Welcoming a baby into your family is an exciting milestone, but it can also bring significant financial changes. You’ll likely face unique expenses in the first year, and your monthly spending will inevitably increase.
This guide offers practical tips to help you navigate financial planning for a baby. We’ll cover how to update your budget, whether you should bolster your savings, and what purchases you should make by the time they arrive.
Create a New Budget
Having a baby tends to increase your expenditures in every area of life, which can make it challenging to budget effectively.
It often helps to divide your monthly expenses into categories and estimate how each will change. Start by budgeting a tentative amount for each category; you can always adjust later on if needed.
Here are some of the main categories you may want to include:
Groceries and General Household Supplies
You’ll likely spend considerably more in this category because it includes diapers, formula, and many other recurring expenses.
Housing
If your current home can easily accommodate a baby, your housing needs might not change. However, if you want to move somewhere bigger, your monthly housing costs could increase.
Childcare
If one parent will stay home to care for the baby, make sure to factor that parent’s temporary loss of income into your budget. Likewise, if you’ll be paying for childcare, you’ll need to determine an approximate monthly cost.
Medical Care
Consider the cost of increased health insurance premiums for your baby. Depending on the quality of your coverage, you could end up paying substantially more for healthcare.
Consider Bolstering Your Emergency Fund or Setting Up a Baby Fund
As a new parent, it’s crucial to save as much money as you reasonably can. Having a healthy cash cushion can help you weather unexpected costs related to your baby, like medical bills or equipment replacement.
If you don’t already have an emergency fund, start one right away. If you do have one, increasing it may be wise in light of your newly increased costs.
Opening a separate account for baby-related funds can be helpful, but it’s not necessary. The important thing is that you’re setting money aside for your child’s future.
Make a First-Year Baby Expenses Checklist
What are the biggest expenses for a baby? Many parents will tell you that childcare has the biggest financial impact. Depending on your medical insurance and the difficulty of labor and delivery, having the baby may be a considerable expense as well. Even comparatively small costs, like diapers and formula, can become expensive over time.
However, the exact cost of these essentials can vary widely depending on where you are. Instead of giving exact figures, let’s explore everything you can expect to buy during your first year as a parent.
One-Time Purchases
If you already have children, you might have a crib, car seat, and other baby essentials still lying around. But if this is your first child, you’ll likely be buying everything for the first time. Unfortunately, these costs can be higher than many new parents realize.
Here are some of the critical one-time purchases you should factor into your financial planning:
- Crib and crib mattress
- Crib sheets and blankets
- Dresser
- Changing table
- Baby bathtub
- Rocking chair (not a necessity, but nice to have)
- Baby monitor
- Baby gates
- Playpen and/or bouncy chair
- High chair
- Pump (if breastfeeding)
- Bottles
- Car seat
- Baby sling/baby carrier
- Stroller
- Diaper bag
Some of these items can be expensive, but the good news is that you usually only have to buy them once.
Monthly/Recurring Expenses
Babies often bring major monthly expenses as well. You may need to pay for some or all of the following during your child’s first year:
- Baby formula and baby food
- Baby clothes
- Toys
- Diapers
- Utility and detergent costs for extra laundry
- Child care
You may also want to consider setting aside some money each month for your child’s education. Whether you’re contributing to a 529 plan for education or just a general savings account, it pays to start early.
Don’t Forget About Insurance
You undoubtedly know about the importance of good medical insurance. However, if you don’t already have life insurance or disability insurance these types of coverage are worth considering.
If one parent unexpectedly dies or becomes unable to work, they can provide financial stability for your family.
Financial Planning for a Baby Should Start Early
Every new parent faces a learning curve, but getting your financial plan in place early can make the transition smoother. With a clear budget, a solid savings cushion, and a sense of the expenses to come, you’ll be much better prepared to focus on the joy of welcoming your new baby.
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