5 Smart Money Moves to Make Before Baby, According to Financial Advisors

Amidst the joy of folding what feels like a thousand tiny onesies, making a registry, and decorating the nursery, having a child forces you to wade into potentially uncomfortable territory, like creating a budget and making a will. While it can be a bit of a buzzkill when you’d rather be nesting, you can think about getting financially ready as one of your first acts of parenthood—preparing your child to be safe and secure in the world. 

There’s no need to panic if you’re expecting (or your baby is here already) and you haven’t done much financial planning—you still have plenty of time.

“Once your baby arrives, your focus will be everywhere, so do as much advanced planning as you can,” says Akeiva Ellis, a financial planner and co-founder of The Bemused, a website that helps people make sense of their money. She adds that before her first baby was born six months ago, she took several steps to prepare financially, including thinking about a post-baby budget, maternity leave, childcare options and ensuring her health insurance would cover prenatal and postnatal needs.

If you’re unsure where to start, we’ve got expert tips from financial planners (who have recently had kids) on how to prepare financially for your new addition.

1. Make a Budget For Life Post-Baby

It’s important to consider the cost of one-time big purchases, like strollers and car seats, but don’t lose sight of ongoing expenses that really make a difference over time.

A post-baby budget includes first-year costs (that’s where you factor in those big one-time purchases like baby gear), childcare costs and any income changes due to parental leave. Here's a plan for making a budget for your family (pssst...there are budgeting apps that can make it easier to tackle).

You’ll also want to consider future expenses as you budget and plan.

“A common mistake people make as they prepare for the expansion of their family is forgetting about the big picture,” Sophoan Prak, CFP, financial advisor at Vanguard Personal Advisor, and mother to both a 16-year-old and a baby, says. “While expecting parents may be inclined to focus all their attention and income toward the short-term cost, it’s crucial they also think about and prepare for their long-term financial goals,” like college and their retirement. Having a budget helps you plan for your immediate future as well as the long-term.

2. Plan For The Cost of Birth Itself

Simply put, childbirth is expensive. The average out-of-pocket cost of childbirth in America is $2,854, and it’s over $3,000 for cesareans. Unsurprisingly, the cost of giving birth without insurance is even higher.

“If you plan to give birth at a hospital, consider shopping around and comparing expenses,” Prak says. “I found that some hospitals have online tools to input your insurance information and get an upfront estimate of out-of-pocket costs. I also recommend calling your insurance beforehand to better understand what’s covered, your deductible and other expenses.”

On a personal note, I called and asked for a discount on my hospital bill after giving birth to my son in 2022, and the billing department took 15 percent off my total, no questions asked.

It seems obvious, but it’s also important to verify that your insurance covers prenatal and postnatal care and what it will look like to add a child to your insurance. The baby is generally covered as an extension of the mother for the first thirty days of life.

3. Make a Will & Estate Plan

Maybe you think you don’t need a will because you don’t own property or have much to pass on. But a will and/or an estate plan (which often includes a will but also has other documents that dictate what will happen to property) also designate guardians and manage assets for your child's benefit, Ellis says. Without a will, the court or state will decide who gets custody of your child.

If you have the means, Ellis recommends hiring an estate planning attorney with the expertise to “ensure that your will is valid in your state, complies with all applicable laws and is drafted to achieve your family's goals effectively.” Plus, it can be nice to have a human interaction when talking about something so vulnerable and personal.

However, hiring a lawyer can be prohibitively expensive (or just something you’d rather not spend money on), and several online tools and software can help you create a will and other estate planning documents at a more affordable price. In fact, Ellis and her husband used an online platform called Trust & Will. "Our situation isn’t particularly complex, so we didn't feel the need to hire an estate planning attorney, which would have cost significantly more,” says Ellis.

4. Purchase Life Insurance

Life insurance may not be top of mind with a new baby on the way. But it’s an important step that can give you peace of mind.

“The impending birth of a child is an excellent time to reassess how much life insurance you need,” says Ellis. “For instance, while my husband and I could probably manage with a few hundred thousand dollars worth of life insurance when it was just the two of us, now that we have a child, we need to ensure we have enough coverage to take care of our child should something happen to either or both of us.” 

She adds that it’s important to think about the lifestyle you’d want for your kid in the future. Ask yourself questions like:

• Do you want to finance their college education? 

• Is there a specific property on which you want the mortgage paid off so your child can inherit it?

• Do you want them to be able to pay off any debt you’ve left behind immediately?

It can be daunting to think about how much to take out (especially as it’ll become another line on your monthly budget). Still, Ellis says if you’re looking for general guidelines on how much to take out, multiply your income by 10 and add some padding for college expenses and debt. 

That approach may not be tailored or nuanced enough for you, so she adds that online calculators “can help you consider all the variables and determine the right amount of coverage for your needs.”

5. Open a 529 Plan

A 529 is a savings plan designed to encourage saving for future education costs. Earnings grow tax-free, and withdrawals are tax-free when used for qualified education expenses such as tuition, fees, books, and room and board.

“While I didn’t open a 529 plan during my pregnancy, I took that step soon after my daughter was born,” Ellis says. “My state incentivizes parents to do this by contributing $50 to any child's 529 account that's born in the state. Opening a 529 plan early can be beneficial because it allows more time for the investment to grow and can help ease the future burden of education costs.”

If you’re worried that your child may not end up going to college, as of 2024, funds from 529 accounts can roll over into Roth IRAs to be used for retirement (though some limitations apply).

You can also encourage family members to contribute to the plan if they’d like. Specific 529 plans also lock in current tuition rates at some schools.