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Adding a baby to your family is an experience unlike any other. But while you may be excited to welcome that bundle of joy, you should know your financial picture will likely change once your little one arrives. Here are a few important moves to make to prepare for a new baby in the coming year.
1. Understand your employer's parental leave policy
Under the Family and Medical Leave Act, you're entitled to 12 weeks of unpaid leave within a 12-month period to care for a newborn. But your employer may have a parental leave policy on top of that -- one that actually pays you while you're out of work.
Find out what leave you're entitled to and what options you might have for extending it. For example, perhaps you have a few vacation or sick days lingering. Rather than use them up by the end of 2020, you may be able to carry them into 2021 and use them to extend your leave or boost your paychecks while you're away from the office.
2. Apply for life insurance
If you don't have life insurance, having a baby on the way should prompt you to get some. You don't need an expensive policy with a $1 million death benefit. Rather, you can buy an affordable term policy that covers two or three times your salary in the event of your untimely demise. That sum could tide your family over for quite some time without costing you a ton of money in annual premiums.
3. Boost your emergency fund
Having a baby won't necessarily increase your risk of getting hit with unplanned bills. But with another mouth to feed and another child with the potential to get hurt or sick, it never hurts to have a more robust emergency fund. Work on boosting yours while you can. At a minimum, you should aim to have enough money in your savings account to pay for three months of bills.
Another thing to keep in mind is that you might think you'll be ready to return to work once your parental leave is up, only to feel the opposite when the time actually comes. More cash reserves could buy you the option to extend that leave without worrying about falling behind on your bills.
4. Redo your budget
Your household budget is likely to look very different once there's a new baby in the mix. It will cost money to feed, clothe, and diaper that child. You may also need to account for the loss of a salary, if you or your partner is opting to be a stay-at-home parent, or the cost of child care, which could be exorbitant.
Figure out what your income and expenses will look like so you're prepared for what lies ahead. And if you see the numbers don't look good, you'll know to make some changes. For example, if hiring a nanny proves too expensive, you may need to choose a day care center instead. Similarly, you may see that you can't afford to lose a full income, in which case you or your partner could seek to cut down to part-time work rather than leave the labor force completely.
Having a baby is a wonderful thing, but it could shake up your finances significantly. These moves will help you better prepare for your new addition so you can enjoy your time together with much less stress.