How to budget for starting a family

Key takeaways:

• You’ll have a lot on your plate when your baby arrives. Make sure you’re not worried about making ends meet by budgeting now.
• You’ll face extra expenses both before and after your baby is born, but there are ways to save along the way.
• Your baby comes with extra financial responsibilities, including the need for more emergency savings, more insurance, and a will. 

Thinking about starting a family? You’re about to embark on a wild, wonderful ride! You probably have big plans for your little one. The adventure will be easier when you are financially prepared for all the extra joy—and expenses—to come. 

What to consider in your baby budget

No doubt … babies can be expensive. You’ll have one-time costs for the birth or adoption, followed by ongoing expenses of raising your child. Here are things to consider when budgeting for a baby.

Medical expenses

Unless you are adopting, your medical budget should cover anticipated expenses for both the birth mother and the baby, before and after delivery. These expenses include:

• Prenatal appointments
• Prenatal specialist appointments—for example, if the birth mother needs to have any medical conditions monitored during pregnancy, or visits to the maternal-fetal medicine specialist if you’re expecting multiples
• Any emergency room visits—if the birth mother experiences preterm labor or has other urgent situations
• Birthing classes
• Hospital or birth center costs
• Emergency or non-emergency procedures—i.e., baby’s circumcision or treatment for jaundice, or unexpected urgent care for the birth mother
• Pediatrician appointments, which include immunizations
• Postpartum checkups

Adopting? Costs to consider

The cost of adoption depends on how you choose to adopt. If you decide to work with a public agency, you can expect to pay less than if you pursue a private or international adoption. Your expenses can include travel, legal fees, search fees, birthing parent fees, and home study costs—which can total from the ones to tens of thousands of dollars.

Childcare

Regardless of whether you take your child to a daycare, hire a nanny, or decide to have one caregiver reduce working hours or stay at home altogether, all childcare comes with a cost. Your budget should account for…

• Loss of income during leave: ask about your employer’s maternity and parental leave options so you know how your family’s income will be impacted. The Family and Medical Leave Act (FMLA) provides eligible employees up to 12 workweeks of unpaid leave a year following the birth of a baby, but this is unpaid leave.
• Loss of income if you or another caregiver decide to reduce work hours or leave a job altogether after baby is born.
• Daycare (in-home or at a center) if caregivers are working: According to the U.S. Department of Labor, 2022 childcare costs range from $5,357 for school-age home-based care in small counties to $17,171 for infant center-based care in large counties per year. Note that if your employer offers a Dependent Care Flexible Spending Account, you can pay for your out-of-pocket childcare expenses on a pre-tax basis, which saves money.
• Babysitting: every caregiver needs a break sometimes, so leave room in the budget for a home helper or an occasional night out.

Insurance

You’ll want to make sure your new family is fully covered. Consider …

• Changing or adding health insurance if your current plan is inadequate for maternity and delivery needs; you’ll also want to make sure your pediatrician is in your provider’s network.
• Adding short and long-term disability insurance, which can cover a portion of the lost income if the birth mother experiences a pregnancy-related disability. Keep in mind that some insurance plans will not approve a claim for disability benefits if enrollment takes place after you've become pregnant because the pregnancy is considered a pre-existing condition. If you want to add disability insurance, be sure to enroll at least 12 months before you decide to start your family. And, if you pay for the disability premiums yourself, the payments you eventually receive will not be subject to income tax.
• The costs of adding baby to your health insurance: In some cases, the cost of family coverage is notably higher than coverage for just one or two people. Compare plan options; having a baby is a ‘life event’ so you’re allowed to switch plans mid-year.
• Adding or increasing life insurance coverage: When your family grows, so does your need for more life insurance. Make sure your policy will cover the baby’s financial needs to adulthood, including college expenses, if something happens to you.

Housing changes

Kids need space, so you may need to eventually move out of your current home. While you don’t need a three-bedroom house right away, you’ll need more room eventually. If you decide to buy a new home, consider buying in an area with a school district that matches your values and goals. And don’t forget about babyproofing your home—the cost of safety gates, outlet plugs, knob covers and more adds up.

Baby furniture, gear, and clothing

It’s easy to get carried away but the cost of baby gear can add up quickly. Here’s where you can cut costs with smart shopping. Although it may be tempting to use hand-me-downs for things like a car seat or a crib, just make sure they meet current U.S. safety standards. And it’s fine to spend less on things like clothing; you’ll be shocked at how quickly your baby grows out of things!

Formula, baby food, diapers, medicine, etc.

You may be surprised at how much your little bundle of joy needs for everyday things like diapers, formula, food, and other items. While there are many ways to save, they all have tradeoffs. For example, if you buy and wash your own cloth diapers, you’ll spend less on disposables but more on water, electricity, and detergent. If your baby is breastfed, you’ll save on formula, but you’ll likely need to add the cost of a breast pump. You can make your own baby food, but you may spend more for organic.

Emergency fund

When you have a baby, having three to six months of expenses set aside for emergencies is even more important than ever. Children can be unpredictable, so make sure you’re prepared for the unexpected.

Education savings

College already? Just ask any parent and they’ll tell you that high school graduation arrives in the blink of an eye. Know that you should start saving early and set aside money each month because the sooner you begin saving for your little one’s college education, the faster those savings will grow. There are many college savings plans available that simplify college savings, including 529 plans and Coverdell ESAs. 

Tax changes

While having a child sounds expensive, you’ll find several tax benefits that can help. Ask your tax advisor if you qualify for the child tax credit (a tax incentive for people with children) and the child and dependent care credit (a tax credit designed to help offset cost of childcare expenses). In the meantime, you may want to consider reviewing the amount you have withheld from your paycheck for taxes to avoid tax-time surprises.

The joys of having another little person in your life!

Your new little ‘plus one’ will add expenses all along the way. Plan for an extra plane ticket when you travel, an extra kid's meal when you eat out … you may even need a bigger or more reliable car. Everything you do in your daily life will now include an extra person.

Do you have a will?

Once you have a baby, having a will becomes even more important than ever. A will not only details who will receive your assets, but it also allows you to name a guardian—someone who will care for your baby if the caregiver dies. 

Ways to save

Expenses can add up quickly, especially during your baby’s first year, but there are many things you can do to cut costs:

• Shop at thrift stores or buy used items at consignment shops
• Borrow items or accept hand-me-downs from friends and relatives
• Ask family, friends, and online communities if you need something specific

Many people find themselves traveling and eating out less when they have a baby, especially at first. Consider putting the money you save from less travel and entertainment towards your new expenses, or towards baby’s college education.

Oh baby!

There’s no doubt … your life will change with a new baby in the family. Take time now, before things get too hectic, to build a new baby budget that includes the extra expenses. And while you’ll likely be living day to day once your baby arrives, eventually things will settle down. When you’re ready, think about setting aside the money you’ll eventually need for things like dance, sports, or music lessons, summer camp and spring break trips. That time will arrive before you know it.

Just don’t blink.