Budgeting Financial Planning Family Finances 10 Ways Your Budget Changes When You Start a Family By Miriam Caldwell Miriam Caldwell Miriam Caldwell has been writing about budgeting and personal finance basics since 2005. She teaches writing as an online instructor with Brigham Young University-Idaho, and is also a teacher for public school students in Cary, North Carolina. learn about our editorial policies Updated on December 28, 2021 Reviewed by Somer G. Anderson Reviewed by Somer G. Anderson Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas. learn about our financial review board Fact checked by Hans Jasperson Fact checked by Hans Jasperson Hans Jasperson has over a decade of experience in public policy research, with an emphasis on workforce development, education, and economic justice. His research has been shared with members of the U.S. Congress, federal agencies, and policymakers in several states. learn about our editorial policies Photo: Jordan Siemens/Getty Images When you begin to have children, you will likely need to change the way you manage your money. Most people plan for things like formula, diapers and day care, but there are other financial areas where you need to make changes as well. Proper planning with aspects like budgeting, life insurance and savings can help you avoid accumulating new baby debt. Here are 10 ways your finances will change once you have kids. Child Care Costs The cost of day care is expensive and if you plan to continue working after you have a child, you will need to plan ahead for child care costs. In 43 states and the District of Columbia, the average price of center-based care for an infant exceeds 10% of the state median income for a married couple with children, according to a 2019 report from Child Care Aware of America. Whether you are planning on having one parent stay at home or both work full-time, you will need to adjust your budget accordingly. Health Care Costs Many health care plans will cover baby visits under the Affordable Care Act; however, babies are prone to childhood illnesses, and it is important to budget additional money for unexpected trips to the doctor’s office and medication. If your children have allergies, you may end up paying more for formula, or need additional services or therapies if there are complications. Building up a cushion, as well as an emergency fund, can make managing these expenses easier in the long run. Insurance Changes Adding your child to your health insurance policy is typically the most affordable option when it comes to insurance. You have 30 days from the day your child is born to do this, ensuring everything from the birth is covered. For your first one or two children, it generally means that the increase in monthly premium will reduce the amount of your take-home pay. You can estimate your new paycheck using an online calculator so that you can adjust your budget accordingly. The U.S. Centers for Medicare & Medicaid Services offers an online tool that lets you input your income and the number of people living in your home, and then calculates which savings you qualify for. Saving for College You should start setting aside money to cover college costs as soon as you decide to have a child. According to the Federal Reserve, 42% of those who attend college have incurred some debt from their education (as of May 2018), and in recent years, student loan debt has become the second-highest debt category for consumers. Getting out of debt may take priority over this for a short time, but saving for college through a 529 plan or a similar tool can help your child get off on a solid start without accumulating a lot of debt. The earlier you begin saving, the better the outcome will be for your child. Life Insurance Needs Once you start a family, it's important to make sure you have life insurance. Both parents should have a life insurance policy in place to help cover expenses if one of you were to die unexpectedly. Plus, some life insurance policies are large enough to cover the cost of college. Even if you are not working, you should consider adding a life insurance policy to help defray the additional costs of child care. Changes to Your Taxes There are several tax benefits to having a child. When tax season comes around, you can claim an additional person on your taxes, and may be able to claim a portion of expenses from both the child tax credit, and the child and dependent care credit. Note When you have a child, you may want to change the withholding amount on your check. Use the IRS withholding calculator to determine if you should change the amount you are currently having withheld or speak to an accountant. Adjusting Your Flexible Spending Account If your job offers a flexible spending account, you should take advantage of it, as you can have additional money withheld to cover the cost of day care expenses. You and your spouse can each do this at work, and it will make some of the expenses come out pre-tax, lowering your taxable income. Housing Changes With more children comes the need for more space. Take time early on before having children to plan for the additional costs involved with having a child and determine just how much you can afford to spend on a new house. Once your children are school-age, you may want to move to an area with a good school district, which often equates to living in a more expensive area. Changes to Your Budget Your budget may change quite a bit as you plan for additional monthly costs like baby food, formula, and diapers, so it's important to plan in advance. Funding in other categories may need to increase as well, such as clothing or entertainment costs, and also educational resources such as a tutor or music lessons. Taking the time to start planning for those things now will make it easier to adjust as your children get older. Note There are various ways to allocate your budget accordingly. One highly recommended method is the 50/30/20 rule, or you may also consider using digital apps to keep up with your spending habits. Ongoing Lifestyle Changes There may be additional costs and lifestyle changes that you will need to account for, as things like taking a vacation or how much time you spend on hobbies will change. Some expenses also increase with time because you have an additional person — for example, buying an extra plane ticket when you go on vacation or additional food when you go out to eat. These changes may be minimal at first, but it is important to plan for them, as they can add up and have a large impact. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Child Care Aware of America. "The US and the High Price of Child Care: An Examination of a Broken System," Page 13. U.S. Centers for Medicare & Medicaid Services. "What Marketplace Health Insurance Plans Cover." U.S. Department of Labor. "Protections for Newborns, Adopted Children, and New Parents...The Newborns' and Mothers' Health Protection Act of 1996." Federal Reserve. “Report on the Economic Well-Being of U.S. Households in 2017 - May 2018.” Federal Reserve Bank of New York. "Quarterly Report on Household Debt and Credit," Page 3. Internal Revenue Service. "Topic No. 602 Child and Dependent Care Credit." Internal Revenue Service. "Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans," Page 16-18.