Saving for a Baby (Money Tips for New Parents)

Welcoming a new baby into your family is an exciting time, but it can also bring unexpected financial challenges.

Babies may be small, but the costs associated with their arrival can be significant.

Saving for a baby’s first year should be a priority for new parents. But what financial strategies should you put in place?

In this article, we’ll provide simple advice on saving for a baby including:

Highlights	Description
Delivery Costs	One of the biggest expenses for new parents. The final bill varies based on location and health insurance.
One-Time Expenses	Be ready for costs like travel, baby-proofing, and purchasing essential baby gear.
Childcare and Savings	Consider ongoing expenses like childcare and planning for your child’s financial future.
Emergency Fund	Crucial, especially if one parent stays home. It acts as a financial safety net during uncertain times.

Bringing a new life into the world is a joyous occasion, and with some careful financial planning, you can navigate the expenses that come along with it.

What you'll learn:

➤ One-Time Expenses for New Parents

When you’re welcoming your first baby, you’ll often find yourself starting from scratch with various baby essentials like furniture, strollers, and cribs. Additionally, there’s the significant one-time expense associated with giving birth in the United States.

Let’s dive into these expenses, bearing in mind that predicting the exact costs can be quite challenging.

Healthcare Bills

In the U.S., the cost of labor and delivery for new parents with insurance coverage can average around $14,000, as reported by a 2020 study by the Healthcare Cost Institute. However, these costs can vary widely based on your location and insurance policy.

For instance, vaginal deliveries may range from $7,000 in Arkansas to $17,000 in New York. Out-of-pocket expenses can also differ significantly, ranging from $1,000 in D.C. to $2,400 in South Carolina. (This data is based on the year 2017.)

Keep in mind that the cost of routine prenatal care, hospital stays, tests, and postpartum care can also vary depending on your health coverage and location. To get a clearer picture of your expenses, review your insurance policy.

Unfortunately, making an accurate prediction about your costs without considering your health coverage is challenging.

Infant Essentials

Expenses for baby-related items can vary widely based on your preferences and desires. This category includes purchases like strollers, infant car seats (mandatory by law), baby carriers, and diaper bags to make life with your little one more convenient.

If you plan to be on the go frequently, you might also consider a portable playpen and/or bassinet. Costs in this category can escalate significantly, especially if you opt for high-end products.

For example, accessories like adapters, snuggle bags, and additional features for certain stroller brands can add up to $1,000 on top of the stroller’s cost.

On the other end of the spectrum, you can find seat and stroller combos for under $150, and gently-used or hand-me-down items can help you save even more. When it comes to infant car seats, it’s advisable to buy new to ensure safety, as it’s challenging to verify the condition of a used one.

Nursery Basics

Keeping your baby comfortable and entertained at home may require various items like a portable swing, bouncy seat, play mat, jump seat, crib, bassinet, crib mattress, bedding, blankets, changing table, small dresser, rocking chair, baby monitor, and diaper pail.

The cost in this category largely depends on your personal preferences. Unlike car seats, these items are primarily for home use, making them suitable candidates for purchasing used or exploring online sharing and swapping groups for budget-friendly options.

Baby Food

The costs associated with feeding your infant can also vary significantly based on your situation. Parents who can stay at home and breastfeed around the clock will have minimal expenses for the first few months, needing only essentials like a breastfeeding pillow, burp cloths, and a nursing cover.

However, if you plan to store breast milk, expenses increase with items like bottles, nipples, cleaning equipment, and a breast pump. If breastfeeding isn’t an option, formula feeding adds significant costs to your first year of parenting.

In summary, preparing for a new baby involves various one-time expenses, from medical bills to baby gear and feeding necessities. Keep in mind that your choices and preferences play a significant role in determining the overall cost of welcoming your little one into the world.

➤ Recurring Expenses for New Parents

Once your baby arrives, you’ll encounter ongoing expenses as you provide for your little one’s needs. Here are the essential costs to factor into your budget:

Childcare

If both you and your spouse plan to continue working after your baby’s arrival, childcare will likely be your most significant budget item. The costs of child care can vary widely depending on factors such as your location, your child’s age, the level of care required, and the type of care you choose.

According to the Care Index, in-center child care typically costs just under $10,000 per year. On the other hand, the average expense for a nanny or in-home care is approximately $28,350 per year. Keep in mind that these costs can be higher or lower based on your specific circumstances and location.

It’s worth noting that certain tax credits, such as the child and dependent care credit, might help offset some of your child care expenses. Make sure to check if you qualify for these credits.

Food

Ongoing costs for your baby mainly include food, clothing, and diapers. When you introduce solid food into your child’s diet, you can expect to spend around $100 per month. However, these early food costs are relatively modest compared to what you’ll encounter when your child becomes a teenager.

Clothing and Diapers

According to the USDA‘s recent report on the cost of raising a child, new parents are advised to budget approximately $670 to $1,110 for clothing during the first two years. The actual amount can vary significantly based on your personal preferences and budget, but the lower end of this range equates to roughly $56 per month.

Diaper expenses also fluctuate, but experts recommend budgeting at least $1,000 for diapers and $450 for wipes during the first year alone. This amounts to roughly $120 per month. Parents who opt for disposable diapers should be prepared to go through as many as 3,500 diapers in their child’s first year.

Additional Healthcare

Plan for approximately six wellness visits in your baby’s first year, which cover evaluations, immunizations, and other essential health checks. You might also need to schedule additional visits for illnesses. Review your health insurance policy to understand the rates and coverage for these medical expenses.

