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How to financially prepare for a baby: 7 tips

Planning for the birth or adoption of a child is a major life event that can have significant financial impacts both immediate and long term.

A woman holding her baby above her head

If you’re unsure how to prepare for a baby financially, take the following actions to start on the right path.

In this article:

Before the baby arrives

After the baby arrives

An Ameriprise financial advisor will help you prepare for near- and long-term financial considerations associated with having a child, as well as help you adjust for new financial goals such as saving for your child’s education, while also staying on track for existing goals such as saving for retirement.

Before the baby arrives

1. When planning financially for a baby, consider how your expenses will increase:

  • Groceries, clothing and household items. Initial expenses such as baby furniture, bedding and clothing can be costly. Additionally, your monthly costs for necessities such as diapers, formula and baby food can add up quickly. As your child grows and their needs change, the expenses will change too.
  • Childcare. Depending on where you live and what type of care you choose (in-home, center, full-time or part-time), costs for an infant average nearly $16,000 annually.1  You may also wish to compare the cost of child care expenses to what you’d give up in annual income if one parent quits working to stay home and care for the child. Consider whether long-term earning potential outweighs short-term savings.
  • Housing. You may want more space as your baby becomes mobile and your family becomes larger. Consider how much you will need to save and what your options are for buying a new home.
  • Transportation. A larger, safer or more reliable vehicle may be helpful for traveling with your baby and the many things you may need to bring with you, especially if you already have children. 
  • Medical. Budget for larger insurance premiums, doctor visits, hospital stays and co-pays.
  • Emergency savings. If you haven't already done so, now is a good time to build an emergency fund for unexpected illness, job loss or other surprises. Saving enough to cover your living expenses for at least three to six months is a common goal.
  • Retirement savings. An important part of learning how to prepare for a baby financially is your retirement fund. With new baby expenses it can be tempting to cut back on saving for retirement. But most parents continue to make saving for their future a priority.  Learn more about how you can balance saving for your child’s education and retirement at the same time.

2. Review your income

Once you’ve accounted for the additional child expenses, review your income and make any necessary adjustments. If one parent is planning to stay home after the baby arrives, start planning early for life as a single-income family. 

It’s also important to consider your plans for parental leave. Will both you and your partner be able to take paid time off? If not, how long will you be able to maintain your current household budget on only one salary? Your Ameriprise financial advisor will help you evaluate your options. 

3. If you’re planning to adopt, understand your costs

If you’re considering adoption, it’s important to understand the costs involved so you can prepare accordingly. The average cost of adoption varies greatly and depends on a number of factors, most notably the type of adoption. Here are costs to consider when planning to adopt a child:

  • Home study – Typically required by law, a home study is a screening of the home and life of prospective adoptive parents and must be conducted by a state-licensed social worker.
  • Adoption agency fees vs. independent adoption fees – Costs will depend heavily on whether you plan to adopt through an agency or pursue an independent adoption. 
  • Birth mother expenses – You may be responsible to cover all prenatal expenses, including medical fees and legal fees. Expenses can include delivery and hospital fees not covered by Medicaid or insurance, as well as postnatal expenses.
  • Legal fees – These fees depend on whether you plan to move forward with an independent adoption or to adopt through an agency. Adoption agency fees usually include a portion of the attorney fees.
  • Travel costs – Remember to take travel costs into account, including transportation, lodging and food. Whether you go through a domestic adoption or international adoption, travel should be factored in.

4. Understand your insurance options

Financial planning for a newborn also involves ensuring you have good medical coverage. Trips to the pediatrician, prescriptions and other health care costs can add up quickly. Usually within 30 days of birth or adoption, you will be able to add your newborn to your existing insurance.

You may also want to consider buying or reviewing your life insurance policy to help protect your family’s financial well-being should something happen to you or your spouse. Death benefits can be used to pay off debts (like a mortgage or credit cards), support your child and, in some cases, can be a source of funds for future expenses like college.

After the baby arrives

5. Save for your child’s education

The price of a college education continues to increase. By setting up a college fund when your child is young, you can optimize the amount saved by the time they’re ready for college. Consider monthly contributions into college savings plans such as: 

  • Coverdell Education Savings Account (CESA)
  • 529 plan
  • Series EE or Series I savings bonds

An UTMA custodial account could also be used to save for college. Your Ameriprise financial advisor will help you identify which types of plans may work for your family. Learn more about saving for education.

6. Utilize any tax advantages

You may be able to offset some child expenses by taking advantage of any available tax credits, as well as any exemptions or flexible spending accounts you can use.

  • The child tax credit, currently and through 2025, subject to future legislation, is $2,000 per child under 17 (subject to phase-outs and limited refundability) as established by the Tax Cuts and Jobs Act.
  • Taxpayers who pay for childcare or dependent care so that the taxpayer can work are potentially eligible for the child and dependent care tax credit. The credit covers up to 35% of qualifying expenses, up to a maximum of $3,000 of expenses for one qualifying individual or $6,000 for two or more qualifying individuals, for a maximum credit of $1,050 or $2,100 respectively for tax years 2022 and later. It is important to note limitations apply, including limits related to the interaction of the credit with the dependent care FSA described below.
  • With a Dependent Care Flexible Spending Account (FSA), you can use pre-tax dollars to pay qualified out-of-pocket dependent care expenses. Because your contributions to a Dependent Care FSA are made on a pre-tax basis, you end up paying less in taxes and taking home more of your paycheck.

7. Create or update your estate plan

When planning how much to save for a new baby, it’s especially important to have a financial plan in place for any for unexpected events.

  • Consider hiring an attorney to update or prepare a will to designate who will raise your child if something should happen to both parents. 
  • Your attorney can also help you complete advance medical directives, which can allow you to designate someone to act on your behalf to make medical and financial decisions if you become unable to do so.
  • Consider updating your beneficiaries. You can name both primary and secondary beneficiaries to help prevent gaps in the beneficiary designation process and avoid probate court. You may want to discuss establishing a trust to provide control over how your assets are distributed.

With a growing family, your goals and priorities can change quickly. Our unique approach to how to financially prepare for your new bundle of joy is built to be flexible, evolving with your expanding life. Your Ameriprise financial advisor will meet with you regularly to help you stay on track as you plan for your future. 

An Ameriprise financial advisor will help you stay on track as you plan for your future.

Or, request an appointment online to speak with an advisor.


At Ameriprise, the financial advice we give each of our clients is personalized, based on your goals and no one else's. 

If you know someone who could benefit from a conversation, please refer me.

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1New childcare data shows prices are untenable for families, U.S. Department of Labor Blog, January 2023
This information is being provided only as a general source of information and is not a solicitation to buy or sell any securities, accounts or strategies mentioned.  The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as a recommendation or advice designed to meet the particular needs of an individual investor.  Please seek the advice of a financial advisor regarding your particular financial situation.
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
Ameriprise Financial cannot guarantee future financial results.
Clients contributing to a 529 Plan offered by a state in which they are not a resident, should consider, before investing, whether their, or their designated beneficiary(s) home state offers any state tax or other state benefits such as financial aid, scholarship funds or protection from creditors that are only available for investments in such state’s qualified tuition program.
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