Checking Your Finances Before You Have a Baby

If you're serious about starting a family in the foreseeable future, there's no time like the present to get your financial house in order—to consider how starting a family is likely to impact your financial situation over both the short term and the long term. Here are the key issues you and/or your partner will want to zero in on as you prepare to embark on Operation Baby:

Are you carrying an excessive amount of debt? If you're juggling student loans and car loans and carrying balances on more credit cards than you're prepared to admit, this is the time to focus on debt reduction. Pay off your debts as aggressively as possible and consider getting rid of all but one "emergency" credit card (ideally a no fee, no frills credit card that charges a rock-bottom interest rate).

Are you paying an excessively high rate of interest on any outstanding loans? If you're paying an exorbitantly high rate of interest on some of your loans—or, even worse, carrying a huge outstanding balance on your credit card—you might consider refinancing some of your loans at a more attractive rate and/or applying for a lower-interest debt consolidation loan to save yourself some money on interest charges.

Do you have an emergency fund that is equivalent to three to six months worth of net income? While you might have been willing to fly by the seat of your pants in your pre-baby days, now that you're assuming responsibility for another human being, you will want to start building up a small nest egg. That way, you won't be caught totally off guard if you happen to lose your job or find yourself faced by some other unexpected financial crisis.

Are you at least breaking even on a month-to-month basis? There's no doubt about it—this is the most painful part of the financial tune-up process: the financial world's equivalent of paying a visit to the dentist. But it's really important to get a handle on whether or not you're managing to balance your budget each month. The only way to do this is to pull out your financial paperwork (bills, statements, etc.) and analyze your income and expenses on a month-by-month basis. Then, after you tally up your income and expenses, you'll have a sense of whether or not you're keeping your head above water financially. You will also want to consider what budgetary modifications may be in order when baby makes three. (If your income is going to drop significantly, you're likely going to have to have to tighten things up on the expense side of the ledger, too.)

Do you have an up-to-date will (or any will at all, for that matter)? If you've been making like Scarlett O'Hara and postponing that will-writing exercise until tomorrow, we've got news for you: Tomorrow is officially here! You see, once you have dependents, you are responsible for ensuring that they will be taken care of should anything untoward happen to you. If you were to die without a will, you would give up your right to designate a guardian for your child—reason enough to set up an appointment with your attorney today.

Do you have enough life and disability insurance? You should also plan to review your life and disability insurance coverage to ensure that your coverage is going to be adequate to meet the needs of your growing family. You may be surprised to discover just how much coverage is required to replace your contributions to the family. In addition to replacing any income you generate, your life and disability insurance needs to cover your share of all current and future household expenses, including mortgages, loans and unpaid debts; the cost of your child's education; childcare expenses; and—in the case of life insurance—such final expenses as funeral and burial costs, taxes, probate fees and so on. If you discover that you don't have adequate coverage, you'll want to get in touch with an insurance agent so that you can crank up your coverage sooner rather than later.

Is your health coverage adequate? The basic health coverage that met your needs so well in your pre-baby days may not be quite so ideal as you switch into mother mode, so size up your health coverage as well. Basically, you'll need to decide whether you're looking for a health maintenance organization (an HMO is a nonprofit cooperative that provides medical care to individuals for a fixed fee each month provided that you choose a health care provider or healthcare institution from within the network); a point of service plan (a healthcare plan that provides you with the built-in service guaranteed by an HMO plus the flexibility of seeing a doctor outside the network); a preferred provider plan (a network of doctors that provides discounted care to members of a sponsoring organization such as an employer or a union); or an indemnity plan (crème de la crème health coverage that allows you to choose your own doctor and hospital, but that tends to be prohibitively expensive).