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5 Money-Saving Tips for Baby's First Year—According to Financial Experts
Updated on
July 11, 2024

5 Money-Saving Tips for Baby's First Year—According to Financial Experts

By Casey Clark | Fact Checked by Amylia Ryan
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5 Money-Saving Tips for Baby's First Year—According to Financial Experts.

There’s no denying that having a baby can be a joyful experience filled with love and excitement. But as with nearly everything else in life, babies also come with a price tag. According to LendingTree, the average annual expenses required for a baby’s first year (like food, clothing and childcare) totaled $21,681 in 2021—a 19.3 percent jump from $18,167 in 2016. 

That number might seem overwhelming at first, but there are ways you can cut down the cost of raising a baby in the first year. 

To help, we spoke with financial advisors and wealth management experts about some tips to save money during baby’s first year, from utilizing tax credits to investing into savings plans for help down the road. 

Take advantage of tax credits 

Having a baby can affect your taxes, including how much you get back from the government. When it’s time to file, the Child Tax Credit (CTC) helps families with qualifying children get a tax break even if they don’t normally file a tax return.

“This credit offers up to $2,000 per qualifying child, and your child must be under the age of 17,” says Dave Fortin, chartered financial analyst (CFA) and co-founder of FutureMoney. “You can claim the credit for your biological child, adopted child, foster child, grandchild or niece/nephew whom you live with and provide care for.” But keep in mind that having a dependent isn’t the only thing you need to qualify—there are income requirements too, Fortin says. You need to make under $200,000 if you’re married and filing separate returns, or $400,000 if you’re single or filing a joint return.

For 2023 and 2024, up to $1,600 of the credit is refundable, meaning you can get a check from the IRS even if you don't owe taxes.

Open a Dependent Care Flexible Spending Account 

A Dependent Care Flexible Spending Account (DCFSA) is a pre-tax account offered by some employers that can be used to pay for things like daycare, preschool, summer day camp and after school programs. During baby’s first year, using your DCFSA might come in the form of paying a nanny or daycare center when you go back to work or paying for a one-time or as-needed babysitter when you need a night out.

“This program allows you to use pre-tax dollars to pay for eligible dependent care expenses, which means you pay less money in taxes and take home more of your income,” says Ashley Russo, wealth management advisor from Russo Wealth Management. 

Since you don’t owe taxes on the income you put into the spending account, you can save up to 30% on the cost of childcare, according to Fortin.

A DCFSA works for all kids under age 13, and also for kids of any age with disabilities. “The annual maximum contribution is $2,500 if married and filing a separate tax return, or $5,000 if married and filing a joining tax return or if you file as a single or head of household,” Fortin says.

You can sign up for a DCFSA through your employer, but not all employers offer it. If yours does, there are specific windows in which you can enroll, such as within 60 days of your start date or during your employer’s open enrollment period.

Utilize hand-me-downs 

If your friends and family have older children who’ve grown out of their baby clothes and used baby gear, then it’s worth it to see if you can take these off their hands for your own little one. More often than not, they’ll be happy to pass these essentials on to help you out, and it’s a great way for you to save money on baby gear

Let’s say you get a hand-me-down swaddle—that’s $30 you could use toward diapers and formula instead. As the saying goes: think smarter, not harder, especially when it comes to those items your baby will need in the first year.

Look into buy-nothing groups 

Whether you live in a big city or a small town, it’s likely that your community has a buy-nothing group. Usually found on Facebook and other social media sites, people from a certain area will list items they’re looking to lend or give away free of charge. In some cases, you may find simple items like toys and old bedtime stories, but other times you may hit the jackpot with postings about diaper bags, baby bottle warmers, bassinets and other big-ticket baby essentials. 

Most people involved in buy-nothing groups are doing so in the spirit of giving, so if you take or use something, try to return the favor—whether that’s listing something back up when you’re done or adding something new to the roster.

Try to shop on major holidays 

Whether you’re looking for a car seat, a high chair or teething toys, it’ll be in your best interest to try to shop for these items on major holidays. 

For example, wait until Amazon Prime Day, Cyber Monday or Memorial Day Weekend to buy these baby essentials, since you can usually find massive sales on these items. If you can’t wait, then browse the sale and clearance pages of your favorite brands to see if they’re having any promotions or discounts during other times of the year. 

Take advantage of grocery deals

One of the biggest expenses for any family, especially those with a baby, is groceries—from formula and food to diapers and wipes, the cost of these daily essentials can add up. Many grocery stores will still send coupons and catalogs in the mail that you can use to save on products, while others stores like Publix, Target, Walmart and Safeway have turned to mobile apps to alert shoppers of current deals and offers. 

Many brands themselves may also offer coupons and discounts when you sign up for mailing lists and rewards programs, so you’ll want to keep an eye on that too. Some of our favorites include Pampers Club, MySimilac Rewards, Enfamil Family Beginnings and MyGerber.

If clipping coupons isn’t your thing, then you might want to consider signing up for a wholesale store like Costco or Sam’s Club. Not only will you be able to buy diapers, formula and other baby essentials in bulk, but you’ll also save big bucks in the process. 

Consider lower-cost childcare options

While your job may give you maternity leave upon having a baby, that only lasts for so long—and you’ll likely need to find another form of childcare for some additional help once you return to work. Traditional childcare can be expensive, but there are also some low-cost childcare options such as nanny shares, co-ops and in-home daycares that generally have lower rates and tuition costs. 

If you’re (very) lucky, you might even have a friend or a relative who can help out pro bono. It’s definitely a perk, but you can’t always rely on them to be around at a moment’s notice, so a backup plan is necessary.

Consider investing in a 529 plan 

529 plans are tax-advantaged investment accounts designed for education savings (college, K-12 tuition and apprenticeship programs). They won’t save you money in the here and now, but they will save you money in the long run. You may even be eligible for state tax benefits with your child’s 529 plan, depending on the state you live in. 

“The main benefits to using a 529 are that earnings in your account accumulate tax-free, and you don’t have to pay federal income taxes on withdrawals as long as the money is used to pay for qualified education expenses,” Russo says. 

This account can be transferred to any family member, and there’s no limit to how much you can contribute per year. Just keep in mind that if you contribute more than $18,000 in one year, it’ll count against your lifetime limit for estate and gift tax exemption.

There is a total limit for 529 plans, though. Each state has a different lifetime contribution limit (known as an aggregate limit) based on the high-end cost of a four-year university in that state, and the limits range from $235,000 to over $550,000, according to Russo.

Now that you have some insights on how to save money on a baby within the first year, it’s time to get started (if you haven’t already). Afraid to take the leap? Try downloading a budgeting app or meeting with a financial advisor for more tailored advice. 

Casey Clark

Casey Clark is a freelance writer from NYC.

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