How to financially prepare for a baby: A parent’s checklist

You have a baby on the way! Congratulations! Welcoming a new baby brings joy and excitement, but may also require changes to your finances. Early planning helps reduce financial stress because you can prepare for hospital bills, diaper expenses, childcare, and long-term savings to set your family up for success.

Here’s a step-by-step guide to financially preparing for your baby.

Review your health insurance and estimate medical costs

• As soon as you know you have a little one on the way, review your health insurance to understand what your maternity and newborn coverage includes. You’ll want to check your deductible, co-pays, and estimated out-of-pocket costs. 

• If you contribute to an HSA or an FSA, now may be a good time to start depositing extra to save pre-tax dollars for unexpected medical expenses. 

• Don’t forget to add your baby to your insurance plan after birth! Most policies require it within the first 30 days.

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Adjust (or create!) a budget

If you already have a monthly budget, add all the anticipated new expenses, such as diapers, formula, car seats, strollers, clothes, furniture, childcare, and everything else! 

Is your new projected budget falling short? You may need to redirect some of your current spending toward the new expenses. When adjusting your budget, you can keep costs down by:

• Prioritizing the must-haves over the nice-to-haves.

• Buying secondhand for some big-ticket items.

• Setting up a baby registry for family and friends who want to help.

• Starting small. You may not need (or use) as much as you think! Stock the essentials and wait on things like clothes or toys to see what you actually need. 

If you’re new to budgeting, use this budget guide to get a running start.  

Plan for parental leave

Take time to check with your employer about paid and unpaid leave policies. Then you can determine how time off will impact your income and make financial adjustments. If you have a partner, coordinate leave plans to maximize time at home while maintaining financial stability. 

If you need to take unpaid time, you or your partner could look into temporary income streams or side gigs to supplement your budget.

Build an emergency fund

This is important for everyone, but it’s even more critical with a baby on the way. An emergency fund should aim to cover 3-6 months of expenses, especially if your income will change during parental leave. 

To offset future expenses, automate savings to grow your emergency fund before the baby arrives. A solid emergency fund brings more peace of mind when unexpected expenses hit.

Set up life insurance and update your wills

• If you don't have life insurance, consider adding a policy to protect your family’s future. 

• Set a reminder to review your coverage periodically to make sure it meets your changing needs. 

• Update your will (or create one) and designate a legal guardian for your child in case of unexpected circumstances. 

Start saving for your child’s future

A 529 college savings plan or a custodial account can give you and your child a head start. Even though college seems far away, starting early helps manage the financial burden later.

• Consider automating contributions to stay consistent with your savings goals. 

• Look into opening a high-yield savings account to grow your child’s savings with the power of compound interest (even small, consistent contributions can add up over time!).

• Explore Greenlight’s investing tools to learn about building long-term wealth for and with your kids. It’s also a great companion for teaching financial literacy from a young age.

Take advantage of tax breaks 

When your baby arrives, you may be eligible for tax breaks. Look into the Child Tax Credit, which assists by decreasing your annual income tax payments. The Child and Dependent Care Credit can help with childcare expenses like daycare and babysitters. Talk with a tax professional to determine which credits and deductions apply to your family’s situation. 

Proactively preparing for a new baby can reduce some of the inevitable parenting stress, helping you focus on welcoming the latest addition to your family. Start planning early so you can adjust as needed. And don’t forget to tap into financial tools like Greenlight to build a solid financial future for your family.

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