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5 Money Moves to Make Before You Have a Baby

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Molly Triffin
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Photo by Daniela Cuevas Castillo

If you’re planning to start a family, your new baby might not be the only cause of sleepless nights. The financial toll can keep you up, too.

A 2017 survey found that millennial parents drastically underestimate the cost of adding a family member. Half think they’ll spend less than $5,000 the first year. The reality: For a middle-income family, average costs for the first year of a child’s life are a bit more than $12,500, according to the latest USDA data .

That’s daunting. But making these five money moves in advance can help you feel ready.

1. Figure out how you’ll handle money while you’re on leave

Look at your benefits package for details of your parental leave policy and short-term disability coverage. Depending on your company, you might also be able to tack on vacation and sick days, says Shaun Melby, certified financial planner and founder of Melby Wealth Management in Nashville.

Shore up your emergency savings to help cover any unpaid or partially paid leave time. As of March 2018, just 17% of all civilian workers had access to paid family leave, according to the Bureau of Labor Statistics—and even if you have some paid time, it may not be enough.

2. Tally future expenses

Try to anticipate some of the baby-related expenses ahead of time so you can plan accordingly.

Although it’s a one-time cost, giving birth can be a significant expense, for example. “Look at your health insurance plan’s summary of benefits to get an idea of what they cover ,” says Ryan Frailich, CFP, founder of Deliberate Finances in New Orleans. “Prepare for the worst-case scenario—reaching your out-of-pocket maximum.” After that, your insurance should pay for all covered expenses.

In terms of ongoing costs, child care can be the biggest. In many states, annual day-care fees for an infant can run into five figures—even eclipsing public college tuition , according to Child Care Aware of America. Start assessing your options as soon as you know you’re expecting. There can be lengthy waitlists for an open spot, and you don’t want to be stuck if or when you want to go back to work.

When it comes to baby gear, 71% of parents wish they’d spent less on their baby during year one. So make sure to shop wisely. “Gifts can help, as can shopping secondhand, but you’ll still spend around $500 to $1,000 on [gear for] your first child,” Frailich says. Diapers, clothing, food, and other baby items can pad your monthly budget by roughly $100. 3. Revamp your budget Once you have a sense of what new bills you’re in for, strategize how to offset that additional expense. Start by using an app like Mint or Personal Capital to analyze where your money is currently going. “It’s important to sit down with real numbers rather than estimating,” Frailich says. Then see what steps you can take before baby’s arrival to cut back or save for those upcoming bills. “This is your new financial reality, so better to prep now when you’re not sleep deprived and have time to adjust,” he says. More from Grow: 5 Money Moves to Make Before Getting Married 4 Money Moves to Make Before You Move In Together 4 Money Moves to Make After You’re Married 4. Look into life insurance The aim is to make sure that in the event that one partner dies, the surviving parent has enough set up to care for your child. Affordable term life insurance , which guarantees coverage for a specific period of time, can fit the bill. “Look for a 20-year policy that will expire once your child is out of the house,” says Kyle Hill, CFP, founder of Hill-Top Financial Planning in Kansas City, Missouri. 5. Consider a 529 college savings plan If you think college is in your baby’s future, an early start puts you in the best situation to let your money grow for those eventual tuition bills. A 529 college savings plan can be a powerful tool to help you. “Think of it like an IRA for college savings,” Melby says. “Your contributions grow tax-free as long as withdrawals are used to pay for qualified [education] expenses.” Before baby is born is a great time to start comparing your 529 plan options . Just don’t prioritize future tuition savings over more important concerns. “Make sure you’re on track with your retirement nest egg, new baby budget, and long-term financial goals,” Frailich says. Check out 5 Money Moves to Make Before You Buy a Home