12 Ways to Prepare Your Finances for a Baby

Babies are expensive little things. I know because I just brought home a newborn this year! – and let me tell you, he flipped my financial world upside down. It was kind of surprising actually, because the things I thought were going to be expensive turned out to be pretty manageable, or even free… And the stuff I never even considered needing to buy ended up costing a pretty penny!

The reality is, you’ll never be 100% prepared for every financial challenge that a baby throws your way. But if you’re a money nerd like me, you’ll want to forecast and budget baby stuff as much as possible for this exciting (and sometimes overwhelming) new chapter in your family. With less money stress in your home, you’ll be able to focus on the important stuff, like bonding with your little one and learning how to be the best parent.

So, here are some ways to prepare your finances for a baby…

1. First, Relaaaax. It’s all going to work out OK.

If this is your first kid, you might be feeling a bit overwhelmed. You’ve probably heard the stories about how kids can cost upwards of $300,000 to raise – oh yeah, and that’s without college. Your mind might be overwhelmed about expenses like baby supplies, preschool tuition, piano lessons, etc. Heaven forbid they fall in love with an expensive hobby like horseback riding… ouch!

But the truth is: 95% of the stuff you are worrying about is probably irrational. It might be important one day, but it’s not a priority right now. People with a more meager bank account than you, with less education and fewer resources, have raised healthy, happy, successful kids. You can too. Don’t underestimate your ability to work stuff out on the fly later.

So with that in mind, start by focusing on the immediate needs for the baby. Expenses in year 1 and maybe year 2. Once you bring the baby home and get some experience under your belt, you’ll be in a much more confident position to plan expenses for years 3, 4, and beyond!

2. Get on the same page with your partner

I’m not sure what your relationship status is, but if you’ve got a partner and aren’t on the same page financially, start those crucial conversations ASAP. Whether you have joint finances or tackle money separately, bringing a baby into the mix changes the financial landscape dramatically for both of you. Communication is crucial.

Plus, finances are way easier (and more fun!) when you’re playing in 2-Player mode!!

Start by discussing your current financial situation. I know it might be awkward if you’ve never done this before, but trust me having everything out in the open is the best way to move forward. Chat about your income, expenses, and any remaining debts. Remember to be judgment free – you can’t change the past, it’s all about positive forward movement to support your growing family.

Next, talk about your financial goals as a family. Obviously some of this will be centered around baby expenses, but it’s OK to dream about larger family goals like buying a bigger house or upgrading your car to a minivan. Aligning your visions will create a stronger partnership.

Lastly, set up some recurring money dates to continue the communication going forward. You’re not going to solve all your financial tasks in one sit-down conversation. It’s an ongoing discussion that lasts the rest of your life. Always leave an open door to talking about money.

3. Research family leave and benefits

Hopefully you’ve thought about this stuff already, but if you haven’t got it nailed down that’s OK too. Can you take family leave from work? How much of it is paid time off, and will your state cover any family leave or disability benefits? Is paternity leave an option?

Start by reviewing your employer’s family leave policies. Many companies offer parental leave, but each company’s policy (and culture) is different. Some may provide paid leave, while others might only offer unpaid leave under the Family and Medical Leave Act (FMLA), which guarantees eligible employees up to 12 weeks of job-protected leave. If your employer doesn’t offer paid leave, check if your state has its own paid family leave program.

Paid family leave is the best case scenario. Even at a reduced salary, having some income rolling in while you’re bonding with your newborn baby is a huge relief. Never feel bad about taking the absolute maximum available benefit here. The first time my wife took family leave she was eligible for 12 weeks, but felt so bad that her company was understaffed that she only took 8 weeks leave. She ended up regretting this move and this year she applied for the full 12 weeks she’s entitled to.

If your employer or state doesn’t provide paid leave, consider other options like short-term disability insurance or saving up vacation days to cover some of your time off. Check out benefits from your partner’s employer and see if they have more favorable terms for leave.

4. Health insurance stuff…

Navigating health insurance is a pain in the kiester, but it’s a super important part of baby finances. Having the right coverage (and knowing exactly what is included in your plan) can save you thousands on prenatal care, delivery, pediatric visits, etc.

A friend of mine just gave birth and is having nursing issues. Hiring a lactation consultant to come to their house costs $400 per visit! But, since they fully reviewed their insurance benefits, they could relax knowing that 100% of the cost is covered by their insurance plan.

It might make sense to call your insurance company to inquire about your specific coverage. Check what’s covered regarding prenatal care, labor and delivery options, and pediatric services. Pay attention to details like deductibles, co-pays, and out-of-pocket maximums, as these can significantly impact your expenses. Start making a list of all the fixed, one-off expenses, as well as any potential ongoing costs.

