How to Budget for a New Baby

Bringing a new baby into the family is an exciting and joyous experience. However, it also comes with significant financial responsibilities. Many new parents are not fully prepared for how a baby will affect their monthly budget. Planning can help take some of the stress out of managing your finances during this life-changing event.

The Importance of Budgeting for a New Baby

A baby’s arrival can impact your finances more than you might expect. According to a study, the cost of raising a baby during the first year can exceed $21,000, and the expense grows as your child gets older.

The average American family’s savings are often not enough to cover these additional costs. Many families save with general goals in mind. However, a new baby requires specific financial planning to cover both one-time and ongoing expenses.

The Financial Impact of a New Baby on the Average American Family

The financial impact of a baby varies based on factors like location, lifestyle, and individual needs. For example, delivery costs can range from $8,000 to $20,000, depending on where you live and your insurance coverage.

Even after birth, you will face regular expenses such as diapers, formula, and childcare. Diapers alone can cost over $1,000 annually, and if you choose formula, it adds even more to the monthly expenses.

In addition, childcare is often one of the most significant expenses. Depending on your area, the average cost of daycare can be nearly $10,000 per year, with in-home care costs potentially reaching over $28,000. It is easy to see how quickly these expenses add up, which is why creating a solid budget before the baby arrives is crucial for your family’s financial health.

Understanding the Expenses: How Much Does a Baby Cost?

Having a baby comes with many expenses that can add up quickly. To be financially prepared, you need to understand the various costs involved.

How Much Does a Baby Cost in the First Year?

The first year of a baby’s life can be the most expensive. The costs include everything from medical bills and baby gear to diapers and food.

Let’s look at some of these expenses in more detail.

● Delivery and Medical Bills: Medical expenses are often one of the biggest costs. In the United States, the average cost of delivery ranges depending on location and insurance coverage. In 2020, it was $8,361 in Arkansas and $19,771 in New York. Many parents do not realize the impact these medical expenses have on their budget until after the baby arrives.

● Baby Gear: This category includes essentials such as a crib, stroller, car seat, and high chair. Prices can vary greatly depending on your preferences. For example, a stroller and car seat combo can range from $150 for a basic model to over $1,000 for high-end brands. If you want to save, consider purchasing gently used items, except for the car seat, which is safer to buy new.

● Nursing and Feeding: Feeding costs depend on whether you choose to breastfeed or use formula. For breastfeeding parents, there may be costs for items like a breast pump, bottles, and nursing pillows. Formula feeding can add up significantly, with formula alone costing around $150 per month. When you add other feeding-related items, the total cost can easily reach $2,000 in the first year.

● Diapers and Wipes: Most babies use six to ten diapers per day, which means a yearly total of approximately 3,500 diapers. This expense can cost at least $1,000, plus another $450 for wipes. The monthly cost for diapers and wipes combined can average around $120.

● Clothing: Babies grow quickly, so you may find yourself buying new clothing frequently. According to the USDA, new parents should budget between $670 and $1,110 for clothing in the first two years, which breaks down to around $56 a month.

● Medical Costs: Wellness visits, immunizations, and potential illnesses mean ongoing medical costs for your baby. Even with insurance, out-of-pocket expenses can add up quickly.

How Much Does a Baby Cost Per Month?

Now that you know the annual costs, let’s break it down to see how much a baby costs per month. The monthly expenses can vary, but most parents will spend several hundred dollars each month.

Here is a basic breakdown:

● Childcare: If both parents work, childcare is often the largest monthly expense. The average cost for in-center childcare is around $10,000 per year, which comes to about $833 per month. Hiring an in-home nanny is even more expensive, averaging about $28,350 annually or over $2,300 per month.

● Diapers and Wipes: As mentioned earlier, expect to spend approximately $120 per month on diapers and wipes.

● Food: If you are formula feeding, you will likely spend around $150 each month on formula. As your baby starts solid foods, the monthly food costs will increase. For breastfeeding parents, the costs may be lower. However, there could still be expenses for bottles, storage bags, and other feeding supplies.

● Miscellaneous Expenses: This category includes various items like baby toiletries, toys, and other necessities that might pop up unexpectedly. On average, these can add another $75 to $100 to your monthly budget.

Budgeting Strategies for Future Parents

It is easy to feel overwhelmed when you start thinking about the costs of raising a baby. But the good news is that you can take control by creating a solid plan. Budgeting for a baby involves looking at your finances, setting priorities, and planning for unexpected expenses.

Here are some strategies to help you get started.

