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Financial planning for a baby

Apr 21, 2021 5 Minute Read

You’ve picked out a name, shopped for a crib, and painted the nursery. But have you actually sat down and budgeted to make sure you’re financially ready when your little one arrives?

Financial planning is important for every household, and it becomes even more critical when children enter the picture. There’s no getting around it: Kids are expensive. It costs about $233,000 on average to raise a child to adulthood, and that’s before factoring in the cost of college.

Getting your finances in order is key not only to cover your growing family’s day-to-day needs, but also to plan for your child’s future. That includes ensuring their security if you’re suddenly unable to provide for them. Taking these steps ahead of time can help make sure that you’re financially prepared before baby comes.

4 steps for planning for a baby financially

Organize Your Finances

Wondering how to financially prepare for a baby? A good place to start is creating a personal budget. Track and categorize your assets by reviewing paystubs, W2s, and any supplemental income, and add up expenses from utility bills, credit card and loan statements, and receipts for groceries or other essentials.

When balancing your budget, make sure to account for new costs and living expenses that will come with the baby. A few child-related costs to consider:

  • Childcare. If you and your partner both work, who will watch your baby? It’s crucial to account for any childcare costs, as well as leave time if you will need to take unpaid leave after the birth of your child.
  • Healthcare. Plan for the costs of birth and what health insurance will cover, as well as the cost of your child’s healthcare the first year. On average, a hospital birth can cost anywhere from $5,000 to nearly $11,000, including the total hospital stay, the obstetrician’s fee, prenatal care, and anesthesiologist’s fee. You might want to increase your health savings account in preparation for these healthcare costs.
  • Baby gear. From feeding supplies to clothing to toys, baby gear adds up. As you plan, add these items to your budget and look for ways to cut costs if needed, like borrowing a bouncy chair from a friend or cloth diapering instead of going for disposables.

Write Your Will

If you don’t have a will already, having a baby is a good reason to check it off your list. A will is a legal document that can help protect your family financially by providing instructions on how to distribute your money, personal items, and any other assets after you die. Your will can also spell out how to pay any remaining expenses and bills, as well as who should care for any children under the age of 18 if you and your spouse both die.

Start a College Savings Plan

College might seem far off, but your baby will be a high school graduate in the blink of an eye. The average costs of college today range from $20,000 to over $45,000 a year, depending on whether your child opts for a public or private school. Starting a 529 college savings plan now as an expectant parent can give your future student a head start by helping the account grow faster over time as interest accrues.

You can open a 529 plan as soon as your child is born and has a Social Security number. Contributions to this plan are invested in a mutual fund portfolio you select, and both earnings and withdrawals for education-related expenses are tax-free. Planning on private school? You can also use the money in your 529 savings account for elementary or secondary school tuition, up to $10,000 annually per child.

Buy Life Insurance

Life insurance helps protect your family and loved ones financially by providing them with a tax-free cash payout after your death. Life insurance is particularly important for parents, since you have a child or children depending on you. The death benefit from life insurance can help make sure that there’s money available to cover your child’s needs, pay living expenses, save for their future, and provide a healthy safety net.

If you’re planning on having a child, it’s generally better to purchase life insurance sooner rather than later. Waiting until the second or third trimester of pregnancy can mean higher rates or having an insurer delay your application, especially if complications like gestational diabetes come up. If you and your spouse are both thinking about coverage, learn how to split life insurance between couples here.

Still have questions or want more information about financial planning for a baby?

We’re here to help. eFinancial works with top-rated life insurance companies to help you find the right coverage for you and your family. Call us or start your quote online today.


At eFinancial, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed and updated regularly to ensure the information is as relevant as possible.