As a new mommy myself, I still remember the feeling of being so unsure about everything that was about to come.
I didn't know what my daughter was going to actually cost us. She came at a time when we didn't have a lot of room in our budget and we had debt.
Needless to say, we were stressed out about money and the unknown. Here’s our story . . .
When we found out I was pregnant, I was in the middle of interviewing at SmartPath for a financial coach position. I knew I needed to be upfront with them, even though it was so early in the pregnancy, I needed to know what their maternity leave policy would entail. Being a start-up, they actually didn't have one written yet and wrote a company policy because of me.
My husband and I were not married, but had been dating for about 6 years at that point. We decided to get married before the baby came and ended up planning our wedding in just 8 weeks. After the wedding planning madness and a short honeymoon, it was time to focus on planning for our daughter.
I was living alone in a 1 bedroom apartment, so we decided to explore buying a home together. To save even more money, we moved into my old bedroom at my mother’s house. Buying a home didn't work out, but we ended up renting a home on a 2-year lease and decided to consider buying a home again after the lease ended.
The workings of our financial plan for baby
First, I started laying out what I knew and didn't know.
- I knew I would receive at least 60% of my pay for 12 weeks.
- I knew what my health insurance deductible was.
- I knew my mother-in-law would babysit when I went back to work.
- I didn't know exactly how much diapers, formula, and clothing would cost.
- I didn't know what I would get from my baby shower.
Then, I wrote a long list of everything I wanted to do.
- Get life insurance.
- Save for her education.
- Not finance delivery costs.
- Free up money in our budget by paying off debt.
Attacking the unknown
I didn't know how much to budget for diapers, formula, and other monthly baby expenses that I didn't know even existed. I asked around, and decided that $400 a month would be high enough. This ended up being closer to $120 a month.
After our baby shower, I ended up spending about $200 on things I needed before she came.
Executing the action plan
We ended up each getting a $200,000 term policy for about $20 a month each. This was very important to me for a few reasons. I was the breadwinner and brought in more than 50% of our household's income. If something happened to me during delivery, I wanted my husband to be taken care of financially. I also found myself having mini panic attacks (due to pregnancy hormones) from the thought of my husband getting in a bad car crash randomly. Luckily neither of those situations played out.
We decided to wait until the following year to start thinking about saving for her education. I knew I wanted to open a 529 plan for her, but we didn't know if we could afford it yet.
To avoid financing delivery costs, I needed to save about $750. I was still on my mother’s health insurance plan, but also had insurance myself through my work. Because my health insurance plan from my work had a high deductible, I was able to open a Health Savings Account (HSA). I saved the full $750 pre-tax the month before she was born. Because this came off the top of my check, it actually only "cost" us about $550 due to tax savings. We were able to cover the lower paycheck by pulling from our emergency fund. After that initial investment, I setup an automatic contribution of $10/month into the HSA.
After she was born
Leading up to my due date, I worked from home for a few weeks. This saved us about $60 in gas and $200 in eating out expenses.
For the first few months our main baby expenses were diapers, formula (we had to supplement for a while), and odds and ends we didn't even know we needed.
Then there are the unplanned shopping trips to all of the fun baby stores. You know the ones with all the cute stuff you think you need and can easily reach $100+ on every trip. Remember to keep your receipts so you can return all that fun stuff you thought you needed and get things you actually need later on. It felt like we were returning unused stuff weekly and turning around and buying something else with the store credit. Luckily, we haven’t had to pay much “out-of-pocket” for many baby items yet, excluding diapers and formula.
I hope this helps you better plan for your little one!