If your current plan doesn’t provide adequate coverage, it might be time to explore other options. If your pregnancy time crosses over open enrollment season, you may be able to switch policies for the upcoming year. You can also explore options on the Health Insurance Marketplace, especially if you’re eligible for subsidies based on your income.

PS. Once your baby arrives, you’ll need to add them to your health insurance plan. Most insurers require this to be done within 30 days of birth, so add that to your calendar and don’t miss the deadline!

HSA & FSA

If you have a high-deductible health plan, you’re eligible to open a Health Savings Account (HSA). Contributions to an HSA are tax-deductible, and you can use the funds for baby-related healthcare costs (or really any qualified medical expenses).

HSA’s are super valuable outside of baby costs, too. They’re actually one of the most underrated investment accounts for retirement you can have! But you can read all up on that another time – focus on the baby stuff for now 😉

Another account you might be eligible for through your employer is a Flexible Spending Account (FSA). Much like HSA’s, you can stuff pre-tax dollars into these accounts to help pay for medical expenses for the upcoming year. Just be aware that FSA dollars typically don’t “roll over” from year to year. So if you fund this account, you’ll want to USE all those dollars in the specific calendar year.

5. Build or beef up your emergency fund

Life can go sideways pretty quickly when the baby arrives. So you’ll want to be prepared financially for any unexpected disasters that pop up. If you don’t have a safety net of cash on standby, it’s time to build one! (and if you already have an emergency fund, think about beefing it up a little).

A good rule of thumb for emergency cash is to aim for 3-6 months’ worth of living expenses. This amount can ensure you’re covered in a ton of different disaster scenarios. It’ll help you weather things like unexpected medical bills, car repairs, or even job loss.

With a baby on the way, the last thing you want is added financial stress and having to take on debt to cover emergency expenses. Do yourself a favor and build a big buffer so you’re on the safe side. Even if you never end up using that cash (I hope you don’t have to!) it’ll give you peace of mind knowing funds are there if you really need them.

Personally, I keep about ~$25,000 in emergency funds at any given time. But with my newborn coming home, I quickly bumped this up to $30,000. It’s not a huge difference, but mentally I feel 100x better knowing I have a tiny bit more breathing room. I won’t have to dip into my savings or retirement accounts if an emergency pops up.

6. Create a baby budget!

Hopefully you already have a good budgeting system in place for your personal finances. Well, now it’s time to add a baby to the mix!

Start by listing all potential baby expenses. Here are a few big ticket items you will need:

Crib or bassinet
Changing table
Car seat
Stroller & carriers
Newborn clothes
Baby bath
Bottles & feeding accessories

For ongoing expenses, you’ll want to account for stuff like:

Diapers (LOTS of them lol)
Wet wipes
Formula
Vitamins & supplements
Childcare
Food delivery!

Once you have a clear picture of these basic costs, add them on top of your regular budget. Don’t forget to include a buffer for unexpected expenses! Babies can be unpredictable, and having a little extra set aside will help you manage surprise costs without stress.

Also, while researching costs, try thinking about areas where you can cut back in your regular spending. For example, you probably won’t be traveling with a brand new baby. So cutting your travel budget can give you extra room to increase baby expenses.

Remember that your budget should be flexible, not set in stone. As your baby grows and you get the hang of being a parent, you’ll adjust as needed to make sure your budget stays relevant.

7. Planning gifts and making a registry

You might feel weird making a baby registry. But trust me, people are going to buy you gifts whether you want them to or not! Allow it to happen.

A well-thought-out registry not only helps you check all the boxes for essential items, it makes it easier for friends and family to help get you the right stuff that you’ll actually use. Without a registry or wish list, you’ll likely end up with 500 very cute baby outfits. Sounds adorable but there’s no way you will actually use them all.

When in doubt, ask for diapers, wet wipes, formula, or home-cooked meals. Trust me, these are things you will USE!!! If you make a registry with an online marketplace like Amazon or Target, you can also request gift cards or store credit. This will be handy in later months to pick up items you didn’t know you needed yet.

Some close friends and family will want to get you big ticket items, like expensive car seats and strollers. It’s a good idea to express your wishes in good quality brands with great user reviews. If you have friends who already have babies, they will know the good brands and products that worked well for them.

Throwing a baby shower can be a nice way to celebrate with friends, and a formal occasion to accept gifts. But if it adds too much stress to your life, don’t do it! There’s no rule that says you have to throw a baby shower.

8. Pick up second-hand baby gear

Just a quick cost saving tip… There’s heaps of lightly used, high quality baby gear online that recent parents are giving away for cheap or free.

If you haven’t done so yet, join your local Buy Nothing Group on Facebook. Neighbors give away lots of baby supplies in this group. And if you are looking for something specific, you can even “ask” the group to see if someone will gift it to you.

