How to financially prepare for a baby: 7 tips

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.