Budgeting for a baby: Financial tips for new parents.

Being a new parent is both exciting and challenging. With all the new responsibilities and craziness that comes 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.

New parents with baby

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 Nerdwallet found that in the first year alone, the cost of raising a baby can run upward of $21,000,1 and the Brookings Institution estimates that the cost of raising a child to adulthood could top $310,000.2 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.

As with any budgeting plan, start by forming a basic baby budget: List all the expenses you expect to incur, including medical costs, diapers, formula, and baby gear. This will help you get a better idea of how much money you need to set aside each month to cover basic expenses. Do some research or use an online tool to calculate first-year baby-related expenses. Knowing the general prices of what you'll need will give you an idea of how much you'll be spending on everything from diapers to childcare in the first few years of your baby's life.

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.

It’s important to remember that your expenses will change as your child ages. Diapers won’t always be a big expense, but daycare, swimming lessons, braces, and other expenses down the line should be taken into consideration.

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 companies1 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 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 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 tax* 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 educational expenses.

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

Being a new parent is an exciting and rewarding experience, but it can often feel financially overwhelming. However, planning ahead, prioritizing expenses, and taking advantage of available resources helps alleviate a lot of the stress.

Perhaps the most important financial tip for new parents to remember is to stick to your budget. It can be tempting to overspend on cute baby clothes and toys, especially in the beginning, but it’s important to stay within your means. Regularly review your budget and adjust it as needed to ensure that you are staying on track and not overspending. If you need help, remember that our financial professionals are always available to offer valuable guidance and financial solutions for new parents.


Want to learn more about financial strategies for your baby?

A New York Life financial professional can help determine what’s right for you and your child. 

* Neither 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.


Elizabeth Renter, “Study: Would-Be Parents Unprepared for Potential Cost of Raising a Baby,” NerdWallet. https://www.nerdwallet.com/article/insurance/cost-of-raising-baby

Isabel V. Sawhill, Morgan Welch, and Chris Miller, “It’s Getting More Expensive to Raise Children. And Government Isn’t Doing Much to Help,” Brookings, August 30, 2022. https://www.brookings.edu/blog/up-front/2022/08/30/its-getting-more-expensive-to-raise-children-and-government-isnt-doing-much-to-help/

1Products 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.

2Accessing the cash value will reduce the policy’s available cash surrender value and death benefit.