Financial Planning and Emergency Savings for Expecting Parents
Here’s how to prepare your finances for a new child
Expecting parents have a lot to figure out, and almost half of new parents admit they weren’t prepared for child-related financial demands. Yet the right money moves can help support a growing family and give your child a solid financial foundation. Here are some financial planning and emergency savings steps for expecting parents.
Adjust Your Household Budget
The average cost of raising a child until age 17 can run as high as $233,610, not including college, according to the most recent U.S. Department of Agriculture (USDA) report. Your child’s first year could add up to between $9,600 to $19,770—and those costs will only increase as your son or daughter grows older.
These future expenses make it important to examine your income and spending now. Pull out recent bank statements and compare your pay to current expenses. Hopefully, you have funds remaining at the end of every month, as that cash can be used for upcoming expenses resulting from bringing a child into your family.
Next, forecast future family expenses. Housing is one of the top expenses for families, according to the USDA. And with the addition of a new family member, you might need an extra bedroom or larger vehicle to accommodate them.
Other big spending categories include:
- Food: Up to 20% of child-rearing costs, and you could end up spending between $99 and $183 per month to feed a 1-year-old child .
- Childcare and education: Up to 23% of child-rearing costs—infant care ranges from $215 per week at a child care center to $565 a week for a nanny, on average.
- Clothing and diapers: Disposable diapers alone run $70 to $80 per month.
- Extras: Don’t forget out-of-pocket health care costs, a carseat and stroller, haircuts, books, and more.
Now is the time to free up funds for covering new costs. Cut unnecessary expenses, lower recurring living costs like rent or phone bills, find ways to earn extra income, or research options to fit child care into your budget.
Treat the pre-arrival period as a trial run for your new-baby budget. Try living on your adjusted budget, then use leftover funds for baby-related purchases or savings
Fund Emergency Savings
An adequate emergency fund ensures you can cover unexpected financial hardships including unemployment, medical emergencies, and loss of child care. So start (or expand) your emergency fund.
Consider emergency savings in terms of months—as in the months of covered living expenses when a crisis arrives. Each month saved buys you another 30 days to pay bills while researching options and solutions.
A well-funded emergency savings account falls somewhere between two to five months, the average period of unemployment in 2020. A three-month emergency fund is reasonable for dual-income earners. If you’re worried your job isn’t secure or if you’ll be a single parent, saving a six-month emergency fund is ideal.
Here are a few other ways to add to your new-parent emergency fund:
- Request cash instead of or in addition to baby-shower gifts
- Send $10 per week to savings through automatic transfers or paycheck deposits
- Add tax refunds, birthday or holiday cash gifts, or other small windfalls to your fund
- Declutter to make room for baby, sell unused items, and save that cash
- Revisit W-4 withholdings and employment benefits to increase your take-home pay and save the difference
Review Health Insurance
Having a baby can cost anywhere from around $4,000 to $41,000—or more—depending on where you live, your care needs, and your health insurance plan. Your plan has a huge impact on how much you pay for out-of-pocket prenatal care, labor and delivery, and infant care.
Review your health insurance plan for details such as in-network health care providers, deductibles, co-pays, co-insurance, and out-of-pocket maximums. Call your insurer to clarify how costs are covered and ask about programs that offer additional financial or health support to expecting parents or mothers. If necessary, you could also lower out-of-pocket costs by changing plans during open enrollment. Check eligibility for Medicaid through the Healthcare.gov tool, and consider CHIP coverage if you earn too much for Medicaid.
Many plans don’t include maternity coverage for dependent children. If you’re dependent on your parent’s health insurance plan, you could end up paying out-of-pocket for prenatal and maternity medical expenses.
Having or adopting a baby counts as a qualifying life event that permits changes to a health insurance plan outside of open enrollment, such as adding your child or uninsured partner to your plan. You also might be able to switch to a plan with better coverage when you have the child.
More Ways for Expecting Parents to Prepare
Plan for Parental Leave
The Family and Medical Leave Act (FMLA) provides parents with up to 12 weeks off after a child joins their family—but it’s not necessarily paid leave. Check your employer’s policy on paid parental leave, and start saving to replace your income while you’re on parental leave.
Understand Child Tax Benefits
The IRS offers a child tax credit of up to $2,000 under 17. Other child-related tax benefits include the child and dependent care tax credit, adoption tax credit, or employer-provided adoption assistance and dependent care benefits. To claim the Child Tax Credit, you’ll need your child’s Social Security Number. You can apply when providing information for your child’s birth certificate, or at a Social Security office. The second option takes longer, as your child’s birth certificate must be verified.
Pay Down Debts
Debt is the top financial stressor for 32% of families. Eliminating debts and other liabilities increases financial security and frees up cash for building wealth and supporting your family.
Buy More Insurance
Organize Your Finances
A written will allows you to decide how your child receives assets and is cared for. Add your child as a beneficiary to existing bank and investment accounts and insurance plans.
Save for the Future
Consider saving for your child’s college education using a 529 plan. Save for your retirement, too, to avoid becoming a financial burden on your child later in life.
Financial Planning Is Good Parenting
Growing up in a financially stable home is a powerful head start that correlates to improved well-being, behavior, and health outcomes for your child, both now and throughout their lives. As you responsibly manage family finances and build emergency savings, you’ll give your child security and model positive money behaviors.
PolicyGenius. "Survey: 42% of Parents Say They Weren't Financially Prepared to Have a Child." Accessed July 16, 2020.
U.S. Department of Agriculture. "Expenditures on Children by Families, 2015." Accessed July 16, 2020.
U.S. Department of Agriculture. "Official USDA Food Plans: Cost of Food at Home at Four Levels, U.S. Average, May 2020." Accessed July 16, 2020.
Care.com. "Child Care Costs More in 2020, and the Pandemic Has Parents Scrambling For Solutions." Accessed July 16, 2020.
National Diaper Bank Network. "What is Diaper Need?" Accessed July 16, 2020.
Bureau of Labor Statistics. "Unemployed Persons by Duration of Unemployment." Accessed July 16, 2020.
Castlight. "New Study Shows Huge Cost Differences for Having a Baby, Often in the Same City." Accessed July 16, 2020.
U.S. Department of Labor. "Family and Medical Leave Act." Accessed July 16, 2020.
Internal Revenue Service. "Child Tax Credit and Credit for Other Dependents." Accessed July 16, 2020.
American Psychological Association. "Children, Youth, Families and Socioeconomic Status." Accessed July 16, 2020.