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7 ways to financially prepare for a new baby

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. 

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

A financial advisor can 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, full-time or part-time), costs for an infant average $5,436–$24,249 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. 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 expenses associated with having a child, 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 financial advisor can 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

Another way to prepare for a baby financially is by 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 security 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 maximize 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), a 529 plan or a Series EE or Series I savings bonds. An UTMA custodial account could also be used to save for college. Your financial advisor can help you identify which types of plans will work for your family. Learn more about saving for education.

6. Utilize any tax advantages

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

  • For 2021 only, recently passed legislation makes several significant changes to the child tax credit. The credit is generally increased to $3,600 for qualifying children under 6, and $3,000 for other qualifying children under 18. The credit is fully refundable if certain qualifications are met. Eligible taxpayers will receive direct payments from the IRS from July-December for half of the expected 2021 credit amount. The IRS is working on a portal to provide additional information and resources related to this credit and expects to have it available summer, 2021. The credit is subject to several phase-outs. For 2022 through 2025, subject to future legislation, the credit reverts back to $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. For 2021 only, the credit is 50% of qualifying expenses (up to a maximum amount of expenses of $8,000 for one qualifying individual or $16,000 for two or more qualifying individuals) with a maximum credit of $4,000 for one qualifying individual or $8,000 for two or more. The credit is subject to income phase-outs. Unless Congress acts, this credit reverts back to a credit of 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 for a new baby, it’s especially important to have a financial plan 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 financial planning for new families is built to be flexible, evolving with your 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 can help you stay on track as you plan for your future.

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


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1 ChildCare Aware® of America,, Parents and the high cost of child care, 2019
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