Do you ever feel that longing in your heart?
You love your DrSpouse so much that you’re ready to add another human being to that love.
Yup, that’s called baby fever.
But you’re feeling unsure when is the best time to have one.
Having a family takes so much careful discernment. You have to review your finances, health — and if you have other children — how many years you should space them apart.
There are so many moving parts to consider.
Medical families have a few additional issues to think about. With the match, away rotations, and job moves, you move away from support systems, solo parent most days while your DrSpouse works “80” hours a week, and change jobs, which all create uncertain financial futures and burdens.
How’s that for a challenge?
Every family is unique and there is no universal advice for the best time to have them that applies for everyone.
Our parenting experience is financially diverse. Each time we had a baby, my husband had a different employer and we were on different insurance plans. Baby #1 came in medical school, Baby #2 during residency, and Baby #3 during research fellowship. That meant I spent hours re-learning how to optimize our finances every time I was pregnant.
Let me help
If you are also planning or expecting a baby, let me pass on tips from our experience to you. I will walk alongside you and give you 7 practical tips on how to be financially prepared for them.
Each of these tips could have its own article. Instead, I’ll be brief on each of them.
Here are those tips.
As you are planning to conceive
#1. Buy own-occupation disability insurance.
What is it: Own-occupation (“own-occ” for short) is a very specific type of individual policy. It covers your DrSpouse if he can’t do the duties of that occupation that he’s trained in. This is very important for doctors because doctor pay can vary depending on clinical or non-clinical work, and from specialty to specialty. You want your DrSpouse to be paid at the highest salary he’s trained to do.
For example, if your DrSpouse is a cardiologist, becomes disabled, and can no longer perform cardiology work — own-occ will pay out the full benefit at the salary he was making as a cardiologist even if he switches into less paying positions like primary care, research, or teaching.
Why you need it: Your DrSpouse is actually likely to use disability insurance at least once. The sooner you buy it, the lower the rate.
If your DrSpouse is a female doctor — I can’t stress this enough — get own occ before she conceives. Even a common diagnosis such as gestational diabetes can make this too pricey or even impossible to buy.
Golden nugget tip: The disability insurance your DrSpouse gets offered at work is a group policy and unlikely to be true own-occ. It’s also unlikely to be portable, meaning when he leaves the employer, he can’t take that insurance policy with him. It doesn’t mean group disability policies are bad, it just means it doesn’t offer enough protection. Your DrSpouse should get both the group disability policy from work along with an own own-occ policy, too. Double up.
Call-to-action: The only way you can buy own-occ disability insurance is through an agent. The best way to find the best policy is to find an independent agent (read: can sell insurance from any company) who will give you an illustration on all six of these companies that offer true own-occ policies so you can compare side by side. The six companies in no particular order are:
- Mass Mutual
- Ohio National
This agent doesn’t have to be local. I have a Recommendations page with agents whom I trust.
#2. Buy term life insurance on both of you.
What is it: Term life insurance protects your family against the loss of your income if either of you dies. You pay the insurance company a premium and if you die before the length of the term is over, you get a lump sum payment. If you die after the end of the term, you get nothing. The idea (and hope) is that at the end of the term, you will have retirement savings large enough that you become self-insured.
Why you need it: It’s important to get a policy on both of you as soon as you are expecting. Even if you are a stay-at-home parent, your work has monetary value — worth a lot actually — and your DrSpouse will need to hire somebody to do your work if you’re gone.
Golden nugget tip: Stay away from whole life and its “cousin” universal life. These mix investing and insurance and you end up being bad at doing both. Instead, separate the two: buy term life insurance for protection purposes, and invest in vehicles like 401k/403b, 457, and IRAs.
Call-to-action: To find the best policy, find an independent agent and get the cheapest one that you need. Consider laddering several policies to save money. This agent also doesn’t have to be local and I have a Recommendations page with agents whom I trust.
#3. Research your maternity leave plan.
What is it: Maternity leave is a guarantee where you can take time away from work to have/adopt a baby and still come back to your job. What gets confusing is whether it’s paid or unpaid. The answer: it depends. In the USA, you do not get paid by the federal government while on maternity leave. The Family and Medical Leave Act (FMLA) gives you up to 12 weeks of unpaid maternity leave if you have worked at your present company for at least a year. Now, if you live in any of these four states, you get paid maternity leave: California, New York, New Jersey, and Rhode Island. Beyond that if you’re lucky, your city or employer may offer good maternity leave plans.
