As you prepare for life with your new child, it’s time to prepare a new financial plan for your family or make any necessary changes to your existing plan. You’ll want to consider how your baby will affect your budget, make sure you have adequate insurance, protect your child’s future with a well-thought-out estate plan, and determine how having a child will affect your income taxes.

Budgeting for baby: Develop a new spending plan

The birth of a child is an opportunity for you to set up a new budget or review an existing one. You’ll have to consider the impact that your child will have on your living expenses as well as account for any shift in income that might occur if you decide to quit your job. You’ll also need to save more money to ensure that your family has money to meet its future needs.

Expenses that typically increase when you have a baby

  • Your grocery bill: Diapers and formula (you may use some even if you’re breast-feeding) are very expensive. Later, when your baby turns to solid food, you’ll have to figure in the cost of baby food.
  • Your housing costs: If you don’t already live in a house or large apartment, you may find yourself moving once your baby gets old enough to take up a lot of space with toys and equipment.
  • Your transportation costs: If you have a small car or a two-seat convertible, you may find it difficult to fit in a car seat, and you may need to buy a new car. Or, if you have an old car, you may want to buy something more reliable now that you have to worry about your baby’s safety.
  • Your clothing and household expenses: You’ll find yourself spending less on yourself and more on your child now that your budget has to stretch. You’ll spend a lot initially to buy essentials for your child and then spend a bit more each month than you’re used to for items your child needs.
  • Medical expenses: You’ll probably pay a co-payment for each of these trips unless your health insurance plan covers 100 percent of well-baby care. Your health insurance premium will likely dramatically increase as well, unless you already had family coverage for you and your spouse.
  • Cost of child care: Whether you look for full-time day care or hire an occasional baby-sitter, you need to plan for the impact this will have on your budget.

Initial expenses

The initial outlay for your baby can be quite high. You’ll have to equip your home with baby furniture, a stroller, a high chair, an infant seat, a car seat, bedding, and clothing, among other items. You could spend well over $1,000 equipping your home with just the basics, and many new parents spend a lot more.

However, when you’re shopping for the baby you’re expecting, try to separate emotion from need. Of course, you want your baby to have the best, but you don’t really need the best in most cases. Your baby won’t look any cuter in an expensive crib, and many parents can tell stories about the top-of-the-line stroller they purchased and then found was too heavy to push easily. The best way to proceed is to ask other parents for recommendations, then shop around. Usually, you don’t have to sacrifice quality and safety to save money. If you start shopping far enough ahead, you can find good deals in discount stores, department stores, and superstores. You can also look for items in thrift stores, consignment shops, and yard sales, although finding clean secondhand items in good condition can be a challenge. Ask friends and relatives, too, if you can borrow baby items that they’re not currently using. If your friends are throwing you a shower, ask for items you need.

TIP: Don’t buy more than you initially need for your baby, because you may find that what you thought you needed, you really don’t. In addition, your friends and relatives may shower you with gifts once the baby is born, and you won’t need to buy as much as you thought you would. In particular, don’t go overboard buying clothes until you can gauge how rapidly your baby will grow. One thing you definitely should buy is a car seat. Many hospitals won’t let you leave without having one, although they may loan you one temporarily.

Costs of day care

The cost of day care will depend on where you live, how many children you have in day care, how old your children are, and what type of child care you choose.

Saving for education

It’s wise to begin saving for your child’s education as early as possible. There are several ways to do this. You can begin by depositing a certain amount every month into a savings or money market account, contribute to a college savings account, purchase Series EE bonds (may be called Patriot bonds), or take advantage of a wide variety of other investment vehicles.

Saving for emergencies

If you don’t have an emergency fund, now is the time to set one up. If your child gets sick, your car breaks down, you need to move unexpectedly, or you lose your job, you can dip into your emergency account. An emergency account should normally contain an amount that equals three to six months’ worth of living expenses.