11 Financial Tips to Prepare for a New Baby

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There’s an excitement that comes with having your first baby. Baby showers and nursery decor are at the forefront as you prepare for your bundle of joy. But there’s another side to preparing: babies are expensive.

Building a baby budget is imperative because day-to-day living expenses are about to increase. And hidden costs could torpedo your baby budget and set you back if you haven’t planned. But don’t panic; there are steps you can take to prep. Here are 11 tips for planning and implementing baby finances.

1. Know the Cost of Giving Birth

The actual birth is a one-time expense, but if you aren’t prepared, it can hit you hard right from the beginning.

The average childbirth costs $18,865. This includes pregnancy, birth, and postpartum. And although health insurance covers most of that, there are still some out-of-pocket expenses.

The average out-of-pocket for health insurance plans is $2,854. But these numbers are average. Your location will influence your costs.

2. Budget for Baby Supplies and Food

There are a lot of variables when it comes to baby supplies. The basics like food, diapers, and formula are a given and should be budgeted monthly.

But some variables depend on the parent. For example, if you want that $2,000 crib, it will impact another expenditure you need.

3. Ask About Baby Health Insurance and Add the Child

Your health insurance premium is about to increase. Ask your HR director what you can expect to pay monthly.

But calling to ask for the premium doesn’t mean your baby will automatically be added to your policy after birth. It’s up to you to notify your insurance provider and add your baby to the policy after the baby is born. Although it depends on your insurance provider, you’ll have anywhere from 30–60 days to add your baby.

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The best course of action is to notify your insurance carrier as soon as possible to avoid loss of coverage. If you don’t add your baby to your policy during this window, she will not have coverage until the next open enrollment. You’ll be responsible for all medical bills.

Even when you add your baby to the insurance policy, there are still out-of-pocket expenses. Babies go to the doctor frequently in their first year. Be prepared for this cost.

4. Change HSA Contributions

If you have a health savings account (HSA) adjust your pretax contributions. You'll be paying for baby health care anyway; you could take advantage of the tax savings.

For a family, you can contribute a maximum of $7,750 annually.

5. Investigate Childcare Costs

Many parents-to-be underestimate childcare costs. Childcare costs depend on what state you are in. For example, yearly childcare in Nebraska is $10,660 versus Washington, D.C., where it’s $18,425.

To give you perspective, the average salary in Nebraska is $47,739. In Washington, D.C., the average salary is $65,000. That means 22 percent of a Nebraska parent’s salary goes to childcare, and 28 percent of a Washington, D.C., parent’s salary goes to childcare. Of course, that percentage comes down when two parents are paying the costs. But it’s still a significant portion of the monthly income.

6. Stay-at-Home Parent Costs

There are many reasons for a parent to stay home with their new baby. It does save on childcare, but that also means the household income is about to decrease.

If you and your spouse want one of you to stay home, calculate how much income will be lost. Take a look at how expenses are about to increase. With the new expenses, will one salary cover everything? Knowing childcare and day-to-day living expenses will help make an informed decision about staying home.

7. Flexible Spending Account Helps With Childcare

A flexible spending account (FSA) is an option to finance childcare. It is employer-sponsored and allows you to set aside up to $5,000 annually tax-free. It is used for qualified childcare expenses.

An FSA can be used to pay for eligible pre-kindergarten childcare expenses. These are tax-free monies. This includes preschool, daycare, or similar programs. The dependent must be younger than kindergarten. But it will also cover after-school care of a child in kindergarten up until 13 years old.

The monies must be spent during the plan year, or they will be forfeited.

8. Take Advantage of Tax Breaks

One way to receive some financial support is the child tax credit. It is a federal tax benefit. Individuals and families who have children under the age of 17 may be eligible for this credit. The tax credit is for $2,000 per qualifying dependent.

For the 2023 tax year, $1,600 of this credit will be refundable.

9. College Savings Options

In 2021 to 2022, the average cost per year for college ran between $10,740 to $38,070 annually. And that didn’t include room and board.

Look into putting some money away monthly in a 529 plan. A 529 could be an education savings plan or a prepaid tuition plan. Talk to a financial advisor about how you can save for your baby’s education.

10. Change Will and Life Insurance

If you have a will, change it to reflect your new dependent. If you don’t have a will, it’s time to sit down with an attorney and write one.

Consider who will act as guardian to your child if something happens to you and your spouse and address it with your attorney.

Update any life insurance policies and investigate options if you don’t have one. A term life policy might be the route to take to protect your spouse and child financially.

11. Investigate Long-Term Disability Insurance

One form of insurance that’s often overlooked is long-term disability. If you or your spouse were to become injured or sick and unable to work, you could take a substantial financial hit.

It’s even worse when you have a child. If your employer offers it, make sure you enroll; if it’s not offered, contact an insurance agent for a quote.

Planning Baby Finances

The joy of bringing new life into the world is overwhelming—but so is the impact it has on your personal finances.

If you’re expecting, sit down and build a baby budget. Look at the different items that go into taking care of your child, but also look at ways you can save.

Planning for your child’s education is also essential and can be started when they’re young.

The Epoch Times Copyright © 2023 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.