Best case – you and your partner are planning for a baby and start saving prior to finding out you are having a little poop monster. Second best case – you and hopefully your partner find out you will be having a munchkin in 9 months. Though it’s a surprise, you’re pregnant and find out early in the process. Worst case – you find out you’ve been pregnant for the last 9 months (have you been asleep – SERIOUSLY???) and something feels different about this poop than all others before it.
Joking aside – here are some tips for no matter what stage you are in saving for that upcoming baby. My wife and I are happy to say we have made it to the other side with our first baby boy who is now ~ 4 1/2 months old.
PILE UP CASH
I hate to sound like the bad guy here, but you don’t need that new dining table or living room flooring or especially that new family vehicle (#anythingbutaminivan #teamsuv) while your wife is 5 months pregnant. Nesting is a real thing, but that doesn’t mean you need to make stupid financial decisions while you should be saving for a happy and healthy delivery of a new momma and baby home. In the interest of full disclosure, we have two medium sized 4 door sedans so you can make it through in these cars, especially with 1 baby. Go on a babymoon, enjoy time together, do whatever, just don’t make rash emotional decisions with your finances just because a baby is coming. And pile up cash. Lots of it. As much as you can find. In all honesty once you get in a groove post-baby, the cost of diapers and other misc baby stuff is mostly offset with the fact that we go out WAY LESS than we used to. My biggest concerns were and continue to be unexpected medical costs + daycare, daycare, daycare.
KNOW WHAT SHORT TERM DISABILITY, HOSPITAL INDEMNITY, OTHER INSURANCE PLANS MEAN TO YOU
We had a scare last year when we accidentally forgot to add short-term disability to my wife’s benefits at the end of 2015 for the 2016 calendar year. We decided we wanted to pay the premiums for STD (short-term disability – keep it clean here guys) because it’s basically an insurance policy for when you get pregnant or obviously have any other ailments come up. In her instance the breakeven is 3 years. If we go more than 3 years without using STD it “costs us money.” So while we are in our baby-making years (ew. ha!) we will likely extend STD because mathematically the most likely issue she would have to cause a short-term disability is being pregnant. It helped supplement income for the 3 months she was out but definitely took planning.
Hospital Indemnity was another oddball insurance policy that I decided to look into and purchase through my wife’s employer. It’s basically an insurance policy that pays out with most hospital stays. Since we knew we wanted a baby, we knew a hospital stay would be
likely a definite when that happens (ain’t no babies being born in my bathtub). The breakeven point on this was around 6 years so it actually worked out well for us too. Her Hospital Indemnity plan cost ~ $250/yr and paid out $1,500 upon baby arrival – not too shabby!
Again – once we get past babies I’ll probably drop most of these supplemental insurance plans, but all I’m saying is make sure to look to see how these things fit into your specific situation. And most importantly, these should NOT make or break your financial plans. STD and Hospital Indemnity were nice little financial boosts but not game-changers for us. And seriously most importantly, you are gonna have to stay on the insurance companies to make sure they pay you. For some reason they really don’t like paying out (DUH!) so stay on them, call them, bitch at them, be nice to them, just don’t stop fighting for yourself until you get what you are due because no one else will…
PLAN FOR MEDICAL COSTS
Medicine has to be one of the few expenses in our lives where it’s completely socially acceptable that we just accept the cost and we pretty much say “it is what it is.” Believe me I get it – my wife is a nurse and sometimes medical events are literally life and die. But many times medical events are planned (cough *you’re pregnant for 9 months * cough). You should get in touch with your medical provider and hospital and they should be able to tell you a range of expense outcomes based on your specific insurance and situation. Medical care providers and hospitals have entire departments to make sure they get paid. Part of this is also for you to work with these folks to make sure you understand what the cost of their services are going to be for you. If you don’t like what a hospital has to say, pick another! There are MANY hospitals that deliver babies every single day. Service and quality of care is important. Understanding how you are going to be billed is important too.
Also try to game-plan medical plans and what makes the most sense. It might be that you and your partner are on the same medical plan and if so your baby will be on the same plan. But for us – my wife and I are each on our employer’s medical plans. I have a high-deductible and contribute to a heath savings account since I barely ever go to the doctor. She is on a lower-deductible plan and pays higher premiums. We decided to make sure baby is attached to her plan and her lower deductible likely saved us THOUSANDS of dollars this year. Since we file taxes jointly, we could also use my HSA funds that I’ve been accumulating for the last few years for mom and baby medical expenses.
LOOK INTO DAYCARE SPENDING ACCOUNTS
If both you and your partner are working post baby get ready for a large bill for daycare. Depending on what you are looking at your yearly cost could easily hit 5 digits. There are many choices between in-home, day-care centers, and nannies and it’s a good idea to start looking early to see what you like and what you really dislike. From what we’ve looked at – daycare is one of those things that you pretty much get what you pay for. We went to some cheap facilities and I don’t think I want my kid at that place for 40-50 hours a week. We ultimately decided to go with an in-home daycare for now. Basically a third grandma! Except this one is much more expensive.
If you know you are going to be using daycare for the whole upcoming year look into a dependent care flexible savings account. There are rules to it – but you can contribute up to $5K/year. This money basically becomes tax-free payments for daycare. So you are saving up to ~ $1,250 on taxes – every little bit adds up!
For more information on Dependent Care FSA – I like the following links:
P.S. – remember that dependent care FSA funds are subject to the “use-it or lose-it” rule. So make sure if you want to take advantage of this that the funds will be used on daycare expenses occurred in that year!
RESEARCH 529 PLANS
There are a lot of scary articles on the inter webs predicting ridiculously expensive higher education bills in 18-20 years. I tend to think that these viewpoints are a bit doom and gloom and I agree with Mark Cuban’s take. Higher education costs ARE a massive bubble and the tuition rate increases are probably not sustainable. What that means for the future, I don’t know exactly. Hopefully more reasonable college tuitions by the time 2036 rolls around. But who the hell knows. All I know is I want to at least have something saved for Baby TFG when it comes to go on college visits. If you have a little bit of extra cash that you can spare, look at opening up a 529 plan for your baby. 529 plans are a way to start saving for higher education for kids. There are two main types:
- Pre-Paid Tuition Plans
- College Saving Plans
Pre-Paid Tuition Plans are less flexible in that you are basically purchasing credits usually for a specific state. For example, if I purchased a pre-paid tuition plan for the state of Texas, I am pre-paying for my child’s future education in a public university in the state of Texas. You can see how that is limiting because there are a lot of places that are NOT Texas.
I chose to go with a College Saving Plan (the second choice) which basically acts like a 401K. As I deposit money into the account, it can grow in different index or target funds and then those dollars can be spent tax-free in the future. There are TONS of great options for these types of 529 plans. Here is a link to a great list: http://clark.com/education/clarks-529-plan-guide/
As an added bonus – if you are in a state tax state (I am not) than 529 contributions may be tax deductible. I chose to go with the age-based Utah Educational Savings Plan. This means as we get closer to college-time our expected investing time horizon is shorter so the fund moves from equities to more bonds and cash.
Hope these tidbits help you financially prepare for your baby.
P.S. – make sure to go on a tour of the hospital or at least know where you are going to park on the big day! Don’t want to be having a baby in the parking garage!!!
Until next time.