How To Financially Prepare for a Baby

Q: How much money should be saved before having a baby?

Families in general may want to keep at least three to six months’ worth of living expenses in a savings account for emergencies. You may consider upping your emergency fund to nine to 12 months’ worth of living expenses in a savings account to better protect your growing family. This might be easier said than done for some families, but you can set a goal of saving as much as you can before having a baby.

Q: How can I afford a baby on a tight budget?

State and federal programs may exist to help you afford a baby on a tight budget. You and your baby may qualify for certain entitlement programs if you have low income or no income. Nonprofit organizations, your family, and trusted friends may also be willing to help you make ends meet. These are among the options you may explore in addition to pursuing possible opportunities to increase your annual income.

Sulaiman Abdur-RahmanUpdated April 12, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Buying diapers, infant formula, and baby wipes on a regular basis can crush your budget if you’re not prepared to cover these costs. How to budget for a baby is generally not taught in grade school, but financial planning for new parents can help families meet the challenges of parenthood.Parents can take certain steps when budgeting for a baby to minimize the costs of raising a child. The main step is to recognize the challenges and necessary expenses when planning for a baby financially. Below we discuss how to prepare for a baby on a budget.

Financial Planning Pre-Delivery

Financial planning for new parents can be a game changer for expectant mothers and fathers. Below we highlight core areas of how to financially prepare for a baby:

Creating a Complete Budget Assessment

Creating a complete budget assessment is important when planning for a baby financially. This takes a comprehensive look at your income and expenses. New parents typically face a whole set of new expenses ranging from baby wipes and diapers to clothing and nursery furniture.A complete budget assessment can take all costs into account, including the new costs you’ll take on when budgeting for a baby. You can explore whether your income is sufficient for raising a child and whether you need to cut any nonessential expenses from your budget.

Researching Financial Aid

Working- and middle-class families may research their financial aid options when deciding how to budget for a baby. Research by the Brookings Institution in August 2022 found the cost of raising a child from birth through age 17 is $310,605. That’s more than $18,000 per year.States and the federal government may offer financial aid programs for new parents. Such programs may include the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), which serves about half of all infants born in the United States.

Paying Down Debts

Paying down debt — including high-interest credit card debt — can be helpful if you’re wondering how to financially prepare for a baby. Credit card interest charges can zap your spending power and make it harder for you to cover the costs of child-rearing. Borrowers can use debt to build wealth in some cases — such as taking out a mortgage loan to buy a home that appreciates in value. Debt generally needs to be repaid over time, but making minimum monthly payments may make it difficult for you and your family to achieve financial independence due to interest costs.Consider the following tips for budgeting and paying down debts:

Take advantage of your credit card grace period
Pay close attention to your credit card statement
Be in the habit of keeping statements
Start budgeting to pay off debt
Learn more about how you can reduce credit card debt

Researching Cost of Prenatals

Researching the cost of prenatal vitamins can also prove helpful if you’re wondering how to prepare for a baby on a budget. Your OB/GYN may prescribe prenatal vitamins, or you may buy prenatals over the counter at food stores or vitamin shops.The cost of prescription prenatal vitamins may be covered fully or partially by health insurance. Minimizing your out-of-pocket expenses can help you financially prepare for a baby.

Maternity/Paternity Leave

The Family and Medical Leave Act (FMLA) allows eligible employees to take an unpaid leave of absence for the birth and care of a newborn child. Expectant mothers and fathers in some states, meanwhile, may have the right to take a paid parental leave of absence. If you’re considering a 12-week unpaid leave under the FMLA, you can plan ahead and budget accordingly. Going several weeks without pay can be difficult, but bonding with your newborn bundle of joy can be priceless.

Thinking Ahead for Child Care

You may want to consider childcare options if you’re planning to work full time after the birth of your child. The cost of child care is typically expensive, so exploring your childcare options ahead of time can help you budget for those costs.The median annual price for infant care ranged from $6,486 to $17,171 when adjusted for inflation in 2022, according to the U.S. Department of Labor.Recommended: How Much a Baby Costs the First Year

6 Budget Tips for Expecting Parents

Here are six budget tips for expecting parents:

1. Don’t Go Overboard When Shopping for Clothes

Your newborn child can grow very quickly during the first 12 months of life, so you might want to buy some onesies as needed but not go overboard. Establishing a budget and sticking to it may prevent you from overspending on cute garments and accessories.

