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financial literacy

How to Prepare for a Baby Financially: the Ultimate Guide

Check out this EarlyBird guide to learn everything you need to know about preparing for a baby financially.

Last updated:

April 26, 2022

EarlyBird helps parents, family, and friends collectively invest in a child’s financial future. Learn more.

What You'll Learn

Having a baby is one of the single most exciting things a lot of parents are ever going to experience. It can give your life new meaning as you build a family and watch your little one grow. But becoming a new parent can also be a little bit daunting — not to mention expensive.

You get all sorts of competing stats out there about how many hundreds of thousands of dollars you’ll probably end up shelling out to pay for raising a child over a lifetime. But for now, let’s break this thing down into manageable chunks and focus on how you should prepare for a baby financially before that little bundle of joy arrives.

This guide will explore how much money you should save before having a baby, how to financially prepare for a baby, and how you can start saving now for that child’s future using a UGMA custodial account.


How Much Money Should be Saved Before Having a Baby?

The answer to this question depends on a lot of factors. It may include things like your lifestyle, the state you live in, your investment horizon, the types of insurance coverage you may have in place, and everything in between.

But if you want to get more specific, let’s talk numbers.

According to the US Department of Agriculture, the average middle-income family spends between $12,000 and $14,000 on child-related expenses every year. That’s what you need to be thinking about in the medium-term — but there are also a few key immediate expenses that you’ll need to bear in mind.

Your first expense is going to be medical costs. The American Journal of Managed Care estimates that the average cost of childbirth is $13,811 — most of which is covered with employer-sponsored insurance. When it comes to out-of-pocket spending, you're looking at an average cost of $2,500.

Next, you’ll need to buy all the essential items for a baby. If you’re new to parenting, think: cribs, strollers, car seats, diapers, bottles, and everything in between. The cost of all this stuff can vary depending on your budget and needs, but your baby budget should be about $1,000 minimum to cover what you'll need at the start.

Then, there's feeding to consider.

If the mom is breastfeeding, your initial feeding costs are going to be way lower — but powdered formula can set you back up to $150 per month. Toss in about $60 for bottles and $75 for the monthly diapers and wipes you'll go through — and you should be expecting to spend at least $300 per month over the first few months after childbirth.

Illustration of woman and baby sitting below giant shield

Finally, there's childcare to think about. Many working parents can only take so much time off with their new child, so you may find yourself looking for a nursery or care worker. The average weekly cost of childcare cost for a baby is $565 for a nanny or $215 for daycare.

Translation: you should be prepared to spend $5,000–$10,000 in year one when you have your baby — and maybe even more if you need to add in childcare expenses.

The exact target you aim to achieve will depend on your lifestyle and your means — but it’s also important you prepare for a baby’s financial future (not just their financial present).

How Do You Financially Plan to Have a Baby?

Having a baby for the first time is a pretty big life change. As a result, you’re probably going to need to rethink your finances and plan.

But the ways in which you adjust your finances and planning will shift as your child grows (and your financial goals evolve). To help give you an idea of the adjustments you’ll need to make, we’ll break things down by stage.

Preparation before the baby comes

The first stage of your financial planning needs to start before your baby is even born — and that journey starts with reviewing and adjusting your budget.

How do you adjust a budget? First, take a look at all of the fixed expenses that are already sitting in your monthly budget. Take note of all your outgoing costs, and try to see where you can cut back on your spending. Even better, see if you can figure out any overheads you can cut out completely.

Next, you’re going to need to look at all your existing debts.

Review fixed liabilities like credit cards, car payments, mortgage payments, student loans, and everything in between. You probably aren’t going to be able to shed most of these big liabilities — which means that you’re going to need to make sure that all your essentials are still going to be covered with the added expense of a child.

You’ll also need to look at how any time off will impact your bottom line. If you choose to take maternity leave or paternity leave, you’ll need to check with your employer to find out what support is available. More importantly, you’ll need to assess how taking either paid or unpaid time off may affect your income.

