How to Prepare For a Baby Financially

1. Be prepared for change

When you become a parent, your life will be changed forever. Your daily routine, social life, and personal finances will all look different after having a baby. The best way to handle this transition is to mentally and physically prepare for the changes ahead. Give yourself time to adjust and accommodate the newest addition to your life.

You might also have to assess your home in a new light. Your current living space may not be adequate for your growing family. For example, a third-floor studio apartment may be comfortable for two, but it might become cramped when you have to navigate the stairs with your baby and baby gear. If you feel it’s necessary, you should consider finding a bigger home or apartment that can accommodate your newborn's needs.

Additionally, if you're used to hanging out with friends every weekend, having a baby will likely require some modifications to your social life. Your friends will definitely understand if you need to make some adjustments to how often you hang out, but try not to eliminate your social life completely. Connecting with other young parents can be extremely beneficial and help you expand your support network. 

Parenthood comes with new responsibilities, unique challenges, and added expenses. However, the joy of having a new family member is priceless. By embracing these changes and baby-proofing your life, you'll be better equipped to adjust to parenthood and enjoy all that it has to offer. 

2. Talk about money with your partner

Preparing for these changes will likely prompt some conversations about money with your partner. Once the baby arrives, you may find it challenging to focus on your finances. That’s why it’s important to start these money conversations before the diaper changes and sleepless nights begin, as the process will likely be less stressful.

One of the first items you need to evaluate is your health insurance. Comparing your health insurance plans with your partner’s can help you determine which is the best option for your growing family. Health insurance will help you cover prenatal care, hospital delivery costs, and check-ups with your pediatrician. 

You’ll also want to discuss employment. If you take maternity leave and paternity leave, you’ll need to understand how it will affect your finances and budget. You should also consider if you expect the leave to be a temporary or permanent change. 

Having money conversations like these before the baby arrives can alleviate a lot of stress. It’s important to keep in mind that what you decide today is not set in stone. You can change your mind as new information and financial circumstances arise. 

3. Evaluate your financial goals

When you’re an expecting parent, you might have to change the financial goals you’re currently working towards. Before your baby arrives, you may be focused on paying off debts, saving for a retirement account, or building an emergency fund that covers three to six months worth of expenses. Once your baby is born, you may need to adjust your priorities. Discussing both your long-term and short-term financial goals with your partner can help ensure you are both on the same page. 

After your little one is born, you will need to obtain a birth certificate and apply for your child's Social Security Number. Once you have these documents, you can open financial accounts on their behalf. A short-term goal would be to set up a traditional savings account in your baby’s name. That way, if someone gives your child a check or cash, you have a place to stash the gift away. 

A long-term financial goal to consider is saving for your child’s higher education. Setting up a 529 college savings plan for your child’s future would benefit them greatly as the money would have time to grow and compound. Yet, while saving for college and other future financial goals are important, they should not come at the cost of your financial security now. 

Be sure to prioritize your basic living expenses and a solid emergency fund first. If you are unsure which financial matters to prioritize, consider meeting with a financial advisor. Remember, you should not feel pressured financially to follow what others are doing. Your current financial goals are unique to you and your family.

4. Update your budget

When you welcome a new addition to your family, you’ll face expenses that you might not have considered before. This means that your budget will need to be adjusted. Your new budget should include all the anticipated costs of raising a child and also leave a little room to plan for unexpected expenses. 

You can start by including the recurring expenses, like diapers, formula, and clothing, to your existing budget. You'll also need to make room for one-time purchases, such as a crib, stroller, high chair, car seat, and other baby gear. A popular option to spend less money on these items is to have a baby shower. Friends and family can purchase the items on your baby registry as gifts for the shower. Another way to save money is to borrow or buy baby items second-hand. 

However, the cost of raising a child is not limited to the material items. You'll also need to factor in medical expenses, such as routine check-ups and doctor's visits. Additionally, future expenses should be considered when creating your budget, like child care, babysitting services, or life insurance. Just as you would prepare a room in your home to become a nursery for the baby, you need to make room in your budget for your little one as well. 

5. Start saving immediately

While babies are cute, they can be a costly addition to your family. If you’re expecting, it’s important to start organizing your finances to prepare for the costs of raising a child now. Even if you aren’t actively trying to have kids but may want them in the future, it might be a good idea to begin saving right away. 

Putting aside a small amount each month is a great place to start. You can open up a separate savings account for baby expenses, so you aren’t tempted to spend the money. Consider automating a percentage of your paycheck to go directly into the account each month. 

To free up more money for baby costs, you could try cutting back on other unnecessary expenses. Impulse purchases, like eating at fast food restaurants or going out frequently, could be expenses you cut first. Alternatively, if you have the time and energy before the baby comes, you could also try to make more money with a side hustle or part-time job.  

The earlier you begin saving for your future, the easier it is to spread baby expenses over several months. By developing a financial plan before the baby arrives, parents can better prepare for the expenses that come with a new addition to the family.

Expecting a baby brings excitement and happiness for soon-to-be parents. But if you don’t take the time to prepare, it can also bring feelings of stress and anxiety due to financial strain. To help avoid these negative emotions, follow the steps outlined above and take the time to plan for the arrival of your little one. Remember, the more preparation you do, the smoother the transition to parenthood will be.