How to budget for a new baby

The costs of having a baby can be significant, especially for new parents. Saving for parental leave and claiming tax benefits should be included when budgeting for your newborn. 

A young mother using a calculator while sitting at a table holding her baby.

Having a baby on a budget

There are so many questions to ask before your baby is born. What should you name your child? Who will the child look like? And how much will it cost to care for the child? When it comes to budgeting for your baby, understanding the types of expenses you may incur will prepare you both mentally and financially.

As with any budgeting plan, start by forming a basic baby budget: Examine your existing expenses and see where you might need to cut spending to offset increases in your 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 couple years of your baby's life.

Next, shift your focus to long-term costs, like insurance and education, so you can start putting together a savings plan for a secure financial future.

Preparing for a baby financially

Plan your parental leave

If you plan to continue working, know the opportunities and restrictions of your employers' parental leave policies (40 percent of employers now offer paid parental leave).1 Create a parental leave budget. Once you have an idea of how much you'll need to spend each month, look at your net income. If you’re going to take leave from work, you'll want to account for any loss of pay, as well as the loss of benefits, such as a 401(k) match.

Set up automated deposits to build up your "unpaid leave" fund

If you plan to take unpaid time off, build up enough savings to cover expenses. One way to do this is to set a savings goal, determine how many months you need to reach it, and automate transfers from your checking account to a "parental leave savings account" with every paycheck.

Sign up for a dependent-care flexible spending account

Here's how it works: The funds are withdrawn from your paycheck for deposit into your account before taxes are deducted. Then, you can use the money to pay for childcare (including day care and preschool). Depending on your tax bracket, this can save you a lot. After your child's birth, you have 30 days to put your child on your health plan and sign up for a flexible spending

The average cost of the first year is around $13,000, and that doesn’t even include the cost of childbirth.²

Change your budgeting plan

Think of your baby budget as a redistribution of spending rather than an additional cost. The expenses of childcare and baby supplies can be daunting, so adjust your current spending habits where necessary. You'll likely spend less on yourself (fewer social activities and reduced entertainment costs), and that will help your baby budget. Get advice from other parents about what you may or may not need.

And if those parents offer you what their kids no longer use, take it. Look into subscriptions for high-usage items, like diapers, where you can save over time. Consider registering for items like a crib or stroller, where friends and family can contribute together to purchase big-ticket items if you have a baby shower. The main idea is to track all your spending and shift your purchasing behavior.

Claim your tax benefits

There is some good financial news about having a baby. The federal government offers a number of tax* breaks to offset the cost of raising a child. Two of the most used are the dependent exemption, and the child tax credit. The Expanded Child Tax Credit for 2021 is worth up to $3,600 per qualifying child.3

Tax benefits are a good starting point for your long-term budget. Once you're accustomed to your monthly financial obligations, start setting some annual goals to protect your money and make plans for it.

A young couple holding their baby.

Open an account for monetary gifts

You're likely to receive some cash gifts from friends and family intended for your child's future. Set up a separate education funding account or create a savings plan for your child's education, where you can deposit the money you get. Education funding plans such as a 529 college savings plan may offer tax-favorable ways to save for education.

Stay on course with your long-term plan

As you go through the financial transition of raising a child, don't lose sight of your long-term financial goals. It may take some time to figure out the right balance for your child-related budget, but continue to fund your 401(k) or other retirement accounts. Be strategic with your family income and expenses, so you can avoid withdrawals from your investments or savings to cover short-term baby costs.

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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.


1 Anne Stych, “40 percent of employers now offer paid parental leave,”  Biz Women, February 4, 2019.

2 Katherine George, “10 Biggest Expenses in Baby’s First Year,” Childhood, September 24, 2020.

Oscar Gonzalez and Alison DeNisco Rayome, “There's a Catch to Qualify for Advance Child Tax Credit Checks. Everything to Know,” Cnet, May 12, 2021.