2. Use Hand-me-Down Clothes When You Can

Dressing your newborn child with hand-me-down clothes can help you minimize the cost of child-rearing. If your newborn has older siblings or cousins, your baby may have easy access to secondhand clothing. Cutting the costs of buying new clothes may help you save money during times of high inflation.

3. Open Family Health Savings Account (HSA)

Expecting parents may consider enrolling into a High Deductible Health Plan (HDHP) while opening a compatible tax-free Health Savings Account (HSA). In 2023, you may contribute up to $7,750 in a tax-advantaged HSA if you’re under 55 with a family HDHP.You may use the funds in your HSA to pay for out-of-pocket medical expenses. The average cost of pregnancy, childbirth, and postpartum care is $18,865, according to a 2022 study. A typical health insurance plan may cover much of those expenses, but the average out-of-pocket cost is still $2,854, the study found. You can review your budget to determine whether an HDHP and HSA are right for you.

4. Buy Essential Items in Bulk

Baby wipes and disposable diapers are among the essential items you may need as a new parent. Infant formula may also be on your list of essential items if you’re not breastfeeding. Buying these items in bulk may save you money in the long run. You can review your budget to determine whether it’s right for you to become a member of a wholesale club when budgeting for a baby.

5. Compare Costs of Cribs vs Bassinets

One of the early challenges you may face as a new parent is determining where your child will sleep for most of the day or night. Babies on average sleep 16 to 18 hours per day in their first month of life and more than 13 hours per day in the first 18 months. You can use a crib or bassinet as your baby’s primary sleeping spot. As you shop for essential items, you can compare the costs of nursery furniture when planning for a baby financially.

6. Save Money in the Bank

Part of the financial planning for new parents may include opening a bank account — such as a joint savings account — and depositing money into a dedicated emergency fund.The annual percentage yield (APY) on top savings accounts can earn interest on your deposits. A savings account may be right for you if you’re looking to:

Establish a rainy day fund
Establish an emergency fund
Earn compound interest on your savings

Setting money aside for personal, family, or household purposes — that is, not using those funds for business purposes — can help you preserve your family savings.Recommended: Business vs. Personal Bank Accounts

Financial Planning Post-Delivery

Below, we highlight several important actions and considerations after the birth of your child:

Preparing Paperwork

Once your baby is born, you’ll be expected to fill out important paperwork. This includes giving your child a name, requesting a Social Security number for your newborn, and ensuring the accuracy of the information to be included on your child’s birth certificate.

Adding Your Child to Health Insurance Plans

If you have health insurance coverage, you may have the option of adding your baby to your health insurance plan as a dependent. You may begin this process in the immediate days after delivery and before receiving an official birth certificate or Social Security card for your baby.

Updating Beneficiaries

You may consider naming your newborn child as a beneficiary to your assets. You can create an informal or formal revocable trust that names your baby as a beneficiary. FDIC insurance may protect deposits in a revocable trust account.

Considering a Life Insurance Policy

You may consider buying a life insurance policy for your newborn and naming yourself as a beneficiary. If your baby dies unexpectedly, you may receive a death benefit. If you’re interested in buying life insurance for your child, you can compare quotes from different insurance companies and choose a policy that’s right for your family.Recommended: Budgeting Tips for Beginners

The Takeaway

Financial planning for new parents is potentially challenging. You can meet these challenges by minimizing your costs when budgeting for a baby. Buying essential items in bulk and building an emergency fund can go a long way when expanding the size of your family.If you’re looking to earn interest on your savings, Lantern by SoFi can help. Our online banking marketplace makes it easy to compare APYs and choose a bank account that’s right for you.Compare high-interest savings accounts with Lantern.

Frequently Asked Questions

How much money should be saved before having a baby?

How can I afford a baby on a tight budget?

How much does it realistically cost to have a baby?

Photo credit: iStock/urbazon

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About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and served as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.

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