In summary, ongoing expenses for new parents encompass child care, food, clothing, diapers, and medical bills. These costs can vary significantly depending on your choices, location, and specific circumstances. By budgeting wisely and exploring potential tax credits, you can navigate these ongoing expenses more effectively as you care for your growing family.

➤ When One Parent Stays at Home

When one parent decides to stay at home to care for the baby, it brings about important changes to your family’s budget. The most apparent change is a reduction in overall family income.

Although child care expenses can be quite high, the financial impact of one partner leaving their job to become a full-time parent can be even greater when considering the loss of income, benefits, and potential investment opportunities.

Under the Family Medical Leave Act (FMLA), some employers may grant up to 12 weeks of unpaid leave for the arrival of your baby. However, it’s essential to note that not all employees are eligible for FMLA benefits, especially in the case of small businesses.

Therefore, it’s crucial to check with your employer to understand the type of leave you may qualify for. If you opt for unpaid leave, you’ll need to calculate how you’ll cover your regular expenses during this period, including mortgage or rent, utilities, insurance, groceries, and more.

This financial challenge is further complicated by the potential impact on future earning potential if the parent who stayed home later decides to rejoin the workforce. The decision to stay at home can be driven by personal or financial considerations.

In some cases, especially at lower income levels or in regions with high living costs, even government assistance programs may not fully offset the significant expenses associated with child care.

However, if the choice to stay at home is primarily personal, a couple can take proactive steps to prepare for the transition. Before the baby’s arrival, they can experiment with living on a single income to gauge its feasibility while simultaneously building up an emergency fund using the second income.

This approach can help couples adapt to the financial changes that come with one parent choosing to stay at home and provide a safety net during this transitional period.

➤ Financial Tools for New Parents

When your child arrives, it’s crucial to establish financial tools that will support their future needs. To get started, identify your priorities and create a budget accordingly.

College Savings Tools

Planning for your child’s college education is essential, given the rising costs of higher education. According to the College Board Report, the average annual expenses for college in the 2021 to 2022 academic year ranged from $10,740 for a public four-year in-state school to $38,070 for a private four-year education.

To begin saving for your child’s college education, explore various college savings tools like a 529 plan, Coverdell Education Savings Account, or UGMA/UTMA account.

It’s worth noting that recent legislative changes have expanded the utility of 529 plans. The Tax Cuts and Jobs Act (TCJA) of 2017 and the Setting Every Community Up for Retirement Enhancement Act (SECURE) of 2019 have broadened the use of 529 plans to cover expenses related to K-12 education, apprenticeship programs, and even student debt repayment.

In January 2023, the SECURE Act 2.0 introduced another significant enhancement to 529 plans. Now, beneficiaries of these plans can roll over up to $35,000 from any 529 accounts in their name to a Roth IRA in their name over their lifetime.

Life Insurance

If you currently lack life insurance coverage, it’s wise to consider purchasing it if it fits within your budget. Life insurance provides assurance that your child will have financial support in case of an unexpected passing by you or your partner.

Explore your options by consulting your employer or an insurance agent who can provide information on both life insurance and disability insurance.

Health Insurance

Health insurance is a critical safeguard for your family’s financial well-being. Without coverage, a significant accident or illness could deplete your savings and lead to substantial debt. If you don’t already have health insurance, research available options or budget for an increased monthly premium to add your child to your existing policy.

Flexible Spending Accounts (FSAs)

Flexible Spending Accounts (FSAs) allow you to use pretax dollars to cover essential family expenses, including child care and healthcare costs.

To take advantage of FSAs, discuss setting up a dependent-care FSA and/or healthcare FSA with your employer or financial advisor. These accounts can help you manage your family’s budget more efficiently.

➤ How to Save Money for a New Baby

Regardless of your income, there are plenty of ways to meet your baby’s needs without straining your budget, as we’ve hinted at earlier. Here are some key strategies:

Thrift Stores: Babies grow rapidly, and you can save significantly on clothing by exploring gently used or even new items at local consignment or thrift shops. Some stores even offer buyback options for items your child outgrows, providing cash or store credit.

Online swap groups and parent networks are also excellent resources for finding quality items at low prices, and sometimes even for free.

Family and Friends for Backup Childcare: Instead of taking unpaid leave when your child is sick, arrange for family or friends to provide emergency backup childcare. It can save you money and ensure your child’s care.

Borrow from Friends: If friends with young children have items you need, like a crib, high chair, or rocking chair, ask if you can borrow them. This can help you avoid the cost of purchasing these big-ticket items.

Baby Shower Gifts: When planning a baby shower, consider registering so that guests can purchase items you truly need. This way, you’ll avoid receiving duplicate gifts and get the essentials.

Lifestyle Adjustments: Having a child may require reevaluating your financial priorities. If your new budget doesn’t add up, consider making lifestyle adjustments. For instance, think about trading in your large car for a more affordable model, shopping at budget-friendly stores, or opting for generic items to save money.

➤ Final thoughts

Children are a precious gift, even though they can come with significant expenses. It’s crucial to remember that average costs don’t provide a complete picture when the range of baby-related expenses is so wide.

While good health insurance can cover a substantial portion of hospital bills, effective planning and saving for a baby are essential to manage the rest of the costs.

Interestingly, the Finnish tradition of providing birthing parents with a simple starter box that can serve as a baby bed highlights that many of the thousands of dollars spent on our children’s early years may be more about societal status than the child’s actual well-being.

References

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