Your baby budget checklist to prepare for parenthood

Babies may be small, but they're expensive. From disposable diapers to college – and everything in between – there's a lot of expenses to think about. That’s why creating a baby budget checklist budget and thinking about long-term finances will help everyone in your growing family.

Whether or not you’re a first-time parent, this checklist will help you prepare financially so you can focus on this special time with your newborn. Here are steps to get you and your money ready for baby.

1. Adjust your expenses and budget

Costs for newborns can add up quickly. They also vary depending on where you live, your childcare situation, and your health insurance plans. But according to one estimate, a married, middle-income family can expect to pay about $16,905 in a baby's first two years. Before you panic, let’s break down a few of those costs.

Babies require a surprising amount of equipment, on top of ongoing costs such as disposable diapers, formula (if needed), and clothing. Consider creating a baby registry for the things you need and remember not everything needs to be new. Look for safe and up-to-date second-hand baby gear, such as car seats, cribs, strollers, and baby monitors. Second-hand shops and online marketplaces are good places to find baby equipment, clothes, and more. And your friends and family may offer to loan or give you gently used baby items.

Remember to think about lost household income during parental leave. And if both parents plan to return to work, childcare will likely be one of your biggest expenses. Don't wait to research childcare options and plan for those costs.  

All these expenses can be overwhelming, but looking at your current spending habits – and where you can cut back – will help. Eating out, entertainment subscriptions, or impulse purchases might be costs you can redirect toward baby-related needs, including baby clothes, formula, diapers, or other items. Creating a realistic baby budget checklist ahead of time will help you better manage your money once the baby arrives.

2. Build your savings

Life with a baby is full of surprises. Building up your emergency fund or other savings before baby arrives will help you prepare for unexpected costs.

Medical bills can quickly add up. Get ahead of some of those costs by estimating how much your health insurance plan will cover during pregnancy, delivery, and those early pediatrician visits. Whether it's a middle-of-the-night urgent care trip or something more serious, it’s important to have cash on hand for unexpected medical costs.

For an emergency fund, a good goal is to save three to six months’ worth of living expenses in a separate savings plan account. If that sounds overwhelming, start small. Even setting aside $20 or $50 per paycheck can add up over time. Look at building an emergency fund as just one more way you’re preparing for baby.

What to do about debt? Some experts recommend focusing on paying down debt before baby's arrival, while others say to make minimum payments on debt while building up your emergency fund. However you choose to approach debt during this time, being aware of your savings and spending habits will help you prepare.

3. Check your benefits

Many workplaces offer perks that can make having a baby a little easier on your wallet. Before baby arrives is the time to look into those benefits.

Start by learning if your company offers parental leave and what you and/or your partner are eligible for. Some plans allow you to take time off work while still receiving partial or full pay. Other employers only offer job protection during parental leave, which means your job or a similar one will still be there when you return to work. Your employer might offer flexible scheduling options so you can adjust your work hours to your new family responsibilities. Make the most of your benefits by reviewing your employer's policies and discussing your options with your HR representative.

It's important to know that the Family and Medical Leave Act (FMLA) allows eligible employees to take unpaid leave for certain family and medical reasons, including the birth of a baby. During this time, the employee’s job is protected, and they can keep their group health insurance under the same terms as if they were still working.

Talk to your company's HR department or your health insurance provider to learn what’s covered during pregnancy, delivery, and postpartum care. Once your baby is born, add them to your health insurance policy right away. Adding a child to your household is a qualifying life event. That means you can adjust your health insurance even when you are outside the annual enrollment period. Knowing what's covered for your baby's medical care, from regular pediatric check-ups to vaccinations, will help you plan for those medical costs.

Some companies offer Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs). These accounts let you to save pre-tax dollars from your paycheck for health costs. Your company may also provide Dependent Care FSAs, which help you pay for childcare using pre-tax dollars. How does this help? The money you set aside in an HSA or FSA reduces the amount of income that is taxable, meaning you may pay less in overall taxes.

4. Take advantage of tax benefits

Did you know having a child can qualify you for important tax benefits? For example, the child tax credit is a benefit for people with dependent children under 17. Eligibility depends on several factors, and you may be able to get the credit even if you don't normally file a tax return. For the 2024 tax year, the credit is up to $2,000 per qualifying child, according to the IRS.

If you pay someone to care for your child so you (and your spouse if filing jointly) can work or look for work, the Child and Dependent Care Credit can help you recover up to $3,000 in childcare costs for one child, depending on your income and other requirements.

And if you're adopting a baby, you can claim the Adoption Credit on your federal income taxes for qualified expenses.

Speak with a tax preparer or do some research to make sure you’re getting all the deductions and credits you qualify for as a parent. When tax season rolls around, these savings can make a big difference in your baby budget and ongoing costs.

And don't forget that to claim income tax deductions and credits, you'll need a Social Security number (SSN) for your child. You can request an SSN along with a birth certificate at the hospital. If that's not an option, fill out Form SS-5 Application for a Social Security Card.

5. Plan for baby’s future

While it’s easy to get caught up in the here-and-now of preparing for a baby, planning your child’s financial future is just as important. Small steps today can lead to big opportunities for your child later.

For example, it’s never too early to think about college. A 529 college savings plan offers tax advantages for investing in your child’s future education. Savings in a 529 plan grow free from federal income tax, and withdrawals remain tax-free when used for qualified expenses, including tuition, fees, room and board, and other related education costs. Many states also offer similar plans. Because tax benefits vary from state to state, you should check the details of any 529 plan to understand specific tax benefits.

If you have a 529 plan and your child doesn't go to college, there are options, including transferring funds to another family member, using the funds to pay for K-12 private education, paying for career training programs, transferring funds to a retirement fund, or withdrawing the funds. Because there may be penalties, qualifications, and other requirements under your plan, be sure you know the consequences of any change you make.

What about life insurance? It can help protect your family financially if something unexpected happens to one or both parents. Life insurance is usually cheaper if you buy it early, so it’s a smart choice for new parents.

Starting right financially

Preparing for a new baby is an exciting, emotional, and sometimes overwhelming time. As with any major life change, this is a good time to review your financial goals and your budget – and make changes to your saving and spending if needed. By breaking items on your baby budget checklist into manageable steps, you can relieve some stress and set you and your baby up for financial success

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