Money Management

How to Prepare Financially for a Baby: From Pregnancy to 18 Months

How to Prepare Financially for a Baby
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As a father of three kids under the age of eight, I can’t help but laugh at the frequent media stories about how much it costs to raise a child. 

It’s true. Kids are expensive. In fact, these stories tend to peg the cost to raise a child into adulthood at around $250,000.

While that number may be accurate, here’s my problem with these types of stories: they make it sound like, in order to prepare financially for a baby, you need an inheritance or some other way to set aside a quarter-million dollars over the next 18 years, just as you would when saving for retirement.

But what I’ve come to learn about parenting is that, more often than not, your motto becomes “just make it work.”

For example, let’s say you need to homeschool two elementary-school-age kids due to a global pandemic, while running your own business from home as a newly-mobile one-year-old tears up your house.

You just make it work.

A lot will change between the day you learn you’re expecting a child and the day they leave home to start their own journey. And you don’t need to worry about making sure you have every single financial box checked for that entire 18-year period. 

You’re going to figure it out as you go. And you’re going to make it work.

So when it comes to preparing for a baby, don’t worry about developing a strategy for setting aside $250,000. Instead, the key is to think about how your new arrival will affect your finances for the next 12 to 18 months. 

In this post, I’ll walk you through how to make it work financially for your own situation. We’ll start from the beginning with planning for prenatal care and the labor and delivery, and work our way through managing our post-baby budget. 

Budgeting for a Baby

There are a number of one-time expenses that come up during pregnancy, with the biggest being the cost of labor and delivery. Below are some very rough estimates and advice on preparing for these expenses.

Of course, these costs will vary widely depending on your individual situation (such as your health insurance coverage) and your choices (such as which hospital and doctors you choose). My best piece of advice is to always talk to your doctor about the cost of your care upfront

My wife and I can recall numerous times where a simple conversation — such as getting a blood test at one location rather than the one the doctor normally prescribes out of convenience or habit — has saved us hundreds of dollars. 

There are also many different assistance programs for lower-income families, such as Medicaid and SCHIP (the State Children’s Health Insurance Program). You can learn more about what programs your state offers, and whether you qualify, by visiting InsureKidsNow.gov.

Prenatal Visits and Care

Estimated Cost: On average, prenatal care — which includes your doctor’s visits, blood tests, etc. — will run about $2,000 total without insurance. If you have insurance, a plan on average pays for 87% of care, leaving you with a bill of $260 for these visits. 

The one thing to look out for here is specifically what your insurance company covers. For example, they may only cover one ultrasound (even if your doctor recommends more), or certain lab work at a certain facility (which the doctor may routinely outsource to a different facility). 

You’re going to hear this advice a lot in this article, because it’s important: call your insurance company, tell them you’re expecting, and ask what costs you should expect for prenatal care. 

If there was an easier or better way, I’d let you know. But the high number of variables and the huge volume of fine print make this is a necessary step that can save you a significant amount of money.

Note: Always make sure a doctor or lab is “in network” for your particular health insurance by calling your insurer prior to receiving care. Many medical providers and third-party testing facilities “accept” certain types of insurance, even though they’re not so-called “in network” providers. This can result in a dramatic difference in the amount of money you’re expected to pay.

Get Life Insurance as a New Parent (and Consider Disability Insurance)

Estimated Cost: $50 to $100 a month for life insurance, as well as additional costs if you opt for disability insurance. 

Life insurance is something I purchased immediately once my wife and I learned she was pregnant. It’s also pretty quick, painless and cheap. 

My recommendation is to get a quote through a company like Bestow, which provides up to $1 million in coverage with no doctor’s exam required.

I’d then go to a site like PolicyGenius to get quotes from multiple companies, and compare what you see there to what was offered by Bestow.

Often, you may be able to save a few bucks going through a traditional underwriting process, which would require a physical examination. 

For more, see our complete guide to purchasing life insurance

It’s also important to consider short-term or long-term disability insurance for anyone who brings in an income. This type of insurance will pay you a percentage of your salary if you’re unable to work due to an accident, illness or injury. 

