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Planning Finances & Savings for Your New Baby Arrival

July 17, 2023
A happy couple.

Raising children is one of the most rewarding — and expensive — endeavors you can undertake. Whether you are a first-time parent, a single parent, or a grizzled veteran of parenthood, planning finances for a new baby is critical.

As you prepare for your new child’s arrival, it’s key to ensure they can get everything they need, when they need it. But while you address everyday needs, such as providing your child with food and clothing, try not to lose sight of the major investments and expenses — like healthcare, childcare, and education — that come later.

Advice for New Parents

For first-time parents, it’s easy to get overwhelmed with all the advice coming your way. Your friends, family, and co-workers are coming from a good place. But if you are stressed, worn out, or feel like they are feeding a bunch of noise into your head, here is a checklist to help you get organized:

  • Get adequate health insurance for your baby (if your child needs coverage, the government-backed Children’s Health Insurance Program may be an option)
  • If you have good health insurance already, additional benefits — like getting a free car seat or deals on breast pumps — might be available when you add your child
  • Prioritize savings and building up an emergency fund
  • Start planning for childcare and what that may cost you
  • Begin saving for your child’s education, if possible
  • Don’t stop funding your retirement
  • Look into tax breaks and other financial incentives, including employer-sponsored flexible spending accounts (FSAs)
  • Adjust your will and beneficiaries (if you don’t already have a will, now is the time!)

Savings, Savings, Savings

If you haven’t started saving, don’t delay. Even if your family has good health insurance, most parents can’t rely solely on disposable income to pay for the onslaught of bills coming their way. Also, time off is not always paid for by an employer, or in some instances you may receive reduced pay while on maternity leave or bed rest. A good rule of thumb is to have an emergency fund established, consisting of 3-6 months worth of living expenses saved up, so that you are able to handle any big bills that come your way. Having a good health insurance plan for your child can spare you some big bills, but you shouldn’t rely solely on that coverage to keep your family finances in good shape.


Another part of planning is understanding the cost of newborn and infant care. According to the Economic Policy Institute, Washington, D.C. is the most expensive district, territory, or state in the nation for childcare — costing more than $24,000 per child a year. Massachusetts is one of the most expensive states, with a figure just shy of $20,000 annually. The least expensive? Alabama and Mississippi, costing roughly $5,400 and $6,000 per year, respectively.

From as early as 12 weeks, you may need full-time childcare, and following that you will likely need some after school care. Consider low and no cost options, such as parents or friends, to supplement the high cost of professional childcare. You will likely need to do a bit of math to balance your family’s circumstances with what’s affordable. For example, if you have a spouse, and you are both employed, it may be practical for one of you to stay home and provide full-time care to your child.

Eventual Education Needs

College is also pricey, but you have a lot more time to prepare for that mega-expense. A standard indicator is that the cost of college increases at roughly double the rate of inflation each year, which means it’s ideal to save and plan ahead. It’s also good to keep in mind that interest earned now from a savings account is much better than the interest you pay later in the form of student loans.

Coverdell Education Savings accounts, formerly known as education IRAs, are a great option. These tax-free savings plans can be set up for a minor child to save and later pay for their qualified education expenses. State-sponsored 529 plans are also popular, especially since these funds may be used at any accredited college or university nationwide.

Don’t Forget About Your Own Needs

While it’s great to want to help pay for your child’s college education, try not to lose sight of your retirement plans. It might be tempting, but don't stop contributing to your 401k. If you consistently add and treat the funds as if they aren't accessible, you won't have to struggle to make up for the funds later in life. By avoiding shifting your money early, it may help prevent you from running into financial hardship at a later date.

More Advice for New Parents

In addition to exploring potential tax breaks and other financial incentives, like setting up an FSA account through your employer, there’s also budgets to figure out. Start planning how much food, diapers, clothing, toys, etc. will cost, and you will need to draft or update any estate planning documents.

For estate planning, it’s best to consult a lawyer. They can help you determine power of attorney matters, and who you want to become your child’s guardian if you, and you have one, your spouse, pass away. You may also want to consider taking out a life insurance policy on your child.

DCU Makes Planning Finances for a New Baby Easier

Parenting has its challenges, but Digital Federal Credit Union has resources available to help make planning finances for a new baby easier. For example, if you want data for college costs, we offer a self-help tool that serves as a college savings calculator. Our not-for-profit credit union also offers Coverdell Education Savings accounts, which is a great, tax-friendly way to start saving for your child’s education. You can also get a Primary Savings accounts from DCU, which comes with high-paying dividends and no monthly fees.

Please note, membership is required to open a DCU Savings Account. Visit our membership eligibility page for more information.

This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.