For many, raising a child is an invaluable experience, one they wouldn’t trade.
But there is a price tag — a hefty one — that comes with being responsible for caring for a tiny human.
Whether you’re single or married, birthing or adopting, planning years ahead or flying by the seat of your pants, it’s important to know how to prepare for a baby financially before taking on the role of parent.
9 Smart Money Moves to Make Before Having a Baby
Hold on to your baby bonnets. The cost to raise a child may make your head spin.
The U.S. Department of Agriculture predicts a middle-class, married-couple family with a baby born in 2015 will spend about $233,610 raising a child from birth to age 17. A low-income family is expected to spend $174,690, and a high-income family is expected to spend $372,210 to accomplish that same feat.
And those figures don’t even include pregnancy-related costs or the colossal expense of getting your kids through college!
Go into parenthood prepared with this checklist of financial considerations you’ll want to make when preparing for a baby.
1. Ramp Up Your Savings
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Plain and simple: You’re going to need money, so you should start saving as soon as possible.
Leslie Tayne, the head debt-resolution attorney and managing director at Tayne Law Group, has more than a decade of experience helping individuals, families and businesses get out of debt. She recommends that expecting parents strike up an emergency fund if they haven’t already.
Take a look at your budget and see what you can spare each month. Dump that into a separate, hands-off-unless-there’s-an-emergency account.
After discovering they were expecting their first child, Nora and Shane Martin of Palm Harbor, Florida, focused on saving money to cover their upcoming costs. They created a spreadsheet of what they’d need for the baby, added up the expected costs and divided the total by six to develop a monthly goal of how much they wanted to save over a six-month time period.
If you’re not sure how much you can afford to save at this point, try a savings app called Digit.
Digit automates the savings process for you and even determines the amount of money you can afford to save (without causing you to overdraft!) in an FDIC-insured savings account.
You’ll connect the app to your checking account, and then Digit will take a look at your income and spending. Its algorithms will do the rest.
2. Budget for Baby
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Your budget is going to need a bit of an overhaul with your new addition.
Nora Martin said she and her husband thought they were a fairly frugal couple, but that was before they began tracking their spending prior to having their son. They realized they could bank some savings by cutting back on entertainment and meals out and by not spoiling their dogs so much.
To get on the right track financially, the Martins created a zero-based budget, accounting for every dollar that came in. They made room in that budget to pay down credit card debt so they didn’t have to worry about making payments once the baby arrived.
When you’ve got an infant on the way, you’ll need to plan for large expenses upfront — like birthing or adoption costs, a crib and a car seat — and you’ll need to adjust to the many recurring costs you’ll face each month — diapers, formula and child care, to name a few.
Our guide to budgeting for baby lays out an idea of what you’ll need to add to your budget once your baby gets here and approximately how much it will cost. Score freebies for your little one and find ways to save money on baby gear in order to lower the financial burden.
Keep in mind that if you or your partner plans to take extended time off work or become a stay-at-home parent, you should base your budget on what your expected income will be once the baby arrives. Practice living off one income in the months prior to the baby arriving and pocket the extra money as savings.
3. Prepare for Parental Leave
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Babies come into the world needing tons of attention and care. Childbirth is also a significant medical event for a woman, requiring several weeks of recovery — whether it’s a Caesarian section or vaginal birth.
Having time off work to bond with your new baby, heal your body and adjust to the changes in your family is crucial.
Though the United States does not offer universal paid parental leave for new parents, the Family and Medical Leave Act allows for eligible employees to take up to 12 weeks of unpaid time off following the birth of a baby.
Your employer might offer a certain amount of paid time off, or you might be able to get a portion of your wages paid through short-term disability insurance. Some parents-to-be also save up paid vacation or sick days to use once the baby arrives.
Meet with your boss or your company’s human resources department to develop a plan for taking parental leave. If there are any lapses in your income during this time, try to save enough money during the pregnancy to hold you over.
4. Make a Decision About Child Care
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Of all the new post-baby expenses, many working parents find child care to be the most expensive.
In a July 2018 Penny Hoarder survey of over 1,200 parents with children under the age of 6, 82% said they spent $500 or more each month on child care. Over half said they spent at least $750 a month. The majority of parents surveyed said child care was their biggest child-rearing cost, and most felt surprised and overwhelmed about the expense.
If you’re returning to work or school after having a baby, start researching affordable child care options early and look into child care assistance, if applicable.
Other parents make the decision to significantly reduce their hours or pause their careers and become stay-at-home parents.
When Scott and Jennifer Perry of Raleigh, North Carolina, had their son Isaiah, Jennifer scaled back her hours from full time to part time to help cut day care costs.
“We were no longer earning what we had been, and now these huge costs were coming our way,” Scott Perry said. “It was all a bit overwhelming — especially combined with our lack of sleep the first six months.”