Many employers offer long-term disability as a benefit, so start by reviewing what your employer provides.

Keep in mind that while choosing to stay at home post-pregnancy is not covered by disability, many complications of pregnancy are — such as having to take additional time off work. 

As an example, a close friend had twin babies who were held in the NICU for nearly three months. A short-term disability policy helped the family get through what was a very difficult time. 

Labor and Delivery Expenses

Estimated Cost: On average, out of pocket costs are $4,500 for delivery.

Yes, that’s a large bill. It’s expensive, and it’s unfortunate that new parents are faced with this. Yet, it’s the reality of having a baby. So it’s best to be prepared. 

First things first: this is the average. Your bill may be more or less depending on your insurance and the type of delivery you choose. 

Deciphering what you’ll actually pay out of pocket, based on your insurance plan, isn’t easy. 

So again I’ll say that I strongly recommend calling your health insurance provider, telling them where (the hospital) and how (naturally, epidural, etc.) you plan to have the baby. 

Have them estimate what your out-of-pocket costs will be, and ask about what scenarios would and would not be covered by your insurance. 

For example…

  • How much would a cesarean section cost compared to an epidural? 
  • Is there a limit on the number of days you can stay at the hospital after giving birth? 
  • What happens if there are complications with the pregnancy?

When evaluating your plan, know that most hospitals consider both the mother and the newborn as patients. Depending on your health insurance plan, this may mean they’re subject to separate deductibles and out-of-pocket maximums. 

On a positive note, hospitals want to get paid. And they understand that most people can’t just pay $4,500 out of pocket. So, in most cases, they’ll work with you to set up a payment plan. 

We’ve never had to pay interest on our hospital bills, although some hospitals do assess it. However, keep in mind that this interest rate, when assessed, is typically much lower than you’d pay on credit card debt.

So once again, calling ahead (this time, to the hospital) to ask about the available options is a wise choice. 

If needed, you may be able to extend the payments out for a year or two, breaking the cost down to a monthly bill that’s much more reasonable.

A lesson learned: When we’re in the hospital, we always tell the nurses that we have a high-deductible plan and to let us know if anything is optional. We learned this the hard way after paying for a couple of $36 pacifiers. 

For information on financial assistance for those with a low income, those who currently have no insurance, or those who are on Medicaid, see here.


The natural response: If there’s a part of you that’s overwhelmed by the upfront costs, you’re not alone. This is a common phenomenon for new parents.

My “freak out” occurred after the birth of our second child, when our finances were very tight and my income had taken a hit after losing one of my larger clients.

It was my wife who had to calm me down a bit, a week or two after my daughter was born, saying that everything would be OK. She reminded me the most important thing was to enjoy the moment, to help her, and to take care of our oldest.

Over the long term, we’d figure out a way to make it work.


An Emergency Fund

Goal: Aim to save at least three months of expenses. 

If there’s ever a time to prioritize your emergency fund, it’s before a baby arrives. 

As an example, say you’re currently in debt payoff mode, and following a debt payoff plan like the Baby Steps where you build only a $1,000 emergency fund, then work to pay off all non-mortgage debt.

In this scenario, I’d still work on paying off high-interest debt. However, if all you have is lower-interest debt, such as student loans or car payments, it may be best to make the minimum payments for now while you build your emergency fund.

There are a lot of unknowns when starting a family, and knowing that you have a sufficient safety net to cover an unexpected expense will give you one less thing to worry about when you’re awake with the little one at two in the morning.

Keep in mind that if you become less aggressive in paying off debt for a few months, in order to build up your emergency fund, you can always ramp that effort back up with a lump sum once the baby is home and healthy. 

Baby Items

Estimated Cost: $0 to $1,000+ (your choice).

Most newborn baby item checklists include 100+ products. If you want every single product on that list — and you want them to be brand new, top of the line, eco-friendly, etc. — you need to budget for it. 

