costs, it’s time to start building your baby-savings fund. You can get creative here. If you have a Health Savings Account attached to your HDHP insurance or a Flexible Spending Account (FSA), you can fund the account with pre-tax dollars. This is a fantastic way to lower your taxable income while still preparing for expenses. Keep in mind you’ll need to plan according to your due date for FSAs, as the funds you save will go away at the end of the year.
Beyond saving for what your insurance won’t cover, start saving in an online high-yield savings account for medical expenses and additional items such as:
- Nursery furniture and supplies
- New baby medical expenses that you could incur after the baby is born
- Ongoing diaper and food costs
- Cost of daycare
Build a financial buffer
It can be tough to estimate exactly what your first year with a new baby is going to cost. There’s no way for you to know whether or not there will be an expensive complication with your pregnancy, or whether your child will have any health issues. Kids make your finances significantly less predictable, which is why it’s important to start to build your buffer to prepare for the unexpected.
Most financial planners will recommend having 3-12 months’ worth of savings set aside for emergencies. When you have kids, it’s a good idea to shoot for a bigger reserve. This can help you to cover expenses in the event of a job loss, if you or your new baby face a hefty medical expense after an unexpected accident, or for unexpected expenses related to having a child with special needs. The buffer will provide tremendous peace of mind in what can be a stressful time.What Haven Life customers are saying:
Think about long-term expenses
Once you have your immediate savings needs buttoned up, it’s time to think ahead about future needs and income protection. You’re likely facing general lifestyle cost increases and staring down future big expenses like college, first cars, and weddings, as well as more immediate expenses like childcare. Now is the time to make sure your family is protected against the unexpected.
Term life insurance is a valuable addition to your financial plan and can help you accomplish several different things if you were to die:
- Help protect your spouse and kids from lifestyle changes or sharp income declines. 2. Help provide the funds your spouse might need to pay off your house or purchase a home.
- Help to fund your kid’s college expenses, future wedding expenses, and more.
FYI: You can purchase life insurance when you’re pregnant. Worried your pregnancy will affect your premium? Pregnancy isn’t held against you during a medical exam, and insurers tend to make adjustments for your changing body when it comes to certain data points, such as weight. Our life insurance rate calculator can help give a ballpark of what premium you might pay.
It can be smart to buy life insurance now, rather than waiting until you do have children. Not only do premiums tend to be lower the younger you are when you purchase a policy, but getting to-do’s done before sleepless nights is a smart strategy.
While you may be purchasing a policy to protect your future children, understanding how to pick a beneficiary is important. For example, it may be best to name a trust, rather than a minor child, as your beneficiary choice.
Everyone’s situation is unique
No pregnancy is the same, and each will come with varying price tags based on a variety of factors including your health insurance, your deductible, your delivery hospital, whether you have a natural or C-section birth, and whether everything goes smoothly once your new baby is out in the world. Everyone’s experience is so different, which equates to different “final costs” for each baby.
“I was on a high-deductible health insurance plan when I got pregnant and ended up having to pay $10,000 out of pocket for the delivery of my daughter when all was said and done,” says Anna, 34 years old and mom of a 3-year-old. “Luckily, I had anticipated this expense via some back and forth with my insurance company and had spent my whole second trimester taking on side projects for marketing clients, which gave me the money I needed to pay the bill. Anticipating and being able to pay the bill made things much smoother, and even though the cost was way higher than I’d like, I’m glad I avoided sticker shock.”
Anna’s experience isn’t unique — many people have HDHP coverage, and end up paying their full out of pocket maximum over the course of their pregnancy and as a result of the hospital bills for actually having their baby. Anna was wise to think ahead and plan accordingly.
However, there are some situations that are tough to plan for.
“My husband and I were so excited to have our first baby,” says Mary, age 27, “Until I woke up one morning feeling incredibly sick fairly early in our pregnancy. It didn’t take long to realize that I was miscarrying. The bill from the doctor and the hospital were several thousand dollars when all was said and done. We had been expecting to pay some hefty bills associated with childbirth but had no idea that going through a miscarriage would be just as notably expensive. We were lucky to have emergency savings in place before we started trying.”
Miscarriage and infertility can be incredibly expensive, and even if it’s not something you want to prepare for, it’s wise to have at least some savings in place early on in your pregnancy to mitigate or prevent the need to go into debt to cover unexpected bills.
Look beyond your finances
As a CFP® professional, I help clients financially prepare for growing their family all the time. Every once in a while I run into a case where, no matter how you crunch the numbers, it just doesn’t look like a couple will be “ready” when they want to be. As much as I wish having a baby was an easy decision that could be based solely on finances, it’s just not. Rather than feeling disappointed that the numbers indicate you aren’t quite ready yet, put some goals in place and get yourself on a timeline. It can be helpful to have a set savings goal before you start trying, adjust your insurance to gain better coverage, or look at cost-cutting measures that can help you maximize your money as you enter this new season of life.
The truth is, it’s impossible to be fully prepared to have a baby – no matter how much you have in savings, or how financially prepared you are. Having a baby is an incredibly emotional decision, and you can’t let finances completely dictate that choice. Talking to a financial planner can help you to put a plan in place to grow your savings and prepare yourselves against any unexpected costs that might crop up.
Mary Beth Storjohann, CFP® and Founder of Workable Wealth, is an author, financial planner and accountability partner working to help clients in their 20s-40s across the country make smart, educated choices with their money. Her recent accolades include the “Top 40 Under 40” by Investment News, “10 young Advisors to Watch” by Financial Advisor Magazine, and “10 of the Best Personal Finance Experts on Twitter.” She frequently appears on NBC as a financial expert and her expertise has been featured in The Wall Street Journal, CNBC, Forbes and more. Opinions are her own.
Haven Life Insurance Agency offers this as educational information. Haven Life does not offer investment or tax advice and encourages you to seek advice from your own legal counsel, investment advisor, or tax professional.