Setting Up a Baby Budget

The first step in learning how to budget for a baby is to break down your income and expenses. One popular method is the 50/30/20 rule. This strategy divides your income into three categories:

● 50% for essential needs like rent, utilities, groceries, and baby-related expenses such as diapers and formula.

● 30% for non-essential wants, such as entertainment, dining out, or family activities.

● 20% for savings, investments, and paying off debts.

Begin by listing all the necessary baby expenses. Include items like diapers, formula, clothing, medical bills, and childcare costs. Then, compare these expenses with your monthly income. This will give you a clear picture of how much you need to set aside each month to cover baby-related costs. To make the budget work, you should cut back on some non-essential spending.

Also, consider future expenses. For example, daycare might not be necessary during the first few months if a parent is taking time off work. However, it can become a significant expense later on. Planning for these future changes will help you avoid financial surprises.

Planning for Unexpected Costs

Unexpected expenses are a natural part of parenting. Babies get sick, and they grow out of clothing faster than you might expect. Preparing for these surprises can prevent financial stress down the road. One way to plan is by building an emergency fund. Start by setting aside a small amount each month. Over time, this fund will grow and be a safety net for medical bills, repairs, or other unforeseen costs.

Another key to handling unexpected costs is to practice living on a lower income before the baby arrives. This helps you get used to spending less and allows you to save more. Set aside the income of the parent who might take unpaid leave or reduce work hours. This practice not only helps build your savings but also prepares you for the change in lifestyle.

Finding Savings and Cutting Costs

Now, let us explore ways to save. First, think about buying gently used items like clothes, furniture, and baby gear. Babies outgrow things quickly, so there is no need to splurge on new items all the time. Additionally, sign up for store rewards programs and look out for sales to get discounts on essentials like diapers and formula.

The Role of Savings Accounts

Savings accounts play a crucial role in your financial plan. They offer a secure place to store money that you can access when needed. We recommend setting up a dedicated savings account specifically for baby-related expenses. This way, you can separate these funds from your regular spending and track your progress more easily.

At UMCU, we offer a variety of savings options, including Certificates of Deposit (CDs) tailored to fit your financial goals. Our CDs range from 6 months to 5 years, allowing you to select a term length that aligns with your needs. With a low minimum deposit of $500, it is easy to get started. Plus, balances over $10,000 earn even higher interest rates, helping you grow your savings faster.

Utilizing Financial Tools and Resources

In addition to traditional savings accounts, UMCU provides other tools to help you save for your baby’s future. Our Save Towards a Goal calculator is designed to help you set specific financial goals, whether it is building an emergency fund or saving for your child’s education.

Lastly, do not overlook employer benefits and tax credits that can ease the financial burden. Some employers offer parental leave, childcare assistance, or flexible spending accounts (FSAs) for healthcare and childcare costs. Taking advantage of these benefits can help you save even more, allowing you to focus on what matters most: welcoming your new baby into the world with less financial worry.

Tips for Long-Term Financial Planning

Planning for a baby goes beyond the first year. It requires thinking ahead and preparing for the many expenses that come as your child grows. Here, we will look at some strategies to help you build a solid financial foundation for the future.

Planning for Future Expenses

As your child grows, so do their needs and expenses. After the baby stage, you might have to think about daycare costs, education, extracurricular activities, and even unexpected expenses like medical bills. By planning early, you can start saving for these future costs. For example, setting up a college savings plan, like a 529 plan, can help ease the burden of future tuition fees.

Another smart move is to anticipate costs that will come up as your child reaches certain milestones. When your baby becomes a toddler, you will need to budget for new clothes, toys, and learning materials. Later, you will need to consider school supplies, sports gear, and perhaps even a family car with more space. All these changes can be easier to manage if you plan for them well in advance.

Reassessing and Adjusting the Budget Over Time

Budgeting for a child is not a one-time task. Your financial situation and your child’s needs will change, which means your budget needs to be flexible. Take time every few months to review your budget. Check if you are meeting your savings goals and if your spending aligns with your plan.

Life can be unpredictable. Maybe your child starts needing extra medical care, or you decide to enroll them in music lessons. By reassessing your budget, you can make the necessary adjustments without feeling overwhelmed. For example, if you find that your grocery or childcare costs have increased, look for areas where you can cut back or adjust.

Utilize UMCU’s Free Financial Counseling 

The financial education team is able to provide free one-on-one counseling sessions so you can get a better grasp on your finances. To learn more, visit our financial education page (link to fin. Ed page) or schedule a visit here (link to appointment scheduler).