Financial Planning and Emergency Savings for Expecting Parents

Here’s how to prepare your finances for a new child

A man with a beard and a pregnant woman sit on a couch, looking over their budget on a tablet
Photo: Vesnaandjic/Getty Images

Expecting parents have a lot to figure out, and almost half of new parents admit they weren’t prepared for child-related financial demands. Yet, the right money moves can help support a growing family and give your child a solid financial foundation. Here are some financial planning and emergency savings steps for expecting parents.

Key Takeaways

  • Financial planning for expecting parents can be challenging since the average cost of raising a child until age 17 can run as much as $310,605.
  • Parents should plan for increases in expenses, including housing, food, disposable diapers, and childcare services.
  • Organize your finances by writing down your income and expenses.
  • Pay down debt, especially high-interest debt, and save for an emergency fund in case you lose your job or have unexpected medical expenses.
  • Take advantage of the child tax credit of up to $3,600 for children under the age of six and $3,000 for children under 18 for tax year 2021

Adjust Your Household Budget 

The average cost of raising a child until age 17 can run as high as $310,605, which represents more than a $26,000 increase due to inflation.

These future expenses make it important to examine your income and spending now. Pull out recent bank statements, and compare your pay to your current expenses. Next, forecast future family expenses. Housing can be one of the top expenses for families since you might need an extra bedroom or larger vehicle to accommodate the addition of a new family member.

Other spending categories include:

  • Food: You could end up spending between $152.30 to $209.70 per month to feed a 1-year-old child, depending on whether your spending patterns are thrifty, moderate, or liberal.
  • Child care and education: Infant care ranged from $226 per week at a child care center to $694 a week for a nanny, on average, in 2021.
  • Clothing and diapers: Disposable diapers can cost nearly $1,000 in a baby's first year.
  • Extras: Don’t forget out-of-pocket health care costs, a car seat and stroller, haircuts, books, and more.

Now is the time to free up funds for covering new costs. Cut unnecessary expenses, lower recurring living costs like rent or phone bills, find ways to earn more income, or research options to fit child care into your budget.


Treat the pre-arrival period as a trial run for your new-baby budget. Try living on your adjusted budget, then use leftover funds for baby-related purchases or savings.

Fund Emergency Savings

An adequate emergency fund ensures that you can cover unexpected financial hardships, including unemployment, medical emergencies, and loss of child care. So, start (or expand) your emergency fund.

Consider emergency savings in terms of months—as in the months of covered living expenses if and when a crisis arrives. Each month saved buys you another 30 days to pay bills while researching options and solutions.

A well-funded emergency savings account falls somewhere between two and five months of living expenses, which is typically the length of time most people are unemployed. A three-month emergency fund is reasonable for dual-income earners. Saving a six-month emergency fund is ideal if you’re worried that your job isn’t secure or if you’ll be a single parent.

Here are a few other ways to add to your new-parent emergency fund:

  • Request cash instead of, or in addition to, baby-shower gifts.
  • Send $10 per week to savings through automatic transfers or paycheck deposits.
  • Add tax refunds, birthday or holiday cash gifts, or other small windfalls to your fund.
  • Declutter to make room for the baby, sell unused items, and save cash.
  • Revisit W-4 withholdings and employment benefits to increase your take-home pay and save the difference. Just remember that you could end up owing the IRS money at tax time if you have too little withheld from your paychecks.

Review Health Insurance

Having a baby can cost anywhere from $13,000 to nearly $23,000, depending on the type of delivery and your care needs. From state to state, deliveries can fluctuate from $30,000 to $50,000, depending on where you live.

However, if you have insurance, a delivery can cost nearly $7,000 on average. In other words, your insurance plan has a huge impact on how much you'll pay for out-of-pocket prenatal care, labor and delivery, and infant care.

Review your health insurance plan for details, such as in-network health care providers, deductibles, copays, coinsurance, and out-of-pocket maximums. Call your insurer to clarify how costs are covered and ask about programs that offer additional financial or health support to expecting parents. If necessary, you could also lower out-of-pocket costs by changing plans during open enrollment. Check eligibility for Medicaid through the tool, and consider CHIP coverage if you earn too much for Medicaid.


Many plans don’t include maternity coverage for dependent children. You could end up paying out of pocket for prenatal and maternity medical expenses if you’re a dependent on your parent’s health insurance plan.

Having or adopting a baby counts as a qualifying life event that permits changes to a health insurance plan outside of open enrollment, such as adding your child or uninsured partner to your plan. You also might be able to switch to a plan with better coverage after you have the child.

More Ways for Expecting Parents To Prepare

Plan for Parental Leave

The Family and Medical Leave Act (FMLA) provides parents with up to 12 weeks off after a child joins their family—but it’s not necessarily paid leave. Check your employer’s policy on paid parental leave, and start saving to replace your income while you’re on parental leave.

Understand Child Tax Benefits

The IRS offered a child tax credit of up to $3,600 for qualifying children under age six and $3,000 for children under age 18 for tax year 2021. Eligible families can claim the credit until Nov. 17, 2022, even if they did not file a tax return. Other child-related tax benefits include the child and dependent care tax credit, adoption tax credit, or employer-provided adoption assistance and dependent care benefits. You’ll need your child’s Social Security number to claim the Child Tax Credit.


Child-related tax benefits have been significantly enhanced in 2021 in response to the ongoing coronavirus pandemic. Children under age 18—not 17—are eligible for the Child Tax Credit for this one year only, and the credit for children under six years old is increased to $3,600 as well. The Child and Dependent Care Tax Credit has been favorably adjusted as well.

Pay Down Debts

Debt is the top financial stressor for 32% of families. Eliminating debts and other liabilities helps you to increase financial security and free up cash for building wealth and supporting your family.

Buy More Insurance

Life insurance and disability insurance can help you affordably plan for worst-case scenarios and care for your family.

Organize Your Finances

A written will allows you to decide how your child will receive assets and be cared for. Add your child as a beneficiary to existing bank and investment accounts and insurance plans, but don't neglect to name a guardian to manage these finances for them until they reach the age of majority.

Save for the Future

Consider saving for your child’s college education using a 529 plan. Save for your retirement, too, to avoid becoming a financial burden on your child later in life.

Financial Planning Is Good Parenting

Growing up in a financially stable home is a powerful head start that correlates to improved well-being, behavior, and health outcomes for your child, both now and throughout their life. You’ll give your child security and model positive money behaviors as you responsibly manage family finances and build emergency savings.

Frequently Asked Questions (FAQs)

How do I financially plan for having a baby?

Develop a financial plan by mapping out your expenses and income. Try to pay down high-interest debt and build an emergency fund for unexpected expenses such as a job loss or medical expenses. Research any benefits and tax breaks for new parents, such as the child tax credit.

What are the financial costs of having a baby?

Financial planning for expecting parents is important since it can cost as much as $310,605 to raise a child until age 17. Plan for increases in your expenses, such as housing. Food can cost from $152.30 to $209.70 per month to feed a 1-year-old. It can cost nearly $1,000 in a baby's first year for disposable diapers, while child care averages $226 per week and $694 weekly for a nanny. Other expenses include a car seat, stroller, and clothes.

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