I wish I could tell you that family financial well-being was as simple as knowing how much to save for baby gear or finding affordable childcare, but with a little time and attention, it can totally transform those early years of parenting. Among new parents, over half regret not making critical financial changes during their baby’s first year.
In this new phase of life, managing and protecting your family’s financial wellness reduces stress, improves mental health, and empowers you to pursue things that bring you joy and satisfaction in parenthood.
As a mother and personal finance nerd, I’m sharing the tools and strategies my partner and I used to go from financial novices hustling to pay off credit cards to money savvy parents of a brand new baby in less than 6 months.
We’ll cover the basics of good personal finance, all from the perspective of a family with young children. I can’t wait to share these tips with you, so let’s get started!
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How Much To Save For Baby? A Loaded Question Leads To A Money “Aha” Moment
The week I found out I was pregnant with our son is the week I opened up my partner’s expense tracking spreadsheet for the first time. Even the word expense tracking is a misnomer. Its primary function was to alert us when we spent more on credit cards than we actually physically had in the bank. This happened almost every month without fail.
With our double-income, no-kids status, I wondered, how much do you need to make to afford a child? How can we squeeze a baby into our messy financial…uh, situation? Clearly, something needed to change pronto.
After listening to a ton of personal finance podcasts, it was clear the first step was to start a proper budget, but it needed to be something that was easy to share with my partner and could handle credit card transactions. (Gotta get those points, after all!)
We stumbled upon a tool called YNAB (formerly You Need A Budget) that ticked all our boxes and offered a generous free trial period. The first three months of using YNAB were pretty rocky as we shaved down our overstuffed spending to fit into a streamlined budget. This was an “aha” moment for us in our financial journey. Let’s take a closer look at how we did it.
Step 1: Create A Budget
My partner and I started our first official budget by determining our post-baby household income. I received almost no salary during my maternity leave (though I did get 3 months off courtesy of the Family and Medical Leave Act). We knew we’d be relying on my partner’s salary alone, at least in the newborn phase.
After that, we took out big ticket items like our mortgage plus fixed expenses like student loans, internet, and car payments. Once we subtracted the expenses we had little control over, we were left with a smaller chunk of income to split among all our priorities, including baby.
To get a general sense of how much a baby will cost, check out the cost breakdowns in our article “Budgeting For Baby”.
Put Money Toward Your Highest Priorities First
We used our previous spreadsheet to estimate our monthly expenses for high priority items like groceries, personal hygiene, and even our retirement. More on that last one later!
We quickly realized much of our previous spending flowed to unnecessary purchases including fancy clothing, subscriptions, and convenience items (dehydrator, ice cream maker, etc). Not surprisingly, we were also spending an insane amount on dining out when I already loved cooking at home. Shaving money off our takeout budget was a no-brainer.
We kept whittling our budget categories down over “budget coffee dates.” It’s just like it sounds! Grab a cup of coffee, open your laptop, and talk about your money goals. We added categories for significant baby expenses like prenatal care, daycare, diapers, and the out-of-pocket expense from childbirth.
If you’re uncertain about what you and baby will need, see our tips for having a baby on a budget.
It took five or six iterations before we felt confident about our plan. Creating a budget that both holds you accountable while offering flexibility requires a lot of tweaking. You won’t get it right your first go, and that’s fine!
Step 2: Start Your Emergency Fund
As you refine and master your personal budget, don’t forget to set up an emergency fund. This is a large pool of money for covering any unexpected expenses including medical care not covered by insurance (pelvic floor therapy for problems like postpartum incontinence, occupational therapy, prescriptions, etc.) or urgent home repairs.
If your little one arrives in the middle of July and your AC goes out, you’ll be glad you’ve got the funds to cover a new one!
Birth, pregnancy, and postpartum recovery are also different for each mother and for each new baby, so whether you have a vaginal birth or a c-section, you want to plan for those unforeseen costs.
Set A Savings Goal For Your Emergency Fund
How much money should be in your emergency fund? Many experts recommend saving enough to cover 3-6 months worth of expenses, but that’s difficult for most families to achieve in just 9 months. (We’ve been budgeting for five years and only just managed to save 5 months ahead. It takes time!)
If you’re brand new to budgeting, having one month of expenses tucked away is a fantastic start!
Consider putting your little nest egg in a high-yield savings account, or a savings account that offers higher than average interest rates. This is a great way to passively grow your emergency fund! (Keep in mind it will take a little longer to transfer money from a high-yield savings account compared to your primary bank’s checking or savings.)
Step 3: Make A Plan To Pay Off Debts
Kids are extremely attuned to their parents’ emotions, and the chronic stress of unwanted debt affects even the youngest children. I’ve witnessed this numerous times in our toddler during times of financial difficulty, adding to my immense sense of mom guilt for failing to provide a stable home environment.