Whether you’re staying home due to preference or out of necessity, you need to consider the effect on your household income and make sure your budget reflects the change in income.
5. Acknowledge Your Debt
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Chances are, you have some form of debt — maybe a car loan, a mortgage or lingering student loans.
“That’s OK!” Tayne said. “As long as it’s manageable, it’s OK to have kids and debt.”
She warns, however, that you’ll want to make sure you can keep up with payments even with a child in the picture. If you can’t, those scary spirals of high interest rates and late fees can stack up against you.
The first step is to get a good big-picture view of your different debts.
If you’re not sure how to do this, try using the free credit-monitoring service Credit Sesame.
With Credit Sesame, you’ll be able to get a clear picture of which debts are lingering. Chances are, you can’t pay those off immediately. Again, that’s OK. Just draw these payments into your budget to make sure you don’t fall behind.
To find out what you owe where, create a free Credit Sesame account. On the dashboard, click “View Details” under “My Debt Analysis.” There, you’ll have access to your credit card debt, home loans, auto loans and student loans, among others.
Another good tip for parents-to-be: Make sure your finances are protected. Credit Sesame offers free identity theft protection, too. This includes $50,000 in identity theft insurance.
6. Address the Insurance Question(s)
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Bringing a baby into the family means someone’s dependent on you — and that can be kind of terrifying.
Within a month of their son’s birth, the Perrys started thinking about life insurance.
“I decided it was time once we brought a little guy into this world,” Scott Perry said. “Now, if one of us died, the other would be responsible for raising and providing all the care for the child, saving for his college, etc. It was the weight of responsibility that you feel once you have a kid.”
He admits researching life insurance was overwhelming.
“It took a lot of time and energy to figure this out and to make a choice based on what would be best for us and our situation,” he said.
A company like PolicyGenius offers you an easy way to compare and buy life insurance. Unlike traditional providers, this online-only platform provides an easy way to apply, and it offers instant quotes from top carriers online to help you make a quicker decision.
In addition to life insurance, there are other types of insurance to consider, too: health, auto, homeowners and disability — just to name a few.
For all other types of insurance, we put together a guide to 12 types of insurance — and how to determine whether they’re worth the cost.
Each situation will be different, so carefully consider your needs.
7. Write Your Will
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This is something we hear from a lot of parents about wills: “Yeah, I know I should have one, it’s just…”
Writing up a will might seem like a daunting task, but it’s an essential one if you’ve got kids in the picture.
A will is a legal document that spells out who will receive your assets and who will be your child’s legal guardian if you die. It may be dismal to think about, but like life insurance, it’s important to prepare for this worst-case scenario.
Our guide on how to write a will can help you figure out how to tackle this process. It outlines everything you need to know, including the differences between a will and a trust, the cost of a will (yes, they cost money!) and how to write one if you’re running low on funds.
8. Don’t Forget About Your Retirement Plan
Having a little one to tend to doesn’t mean you should forget about your own future.
You’ll want to make sure your retirement fund is on the right track.
“Before having kids, it’s important you have a good start on your retirement fund and that you make a plan to continue to make contributions,” Tayne said.
If you’re having trouble getting money into your retirement account, build it into your budget. Tayne encourages you to consider it the same way you’d consider rent: essential.
“Pay it at the beginning of every month so you’re not tempted to spend it elsewhere,” she said.
If you have a retirement plan through your employer, see whether you can set up direct deposit so a portion of your paycheck is automatically siphoned out before you can get your hands on it.
You should also keep tabs on your account to make sure it has your best interests in mind (you know, the whole stocks versus bonds thing and fees).
If you take a look at your account and can’t figure out what the heck is going on, consider using Blooom.
Blooom is a robo-adviser for retirement accounts. It offers a free 401(k) checkup so you can check your account’s pulse. If you don’t like what you see, you can opt to pay $10 a month to have Blooom monitor your account and automatically make adjustments that are in your best interest.
9. Plan for Your Kid’s Future
Although your child’s college education isn’t something you need to prioritize immediately, it is worth considering.
But if you’re struggling in other areas, this is something that’s OK to put off.
“It’s important you don’t sacrifice your retirement or emergency fund to pay for college, so if this is not something you can start saving for right away, make a plan to start incorporating college fund contributions down the road,” Tayne said.
If you want to start a college savings account for your kid, you can look into a 529 plan.
A 529 plan is similar to a 401(k). Basically, it’s an investment account with tax benefits. This helps you save more money toward the goal: college.
The Perrys and the Martins both started 529 savings plans to prepare financially for their children’s futures.
For a breakdown of the pros and cons of a 529 plan — and other avenues to funding your child’s college education — see our guide on saving for college.
Carson Kohler ([email protected]) is a staff writer at The Penny Hoarder. Senior writer Nicole Dow contributed to this article.