Baby on the Way? Here’s How You Can Prepare Financially

Welcoming a new baby can be incredibly exciting– but there’s a lot to prepare for. In addition to assembling the crib and ensuring you have enough bottles on hand, you should anticipate that the arrival of a newborn will come with financial considerations. Here are some items to keep in mind as you wait to meet your bundle of joy.

1. Consider childcare expenses. According to Child Care Aware of America, the average annual price of childcare for 2022 was $10,853. This figure represents roughly 10% of the average married couple’s yearly income -- and it jumps to 33%¹for single parents. Whether you choose daycare, a nanny, an au pair, a babysitter – or if you plan to scale back on your paid work time in order to care for your child – it’s probably safe to assume that childcare will quickly become a major living expense.

2. Think about lifestyle costs. Between diapers, formula, clothes and other necessities, babies are expensive – and they remain so as they grow older. Extracurriculars for toddlers to teens (think sports, music, performing arts) often come with a price tag. Add on the fact that many growing families decide to buy bigger houses and new cars, and it’s easy to see how lifestyle costs can creep up on parents.

3. Prepare for college tuition. The cost of college continues to rise at a pace faster than inflation, meaning the sooner you can start saving for your child’s higher education, the better. Setting aside even a modest amount of money each month can make a big impact over the long term. Choose a savings vehicle that is right for your financial situation, risk tolerance and goal amount. One of the most popular options is a 529 plan, which is specifically designed to help families save for education expenses.

4. Reassess your financial position. With a baby on the way, it’s critical to keep in mind that unexpected events can affect your finances at any time. Resolve to build or maintain an emergency fund that could cover three to six months of expenses, in addition to prioritizing your retirement savings. After your baby arrives, update your estate plan and insurance coverage (e.g., medical, life, disability policies) as necessary.

5. Teach good financial habits. Kids learn about money first and foremost from their parents, which means you can help them become financially literate. At a young age, you can teach them about the difference between “needs” and “wants.” As they grow older, you can educate them on budgeting and saving, the benefits of delayed gratification, and how to build lifelong healthy habits around money.

6. Plan for your family bucket list. Many parents dream of showing their children new places and allowing them to have a variety of experiences. Think about what activities matter to you and incorporate them into your financial plan. Taking an annual vacation, owning a vacation home, buying season tickets to your favorite team, or purchasing a boat are common goals for many families.

Expanding your family often has a way of putting your priorities into perspective. If you would like an objective opinion on how to best plan for your goals, talk with a financial advisor in your area.