Updated: May 25, 2023

How to Prepare Your Finances for a New Baby

how to budget and plan personal and family finances for a new baby. Learn how to save money and prepare for a new baby's future, college, and life.
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Bringing a new family member into the world is an exciting and joyful time, but it can also be stressful. Questions about the future loom, the home has to be prepared for the baby's arrival, and lots of new equipment needs to be purchased. In the midst of all of the short-term planning, it's important to step back and make longer term financial plans for the new baby in your life.

Flickr | https://www.flickr.com/photos/adrianoaurelio/5327877698/sizes/l/
Flickr | https://www.flickr.com/photos/adrianoaurelio/5327877698/sizes/l/

Budget assessment

It should come as no surprise that your expenses will increase over the next several years on items like food, household goods, toiletries, and clothing, but it's wise to come up with some hard numbers for those expenses.

The family budget now needs to include costs for diapers, baby food, clothing, medicine and other health costs, first aid gear, cleaning products, toys, educational materials, safety items such as car seats, and an array of other goods. Child care can be another major expense in a household with working parents. Get realistic figures down on paper and sharpen up the family budget so you don't regularly find yourself with more month left over than money each month.


It's never too early to start a college savings fund for your new baby. It will take years for those funds to grow, and with the cost of attending college consistently going up, sending your child to college isn't going to be cheap. Even if your child ends up with a full scholarship to a great university, the cost of living including housing, transportation, food, clothing and supplemental equipment are going to come with a substantial price tag.

Start saving now for those late night phone calls asking for money by opening a 529 college savings plan. Also known as a Qualified Tuition Program, these tax-deferred 529 accounts are a great way to set money aside. Parents, grandparents, friends -- anyone -- can set up a 529 plan for your child or contribute to one set up by someone else.

Primary education

If private schools are being considered for your child's education, start doing research now and learn what is involved and how much it will cost. Will the annual tuition for private elementary, middle, and high school be easy to fit into the budget? If you're unsure, a Coverdell Education Savings Account allows parents to save $2,000 per year toward primary or secondary education.

Health insurance

If you haven't taken a look at all of the coverage options available for your child yet, it's time to get in gear. Scrutinize the coverage and ask yourself if the coverage and deductibles are realistic. If an emergency comes up, will paying a $500 deductible be manageable? Is there enough coverage if your child has a major illness or injury?

Setting up a flexible spending account with an employer is an option to consider if one is offered, although funds in it must be spent during the benefit period to avoid penalties. An advantage to this type of healthcare account is that a predetermined amount of money is available even if the entire amount has been paid into the account fully.

Emergency fund

Your family just got bigger, and so should your emergency fund. Take a look around the home and ask yourself if the current fund will cover any big surprises. As an adult, if something like the hot water heater or furnace goes out in the middle of the winter, it might not be too difficult to manage without for a short period of time, but that time frame is much shorter with an infant. Plan for the worst case scenario, and stash as much as you can afford to put away.


While there is controversy about whether or not a life insurance policy should be taken out for a child, the birth of a baby is a smart time to assess your life insurance needs. How much will need to be provided in the event that one -- or both -- parents die? It isn't pleasant to think about, but a very good idea to have plans in place. Take a look at these life insurance tips we've written about and this article about how a life insurance policy can help in an emergency.

For information on other kinds of insurance to consider, check out this article about different kinds of insurance.

Debt management

If all of these new expenses haven't broken the bank already, then a long-term plan to pay off any major debt is another smart step for savvy new parents to make. Focus on high-interest debts like credit cards first, but making an extra mortgage payment here and there can also be useful down the road.

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