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Budgeting for baby: Get financially ready for your new addition

What we'll cover

  • Ways to financially prepare for a baby

  • How to create a baby budget

  • How you can start saving early for your child’s schooling

A new bundle of joy is on its way (or you’re trying for one). Oh, baby! Congratulations.

It’s a momentous time, but those feelings of excitement might be paired with questions surrounding spending and concerns about being prepared:

  • How much does a baby cost?

  • How do I financially plan for a newborn?

  • How much will my budget change after the baby arrives?

Though money stressors and costs may pop up on occasion, if you follow this checklist of new-baby financial to-dos, you’ll be ready like a fiscally savvy parenting champion.

Create a (baby) budget.

When it comes to a newborn, everyone says you will spend more on diapers than you could ever imagine. (They’re right!) To tackle the diaper budget (and all other baby-related spending) head on, it can be helpful to split your budget and savings planning between before and after the baby. This distinction will allow you to build a good foundation and understanding of your current financial situation.


Step one: Erase your deficits. First, you should eliminate as much debt as possible. Paying down debt is important because it creates more wiggle room in your budget as you welcome your new family member (giving you some financial room to breathe even with an additional mouth to feed).

Step two: Start a running total. Next, tally your everyday expenses and costs, breaking your spending into three categories: decrease, stay the same, and increase after the baby. This framework will provide the foundation for your baby budget. If you already have a budget in place, build from there, but if you’re shopping for a new one, the 50/30/20 method is one of our favorites.

Step three: Consider potential life changes. In addition to new out-of-pocket expenses, take some time to think about how your life might change post-baby. For instance, will you or your partner become a full-time, stay-at-home parent or cut back hours at work? Either of these will change your household income and your budget.


Step four: Make adjustments, post-baby. Within your baby’s first year, your spending patterns will change dramatically. For example, you may spend less money on gas and public transportation because you’ll be staying home more with a newborn. You’ll also dine out less (but you may get take-out A LOT more).

Some expenses will stay the same, like your rent or mortgage payment. But you’ll spend more on things like:

  • Diapers, wipes, basic care necessities

  • Formula and bottles or breastfeeding gear

  • Clothes and toys for the baby

  • Bassinet, crib, and other baby furniture

  • A stroller and car seat

  • Health insurance co-pays and medical expenses (more on this in the next section)

Step five: Remember childcare. Another significant expense working parents might need to plan for with a new baby is childcare. The upside: You have lots of options available to you that will fit all sorts of budgets, including daycare, a nanny or au pair, babysitters, and/or help from eager friends and family. Consider which one is the best fit for you and your changing family structure based on your budget and the kind of care for which you are looking.

Review your health insurance.

We know, we know. Anything to do with health insurance can cause major heartburn. But trust us, it’s important to contact your insurance provider (or human resources, if you’re covered through your job) to learn how your plan and premiums may change when your little one arrives.

Spot the holes in your coverage.

Along with pregnancy comes a lot of doctor’s appointments, prenatal care, and possibly a hospital stay — and those medical expenses can really add up. Be sure to determine where you’re covered and where you might have to make up the difference, so there are no surprises after delivery. Even with fantastic coverage, you may still be responsible for some out-of-pocket expenses when it comes to childbirth.

Factor in your leave options.

Before the little tot arrives, you’ll also want to review your parental leave policies. Some employers allow new parents paid time off to spend with their newborn, while others don’t.

The good news: Parental leave policies have largely improved. But it’s important to keep in mind that, historically, employer-paid maternity leave policies tend to be lengthier and more generous than the paternity leave policies many companies have begun to extend their employees. One hard-and-fast rule: Under FMLA , eligible employees are entitled to take up to 12 weeks of unpaid, job-protected leave.

Stash away for an unpaid day.

If unpaid leave is your only option, try to sock away some money now. Each week, try to set aside half your paycheck for around three months. (The bucketing feature of our Online Savings Account is a great tool for keeping these funds separate from your other savings.) That way you won’t be potentially relying on your credit cards to get by when you’re not earning a paycheck.

Start saving early — and often.

When thinking about all of the child-related expenses, schooling is probably at (or near) the top of your list. So, a number you will want to keep in mind is 529.

A 529 is a tax-advantaged investment account used for qualified education expenses down the road. It might feel premature or even unbelievable to be thinking about college before your baby is even born, but education is likely one of the most substantial costs parents will have. Because investments in a 529 account have the potential to grow substantially over time, the sooner you can start putting money in the account, the more prepared you’ll be when your baby is ready to be an undergrad.

And when you add a new baby to your equation, unanticipated situations are even more likely to pop up. As you probably know, it’s good financial practice to have an emergency fund that contains three to six months’ worth of expenses. If yours isn’t fully funded, don’t fret. Use now as an opportunity to shore up your emergency savings (with extra infant-proof padding).

Register smartly.

People love buying baby gifts — the cuter the better. Your friends and family will want to help you out, so let them. Balance out the adorable items on your baby registry with the dutiful-but-totally-useful ones, like diapers, a stroller, bibs, car seats, etc. Trust us, the diaper-genie may not be glamorous, but it will be a blessing.

Purchase life insurance.

Life insurance helps to financially protect your family in the future. Purchasing a policy may feel like you’re overpreparing, but as with an emergency fund, it’s there in the case of the unexpected and unlikely. Good news: The younger and healthier you are, the lower your premiums are likely to be.

Smart planning will give you comfort knowing your little tyke will be in good hands long after they’re grown.

Plan your estate.

Now that you’re beginning a new generation for your family, you should consider how you will look out for them down the road.  Update your will or create one.

Also, consider a setting up a trust. A trust is a powerful tool to manage your assets throughout your lifetime and beyond. It allows you to provide detailed instructions and conditions on how and when to distribute everything you worked so hard to achieve.

Estate planning presents a good opportunity to review your existing policies and your beneficiaries, if needed. Smart planning will give you comfort knowing your little tyke will be in good hands long after they’re grown.

Having a baby is a joyous event. But, at times, new moms and dads can feel like they’re flying by the seat of their pants. Gain some financial peace of mind by doing some pre-baby financial planning. You’ll be taking your first steps on the right foot.

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