Budgeting for a New Baby: Ongoing and One-Time Expenses

The arrival of a new baby can be both exciting and financially overwhelming. A tiny new baby can mean big changes and major expenses for new parents. How much money can you expect to spend on your little one in the first year? What financial tools should you consider creating? Here we'll show you how to financially prepare for your family's newest addition before they arrive.

One-Time Expenses

In this scenario, we look at the first baby. That means starting from scratch in many areas such as furniture, strollers, and cribs. There is, of course, also the one-time medical expense of delivering a baby in the United States. As we'll see, this expense is by far the hardest to pin down in any meaningful way.

Medical Bills

In the U.S., the average new parent with insurance coverage can expect to pay almost $14,000 for their labor and delivery, according to a 2020 research article published by the Healthcare Cost Institute. Vaginal deliveries can cost from $7,000 in Arkansas to $17,000 in New York. Interestingly, out-of-pocket costs also exhibited a wide range, from $1,000 in D.C. to $2,400 in South Carolina. (2017 was the most recent year for which data was available.)

It is important to remember that the cost of routine birthing care is highly variable based on your location and insurance coverage. If you have an insurance policy, review it to determine your out-of-pocket costs for prenatal care, hospital stay, tests, and postpartum care. Unfortunately, it's nearly impossible to accurately predict how much you'll pay without reviewing the health coverage you have available to you.

Baby Stuff

The one-time purchases for babies are as variable as medical costs but for different reasons. This category can go up exponentially depending on the wants of the parent.

Travel Needs

To get out and about you will most likely want to purchase a stroller, an infant car seat (required by law), a baby carrier, and a diaper bag. If you plan on being out a lot, a portable playpen and/or bassinet may make sense. Like many of the things on this list, there is a wide range of costs.

Buying an adapter, snuggle bags, and another option for some brands of strollers can be a $1,000 price tag without taking in the cost of the stroller itself. On the other end of that range, a seat and stroller combo can still be purchased new for under $150, and used equipment or hand-me-downs can fill in for all the others. It is worth noting that, at the very least, it is worth buying a new infant car seat. There is no foolproof way to ensure that a used one hasn't been compromised in a previous accident or through hard use.

Home Needs

To keep your child occupied, you may want to consider a portable swing, bouncy seat, play mat, and/or jump seat. You may also want to have a crib and/or bassinet, crib mattress, basic bedding with blankets, a changing table, a small dresser, a rocking chair, a monitor, and a diaper pail. Again, this is an area where personal preference dictates cost. Unlike car seats, everything is for use at home, meaning that you can buy it used or even acquire it through one of the many share and swap groups you'll find online.

Nursing and Feeding

Feeding costs for your new infant do, of course, vary like everything else based on your particular situation. A birthing parent who can stay at home and has no issues breastfeeding around the clock will see very minimal costs for months before a high chair and dishes are required. In that situation, some things like a breastfeeding pillow, burp cloths, or even a cape are more than enough.

If the parent will be storing breast milk for use, then items like bottles, nipples, cleaning equipment, and a single or dual breast pump come into play and your budget will increase. If breastfeeding isn't possible, formula feeding will add significant costs to your first year of parenting.

Adoption

For those interested in a non-biological child, adoption comes with its own set of expenses, including cash payments, medical assistance. The actual costs vary wildly but can go as high as $50,000 or more. Some employers offer adoption benefits such as time off or financial assistance. There are also government programs worth exploring.

Ongoing Expenses

Once your baby arrives, the regular expenses to care for your little one kick in. Factor the following costs into your budget.

Child Care

If both you and your partner will work after your baby's arrival, your single biggest budget item will be child care. Your child care costs vary by where you live, the age of your child, how much care you require, and what type of care you use. The Care Index pegs in-center child care costs at just under $10,000 per year. The average cost of a nanny or other in-home care is around $28,350 a year, but again that can be higher or lower based on location and so on. Keep in mind, though, some costs might be offset by various tax credits, such as the child and dependent care credit. Be sure to confirm if you are eligible.

Food and Other Necessities

Food, such as Gerber formula, clothing, and diapers make up most of the necessities in the ongoing costs. Once you begin feeding your child solid food, you can expect to spend roughly $100 a month. The early food costs for children are relatively small compared to what you will see from a teenager.

Clothing and Diapers

According to the USDA's most recent The Cost of Raising a Child report, it's advised that new parents should estimate clothing costs at around $670 up to $1,110 for the first two years. The amount ranges greatly based on personal preference and budget, but the lower end falls around $56 a month.

Diapers also vary in cost, but experts advise that you should budget at least $1,000 for diapers and $450 for wipes for the first year alone. That's approximately $120 a month. Parents who choose to use disposable diapers should also expect to go through as many as 3,500 diapers in their child's first year alone.

