Planning for a baby financially
Having a baby can be an exciting, happy time in your life. But it can also be a time of anxiety as you face unfamiliar physical, mental and financial commitments. Before your newest and tiniest family member arrives, there are a number of things you can do to prepare yourself financially.
In this article, you'll learn six helpful steps to ensure your finances are baby-proof, plus some recommended rewards credit cards and tips for improving your credit score — just in time to meet your new bundle of joy.
6 Financial planning steps for new or expecting parents
1. Do a full assessment of your finances
From prenatal care to deciding on your child's education —having a baby is a huge financial commitment. To prepare, dive deep into your current financial landscape. It's easy to misunderstand your true financial position when you are generally able to pay your bills every month.
A new baby can change your lifestyle dramatically, so knowing exactly how many dollars you have coming in and going out will help empower you to make sound decisions.
- Calculate your monthly net take home pay (your paycheck after taxes, social security, healthcare coverage, etc), plus any additional streams of income you have.
- Understand what you currently have in checking, savings, cash, brokerage and retirement accounts.
- Calculate your total monthly debt payments including credit cards, auto loans, school loans and rent/mortgage.
- Calculate your estimated monthly expenses including gas, groceries, living expenses, entertainment and hobbies.
- Now do the math to see how much money you have leftover (or not) in a typical month.
You may find that you'll have to adjust your lifestyle to ensure you have enough to pay for out-of-pocket costs associated with a child.
2. Review your family leave options
You and your partner should talk to your employers about their family leave policies and how much time you're able to take off work after the baby arrives. Make sure to understand if you'll be paid during that time, and if so — at what percentage.
In some cases, your employer's parental leave policy may not provide full-time pay equal to your salary while you're away. Maternity and paternity leave can significantly impact your finances and income during that period of time, so it's important to know the terms.
3. Understand the costs of raising a child
A study by The Brookings Institution done in 2022 estimates that the average expenditures on a child born in 2015 to a middle-class family with two children, adjusted for future inflation, will be $310,605. This breaks down to $17,255 per year to raise a child until they're 18 years old.
Consider the following costs.
One-time costs
Even before your baby is born, you'll likely be purchasing gear and nursery furnishings to use within the first couple years of their life.
These one-time purchases include things like:
- Stroller
- Car seat
- Crib
- Dresser or changing table
- Baby monitor
- Baby carrier or sling
- Swing
- Bottles
- Breast pump
- Safety gates
Ongoing costs
As your baby grows, there are ongoing expenses you'll want to factor into your budget. These include costs such as:
- Childcare
- Diapers
- Food
- Clothing
- Education
- Healthcare
- Toys and entertainment
4. Research health insurance
Labor and delivery can be costly, especially if you aren't covered by your health insurance. According to the Kaiser Family Foundation (KFF), in 2022 the average out-of-pocket cost of giving birth, even with insurance was, $2,854.
Contact your healthcare provider or insurance company to understand their coverage for labor and delivery, including out-of-pocket expenses you may have to pay.
Ask specific questions about:
- Copays
- Deductibles
- Visits that will (and won't) be covered
- Labor and delivery expenses that will (and won't) be covered
- Baby checkups
Babies typically visit the pediatrician for regular checkups about 7 - 10 times within their first year of life. Along with those visits can come vaccinations and possible medications. Be sure to understand if your health insurance covers these things.
Knowing how much you'll have to pay out-of-pocket can help you know how much you need to contribute to savings ahead of time.
5. Make a budget
After you assess your financial situation, understand your employer's parental leave policy, review the average costs of raising a child and research your health insurance — it's time to design a budget.
How much money do you need to set aside each month to cover the additional financial requirements of raising your child? This budget should be your north star and (hopefully) prevent you from going overboard on adorable onesies and designer diaper bags. Make sure it accounts for all your debt payments, monthly bills, savings goals and a reasonable amount you plan to spend on your baby's necessities.
You can also consider a credit card that offers the option to break up card purchases into budget-friendly payments.
6. Create an emergency fund
If you don't already have one, now is the time to create an emergency fund. Children are expensive, and sometimes come with unanticipated costs. You may also face unexpected job loss or a medical emergency. Having a backup fund can help lighten the load of a surprise financial burden. Experts recommend having at least three to six months' worth of living expenses covered in your emergency fund.
Start by putting a small amount of each paycheck into a separate bank account. You could consider depositing any tax refunds or birthday money in the account as well. As you can, increase the amount you put into the fund over time until you reach a number that will cover your living expenses for multiple months in a row.
Best credit cards for new parents
The expansion of your family means your spending habits will change quite a bit. It could be a good time to consider getting a credit card that will help you earn rewards.
Chase Sapphire Preferred®: In addition to earning points you can redeem on a number of items, if family trips are in your future, this credit card is a great option. Note that this card has an annual fee.
- Earn bonus points after you spend a qualifying amount on purchases in the first few months of opening the account.
- Earn 5X points on travel purchased through Chase Ultimate Rewards®.
- Earn 3X points on dining.
- Earn 3X points on online groceries.
- Earn 3X points on select streaming services.
- Earn 1 point per dollar spent on all other purchases.
- Get 25% more value when you redeem points for travel through Chase Ultimate Rewards.
Chase Freedom FlexSM: This is a great card for earning cash back and making each purchase go further. This card offers a low annual fee, and cash back rewards do not expire as long as your account remains open.
- Earn a bonus after you spend a qualifying amount on purchases in the first few months of opening your account.
- Earn 5% cash back on up to $1,500 on combined purchases in bonus categories each quarter you activate.
- Earn 5% cash back on travel purchased through Chase.
- Earn 3x points on online grocery purchases.
- Earn 3% cash back on dining.
- Earn 3% cash back on drug store purchases.
- Earn 1% on all other purchases.
How to improve your credit score before your baby arrives
When you find out you're expecting, improving your credit score is probably the last thing on your mind. However, kids are expensive, and creating a plan to build your credit can help ensure a financial safety net if you need one.
Here are a few ways to improve your credit:
- Begin building a credit history. This means you are able to show your creditworthiness through a history of behaviors, such as consistently paying your bills on time.
- Pay off your debt as much as possible. Pay off smaller balances first, and then pay off your high-interest credit cards.
- Check your credit report and score to make sure there are no errors. You can access your credit score for free from Chase with Credit Journey.
- Pay your bills on time each month. Try setting up automatic bill pay for credit cards and other accounts.
In conclusion
Unfortunately, babies don't come with instruction manuals or neatly organized budgets. Welcoming a child into your family requires thoughtful planning and often financial sacrifices. Despite this, it can be one of the most exciting times of your life. To keep financial stresses to a minimum, you could consider following the practical steps outlined above. Most importantly, enjoy this very special time in your life.
