How to Avoid New Baby Debt
Having a baby is expensive. Babies need a ton of new things – diapers, nursery furniture, clothes, milk (if you’re not breastfeeding), stroller, and carseat, to name a few things. Plus, your utilities will go up. You’ll be using extra water to for all the dirty clothes, burp clothes, and bottles. You’ll use extra electricity. And if you move to a bigger home or buy a bigger vehicle, there’s another added expense.
Parents spend almost $10,000 on the baby’s first year, according to a survey from BabyCenter.com. That’s $833 more each month than what you’re already spending. Can you afford it?
Your income may not keep up with all the extra expenses, especially if you’re taking maternity leave from your job. By law, your employer is required to provide you with 12 weeks of leave, but the law doesn’t require employers to pay you for that time. If you have disability insurance, you may get a percentage of your pay, but keep in mind you’ll be using that decreased income to pay for increased expenses.
The financial strain can get more serious than you might have imagined. In an article on baby debt, TheNation.com cites a 2006 statistic that 7% of bankruptcy filers named the birth of a child as the cause for their bankruptcy. Knowing that, you should start getting your finances ready for the new addition as early as possible to avoid financial difficulty.
Budget for the new baby’s expenses. Don’t wait until the baby comes to look at your finances, create a baby budget based on the expenses you anticipate. Have a clear idea of how much money you’ll spend each month once the baby arrives and to see whether you can afford it or what you’ll have to do to ensure your income at least meets your expenses. Baby Center's new baby calculator can help you plan for your baby's first year.
Adjust your lifestyle to account for new monthly expenses. You may be able to cut out some other spending to make room for the baby’s expenses. Look over your current budget to see which expenses you can get rid of. Make the changes before the baby is born and you’ll be able to start saving up for your maternity leave.
Check your medical coverage for maternity benefits. Learn what prenatal expenses are covered by insurance. You may have some out of pocket expenses even if your health insurance covers the doctor’s visits and delivery charges. You may be able to save money on prenatal care by negotiating with your provider or opting-out of some tests and procedures.
Make sure you add your new baby to the health insurance soon after birth. Your rate may not change if you already have a family plan. Check with your employer to learn the cost of adding a dependent to your health insurance.
Ask human resources about your employer’s disability coverage. If you’ve enrolled in disability insurance, you may receive a portion of your wages while you’re on maternity leave. Check with your HR representative to find out how much of your pay you’ll receive and for how long.
Assess your ability to take unpaid leave. The Family Medical Leave Act gives new mothers the ability to take up to 12 weeks of leave time, during which time you may not receive any pay. You must have a plan covering your expenses during that time. Some mothers choose to take a 6- or 8-week leave to minimize income loss.
Prepare early. Now is a good time to build your savings account. Each month put as much money in your savings as you can. The money can help you supplement your income while you’re on leave, cover unexpected expenses, and help pay for uncovered medical bills.
Look for ways to cut costs on baby expenses. Don't buy expensive clothes or shoes since babies grow out of them quickly. Once your baby can eat solid foods, make your own from fresh fruit and vegetables rather than purchase jar food.
Try not to rely on your credit cards or loans while you’re on leave. An income shortage is dreadful, but using your credit cards to tide you is risky. Once you start working again and you’re getting your full income, force yourself to live on your income.
Make arrangements for child support if you’re a single parent. However, try to live off only your income until you actually start receiving court-ordered child support payments.
Shop around for childcare that will fit in your budget. Childcare can get very expensive depending on where you live. The daycare you fall in love with might be more than you can pay for. Explore other childcare options, like having a friend or relative care for your child, using a family-run day care, or hiring a babysitter.
Check with your local human resources department to see if you qualify for any government benefits or programs. These can help supplement your income or pay for food, childcare, or housing until you can afford to do it on your own.
Think long and hard before you quit your job. Many new parents consider leaving their jobs to stay at home with the baby. Sometimes it's out of a desire to spend more time with their newborn or perhaps it's out of necessity - childcare costs may make it hard to continue working. The loss of an income could be disastrous for your family so think carefully before you quit your job to stay at home.