Making homemade cloth diapers out of repurposed fabrics (either fabrics you have on hand, or inexpensive fabrics found at thrift stores) is an option that would reduce diaper costs significantly.

More Medical Bills

Plan on six wellness visits the first year for evaluations, immunizations, etc., and a few additional visits for illnesses. Check your health insurance policy for your rates.

If One Parent Stays at Home

If you become a stay-at-home parent, there are important budget changes to consider. The most obvious is reduced family income. Despite the high cost of child care, the cost of one partner leaving an income behind to commit to full-time parenting can be much higher in terms of lost income, benefits, and investment.

Under the Family Medical Leave Act (FMLA), your employer may grant you up to 12 work weeks of unpaid leave for your baby's arrival. Here again, nothing is set in stone as small businesses do not fall under the FMLA. So check to see what type of leave you may qualify for with your employer. If you take unpaid leave, calculate your regular expenses during that period—mortgage, utilities, insurance, groceries, etc.—and determine how you will meet those costs.

This is compounded by diminished earning potential if that partner decides to resume their career. The decision to stay home can be personal or financial—at lower income levels, even government programs cannot balance the high costs in some regions. If it is for personal reasons, however, a couple can at least try the one-income budget before birth to get an idea for it while building an emergency fund with the second income at the same time. 

Financial Tools to Consider

With your child's arrival, you'll want to create financial tools to help provide for your child's future. Determine your priorities to begin budgeting.

College Savings Tools

According to the College Board Report, the average cost per year for college in 2021 to 2022 ranged between $10,740 to attend a public four-year in-state school and $38,070 for a private four-year education. Start saving now through one of several college education investment tools, such as a 529 plan, Coverdell Education Savings Account, or UGMA/UTMA account.

There have been some changes to the way some accounts can be used—namely the 529 plan. The Tax Cuts and Jobs Act (TCJA) of 2017 and the Setting Every Community Up for Retirement Enhancement Act (SECURE) of 2019 have expanded the use of 529 plans to include K to 12 education, apprenticeship programs, and the ability to pay down student debt.

The SECURE Act 2.0, passed in January 2023, offers another newly expanded benefit for 529 plans. It allows beneficiaries of these plans to roll over up to $35,000 from any 529 accounts in their name to a Roth IRA in their name over the course of their lifetimes.

Life Insurance

If you do not have life insurance, now is the time to buy it if you can afford to do so. For just a few dollars a month, you can be assured that your child will have financial resources if you and/or your partner were to die unexpectedly. Talk to your employer or an insurance agent for options on both life insurance and disability insurance. 

Health Insurance

Without health insurance, just one serious accident or illness could deplete your savings and put you in significant debt. Investigate your insurance options if you don't already have coverage, or budget for the increased monthly premium to add your child to your policy.

Flexible Spending Accounts (FSAs)

Flexible Spending Accounts (FSAs) enable you to use pretax dollars to pay for important family budget items, like child care and healthcare expenses. Talk with your employer or financial advisor about setting up a dependent-care FSA and/or healthcare FSA. 

Ways to Save Money

No matter your income, however, there are numerous ways to meet your new baby's needs without breaking the bank that we've hinted at throughout. Namely:

• Consignment/thrift stores: Babies grow quickly. Instead of paying full price for their clothing, check out gently used and even new items at your local consignment or thrift store. Many stores will also buy back items after your child has outgrown them for cash or store credit. Online swap groups and parent networks can also provide quality goods for cheap—and sometimes even free. 
• Family/friends for back-up daycare: Instead of having to take a day off (possibly without pay) when your child is sick, make arrangements for family or friends to help out with emergency back-up daycare.
• Borrow items from friends: Ask friends with young children if you could borrow items—particularly big-ticket items they're not using, like a crib, high chair, or rocking chair.
• Baby shower gifts: Register so party-goers can buy what you really need and avoid ending up with multiple baby rattles and photo albums.
• Downgrade your lifestyle: Having a child is going to change a lot of things, including your financial priorities. After reviewing your new budget, you may not be able to make the numbers add up. Consider closing the gap by downgrading in a few key areas. For example, think about trading in a large car for a more affordable model, shopping at less expensive stores or buying more generic items.

The Bottom Line

Children are a wonderful gift—if sometimes an expensive one. The main thing to keep in mind is that averages don't mean much when the range is as wide as it is with costs around a baby. Good health insurance can protect you from hospital bills for the most part, but only planning and budgeting can help you handle the rest. The Finnish practice of sending birthing parents home with a simple starter box that can double as a baby bed shows that many of the thousands of dollars spent on our children's first years are more for our status than their well-being.