Building a Budget for Having a Baby


There are so many questions to ask when you have a baby on the way. What should the child’s name be? Who will he or she look like? Where will the crib fit at home? And how much does all of this cost? When it comes to budgeting for your baby, understanding the types of expenses that await your life as a parent will prepare you both mentally and financially.

Like any budgeting plan, start by examining your existing expenses and see where you need to offset costs and cut spending. Do some research or use an online tool to calculate first-year costs of baby-related expenses. Knowing general prices of what you’ll need will give you an idea of how much you’ll be spending on everything from diapers to childcare in the first year of your baby’s life (Hint: the national average is estimated between $20,000 and $50,000, depending on location and household income).1 Next, shift your focus to long-term costs, like insurance and education, so you can start putting together a savings plan for a secure financial future.

Set up automated deposits to build up your “unpaid leave” fund.

Once you have an idea of how much you’ll need to spend each month, take a look at your net income. If a parent is going to take leave from work to stay home after the baby is born, you’ll want to account for any loss of pay, as well as benefits, such as a 401(k) match. If you plan to continue working, know the opportunities and restrictions of your employers’ parental leave policies (only 14% of civilian U.S. workers have access to paid parental leave).2 If you take unpaid time off work, build up enough savings in advance to cover expenses. One way to do this is to set a savings goal, determine how many months you have to reach it, and automate transfers from your checking account to a “parental leave savings account” with every paycheck.

“Set a savings goal, determine how many months you have to reach it, and automate transfers from your checking account to a ‘parental leave savings account.'”

Sign up for a dependent care flexible spending account.

In 2018, you can contribute up to $5,000 a year to these accounts. Here’s how it works: the funds are withdrawn from your paycheck for deposit into your account before taxes are deducted. Then, you can use the money to pay for childcare (including day care and preschool). Depending on your income, this can save you a lot. After your child’s birth, you have 30 days to put them on your health plan and sign up for an FSA.

Change your budgeting plan.

Think of your baby budget as a redistribution of spending rather than additional costs. The expenses of childcare and baby supplies can be daunting, so adjust your current spending habits where necessary. You’ll likely spend less on yourself with social activities and entertainment, so that will help your baby budget. Get advice from other parents about what you may or may not need. And if those parents offer you what their kids no longer use, take it. Look into subscriptions for high-usage items, like diapers, where you can save over time. Consider registering for items like a crib or strolle, where friends and family can contribute together to purchase big-ticket items if you have a baby shower. The main idea is to track all your spending and shift your purchasing behavior.

Claim your tax benefits.

There’s some good financial news about having a baby, too. The federal government offers a number of tax* breaks to offset the cost of raising a child. Two of the most used are the dependent exemption, and the child tax credit. The Child Tax Credit under 2018 tax reform is worth up to $2,000 per qualifying child.3 Tax benefits are a good starting point for your long-term budget plan as a parent. Once you’re accustomed to your financial obligations on a monthly basis, start setting some annual goals to protect and make plans with your money.

Open an account for monetary gifts.

You’re likely to receive some cash gifts from friends and family intended for your child’s future. Set up an education funding account or create an alternative savings plan for your child’s education, where you can deposit money you receive. Educating funding plans may offer tax favorable ways to save for education.

Stay on course with your long-term plan.

As you go through the financial transition of raising a child, don’t lose sight of your long-term financial goals. It may take some time to figure out the right balance for your child-related budget, but continue to fund your 401(k) or other retirement accounts. Be strategic with your family income and expenses, so you can avoid taking from your investments or savings to cover short-term baby costs.

* Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.