How to Financially Prepare for a Baby

It’s one of the most exciting times in your life for many people: that positive pregnancy test. As an expectant parent, you probably feel joy, anticipation, and a bit of trepidation.

Whether your personal finances were in order before the baby, or not, you’re soon to face a whole new set of financial concerns – plus a laundry list of things to do, buy, and prepare. (Speaking of laundry, there will be plenty of that in your future, too!)

From baby gear to diapers, from healthcare to child care – and eventually cars and college – preparing for a baby means revisiting your budget and getting the right financial planning in place for every stage of your child’s life. Fortunately, it can be done with the right guidance.

mother with newborn baby

9 Steps to Financially Prepare for a Baby

Preparing for a baby financially requires careful planning and mindful spending. Whether you are new parents or adding another member to your family, understanding how to financially prepare can bring peace of mind. We have broken the process down into nine critical steps:

1. Understand the Costs Involved

Bringing a new life into the world is an exciting time. However, it’s crucial to understand the costs involved before your baby arrives, from immediate expenses like hospital bills to long-term costs such as education.

These range from expenses such as the hospital bill for labor and delivery and essential items like cribs and car seats, to ongoing costs like child care and routine supplies such as diapers and baby food. Looking further ahead, you’ll want to think about your child’s education costs.

The USDA reported raising a child up to age 17 can cost an average of $233,610. Bear in mind that this estimate doesn’t include college expenses. The Federal Reserve notes that unexpected costs can significantly burden many families. Being aware of these potential costs is the first step towards managing them effectively.

2. Create a Baby Budget

Having gained an understanding of the potential costs, the next step is to translate this knowledge into a tangible plan. Creating a baby budget can help you adjust your existing monthly expenses to make room for baby-related costs. It can also help identify areas where you can save.

As a new parent, it’s essential to factor in a range of items, including diapers, clothes, food, healthcare, and childcare, especially if both you and your spouse work.

Of course, this budget will look different for each family. Costs can vary tremendously based on individual circumstances. As a starting point, it’s beneficial to begin putting money aside into a savings account specifically for baby-related costs. This can provide a buffer that will help smooth out the impact of these new expenses.

3. Build an Emergency Fund

In addition to routine expenses, it’s also important to prepare for unexpected costs or changes to your income. This is where an emergency fund comes into play.

Such a fund can be a financial lifeline in the event of unexpected expenses or income loss, for instance, if one of the parents needs to take unpaid leave or suffers a sudden job loss. It’s generally recommended to aim for an emergency savings fund that can cover three to six months’ worth of living expenses.

This fund should ideally be held in a readily accessible, FDIC-insured savings account. You’ll earn a modest return on your money, it will be federally protected, and you can withdraw when needed. You’ll find high yield savings accounts at some of the best online banks.

With an emergency fund in place, you can have greater peace of mind knowing that you have a buffer to help you deal with any unexpected financial challenges that come your way.

4. Consider Health Insurance

Health insurance is a critical consideration when preparing for a baby. It’s important to understand what your current health insurance plan covers in terms of prenatal care, labor and delivery, and postnatal care.

Be prepared to anticipate out-of-pocket expenses that may not be covered by your insurance company. This might include copays for doctor’s visits, deductibles, or certain tests and procedures. Review your health insurance policy and consider if an upgrade or change is necessary to best accommodate your new family member. You’ll want to have your baby added to the policy immediately upon birth so those first pre-natal visits are covered.

5. Plan for Parental Leave

At some point during your pregnancy – ideally, once you begin to show that baby bump, visit your human resources department to determine if you qualify for paid leave through your company or through the state. Understanding your rights and the benefits available to you and your spouse is crucial.

If one or both expectant parents decide to take any unpaid leave or leave with partial salary replacement, you’ll need to factor the temporary income reduction into your budget.

6. Save for Your Child’s Future

Even before your baby arrives, you may want to explore college savings plans like a 529 plan, designed specifically for qualified higher education expenses. The earlier you establish this college fund, the more you can capitalize on the power of compound interest to grow your savings.

However, saving for your child’s future needs to be balanced with other financial goals, such as paying off debt, saving for a house, or contributing to your retirement savings. Having a well-rounded financial strategy helps ensure you’re meeting all of your family’s future needs.