Finally, you need to prepare for all the baby essentials we’ve already discussed. We’re talking about baby gear like your crib, car seat, bottles, baby food, formula, baby clothes, childcare, and more. These are all the basics you’ll need to get started, and it all adds up quickly. By preparing before the baby arrives, you’ll minimize last-minute purchases and be able to spend more time focusing on the child’s longer-term financial future.

Preparation in the first few months

Next, there are the financial steps you’ve got to consider after your baby is born. One key step you should think about is to take out a life insurance policy.

If the worst should ever happen to you or your partner, life insurance is going to be absolutely vital to your child's financial wellbeing. Life insurance is an insurance product where you pay premium payments to an insurance provider monthly. If anything happens to you, the insurance company will then pay out a lump sum to the beneficiaries listed on your policy.

Not only can a life insurance policy help safeguard your little one’s financial future, but it can also be designed to cover their future education expenses and provide them with some supplemental income.

Illustration of woman holding baby pointing at chart

You can also invest in a child life insurance policy. This can be incredibly helpful in the future if your child ever wants help covering a big life expense after coming of age because they’ll be able to cash in on the policy.

Your next step should be to create a will.

This one might sound a little morbid, but it’s an important part of financial planning.

One key part of your will should be to designate a guardian. If you die before your baby grows up, you’re going to want to make sure they’re placed in the care of someone you trust. By getting this in writing now, it can save a lot of headaches later.

You’ll also want to use your will to designate your child as the beneficiary of your estate to make sure they’ll be able to claim life insurance benefits or other financial assets.

In addition to preparing your family finances for immediate expenses, you should also be considering major expenses in a child’s future. That’s where a UGMA custodial account comes in.

A UGMA custodial account is a tax-beneficial investment vehicle that enables you to set up an investment account for a child beneficiary.

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Because your child beneficiary isn’t old enough to make financial decisions, you’ll serve as the account’s custodian until they reach the “age of majority.” The age of majority is a little bit different in each state, but it’s normally either 18 or 21. When the child reaches that age, the custodianship ends.

One of the key benefits you’re going to get with a custodial account is that there are no contribution limits — but there are also tax advantages, including the Kiddie Tax and the Gift Tax. By investing now, you’ll be able to plant the seeds of financial security for your child.

Planning after the first few months

After you’ve put in the groundwork early on, it’s time to start thinking about your child’s financial literacy.

Financial literacy is basically the knowledge and skills you need to make important choices about money correctly. Financial literacy covers everything from understanding how to use a checking account and using a credit card to balancing a budget, how to use a 401(k), how to invest in the stock market, and more.

By teaching your young ones financial literacy skills early on, you’ll be able to ensure they make smart investment decisions and are able to tackle all of their financial hurdles in the future.

You’ll also need to continue to maintain and optimize any investments you’ve made (including a custodial account) to ensure that you’re able to build a solid nest egg for the children in your life as they grow.


Having a baby is expensive — which is why some financial experts recommend you save up to $20,000 beforehand.

The exact target you aim to achieve will depend on your lifestyle and your means. But it’s also important that you prepare for a baby’s financial future (not just their financial present).

That’s why you should consider setting strategies into place now to make sure a child is going to be taken care of in the future. A UGMA custodial account is an amazing way to make that happen.

Ready to start investing for a baby? Download the EarlyBird app today.


This page contains general information and does not contain financial advice. All investments involve risk. Any hypothetical performance shown is for illustrative purposes only. Actual investment performance may be different for many reasons, including, but not limited to, market fluctuations, time horizon, taxes, and fees. Please consult a qualified financial advisor and/or tax professional for investment guidance.


EarlyBird Team

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Download EarlyBird today and start investing in your child’s tomorrow.
Download EarlyBird today and start investing in your child’s tomorrow.
Download EarlyBird today and start investing in your child’s tomorrow.
Download EarlyBird today and start investing in your child’s tomorrow.
Download EarlyBird today and start investing in your child’s tomorrow.