Why you need to do this: As any parent can tell you, maternity leave is not a vacation, it’s just another type of work — and a very challenging one, at that. But if you know if you are eligible, how long it is, and if it’s paid or unpaid, you can try to save money to account for bills during this time.
Call-to-action: Check with your employer for details.
#4. Update your student loans.
What is it: Your DrSpouse will start owing Uncle Sam what he borrowed as soon as he finishes medical school. Income-driven payments are monthly and calculated based on the federal poverty level and the number in your household.
Why you need to do it: The federal government counts unborn children when counting the number in your household. The higher the number in your household, the lower your monthly student loan payment amount. You don’t have to wait to give birth to update the number of your household on your paperwork.
Call-to-action: You can indicate your new family member on your paperwork by logging into your FedLoan account and updating the form to increase the number of your household by +1.
#5. Write or update a will.
What is it: Once you have a baby, you need to have a guardian in place for him or her and instructions on how to distribute your assets in case you and your DrSpouse pass away.
Why you need to do this: If losing parents isn’t hard enough, your baby may have more heartaches if you don’t plan properly like the Baudelaire kids did in the Unfortunate Events book series. Without a will, the court may appoint somebody as guardian of your baby and it may not be the person you had in mind. Also, your baby may have delays getting your assets, or your baby’s guardians may be unclear on your wishes for your assets.
Golden nugget tip: A will is public so the details and amount can be known to anyone, including jealous or angry relatives.
Call-to-action: Ideally, you want an estate attorney to write a will for you. But if you’re on a budget, you can get a simple, straight-forward one from LegalZoom until you can afford to do it properly.
When you deliver
#6. Contribute to 401k/403b, 457, and IRA for your retirement.
What is it: 401k/403b and 457 are employer-sponsored plans to save for retirement. An IRA is an individual retirement plan outside of your employer. These reduce your taxable income.
Why you need to do this: Your baby may be taking care of you and your DrSpouse in old age. But don’t make it harder by not providing him or her with the funds to do so. Save early and often for retirement.
Call-to-action: If you haven’t started a retirement account yet, check with your DrSpouse’s employer for plans such as a 401k/403b or 457. For IRA, I recommend brokerages such as Fidelity, Schwab, or Vanguard. Call their customer service and they will be more than glad to take your money and walk you right through it.
#7. Consider a 529 plan.
What is it: A 529 plan is a place where you can put savings for your baby’s education. While 529 plans used to be thought of as being used only for college tuition, the 2018 tax reform makes it so that 529 plans can now also be used for private school and homeschooling up to a certain amount. These plans are great because they can be a thread of a very complex tapestry you can weave to lower your taxes. The money grows tax-deferred, which means you don’t pay taxes while it’s growing. When you are ready to take the money out, it is tax-free. Many states also allow you a deduction for contributions up to a certain limit.
Why you need to do this: On the priority list, this is last. You should save for your kids’ education only if you are on track for retirement savings. Alternatively, you can pay outright for these things with cash flow as they come up. But you are on your own for retirement, and you don’t want to miss out on the power of compounding of your savings.
Golden nugget tip: If education is a big goal, you can ask family members to contribute to your 529 instead of accumulating toys from birthdays and holidays.
Call-to-action: Once you get your baby’s social security card in the mail, you can open a 529 plan in your name. When the account is in the parent’s name, about 5.6% of the value of the account is included in the Expected Family Contribution (EFC) for financial-aid purposes. When the account is in your baby’s name, then 20% is included. The greater the EFC, the lower the financial aid available to your baby. Each state has a 529 plan and some are better than others. While you are figuring out which is the best one to choose, the easiest and fastest way is to check your own state plan first. If your state offers any state tax deductions, consider that. If yours doesn’t (I’m looking at you California) — then consider Utah and Nevada because they are top rated plans. You can compare all plans side by side at Saving For College.
- Buy own-occupation disability insurance.
- Buy term life insurance on both of you.
- Research your maternity leave plan.
- Update your student loans.
- Write or update a will.
- Contribute to 401k/403b, 457, and IRA for your retirement.
- Consider a 529 plan.
Having a baby is life-changing in many ways. There is a learning curve as you learn everything from how to feed your baby to handle your finances.
Be prepared. Take action during every step of your pregnancy to make sure he or she has the best chance at life.