It’s recommended to have several months of living expenses saved, plus extra funds for baby-related costs like medical bills and childcare.
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Budgeting for a baby: Financial tips for new parents
Being a new parent is both exciting and challenging. With all the new responsibilities that come from caring for a newborn, it can be hard to focus on anything else. While you certainly want what’s best for your baby, it’s important to put special care toward your financial planning and budgeting as well.
Let’s take a look at some financial tips to help new parents like yourself manage your finances and create a baby budget.
Create a financial checklist for new parents
The costs of having a baby can be significant, especially for new parents. In fact, a study by LendingTree found that in the first year alone, the cost of raising a baby can run upward of $28,000, and the Brookings Institution estimates that the cost of raising a child to adulthood could top $362,000.1 And that doesn’t include any special needs your child might have. So, when it comes to newborn financial planning, understanding the types of expenses you may incur can help prepare you both mentally and financially to give your child the best life possible.
How to budget for a baby
To budget for a baby, start with a realistic view of your current financial situation. Assess your income, fixed expenses, and discretionary spending. Then, determine what new costs you’ll need to absorb. From there, build a baby budget that fits your lifestyle. Making small adjustments early can prevent larger financial stress later.
Prioritize your expenses
Once you have a list of all your expenses, prioritize them. For example, medical costs and basic baby needs should be at the top of the list. Nonessential expenses, like luxury baby items, can be lower down. This will help you focus your spending on the most important items and avoid overspending on unnecessary things.
To make your baby budget planning easier, you can use the 50 | 30 | 20 approach for divvying up your income:
- 50% of your income goes toward things you need to pay for, such as household bills, minimum loan payments, any debts you have incurred and essential expenses for your baby, such as diapers and formula.
- 30% of your income goes toward things you want, such as family portraits, trips to the movies, etc.
- 20% of your income goes toward savings.
Shop smart
Babies need a lot of stuff, so you will need to account for increased spending in your baby budget. But it’s important to shop smart and not overspend on unnecessary items. Consider buying certain items secondhand or borrowing from friends and family to save money. Children grow out of their clothes fast, so there’s no need to buy the latest fashions. Welcome hand-me-downs from friends and relatives. Look for sales and discounts, and don’t be afraid to negotiate prices when purchasing large items such as cribs and strollers.
Save for emergencies
Having a baby can be unpredictable, and unexpected expenses can arise at any time. It’s important to set aside money for emergencies, such as unexpected medical costs or even non-baby-related things like car repairs. Create an emergency fund and add whatever you can contribute each month, even if it is just a small amount. However, you must be consistent. Over time, your emergency fund will grow, and it can help you avoid going into debt when you need to cover unexpected expenses.
Add your child to your health insurance
Having a baby is a qualifying life event, so health insurance companies2 will allow you to update your coverage once your baby is born. However, insurance companies typically require you to add your newborn to your health insurance policy within the first 30 days after birth in order for your baby to be covered under your plan. So, the sooner you do this, the better!
Insurance companies typically require you to add your newborn to your health insurance policy within the first 30 days after birth in order for your baby to be covered under your plan.”
Buy life insurance
Having a new baby is a great time to consider life insurance if you haven’t already. Not only can life insurance help provide financial security for your family if something should happen to you, but depending on the type of policy, it can also help you build cash value to help you pay for big moments later in life.3 You may also want to consider individual disability insurance to protect your income in case you become sick or injured and are no longer able to work. Look into the different types of life insurance policies and determine how much coverage you will need to protect your family and give yourself peace of mind.
Take advantage of benefits and tax credits
There are some financial benefits of having a child. The federal government offers a number of tax4 breaks to offset the cost of raising your child. Two of the most frequently used are the dependent exemption and the child tax credit. Both can help ease the financial burden when tax season rolls around. Additionally, some employers offer parental leave or flexible work schedules, which can help new parents balance work and childcare responsibilities. Speak to your employer and find out what options are available to you.
Start saving for college
It’s never too early to start saving for your child’s education. In fact, the sooner you start the less stressful it will be. You’re also likely to receive some cash gifts from friends and family that are intended for your child’s future. Set up a separate education fund or create a savings plan for your child’s education, where you can deposit the money you receive. Also consider setting up a 529 college savings plan , which offers tax benefits and allows you to invest money that can grow tax-free and can be used to pay for qualified
Save for retirement
While your child will always come first, it shouldn’t be at the expense of your own financial future . Children can turn to student loans, grants, and scholarships to help fund their education. But when it comes to retirement, you’re limited to your savings and investments. That’s why it’s vital to have a retirement plan that you stick with, no matter how much you’d like to use the money elsewhere. If you need advice, reach out to a financial professional . Together, you can come up with a strategy that works with your budget and needs.
Create a will
Finally, while it may be the last thing you’re thinking about right now, it’s important to create a will and have arrangements in place for your children in case something happens to you. Who will be your child’s legal guardian? How will your assets be divided? These and other questions should be addressed to ensure that the plans you have for your child come to fruition. You can see a lawyer to have one drafted for you, or there are various websites that can help you do this on your own.
Having a baby on a budget
Having a baby on a budget doesn’t mean sacrificing quality—it just means making thoughtful choices with your money. Whether you’re adjusting to a single income or simply trying to stretch your dollars, a little creativity and planning can go a long way. By identifying what really matters and leaning into cost-saving opportunities, you can meet your baby’s needs while staying financially grounded.
How much to budget for a baby per month
The monthly cost of caring for a baby can vary, but a general range is $1,100 to $2,5005 depending on your location and lifestyle. This includes diapers, formula or food, childcare, and medical expenses.
Newborn essentials on a budget
Look for bundle deals on newborn essentials, such as diapers, wipes, onesies, bottles, a crib, and a car seat. Additionally, consider asking loved ones to contribute practical gifts instead of toys or clothes your baby may outgrow quickly.
How much money should you save for a baby?
Many financial professionals recommend saving several thousand dollars before your baby arrives to cover initial expenses. The more you can save ahead of time, the easier it will be to manage those first few months with a newborn. If you need help building a savings plan or figuring out how much you can realistically set aside, a financial professional can walk you through your options and tailor a strategy that fits your unique situation.
Budgeting for a baby FAQs
A helpful benchmark might be setting aside a modest monthly savings amount toward your child’s future.
Your monthly expenses will likely rise once you account for essentials like diapers, childcare and medical costs. A flexible budget that adjust as your baby grows can help you stay on track.
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1Maggie Davis, “It Costs an Additional $297,674 to Raise a Child Over 18 Years, Up 25.3%,” Lendingtree. https://www.lendingtree.com/debt-consolidation/raising-a-child-study/
2Products available through one or more carriers not affiliated with New York Life Insurance Company, dependent on carrier authorization and product availability in your state or locality.
3Accessing the cash value will reduce the policy’s available cash surrender value and death benefit.
4Neither New York Life Insurance Company nor its agents provide tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.
5Kristen Cramer, “Average Cost of a Baby per Month” TrustedCare. https://trustedcare.com/costs/average-cost-of-a-baby-per-month