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Budgeting for a New Baby

A new baby’s arrival can be both exciting and financially overwhelming. Major changes and expenses can await new parents when they welcome a tiny new baby. What financial tools should you consider creating to manage how much money you expect to spend on your little one in the first year? We’ll show you how to financially prepare for your family’s newest addition before they arrive.


One-Time Expenses

In this scenario, we would start from scratch concerning many areas such as furniture, strollers, and cribs if we were to look at the first baby. As we’ll see, the expense of delivering a baby in the United States is by far the hardest to pin down in any meaningful way.


Medical Bills

The Healthcare Cost Institute reports that the average new parent in the U.S. with insurance coverage will pay almost $14,000 for labor and delivery in 2020. In Arkansas, vaginal deliveries can cost $7,000, while New York can cost $17,000.Out-of-pocket costs in D.C. are as low as $1,000, while in South Carolina, they can be as high as $2,400, making the latter state much less affordable. The cost of routine birthing care is highly variable based on your location and insurance coverage. What are your out-of-pocket costs for prenatal care, hospital stay, tests, and postpartum care? It’s impossible to make an accurate prediction about how much you’ll pay without reviewing your health coverage.


Baby Stuff

One-time purchases add up and can add up quickly depending on the wants of the parent. For Example:


Travel Needs:

You will probably need to buy a stroller, an infant car seat (which is required by law), a baby carrier, and a diaper bag if you want to get out and about. If you plan to be out a lot, you may want to get a portable playpen and/or bassinet. There is a wide range of costs for these items. A seat and stroller combo can be purchased for under $150, and used equipment or hand-me-downs can fill in for all the others. There is no foolproof way to ensure a used infant car seat hasn’t been compromised in a previous accident or through hard use, so it is worth noting that, at the very least, it is worth buying a new one.


Home Needs:

You may want to consider buying a portable swing, bouncy seat, play mat, and/or jump seat to keep your child occupied. You may also want to have a crib and/or bassinet, crib mattress, basic bedding with blankets, changing table, small dresser, rocking chair, monitor, and a diaper pail. You can buy used baby gear or even acquire it through one of the many share and swap groups you’ll find online.


Nursing and Feeding:

The cost of feeding your new infant will naturally vary depending on your individual circumstances. For example, a parent who is able to breastfeed their child full-time at home will have very few costs for the first few months, only requiring a high chair and dishes later on. Some things like a breastfeeding pillow, burp cloths, or even a cape are more than enough in that situation. If the parent is storing breast milk for use, then items like bottles, nipples, cleaning equipment, and a single or dual breast pump come into play, and your budget will increase. If you cannot breastfeed, you will have to spend a lot of money on formula during the first year of parenting.


The potential loss of income is a one-time cost on top of the 12 work-weeks of unpaid leave that your employer may grant you for your baby’s arrival under the Family Medical Leave Act (FMLA). As small businesses do not fall under the FMLA, nothing is set in stone.\nSee what type of leave you qualify for with your employer and how much it pays. Consider your regular expenses during that period—mortgage, utilities, insurance, groceries, etc.—and determine how you will meet those costs.


Ongoing Expenses

There are also plenty of reoccurring expenses you can look forward to paying for. Factor the following costs into your budget:


Child care:

Your biggest budget item after your baby’s arrival, if both you and your spouse work, will be child care. Your child care costs will vary depending on where you live, the age of your child, how much care you require, and what type of care you use. The average cost of in-home child care is around $28,350 per year. This cost can be higher or lower based on location. Some of these costs might be offset by tax credits, such as the child and dependent care credit. Please confirm if you are eligible.



Most of the ongoing costs are made up of food, such as Gerber formula, clothing, and diapers.



The USDA’s most recent The Cost of Raising a Child report advises that new parents should estimate clothing costs at around $670 up to $1,110 for the first two years. The amount ranges greatly based on personal preference and budget, but the lower end falls around $56 a month.



Diapers also vary in cost, but experts advise that you should budget at least $1000 for diapers and $450 for wipes for the first year alone. That’s $10 a week. Three thousand five hundred diapers will be used by the child in the first year if the parents use disposable diapers.


The early food costs for children are relatively small compared to what you will see from a teenager once you begin feeding your child solid food. You can expect to spend roughly $100 a month.

If there is a Stay at Home Parent:

Although the cost of child care is high, the cost of one partner leaving an income behind to commit to full-time parenting can be much higher in terms of lost income, benefits, and investment.\nIf that partner decides to resume their career, this is compounded by diminished earning potential. The decision to stay home can be personal or financial—at lower income levels, even government programs cannot balance the high costs in some regions. A couple can at least try the one-income budget prior to the birth to get an idea for it while building an emergency fund with the second income at the same time, even if it is for personal reasons.

Financial Tools to Consider

After your child is born, you’ll want to create financial tools to help provide for your child’s future. Review the following checklist to determine your priorities and begin budgeting:

College Savings Tools:

The average cost of college for 2021-2022, according to the College Board Report, ranged between $10,740 for a public four-year in-state school and $38,070 for private four-year education.10 To help save for college, consider using a 529 plan, Coverdell Education Savings Account, or UGMA/UTMA account. Note that there have been some changes to the way some accounts, such as the 529 plan, can be used. The Tax Cuts and Jobs Act (TCJA) of 2017 and the Setting Every Community Up for Retirement Enhancement Act (SECURE) of 2019 have expanded the use of 529 plans to include K-12 education and apprenticeship programs and the ability to pay down student debt.

Life Insurance:

If you currently do not have life insurance and feel that you can afford it, now would be an opportune time to purchase a policy. For a reasonable monthly fee, you can ensure that your child would have the financial resources they need should you and/or your partner pass away unexpectedly. Both life insurance and disability insurance options are available through employers and insurance agents.

Health Insurance:

Investigate your insurance options if you don’t already have coverage, or budget for the increased monthly premium to add your child to your policy, because, without health insurance, just one serious accident or illness could deplete your savings and put you in significant debt.

Flexible Spending Accounts (FSAs):

Talk to your employer or financial advisor about setting up a dependent-care FSA and/or healthcare FSA so that you can use pretax dollars to pay for important family budget items, like child care and healthcare expenses.

Ways to Save Money

There are numerous ways to meet your new baby’s needs without breaking the bank, no matter your income.

Consignment/Thrift Stores:

You can save money on baby clothes by shopping at a consignment or thrift store instead of paying full price. Many stores will also give you store credit or cash for items your child has outgrown. Online swap groups and parent networks can also provide quality goods for cheap—and sometimes even free.

Family/Friends for Back-Up Daycare:

Arrange for family or friends to help out with emergency backup daycare, so you don’t have to take a day off (possibly without pay) when your child is sick.

Borrow Items From Friends:

If you want to borrow big-ticket items like a crib, high chair, or rocking chair, ask your friends with young children.

Baby Shower Gifts:

End up with multiple baby rattles and photo albums? Register so party-goers can buy what you really need and avoid that.

Downgrading Lifestyle:

If you have a child, your financial priorities will change. After reviewing your new budget, you may not have enough money. Think about ways to save money by downgrading in a few key areas. For example, you could trade in a large car for a more affordable model, shop at less expensive stores or buy more generic items.

The Bottom Line

The main thing to keep in mind when having children is that averages don’t mean much when the range is as wide as it is with costs around a baby. Many of the thousands of dollars spent on our children’s first years are more for our status than their well-being. A good example of this is the Finnish practice of sending birthing parents home with a simple starter box that can double as a baby bed. While health insurance can protect you from hospital bills, for the most part, only planning and budgeting can help you handle the rest.



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