If you don’t need your baby products to check off all of those boxes, then it’s incredibly easy to get them second-hand, for free, from friends and family. (I know my wife would say the same thing about maternity clothes.) Often, these items are barely used.

Beyond friends and family, Facebook Marketplace (especially Facebook groups with other local parents) is another great way to get the essentials, like a crib, a car seat and a stroller. Make sure to check the expiration date of the car seat, as it turns out that they expire. 

More lessons learned: Go with the bare minimum amount of baby gear at first, and buy additional items as you need them. For our first baby, we purchased one of those high-end $250 video monitors; it broke within a year. For a replacement, we bought a $15 monitor on Amazon, and it has lasted seven years so far. Also, when it comes to clothing sizes, it’s hard to predict what your kid will wear, when, and in what season. So get what you need for just right now; there’s no need to purchase baby clothes for their first six months of life. 

Creating a Post-Baby Budget

Now it’s time to deal with life after the baby arrives, running the numbers of how your family’s finances will be impacted for the year. 

Adding the Baby to Your Health Insurance

Estimated Cost: $0 to $400 per month.

Once your child is born, you’ll need to add them to your health insurance plan. Running a quote for health insurance on the ACA marketplace, the cost for a non-smoking couple in their 30s is $837.70 a month (for an unsubsidized plan). 

Health insurance cost for couple in their 30s
Without a baby.

When I add a newborn to that plan, the cost jumps to $1099.78 a month. 

Health insurance cost for couple in their 30s after adding a new baby
After adding a baby.

In an ideal world, part of this cost increase will be paid for by your employer. So, ask HR what the cost will be, and then adjust your budget as necessary. 

If you’re purchasing health insurance through the marketplace on your own, a family of three can qualify for a subsidy as long as their income is $86,880 or less. You can use the calculator at healthcare.gov to see what your monthly costs would be based on your income. 

Creating a Will

Estimated Cost: Between $0 and a one-time $250 fee.

It’s important to create a will for the purpose of naming the legal guardian of your child in the event that both you and your partner pass away. Without an in-force will, the court has the legal responsibility to decide who will take care of your kids. 

For our most recent will, my wife and I both used Trust & Will, which walks you through the process of creating, storing, and sharing your estate plan (see my review). We were very happy with the process. 

Quick Tip: After your baby is born, it’s also a  good time to review the beneficiary designations on all your existing financial accounts. Make sure that your child is listed as a beneficiary in any place where your money is held, such as an investment brokerage or checking account. Most commonly, you’d list your spouse as the primary beneficiary and your child as the contingent beneficiary. This will pass the assets to the primary beneficiary first, and only to the contingent beneficiary if both parties were to pass. If no beneficiary is named, the court will determine who gets the assets. 

Expected Ongoing Medical Costs for the Baby

Estimated Cost: $100 to $150 per month.

There’s a lot of ongoing medical care (such as regular doctor visits and scheduled immunizations) during the baby’s first year. A recent survey found that these costs run $1,297 on average over the course of the first 12 months

Miscellaneous Costs

Estimated Cost: $500+ per month.

While we will go into the cost of child care more in-depth in the next section, realize that there are many ongoing expenses related to taking care of your baby during their first year of life. 

On the lower end of the scale, when I use Baby Center’s First-Year Expense calculator, a family with no child care expenses who breastfeeds will face estimated first-year costs totaling $6,317 after accounting for baby clothing ($30 per month), food ($30 per month starting at six months), diapers, medicine, toiletries and wipes, and a toys/books ($20 per month).

Omitting childcare from the discussion for now, these ongoing costs (like most things) can vary widely.

For example, after our third child was born we decided to ditch our sedan and become the very proud owners of a minivan. Similarly, after our first child was born, our monthly costs increased significantly as we moved out of an affordable one-bedroom apartment and into a more expensive two-bedroom space. 

Childcare vs. Returning to Work

Estimated Cost: $0 to $1,000+ per month.

Whether one parent stays at home or returns to work has a significant impact on your future budget. 

