10 Financial Planning Tips for Expecting Parents

When you find out you’re an expecting parent, there is a lot of preparation to be done — from setting up a nursery and babyproofing your home to preparing mentally for this new responsibility. An important component of your planning should include making adjustments to your finances. Not only will your budget have to change to accommodate the costs of this new little person in your household, but having a baby can also impact how you plan for your financial future.

Learn more about the key money moves you should consider when you’re expecting.

1. Learn the Costs of Raising a Child

You’ve probably heard that having a baby and raising that child into adulthood is expensive. But there’s a good chance you may underestimate that expense until you’re in the thick of it. One study estimates that the average middle-income family with two children will spend $310,605 to raise a child born in 2015 up to age 17 in 2032.¹

Costs are spread out over time, so don’t panic just yet. That first year of parenthood, however, can bring with it some eye-opening expenses. To start, you should check with your insurance provider as to what your out-of-pocket healthcare expenses might be for prenatal care, delivery and postnatal care.

Next, there’s the baby gear you have to purchase, from car seats to strollers to furniture. Plus, you’ll have to maintain a steady stock of baby supplies, like diapers, formula (if using) and other necessities. And, if you'll need to pay for child care at any point, that’s a big expense to research in advance and factor in as well.

2. Organize Your Finances

Starting your parenthood journey on the right financial footing can help make the transition a smoother one. That includes assessing your credit health and proactively trying to make improvements. Take a look at your free credit score, which is likely available through one of your credit cards or bank accounts. There are also free services online.²

If you’re not quite in the good credit score range, try making improvements like paying down any large balances and clearing up any old account issues, all while making on-time payments moving forward. Strong credit can help you qualify for future loans or mortgages you may wish to take and help you get the best interest rates.³

3. Create a Budget You Can Stick to

If you have a firm handle on your cash flow now, it will be easier to get used to your post-baby budget. If you don’t currently have a budget, start by tracking how much money you’re spending each month and subtract it from your income to determine how much is left over. This can help you pinpoint ways to spend less and save more.⁴

Then, think about how your income and expenses may change after the baby arrives.⁴ For example, if you anticipate income changes because one or both parents might be scaling back working hours, you should practice living on that new income level. You can also look at prices at various stores to get a sense of what baby items cost and begin stocking up. Don’t forget to consider other expenses, such as an increase in your water bill (from all that baby laundry and extra dishwasher loads).

4. Build an Emergency Fund

Having some rainy-day savings becomes even more important when you have a little one depending on you. Putting money aside automatically from each paycheck into a separate account is considered the best method for building an emergency fund.⁵ If you’re not already doing it, get started and don’t look back.

If you choose a high-yield savings account with a competitive interest rate for your emergency fund, you can also enjoy extra interest on your savings. Your ultimate goal should be to build up your fund so there's enough to cover three to six months of expenses, but start with an achievable, smaller goal such as $500 or $1,000.⁶

Having this money available can help you avoid going into debt should you be faced with an unexpected expense.

5. Save for Retirement

It’s only natural to add new savings goals to your financial planning when you have children — like saving for their future education — but be sure to continue prioritizing your own future savings as well.⁷ Your kids always have the option to borrow for college, but there are no loans or scholarships for your retirement.

Keep funding your 401(k)s, IRAs and health savings accounts (HSAs) as much as possible, especially when there’s an opportunity to get an employer match.

6. Create a Child Education Fund

Once your budget is under control, you’re making progress on your emergency fund and you’re saving for your retirement, an A+ idea is to start saving for your child’s education.

You have many options, but one of the more popular, tax-advantaged ones is a 529 education savings plan. These unique investment accounts let you save and earn tax-free income for future educational costs.⁸

7. Choose the Best Health Insurance for Your Family

When you’re young and healthy, you may not be as concerned with choosing the top tier of health insurance, but that may change once you find out you are expecting since you’ll be adding a family member to your coverage. If you and your partner have separate coverage, start by deciding which policy is best to add the baby onto. See what the costs will be and check if the pediatrician you want to use accepts the coverage.

In addition, look over your health insurance options carefully to see if choosing a slightly more expensive health insurance plan might be the better move for your growing family.

If you think you may be eligible, you can also look into qualifying for Medicaid or Children’s Health Insurance Program (CHIP) benefits.⁹

8. Reevaluate Your Life Insurance Policy

Whether you have life insurance or are considering it, having a child is a major life event that can impact your coverage needs. After all, the main purpose of life insurance is to leave loved ones financially secure in the case of your untimely death. Current policyholders might want to increase the benefit amount when children come into the picture to ensure it's enough to cover the child’s expenses.¹⁰

If you don’t yet have life insurance, becoming a new parent is one of the key times in life to consider getting it.

9. Check for Tax Credits

Once you become a parent, your tax return will get a bit more complex. But the good news is that it’s because you may be entitled to new tax credits. Adding a dependent onto your tax return means you can get bigger tax deductions when you file your taxes. The IRS has a dedicated page that explains all of the current tax situations and benefits for parents.¹¹

10. Set Up a Will

Though it might be the last thing you want to think about, part of being a responsible parent is making sure there’s a plan in place for the unthinkable. Creating a will can make your wishes clear about what you want to happen if you and/or your partner perish. This can include everything from appointing a guardian to specify how and when your assets should be distributed to creating a trust to protect inheritances until your children come of age.¹²

Once your baby is born, it will be a whirlwind of feeding schedules, diaper changes and family and friend meet and greets. Getting your finances in order before the big day will allow you more time for baby bonding, while also setting up the essential building blocks for a financially happy family.

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Author Bio

Dawn Papandrea is a journalist with more than two decades of experience covering personal finance and consumer issues. She has written for leading financial publications and organizations, including U.S. News & World Report, Investopedia, Bankrate and others.