10 Ways Your Budget Changes When You Start a Family

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When you begin to have children, you will likely need to change the way you manage your money. Most people plan for things like formula, diapers, and day care, but there are other financial areas where you need to make changes as well. Proper planning with aspects like budgeting, life insurance, and savings can help you avoid accumulating new baby debt. Here are 10 ways your finances will change once you have kids.

Child Care Costs

The cost of day care is expensive, and if you plan to continue working after you have a child, you will need to plan ahead for child care costs. In 43 states and the District of Columbia, the average price of center-based care for an infant exceeds 10% of the state median income for a married couple with children, according to a 2019 report from Child Care Aware of America. Whether you are planning on having one parent stay at home or both work full time, you will need to adjust your budget accordingly.

Health Care Costs

Many health care plans will cover well-baby visits under the Affordable Care Act; however, babies are prone to childhood illnesses, and it is important to budget additional money for unexpected trips to the doctor’s office and medication. If your children have allergies, you may end up paying more for formula, or need additional services or therapies if there are complications. Building up a cushion, as well as an emergency fund, can make managing these expenses easier in the long run.

Insurance Changes

Adding your child to your health insurance policy is typically the most affordable option when it comes to insurance. You have 30 days from the day your child was born to do this, ensuring everything from the birth is covered. For your first one or two children, it generally means that the increase in monthly premium will reduce the amount of your take-home pay. You can estimate your new paycheck using an online calculator so that you can adjust your budget accordingly.

The U.S. Centers for Medicare & Medicaid Services offers an online tool that lets you input your income and. the amount of people living in your home, and then calculates which savings you qualify for.

Saving for College

You should start setting aside money to cover college costs as soon as you decide to have a child. Nearly 50% of those who attend college have incurred some debt from their education, and in recent years, student loan debt has become the second highest debt category for consumers.

Getting out of debt may take priority over this for a short time, but saving for college through a 529 plan or similar tool can help your child get off on a solid start without accumulating a lot of debt. The earlier you begin saving, the better the outcome will be for your child.

Life Insurance Needs

Once you start a family, it's important to make sure you have life insurance. Both parents should have a life insurance policy in place to help cover expenses if one of you were to die unexpectedly. Plus, some life insurance policies are large enough to cover the cost of college. Even if you are not working, you should consider adding a life insurance policy to help defray the additional costs of child care.

Changes to Your Taxes

There are several tax benefits to having a child. When tax season comes around, you can claim an additional person on your taxes, and may be able to claim a portion of expenses from both the child tax credit and the child and dependent care credit.

When you have a child, you may want to change the withholding amount on your check. Use the IRS withholding calculator to determine if you should change the amount you are currently having withheld or speak to an accountant.

Adjusting Your Flexible Spending Account

If your job offers a flexible spending account, you should take advantage of it, as you can have additional money withheld to cover the cost of day care expenses. You and your spouse can each do this at work, and it will make some of the expenses come out pretax, lowering your taxable income.

Housing Changes

With more children comes the need for more space. Take time early on before having children to plan for the additional costs involved with having a child and determine just how much you can afford to spend on a new house. Once your children are school age, you may want to move to an area with a good school district, which often equates to living in a more expensive area.

Changes to Your Budget

Your budget may change quite a bit as you plan for additional monthly costs like baby food, formula, and diapers, so it's important to plan in advance. Funding in other categories may need to increase as well, such as clothing or entertainment costs, and also educational resources such as a tutor or music lessons. Taking the time to start planning for those things now will make it easier to adjust as your children get older. 

There are various ways to allocate your budget accordingly. One highly recommended method is the 50/30/20 rule, or you may also consider using digital apps to keep up with your spending habits.

Ongoing Lifestyle Changes

There may be additional costs and lifestyle changes that you will need to account for, as things like taking a vacation or how much time you spend on hobbies will change. Some expenses also increase with time because you have an additional person—for example, buying an extra plane ticket when you go on vacation or additional food when you go out to eat. These changes may be minimal at first, but it is important to plan for them, as they can add up and have a large impact.

Article Sources

  1. Child Care Aware of America. "The US and the High Price of Child Care: An Examination of a Broken System," Page 12. Accessed Jan. 18, 2021.

  2. US Student Loan Center. “How Long Does It Take to Pay Off Student Loans?” Accessed Jan. 18, 2021.

  3. Federal Reserve. “Report on the Economic Well-Being of U.S. Households in 2017 - May 2018.” Accessed Jan. 18, 2021.