Start by running the numbers. Review the average cost of daycare in your area, even calling potential daycares and asking for quotes (and whether they have openings). Compare this to what you would gain in monthly income from one partner going back to work. 

At the same time, it’s important to realize that making the right decision in your particular situation is not as simple as calculating this one figure.

From the numbers side of things, part of daycare costs are tax-deductible. But there are also the costs of getting a child to and from daycare (such as transportation expenses and the time spent). Parents.com has a calculator to help you account for some of the hidden costs

Additionally, choosing to take time off of work (outside of your company’s maternity leave program, should you be lucky enough to have access to one) can have a significant impact on your future income.

The website PayScale found that parents typically make 7% less than their peers upon re-entering the workforce. Plus, that time away from work can leave you with a deficit of experience that makes it harder to compete for promotions (and thus, to earn more). It’s for this reason that you can easily make the case that having kids costs way more than $250,000!

But it’s not all about the numbers. There are many reasons people choose to work, just like there are many reasons people choose to stay home. There’s no right or wrong answer. It’s important to know the numbers so that you can make an informed decision, but don’t let the numbers dictate that decision. The key is to identify what matters most to you, and then to look for ways to make it work. 

With that in mind, don’t discount flexible work arrangements. My wife worked many Saturdays, while I held a traditional 9-5 Monday through Friday, up until we had our third child. Maybe your employer can offer you a part-time job position, while a grandparent watches your child two days a week. 

And there are plenty of good earning opportunities for stay-at-home patents that offer solid pay and flexible scheduling.

The 529 Account

Estimated Cost: $0 to $250+.

A 529 college savings plan can help you save for your child’s college education. Depending on the state you live in, you get a deduction for making a contribution, your earnings grow tax-free, and if used for qualified education expenses, you can withdraw earnings tax-free.

And, by starting a 529 as early as possible, you get more time for compound interest to work on your side. 

But, the bigger question is whether this is actually the best way for you to save.

For me, this is lower down on the priority list. My line of thinking is that it’s possible to borrow for college but not for retirement. As I’m not currently maxing out each of my retirement accounts, I’ve prioritized getting there before fully-funding my kids’ 529s. 

What I’ve done instead is, upon the birth of each child, set up an automatic transfer of $50 per month into our state’s 529 college plan. This would certainly not be enough to pay 100% of the cost for a four-year, in-state degree for each of my kids. But then again, that’s not our goal.

(At the current rate of education inflation, I’d have to put away $250 a month to pay for a four-year in-state school per child.)

Personally, I prioritize some other things in life, as there’s a limited amount of money to go around. I would consider saving more in 529s if I was indeed maximizing every tax-advantaged retirement plan. 

Your choice here is your own. For reference, in the above-mentioned Baby Steps, saving for college doesn’t come until Step #5.

  • Baby Step #1: Save $1,000 for your starter emergency fund.
  • Baby Step #2: Pay off all debt (except your mortgage, if you have one) using the debt snowball method.
  • Baby Step #3: Save three to six months of expenses in a fully-funded emergency fund.
  • Baby Step #4: Invest 15% of your household income for retirement.
  • Baby Step #5: Save for your children’s college fund.

If the money isn’t there, I wouldn’t get down about not being able to fully fund your child’s education. In other words, you’re not being a bad parent by choosing to pay off debt or fund your 401(K) over a 529 plan. 

Final Thoughts on How to Prepare For a Baby Financially

“Making it work” doesn’t mean sitting back and hoping for the best.

Rather, it’s all about developing a realistic framework for what lies ahead, and then doing what you have to do to get through this week, this month, and this year.

After all, our parents didn’t have it all figured out when they had us. 

It’s not always easy. But wow… is it worth it. 

And by the way — congrats!

R.J. Weiss
R.J. Weiss is the founder and editor of The Ways To Wealth, a Certified Financial Planner™, husband and father of three. He's spent the last 10+ years writing about personal finance and has been featured in Forbes, Bloomberg, MSN Money, and other publications.

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