How to Prepare Financially for a Baby

Having a child is a major life milestone that’s filled with love and joy, but how much money should you save for a baby?

The answer to that question varies depending on the person, couple or family. Cost differences vary in many situations, but it’s important to prepare financially for a baby to create stability for you and your child. The best way to answer the question, “how much does it cost to raise a child?” is to understand the overall cost of having a baby.

Understanding the costs of a new baby

How you deliver your baby can greatly impact the average cost of having a baby. But depending on your health insurance plan, the average standard hospital birth has an average cost of $14,768 in the United States. C-sections are typically higher, costing an average of $26,280 without taking insurance into consideration.¹

Aside from actually giving birth to your new baby, you’ll need to account for other expenses, like diapers, clothing, baby food and/or formula, toys, swaddles, a carrier, a car seat, a stroller and a crib and/or bassinet. In fact, the average cost of having a baby is roughly $20,000 with the high likelihood of an increase due to projected inflation.² If you’ll be needing childcare as well, then you’ll need to budget for that too — the average cost of daycare for infants in the U.S. is $1,230 a month, but this price can vary based on the state you live in.³

Although adding up all of these expenses can feel overwhelming, we’re here to help you create a plan to figure out how to prepare financially for a baby on a budget. Ensuring that you’ve got your finances under control will help you focus on what matters most — spending time with your child.

9 steps for financially preparing for a baby

1. Get your budget on track
   To start saving for a baby, you’ll need to calculate your budget based on your monthly income and factor in the above expenses. However, it’s important to note that your monthly income could drastically change depending on your company’s maternity or paternity leave policy. Many U.S. employers do not provide paid leave, and if you’re self-employed, there is no leave at all. So, if you’ll be taking the standard 12 weeks of unpaid leave per FMLA, you’ll need to save and budget accordingly.

   • How much money should you have before having a baby?
     While the exact number will vary based on your income, existing and new expenses, as well as maternity/paternity leave pay, it is recommended to have at least six months of living expenses saved before having a baby.⁴

2. Build an emergency fund
   In addition to financially preparing for a baby and its basic necessities, you’ll also want to make sure you have an emergency fund if you don’t already. You never know when something will happen, so it’s always a good idea to be prepared for life’s “what if” moments.

3. Discuss finances with your partner
   When it comes to raising a child, it’s important to have open communication with your spouse or partner regarding finances. This is the time to figure out budgeting, planning maternity/paternity leave and discuss financially supporting your child until they’re at least 18. Everything should be accounted for, and having conversations with your partner early can help organize your thoughts as you’re financially preparing for a baby.

4. Create a registry
   Although saving for a baby is important, creating a registry and having a baby shower can help offset the costs. This will allow your friends and family to contribute and shower you with gifts and necessities for your baby. After all, they say “it takes a village.”

5. Evaluate your insurance
   

   • Health insurance
     Depending on your health insurance, you may only be able to change your coverage during certain times of the year. That’s why it’s important to start thinking about it as early as you can. You’ll want to choose a plan with optimal coverage for childbirth, as well as a plan that’s flexible enough to provide your newborn with coverage once he or she arrives.
     
     
   • Short-term disability insurance
     It may make sense to add short-term disability insurance to a woman’s coverage. She’ll be able to receive a portion of her salary during FMLA leave, as doctors will provide a note stating she’ll be unable to work postpartum.
     
     
   • Life insurance
     Now that you'll have a newborn depending on you, you'll want to add life insurance if you don't already have it. Life insurance will pay a lump-sum to your beneficiary should you unexpectedly pass. You’ll be able to choose a benefit amount and pay a monthly premium based around that amount. Learn more about the importance of life insurance and how to find the right coverage for your family.

6. Create or update your will
   If you don’t already have a will, you’ll definitely want to create one once you have a child. In it, you should include your preferred guardian(s) of your child and how you want your assets to be distributed. Typically, someone will be appointed to hold any funds for your child until they reach 18 years of age.⁵

7. Start saving for college now
   A big factor in the cost of raising a child is saving for college. While it might seem silly to start when your baby is born, the financial outcome of investing earlier can help take off the stress and maximize savings for your child. In fact, you can create a 529 plan, which is an investment vehicle that will help save for your child’s education over time. By starting the plan as soon as they are born, you’re creating plenty of opportunities for compound interest to take its course over the next 18 years, so your child will be prepared to afford college.⁶

8. Find doctors in-network
   Having a baby means that you will be spending more time at the doctor’s than usual. Whether it is an OB-GYN during the pregnancy phases, or the various doctor appointments post-pregnancy for the baby, doctor’s visits can increase in quantity and cost. Finding doctors that are in-network with your insurance can help you afford the cost of the appointments by allowing you to only have to worry about paying a copay instead of the full amount.

9. Invest in yourself
   Once you have a child, your priorities turn to focus solely on that child and making sure all their needs are met. However, it is still vital to remember your personal goals and long-term plans. For instance, continuing to invest and save for retirement is beneficial to ensure that you are financially stable and able to attain your goals once your nest is empty.

Start planning today

Having a child takes a lot of planning and preparation, especially when it comes to your finances, but the cost of raising a child does not have to be a source of stress.

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1. https://www.bloomberg.com/news/articles/2022-07-13/how-much-does-it-cost-to-have-a-baby-in-the-us
2. https://www.forbes.com/sites/roberthart/2022/07/13/it-costs-nearly-20000-to-have-a-baby-in-the-us-study-finds/?sh=59d434f42924
3. https://worldpopulationreview.com/state-rankings/child-care-costs-by-state
4. https://www.refinery29.com/en-au/save-for-child
5. https://www.whattoexpect.com/family/finances/how-to-write-will
6. https://www.collegesavings.org/what-is-529/

This article has been updated from a previous posting on June 28, 2021.