Financial planning for new parents can be a game changer for expectant mothers and fathers. Below we highlight core areas of how to financially prepare for a baby:
Creating a Complete Budget Assessment
Creating a complete budget assessment is important when planning for a baby financially. This takes a comprehensive look at your income and expenses. New parents typically face a whole set of new expenses ranging from baby wipes and diapers to clothing and nursery furniture.
A complete budget assessment can take all costs into account, including the new costs you’ll take on when budgeting for a baby. You can explore whether your income is sufficient for raising a child and whether you need to cut any nonessential expenses from your budget.
Image Credit: JLco – Julia Amaral/istockphoto.
Researching Financial Aid
Working- and middle-class families may research their financial aid options when deciding how to budget for a baby. Research by the Brookings Institution in August 2022 found the cost of raising a child from birth through age 17 is $310,605. That’s more than $18,000 per year.
States and the federal government may offer financial aid programs for new parents. Such programs may include the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), which serves about half of all infants born in the United States.
Image Credit: Natalia Kuzina/istockphoto.
Paying Down Debts
Paying down debt — including high-interest credit card debt — can be helpful if you’re wondering how to financially prepare for a baby. Credit card interest charges can zap your spending power and make it harder for you to cover the costs of child-rearing.
Borrowers can use debt to build wealth in some cases — such as taking out a mortgage loan to buy a home that appreciates in value. Debt generally needs to be repaid over time, but making minimum monthly payments may make it difficult for you and your family to achieve financial independence due to interest costs.Consider the following tips for budgeting and paying down debts:
- Take advantage of your credit card grace period
- Pay close attention to your credit card statement
- Be in the habit of keeping statements
- Start budgeting to pay off debt
- Learn more about how you can reduce credit card debt
Image Credit: AnnaStills/istockphoto.
Researching Cost of Prenatals
Researching the cost of prenatal vitamins can also prove helpful if you’re wondering how to prepare for a baby on a budget. Your OB/GYN may prescribe prenatal vitamins, or you may buy prenatals over the counter at food stores or vitamin shops.
The cost of prescription prenatal vitamins may be covered fully or partially by health insurance. Minimizing your out-of-pocket expenses can help you financially prepare for a baby.
Image Credit: dragana991/istockphoto.
Maternity/Paternity Leave
The Family and Medical Leave Act (FMLA) allows eligible employees to take an unpaid leave of absence for the birth and care of a newborn child. Expectant mothers and fathers in some states, meanwhile, may have the right to take a paid parental leave of absence.
If you’re considering a 12-week unpaid leave under the FMLA, you can plan ahead and budget accordingly. Going several weeks without pay can be difficult, but bonding with your newborn bundle of joy can be priceless.
Image Credit: pabst_ell/istockphoto.
Thinking Ahead for Child Care
You may want to consider childcare options if you’re planning to work full time after the birth of your child. The cost of child care is typically expensive, so exploring your childcare options ahead of time can help you budget for those costs.
The median annual price for infant care ranged from $6,486 to $17,171 when adjusted for inflation in 2022, according to the U.S. Department of Labor.
Image Credit: galina-kovalenko/istockphoto.
6 Budget Tips for Expecting Parents
Here are six budget tips for expecting parents:
1. Don’t Go Overboard When Shopping for Clothes
Your newborn child can grow very quickly during the first 12 months of life, so you might want to buy some onesies as needed but not go overboard. Establishing a budget and sticking to it may prevent you from overspending on cute garments and accessories.
Image Credit: Orbon Alija/istockphoto.
2. Use Hand-me-Down Clothes When You Can
Dressing your newborn child with hand-me-down clothes can help you minimize the cost of child-rearing. If your newborn has older siblings or cousins, your baby may have easy access to secondhand clothing. Cutting the costs of buying new clothes may help you save money during times of high inflation.
Image Credit: Diego Cerro Jimenez/istockphoto.
3. Open Family Health Savings Account (HSA)
Expecting parents may consider enrolling into a High Deductible Health Plan (HDHP) while opening a compatible tax-free Health Savings Account (HSA). In 2023, you may contribute up to $7,750 in a tax-advantaged HSA if you’re under 55 with a family HDHP.
You may use the funds in your HSA to pay for out-of-pocket medical expenses. The average cost of pregnancy, childbirth, and postpartum care is $18,865, according to a 2022 study. A typical health insurance plan may cover much of those expenses, but the average out-of-pocket cost is still $2,854, the study found.
You can review your budget to determine whether an HDHP and HSA are right for you.
Image Credit: zimmytws/istockphoto.
4. Buy Essential Items in Bulk
Baby wipes and disposable diapers are among the essential items you may need as a new parent. Infant formula may also be on your list of essential items if you’re not breastfeeding. Buying these items in bulk may save you money in the long run. You can review your budget to determine whether it’s right for you to become a member of a wholesale club when budgeting for a baby.
Image Credit: Capuski/istockphoto.
5. Compare Costs of Cribs vs Bassinets
One of the early challenges you may face as a new parent is determining where your child will sleep for most of the day or night. Babies on average sleep 16 to 18 hours per day in their first month of life and more than 13 hours per day in the first 18 months. You can use a crib or bassinet as your baby’s primary sleeping spot. As you shop for essential items, you can compare the costs of nursery furniture when planning for a baby financially.
Image Credit: Lorado/istockphoto.
6. Save Money in the Bank
Part of the financial planning for new parents may include opening a bank account — such as a joint savings account — and depositing money into a dedicated emergency fund.
The annual percentage yield (APY) on top savings accounts can earn interest on your deposits. A savings account may be right for you if you’re looking to:
- Establish a rainy day fund
- Establish an emergency fund
- Earn compound interest on your savings
Setting money aside for personal, family, or household purposes — that is, not using those funds for business purposes — can help you preserve your family savings.
Image Credit: marchmeena29/istockphoto.
Financial Planning Post-Delivery
Below, we highlight several important actions and considerations after the birth of your child:
Preparing Paperwork
Once your baby is born, you’ll be expected to fill out important paperwork. This includes giving your child a name, requesting a Social Security number for your newborn, and ensuring the accuracy of the information to be included on your child’s birth certificate.
Adding Your Child to Health Insurance Plans
If you have health insurance coverage, you may have the option of adding your baby to your health insurance plan as a dependent. You may begin this process in the immediate days after delivery and before receiving an official birth certificate or Social Security card for your baby.
Updating Beneficiaries
You may consider naming your newborn child as a beneficiary to your assets. You can create an informal or formal revocable trust that names your baby as a beneficiary. FDIC insurance may protect deposits in a revocable trust account.
Considering a Life Insurance Policy
You may consider buying a life insurance policy for your newborn and naming yourself as a beneficiary. If your baby dies unexpectedly, you may receive a death benefit. If you’re interested in buying life insurance for your child, you can compare quotes from different insurance companies and choose a policy that’s right for your family.
Image Credit: Prostock-Studio/istockphoto.
The Takeaway
Financial planning for new parents is potentially challenging. You can meet these challenges by minimizing your costs when budgeting for a baby. Buying essential items in bulk and building an emergency fund can go a long way when expanding the size of your family.
Learn More:
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Advisor
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
Communication of SoFi Wealth LLC an SEC Registered Investment Adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov. Liz Young is a Registered Representative of SoFi Securities and Investment Advisor Representative of SoFi Wealth. Her ADV 2B is available at www.sofi.com/legal/adv.
Image Credit: ArtistGNDphotography/istockphoto.
More from MediaFeed
There are so many personal loan options! How do I chose the best one?
Image Credit: Eleganza/istockphoto.