You can’t protect your child from all of life’s highs and lows, but parents who model resiliency by seeking out solutions, remaining hopeful, and making a plan of action can turn a terrible situation into an opportunity for emotional growth. And by learning how much to save for baby, you’ve already got a leg up. If debt is a huge stressor in your life pre-baby, make a plan to address it now. It’s truly a form of self-care.
There are numerous strategies for paying off debt, and they all get you to the same place – debt-free! For student loan debt, try the avalanche method where you pay off the loans with the highest interest rates first. Even if it’s only $20 a month, your efforts to tackle your debt will pay off financially and emotionally. Don’t give up!
Step 4: Maximize Your Employee Benefits
In the U.S., employers offer a wide range of benefits for new parents, including health insurance, short-term disability coverage, health savings accounts, and flexible spending accounts. Some companies offer extra perks like free disposable diapers, on-site childcare, or lactation rooms with hospital grade breast pumps.
A few lucky parents even enjoy paid parental leave. (Wild, I know!) Whatever your employer offers, take full advantage of it. Ask your human resources (HR) department for a complete list of benefits.
And if you’re not ready to tell HR about your pregnancy, consider discussing benefits with a trusted supervisor or coworker who recently had a baby.
Many of these benefits are only available during your open enrollment period and some require several months of payments before they activate. Depending on the timing of your baby’s estimated due date, that could be very early or even very late in your pregnancy. It’s an unfortunate reality of our healthcare system.
If you’ve got the luxury of time, consider enrolling in benefits before you start trying to conceive to eliminate any uncertainty.
Taking Advantage Of Employee FSA/HSA Benefits
FSA’s and HSA’s are savings accounts for out-of-pocket medical expenses like pediatrician co-pays. They also cover other health-related purchases including over the counter pharmaceuticals. The money gets pulled directly from your paycheck without being taxed, so you can save 15-30% on any money you contribute to these accounts.
If your employer offers it, consider enrolling in a dependent care FSA. This special FSA covers childcare expenses including child care, preschool, summer camp, and even nannies or babysitters. It’s awesome!
The tricky thing about these tax-free savings accounts is estimating how much you need to save. Once the money is in there, you can’t take it out except for approved expenses, and FSA’s don’t roll over. If you don’t use it, you lose it! Make sure you’ve got a plan in place for how you’ll spend your HSA/FSA dollars.
Selecting The Right Health Insurance Plan
If your eyes glaze right on over while reading your company’s summary of benefits for their health insurance coverage plans, you are definitely NOT alone. They are so confusing that many insurance companies provide a glossary of terms and further explanations on their website.
Each health insurance plan differs by both structure and price. HMO’s are fantastic if you’re not picky about your provider or hospital and want to know your costs up front, but PPO’s work well if you wish to work with a specific care provider. Take note of the premiums for each plan (that’s the monthly cost of the plan) as well as the deductible (or the maximum amount you pay out of pocket in a given year.)
Don’t forget to factor in minor dependents or family members who require coverage. You can add your baby to your insurance plan once they’re born (known as a qualifying life event.) You won’t have to wait until open enrollment to add your baby to your plan.
Most insurance companies automatically disclose costs around prenatal care and childbirth in their benefits summary. Add up all your estimated expenses with each plan and find the one that works within your budget.
Step 5: Start Your Child’s 529 Plan (College Savings)
With the costs of college growing 2-5% each year, children born today are projected to pay between $40,000 (in-state) and $75,000 (out-of-state) per year to attend a full-time public university. Private universities may cost as much as $100,000 per year. Yikes!
Fortunately, the way employers view college education is changing, and while there are numerous benefits to attending college, your child might choose an online degree program, trade school, technical program, or even a certificate program. No matter where your child seeks their higher education, they can cover those expenses with a 529 Plan.
A 529 Plan is an educational savings plan, most commonly used to cover college tuition. 529’s are actually an investment account similar to a Roth IRA, so your savings will grow over time even if you stop contributing to it.
You can open a 529 Plan on behalf of your child as soon as they’ve received their social security number. Even if your contributions to your child’s plan are small, they add up over time. Just saving $35 a month from birth results in around $15,000 for your future 18-year old. Every little bit counts!
Five Steps To Fix Your Finances Before Baby
Becoming a parent is equal parts rewarding and nerve-wracking, and it’s no wonder! This dramatic life change happens literally overnight. Making a plan for your family’s financial wellness reduces stress and uncertainty during this beautiful but messy transition.
The five steps outlined above are the same steps our family used to build a long-term budget, get out of debt, and take responsibility for our past, current, and future financial decisions.
This process takes you beyond wondering how much to save for baby and encourages you to think critically about ways your money best serves your family.
Whether you’re a first time mom or a mom of multiples, taking control of your family’s finances is worth it! How did you decide how much to save for baby?