Personally, I got our stroller + car seat combo for free. We got gifted a second-hand Snoo bassinet (these things are like $1,700 brand new!), and we bought almost all our baby gear secondhand. Diaper Genies might be $60 brand new, but people are letting them go for $20 \on Craigslist and Facebook Marketplace.

It really pays to research and look around. Buying secondhand equipment can cut your expenses in half. And after a few years, hopefully you can sell (or gift) them to newly expecting parents to pass on the savings.

Ps. Costco is a great place for baby supplies (like formula!)

9. Look ahead to childcare options

It’s never too soon to start researching and planning for childcare options. Daycare, preschool, and even just toddler activity classes can be one of the most significant expenses for young families. Planning ahead allows you to find better deals, and have less stress!

I just wrote a guide on all the ways to save money on childcare. Check it out! Here’s a few highlights…

Begin by researching all the options in your local area. These might include daycare centers, in-home daycare, nannies, or even co-op arrangements where parents take turns looking after each other’s kids. Each option comes with its own set of costs and benefits. Review everything and consider what aligns best with your needs and budget.

Exploring government assistance programs is also worthwhile. Programs like the Child Care and Development Fund (CCDF) offer financial support to eligible families. Check with your employer too because some workplaces have childcare benefits or partnerships with local daycare centers.

Don’t forget to consider flexible work arrangements, like remote work or adjusted hours. This can cut down or eliminate the need for full-time childcare. More time with baby + cheaper costs = win/win!

10. Review your life insurance policy

When you become a parent, it’s your responsibility to figure out how your family would manage financially if you were no longer around. A life insurance policy can help cover expenses like mortgage payments, childcare, and education costs if you are disabled or pass away unexpectedly.

If you don’t have life insurance, get a policy ASAP. Here’s our guide to choosing the right policy for you and your family. Always buy TERM life insurance – it has cheap premiums, and gives you just the basic needed coverage. Don’t get tricked into any other type of policy like Whole Life or Universal Life policies. They are a rip-off, and rob your wealth over the years.

I know, life insurance isn’t the most fun topic to think about. But having the right coverage will give you invaluable peace of mind.

11. Make a Will

You might actually want to wait until the baby is born before making a formal will, but it’s an item you don’t want to put off for too long. A will isn’t just a legal document for who gets your assets if you die – it’s a way to ensure your wishes are respected and your child is cared for if something unexpected occurs.

One of the most important aspects of a will is naming a guardian for your child. You’ll want your little dude to be raised by someone you trust 100%. Without a will, the court will make this decision for you, which may not reflect your wishes!

In addition to appointing a guardian, a will allows you to detail how your financial assets will be distributed. This includes everything from your home and savings to a cherished beanie baby collection. Make sure it’s all accounted for, because you don’t want family fights to happen if you don’t have a clearly defined plan.

You might also want to consider setting up a trust as part of your estate plan. A trust can manage your child’s inheritance, providing financial protection and guidance until they reach an age where they can handle it responsibly.

Again, this is stuff that can happen right after the baby is born, because you’ll want to include them in the documents!

12. College savings & investing for kids

Putting aside money for your kid is a noble goal. But, if you’re behind on retirement savings yourself, you should prioritize building your own nest egg FIRST. Your baby has decades up their sleeve to make money, build wealth and get ahead financially. You don’t have that same luxury.

If your retirement savings are on track, gifting money to your kids and starting an investment account can be a smart move. With compound interest on your side, a little savings now can grow to a mammoth amount later in your kid’s life.

One of the most popular options for college savings is a 529 plan. These state-sponsored investment accounts allow your contributions to grow tax-free, lowering the cost of future college. Many states even offer tax deductions or credits for contributions to 529 plans, adding another layer of savings. Plus, 529 plans have become more flexible in recent years.

While 529’s seem awesome on the surface, some state plans can be riddled with fees and restrictions. There are plenty of alternatives to 529 plans, including custodial brokerage accounts. Personally, I have opened custodial brokerage accounts for my kids and nephews. Since they are with Fidelity, I pay nothing in fees, and even have zero-expense investment funds to grow the money!

BTW – if you don’t have the spare funds to set aside money for your future child, that’s OK! There are plenty of ways to give your kids a financial head start, without giving them cash. A good financial education trumps large financial gifts every day of the week.

The Bottom Line:

When your newborn baby comes home, the last thing you want to worry about is money and finances. Do yourself a favor and prepare in advance by making a budget, building an emergency fund, and saving for foreseen expenses like medical bills and childcare. You won’t accurately predict every expense of having a baby, but the more you plan the less you’ll be caught off guard.

Parenthood is awesome. You’ll surprise yourself at how incredibly tough tasks become second nature after a short period of time. Remember that folks with fewer resources than you have raised happy and successful children – and you can too. Try not to stress too much. Enjoy every moment with your little miracle!