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12 Steps to Prepare Yourself Financially For a Baby

Parents say that having kids is one of the most rewarding experiences but they also say that preparing for a baby can be stressful.

Numbers vary, but the cost of raising a child from birth through college is about $250,000. This includes things like housing, food, transportation, healthcare, education, childcare, clothing, personal care items, and entertainment. 

We put together 12 steps to help you get your finances in order for a baby. 

No. 1: Earn More Money

Making more money will help you pay for expenses as they come up. Here are 14 ways to earn money with your car and here is advice on how to negotiate your salary

No. 2: Start Budgeting and Create an Emergency Fund

Taking the time to create a budget will help you save money for medical bills, childcare, and more. 

Make sure to add baby food/formula, regular/cloth diapers, toiletries, and clothes to your monthly budget. You may be able to get a family member to help you with these purchases.

Another thing you should do is create an emergency fund of three to six months worth of expenses. You might find that you need more, but this is a good start.

Here are some of our favorite blogs on saving money and budgeting. 

No. 3: Pay Off High-Interest Debt

Now that you have your budget set aside, it’s time to pay off debt. You might not be able to pay off large debts like student loans or your home, but you should get rid of any high-interest debt. This includes credit card debt and payday loans.

Check out this guide on how to pay off credit card debt fast. 

No. 4: Prepare for Childcare Expenses

The biggest expense for new parents is childcare. According to Verywell Family, “The average cost of center-based daycare in the United States is $11,896 per year ($991 a month) for infants and $10,158 per year ($847 a month) for toddlers. Prices for infant daycare can range from $5,760 to $20,880 a year ($480 to $1,740 monthly.)”

In-home care is a cheaper alternative. Verywell Family states that it “costs about $9,027 a year ($752 a month) for infants and $8,246 a year ($688 a month) for toddlers.” Nannies cost between $11-$25 per hour, not including benefits. 

There are a few different ways to save money on childcare. The first is to have friends and family members babysit. The second is to work from home and be a stay-at-home parent. Third, you can try nanny sharing where you split the costs of a nanny with friends or neighbors. Last, you might be able to qualify for low-income assistance if you make less than 200 percent of the poverty income level.

Here are 36 more ways to save on childcare costs.  

No. 5: Prepare for Medical Bills

If you haven’t already started, an FSA or HSA account will help you save for medical emergencies. 

Healthcare Savings Account is an account that allows you to deposit funds tax-free while also reducing your taxable income. You can use this account for health-related expenses. 

Flexible Spending Account (also known as a flexible spending arrangement) is a special account you put money into that you use to pay for certain out-of-pocket health care costs. The money you put into it is pre-tax, so it helps you stretch your dollar.

Having either of these accounts will help you pay for a variety of expenses as they come up. There’s an Amazon FSA/HSA store that you can use the money saved in your accounts to buy certain items. For more information, reach out to your employer’s human resources department or a healthcare provider to learn more.

No. 6: Stay on Top of Your Retirement

Your retirement is super important to plan for. We put together this guide to help you figure out how to start saving money for retirement.

No. 7: Plan for Maternity/Paternity leave

Many companies offer different maternity and paternity leave benefits. You should learn how the benefits work at your company so that you can plan the first few weeks after your baby is born.

You can save a few months of costs on childcare if you and your partner both get time off. For instance, if you get four weeks off, and they get four weeks off, you can take time off back to back to save two months’ worth of childcare costs. 

No. 8: Buy Second-Hand

Avoid the need to buy everything new. One tip to avoid the urge to buy new is to unsubscribe from companies’ marketing e-mails. While a few e-mails here and there won’t hurt, too many will have you feeling tempted. 

Strollers, high chairs, dressing tables, cribs, clothes, baby monitors, toys, and other baby gear can be purchased second-hand. Make sure to check Facebook Marketplace, Facebook Groups, garage sales, Weepa, ThredUp, Offerup, and eBay. These also make for great places for a registry if you can’t get items second-hand.

If you aren’t sure what you should and shouldn’t buy used, check out this guide from Babylist.com. The one thing that you should never buy used is a car seat due to safety concerns.

No. 9: Review Your Health Insurance

If you work for a company, you should reach out to human resources, as well as your healthcare provider about adding your baby to your health insurance. 

Even with insurance, you might still have some out-of-pocket expenses when it comes to childbirth and family insurance. The earlier you review, the more time you will have to prepare and start asking questions. 

Other parents have recommended searching for a pediatrician early on so that you aren’t rushing to find one later. Ask friends and family members who they go to.

No. 10: Start Saving for Future Education Expenses

Saving money in a 529 plan can be a great way to save for your child going to college. We used CalXML to help you run some numbers of how much you can save by putting aside $50-$200 a month from birth to age 18. 

  • If you save $50 a month from 0-18 with no initial deposit you will have $21,305 after taxes
  • If you save $100 a month from 0-18 with no initial deposit you will have $42,610 after taxes
  • If you save $150 a month from 0-18 with no initial deposit you will have $72,803 after taxes
  • If you save $200 a month from 0-18 with no initial deposit you will have $85,219 after taxes.

Let’s pretend that you make $4,000 a month and live in Massachusetts (for example). You will take home about $37,772 a year after taxes. If you divide by 12, that means you will take home roughly $3,000 a month. $50 a month is about 1.6 percent of your gross income. It’s doable!

The moral of the story is that whether you want to start a 529 Plan, a Roth IRACoverdell Education Savings Account, or another investment vehicle, you can prepare your child for a brighter future by saving, even if it’s not a lot of money.

No. 11: Don’t Forget About Child Tax Credits

Child tax credits give an income boost to the parents or guardians of children and other dependents. It applies to kids who are younger than 17 as of the last tax year. The credit in 2020 was worth up to $2,000 per kid, but your income level determines how much money you will receive. This article goes over everything you need to know about child tax credits

No. 12: Other Things to Consider

Once your baby is close to arriving, it would be a good idea to buy life and disability insurance. You also should create a will with your child being the beneficiary. And you should update your estate plan as well. 

While you are in the hospital, don’t forget to order them a birth certificate and social security card.

Having a baby is something that many people aspire to do in their lifetime. But they cost a lot of money to raise. We hope these tips help you feel confident and ready to bring your little one into the world.

Are you looking for more advice on being a new parent? Check out our guide to baby-proofing your home, as well as five things every new mom should know before giving birth. Also look at 4 affordable activities to do with your kids, and our advice on smart money management tips for young families.

Bobby the Bee

Bobby the Bee is our honey-loving mascot. He currently holds a degree in making Missions, and making honey from Mobee University.