How to save money for a baby on the way

Many parents-to-be wonder about the costs of raising a child. A recent USDA report found that the average cost of raising a child to age 18 is $233,610.¹ That may be hard to wrap your head around, but with some planning, you can be better prepared for life beyond delivery day. Here's a baby-on-a-budget checklist with 9 things to keep in mind, 1 for each month of pregnancy.

You might not think about baby showers when creating your newborn baby budget. But with car seats costing anywhere from $80 to $400 and strollers costing between $100 and $1,000,³ it’s easy to see why asking friends and family to pitch in can make a big difference. Even gifts of everyday items can help a whole lot. Must-haves like diapers, which cost between $0.17 and $0.31 each,² can add up fast.

Some stores even offer discounts on items you don’t receive, so you can save on everything, whether it’s gifted to you or not. In the end, showers are a time for you to share your excitement with everyone you love—but if you pick up some necessities along the way, you’ll be that much more prepared.

It pays to know the details of your insurance plan. If you choose a hospital and pediatrician that are in your network, you probably won’t pay anywhere close to those amounts out of pocket.

Another way to lower costs is to find out if your employer offers a Health Savings Account (HSA). These accounts work with your insurance to help cover the cost of larger medical expenses. HSAs can be helpful if you’re budgeting for a baby because they let you set aside money before it’s taxed to pay for certain expenses.

Beyond baby showers, your friends and family can affect how you budget for a new baby with hand-me-downs. Think about people in your life who've had a baby in the past year or so and ask if they have anything they’d like to pass on.

Derek, a new dad in Texas, said, "Hand-me-downs were huge when we brought our daughter Tessa home. It was just one less thing to think about." In most cases, everyone wins with hand-me-downs. You get lots of animal-printed onesies; your friend gets rid of lots of animal-printed onesies. Before you know it, you might be passing them on to another new parent so they can save for other things, like the next item on this list.

Nearly 85% of families report spending 10% or more of their annual income on childcare.³ Of course, the cost of childcare varies depending on what type you choose. For example, the average weekly cost of center-based daycare for an infant is about $340, and the average weekly cost of a nanny who cares for one child is about $612.³

Sometimes, it makes financial sense for one parent to stay home instead of entering the daycare shuffle. It’s a personal choice, so let your budget and your preferences guide you. It may help to explore your options during pregnancy instead of after delivery day. That way you can focus more on your baby and less on where they’ll be going after your time off is over.

After your child is born, you’ll get to experience a lot of firsts—including filing your taxes for the first time as a parent. While this may not be as exciting a milestone as walking, talking, or counting to ten, it can actually save you some money.

In 2021, the Child Tax Credit is $3,600 for children under 6, and $3,000 for children 6-17 years of age.⁴ Since this is a credit, not a tax deduction, it reduces your tax bill dollar-for-dollar, freeing up cash you could use for the next 2 items on this checklist: saving for college and opening a savings account for your child.

Much like retirement, the earlier you can start saving for college, the better. Spreading such a large expense across many years can really make things easier on graduation day. And with the average annual cost of college coming in between $4,000 and $40,000,⁵ it can be a pretty big expense.

To get ahead, you might consider prepaid tuition plans and 529 savings plans. Prepaid tuition plans are exactly what they sound like: sponsored programs where you can prepay for credits toward participating colleges and universities. These plans cannot be used for anything other than tuition, which is why some people prefer 529 plans. They can be used for "qualified higher education costs," which can be anything from tuition to room and board. Whichever way you go, you can start saving before your child is even born as most plans give you up to 6 months to add a Social Security number.⁶

If you have the itch to save for your little one, but want more flexibility than a college savings plan, you can open a savings account along with your son or daughter. Getting started can be simple. Do some shopping around for a joint savings account that fits your needs best, comparing things like annual percentage yield (APY), fees and how flexible you want the funds to be.

In order to open this type of joint account, you’d likely need to list yourself as a co-signer along with your child and provide personal information for both of you, such as your birthdays and social security numbers.⁷ If you’re able to contribute regularly, that account can grow right along with your baby for years to come.

Since you’re adding another life to your family, you may want to explore life insurance. Think about your current expenses and how much money your family would need, month over month, if you weren’t there.

Annie, a new mom in New Jersey, said, "I hadn’t thought that much about life insurance until I had my first baby, but now if I didn’t have it, I’d be worried." Just remember, you're budgeting for your baby now, so you may need a little padding. The average cost depends on a number of variables, but here’s a ballpark figure: A 40-year-old could pay an average of $27 per month for $500,000 worth of life insurance with a 20-year term.⁸ That may offer some serious peace of mind for your whole family.

As you think about how to save money for a baby on the way, you may be tempted to press pause on your retirement savings. After all, retirement may feel very far off. But consider the big picture before cutting back on your long-term savings goals.

Think about it like this: Your retirement nest egg can help ensure you'll be comfortable even after your kids leave the nest. Sticking with your own savings plan––consistently––will not only help prepare you for life after full-time work, it’ll help set a great example for your little ones.

Sure, the real return on investment when it comes to parenting is in the laughs, hugs and countless memories. But preparing financially can go a long way toward those everyday, real-world expenses. Start planning your newborn baby budget now and you might just have a bundle saved before your bundle of joy arrives.