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Financial Nesting: 4 Steps to Budget for Baby Expenses

Going through the four steps below can force you to not only get some really important information in order before baby comes, but also help walk you through a process that can make you a lot more confident in how money decisions will affect your new family.

Step 1: Take stock of existing financial benefits

Health Insurance Coverage
Dig into your health insurance coverage and find out how much will be required to cover out of pocket. Contact your insurer to get a full list: co-pay, deductible, what was included for hospital stays, what tests were covered and at what amount, AND what your new policy will look like when your baby arrives.
Once you have a rundown you can estimate what would be expected to pay out of pocket. This is helpful because toward the end of pregnancy, as the bills started coming fast and furious, you’ll know exactly what to expect.
Family Leave Benefits
Get a rundown of exactly what your employer offers for parental leave benefits as well as what programs your state or city may provide.
Dependent Care Flexible Spending Account or Tax Credit
If you are planning on hiring child care once your baby is born, your employer might have a flexible spending account to help manage some of the costs of these expenses. In addition, there is a child care tax credit that you may be able to take advantage of. You can spend some time looking at benefits offered by your employer asking an accountant what credits you might qualify for.

Step 2: What would make you feel more comfortable?

Disability and Life Insurance
This is one of those topics that feels like adulting starts to get real. Maybe you’ve had experience with life and disability insurance, but haven’t paid much attention to it. With a baby on the way, it’s time to make sure you’re as covered as you need to be.
Spend an evening pulling up your policies, talk about options, and get estimates to increase your coverage. This is probably going to bump up your monthly expenses, but it will be peace of mind knowing that you’ll have it taken care of.
Savings Cushion
You likely know that having an emergency savings account is key to protecting your financial health. But does that savings account need to change when you have another person depending on you?
Most experts agree that you should have 3-6 months worth of expenses tucked away into a savings account. When you have a new child joining the family and a lot of unknown expenses and lifestyle changes coming down the road, you may feel more comfortable with a cushion at the higher end of that range.
If you have any lingering debt that you know you want to get rid of before your new baby is born, this is the time to get focused on your repayment options. Get a handle on exactly what you owe, how much you want to pay off before your baby is born, and create a plan for the highest priority debt. Perhaps a chat with Member Services to define your goals could get you on a path that will make you more comfortable when baby arrives.

Step 3: What are the big things that are coming down the road?

How Will Your Income Change?
Depending on your leave benefits and how much time, if any, you decide to take off, your income may or may not change once your baby arrives. Most people are usually faced with the decision to work (and earn) less, or spend more on child care. If you haven’t decided what your exact plan is, this is a great time to look at your income and weigh your options.
What Are the Big One-Time Expenses?
Even if you have a shower given by extremely generous friends and family, there might be some big, one-time expenses that you’ll end up paying for. This could be furniture, any household renovations or refreshing that you need to do, or any courses that you want to take to help you prepare for life with a baby.
What Recurring Costs Need to Be Added?
There are a few different places where you might see your monthly expenses rise each month:

  • Childcare costs, especially if you are returning to work after the birth of your baby
  • Housing expenses, if you need to move into a bigger home or to a location that’s more convenient for a family.
  • College or education savings, if it’s your goal to contribute to your child’s education costs
  • Other items, from diapers to food, that will be added to your monthly household expenses

To keep from getting lost in the details, focus on the bigger expenses and then just give yourself a very rough monthly estimate for everything else.

Step 4: How do you make this all fit?

Making this new financial reality work for you is going to mean that you  either need to make more or spend your money in smarter ways – or both.
Make More
If you have been meaning to negotiate your salary at work and ask for that raise you know you deserve, use your expanding family as additional motivation to have that conversation.
Just remember: don’t negotiate your salary or your rates because you’re having a new baby –  negotiate because you deserve it.
Live On Less, Early On
By going through step 1-3 above, it might become clear that your biggest financial challenge is going to be paying for childcare. Go through your expenses and start removing any things you can live without: a meal subscription service that you’re not that excited about anymore, a workout app, or an over-reliance on takeout food might be the easiest things to cut first.
Set up a monthly transfer to a savings account BEFORE baby for what could be used for extra expenses for future childcare, 529 plan contributions (once you have an SSN), and a few other things.  With this money moving out of your checking account and into savings, you’ll be able to see what other lifestyle changes will be needed in order to afford these new monthly payments.
It might take a a few months to find your rhythm with living on less, but with a few lifestyle adjustments, you’ll be able to make better choices with your spending. And, as a bonus, the money that you’re saving each month in your baby savings account can cushion your reduced income (and a lot of meal delivery) those first few months together.
If you or your partner aren’t planning to hire childcare but are planning to have one person stay home, use the same approach but transfer one person’s income into savings each month. You’ll get used to living on one income and be able to see exactly what has to change to make it feel easier.

What financial prep did you do before baby? Tell us in the comments!