7. Protect Your Family with Life Insurance and a Will or Living Trust

Becoming a parent and raising kids magnifies the importance of securing your family’s future. Investing in a comprehensive life insurance policy is often the first step, acting as a financial safety net for your child should tragedy strike. This can cover expenses from day-to-day living costs to education, ensuring that your child isn’t financially burdened in your absence.

However, life insurance is only part of the equation. Another essential component is the preparation of estate planning documents, like a will or living trust. These legal directives outline who should care for your child and how your assets should be distributed. A well-crafted will or living trust can mitigate legal and familial conflicts, ensuring a smoother transition during tough times.

Estate planning can extend beyond a will to include powers of attorney and healthcare proxies, helping your family make informed decisions in emergency situations. This comprehensive approach also helps avoid the probate process, preserving more of your assets for your family.

8. Embrace Cost-Saving Tips

While certain costs are unavoidable when preparing for a baby, there are many creative ways to save money. For instance, consider buying items in bulk for better pricing, or purchasing gently used items second-hand when it makes sense to do so.

You might also explore options like child tax credits and child care subsidies, which can help offset costs. Prioritize smart spending and make financial decisions that align with your family’s budget and values.

Don’t forget to factor in gifts you might receive from a baby shower, as these can significantly help offset initial baby-related costs. When you create your baby registry, choose items you will need that can help you stretch your budget in the baby’s first year.

9. Seek Professional Advice

Financial planning as an expectant parent can feel overwhelming, but you don’t have to do it alone. Financial advisors and tax advisors can offer personalized advice tailored to your unique situation.

These professionals can guide you in making informed decisions, from adjusting your budget to setting up the right savings and retirement accounts. While there may be an associated cost, the potential long-term benefits and peace of mind these professionals can provide often outweigh the initial investment.


Welcoming a new member to your family is an exciting time, but preparing financially for a baby is essential. From stocking up on diapers during sales to knowing your maternity or paternity leave rights, preparation can help you save money.

Early planning and proactive financial planning can help you transition smoothly to this new life stage. Don’t be afraid to seek assistance from a financial professional to guide you on this journey. You can secure your family’s financial future with the right planning, preparation, and informed decision-making.

Frequently Asked Questions

What is a 529 Plan?

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. These plans are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.

How much should I put in my baby’s savings account each month?

The amount you should save depends on your individual circumstances, including your income, household expenses, and financial goals. As a starting point, consider saving a fixed amount each month that fits comfortably into your budget. Remember, even small amounts can add up over time.

Can I claim my newborn on my taxes?

Yes, you can claim your newborn as a dependent on your taxes for the year they were born. Even if your child is born in December, you can claim them as a dependent for the full year. In addition, you might qualify for the Child Tax Credit, which can significantly reduce your tax bill.

When should I start buying baby gear?

It’s exciting to start buying baby gear as soon as you find out you’re expecting. However, it is wise to wait until later in your pregnancy or after your baby shower. Waiting allows you to have a better idea of what specific items you’ll need, helping you make more informed purchasing decisions.

Is it necessary to have life insurance if I’m a stay-at-home parent?

Yes, it’s still essential for stay-at-home parents to have life insurance coverage. While there may not be a direct income to replace, the services provided by a stay-at-home parent, such as caring for children and household management, have significant financial value. A life insurance policy can help ensure that these responsibilities can be covered in the event of the stay-at-home parent’s untimely passing.

Should I pay off my debt before having a baby?

Ideally, it’s beneficial to reduce and manage your debt as much as possible before having a baby. High levels of debt can create added financial stress and impact your ability to save for future expenses. However, it’s essential to strike a balance between debt repayment and saving for baby-related costs to avoid excessive financial strain.

How can I save on child care expenses?

Taking care of a child can be costly, but there are strategies to help save on these expenses. Research local options, including in-home daycares, family care, or shared care arrangements, as these can sometimes be more affordable than traditional daycare centers.

Additionally, explore potential employer benefits, such as flexible spending accounts (FSAs) or dependent care assistance programs (DCAPs), which can provide tax advantages for child care expenses.

Dawn Allcot
Meet the author

Dawn Allot is a personal finance writer and content marketing expert specializing in finance, travel, real estate, and technology. In addition to her work at Crediful, Dawn regularly writes for Bankrate, GoBankingRates, and The Balance.