Baby takes first steps while holding parent's hands

The impending arrival of a new baby can trigger all the feelings: excitement, joy … and a little bit of panic, especially when it comes to managing the cost.

It’s no secret that welcoming a tiny bundle of joy can shake up your finances in a big way. Establishing a budget for your baby can help calm some of the jitters you might be feeling. As you get your home ready for your tiny, new arrival, these tips can help you prepare your finances in a similar way.

1. Use your pre-baby budget as the foundation.

If you already have a budget in place (the 50/30/20 method is one of our favorites), then you’re already starting off on the right foot. You can build on what you have, making adjustments as you go.

Take a look at your current budget and break your spending into three categories:

  • Expenses that will stay the same after the baby arrives
  • Expenses that will decrease after having a baby
  • Expenses that might increase once the baby is born

Some outlays, like your mortgage payment or rent, should remain the same. (Unless, of course, you’re planning to move into a bigger home to make room for the baby.) On the other hand, spending on gas or dinners out might go down if you’re staying home more. Meanwhile, your health insurance might go up if adding a new baby increases your premiums.

The point of divvying up your budget this way is to get a sense of what your baseline monthly spending will be once the baby is born.

2. Add in new baby expenses to your budget.

Once your baseline budget outlined, the next step is adding in baby-related spending. That will include things like:

  • Diapers, wipes, and basic care necessities
  • Formula and bottles or breastfeeding gear
  • Maternity wear for Mom and clothes for baby
  • Bassinet, crib, and other baby furniture
  • A stroller and car seat
  • Health insurance co-pays and medical expenses for prenatal and postnatal care

Life insurance is another new expense you might add in, if you don’t have a policy yet. The good news is the younger and healthier you are, the lower your premiums are likely to be.

Another big expense working parents might need to plan for with a new baby is childcare. Fortunately, you have lots of options to fit different budgets, including daycare, a nanny or au pair, babysitters, and/or getting help from family and friends. Consider which one might be the best fit for your newly changing family, based on cost and the kind of care you’re looking for.

As you save money and adjust your budget for childcare, basic necessities, and other baby-related expenses, think about whether you need to make changes to how you organize your money. You probably have some sleepless nights with baby ahead of you, so having a system in place for your new budget and savings plan will be one less thing you lose sleep over.

Related: What are buckets and boosters?

3. Budget for potential income changes.

How your spending might go up or down after having a baby is just one part of the budgeting picture. You also need to think about what a growing family means for your income.

For example, consider how much time you (and your partner or spouse) will be able to take off from work after the baby is born. Federal law allows parents up to 12 weeks of leave per year — but it’s unpaid, and certain conditions must be met, (for instance, the employer has to have at least 50 employees, and you have to be employed with them for at least 12 months and worked a certain number of hours). While a growing number of employers now offer paid family leave as part of their compensation package, a majority of workers do not receive this benefit.

If you don’t have any paid leave, then you might need to rely on your partner or spouse’s income or your savings if you’re a solo parent.

It’s also important to look at the bigger baby picture, in terms of how your income might change long-term. Cutting back on hours at work, for example, or becoming a full-time, stay-at-home parent could change your household income drastically. If you’re considering either option, it’s important to think about what kind of lifestyle changes you might need to make for your budget to work.

4. Focus on essentials first and look for ways to minimize spending.

Picking out cute outfits. Decorating the nursery. Stocking the bookshelf with picture books. It’s fun to welcome a new baby into your family. But with so many adorable, little items to buy, it can be easy to overspend.

That’s why it’s important to balance out needs against wants, especially if you’re working with a tight budget.

A good place to start is to make sure you’re covering the necessities. That means meeting the baby’s basic needs (and your own) when it comes to food, clothing, personal care, and shelter.

When it comes to buying baby gear, don’t assume that you have to pay full price for everything you need. Some of the ways you can save on baby purchases include:

  • Shopping secondhand for clothing or bedding (minus the mattress)
  • Asking for must-have items only, if friends and family are throwing a baby shower
  • Signing up for free samples for baby items
  • Clipping paper or digital coupons for diapers
  • Using cashback apps to save when shopping for baby items online
  • Earning cash back on baby purchases with a rewards credit card

A note about that last tip: Using a cash back credit card to pay for baby expenses can put some money back in your pocket. But it only makes sense if you can pay the balance in full each month. Otherwise, the interest charges you pay could cancel out any rewards you earn.

5. Remember to add saving to your new baby budget.

It can be tough to save money when a new baby requires you to spend more — but it’s not impossible. When it comes to saving for a baby, you should take into account two approaches:

  1. What you might need in the short-term
  2. Your long-term financial goals

On the short-term side, the biggest thing to focus on is your emergency savings. That’s especially important if you’re looking at several weeks or months of unpaid leave after the baby is born. Your emergency savings could help with paying the bills until you get back to work.

If you don’t have an emergency fund in place yet, go back to your current budget and take a good look at your spending. Focus on finding extra money you can add to savings every payday or every month. Then, commit to saving it regularly — setting up recurring transfers can help you stay on track.

Next, think about what you want to save for in the long-term. If you’re renting, for example, your top goal might be saving for a down payment on a home. Or you might think about starting to save for college by opening a 529 plan for junior or getting your retirement accounts on track.

Revisit your baby budget again to see what kind of wiggle room you have to grow your savings. Then, assign each dollar you have to save based on which of your financial goals are most important to you.

Last but not least, remember to use the right tools when saving for a baby. An Online Savings Account can offer a great rate if you need a place to park your emergency savings. And a High-yield Certificate of Deposit (CD) might be good for saving for a home or other long-term goals.

As anyone with children can attest, welcoming a new baby into your life rocks your world. But with some upfront budgeting, it doesn’t have to have an earth-shattering impact on your finances.

Use our smart savings tools, like buckets, to organize your money by savings goal in our Online Savings Account.

Learn more.