Planning for the birth or adoption of a child is an exciting time of life, with many important details to think about, including immediate and long-term financial decisions. Taking proactive steps to adjust your financial strategy now can help reduce stress and make you feel more confident as your family expands. 

An Ameriprise financial advisor can help you prepare for near- and long-term financial considerations associated with having a child. They can also help you adjust for new financial goals such as saving for your child’s education, while also staying on track for other existing goals such as saving for retirement. 

Here are 8 ways you can financially prepare for a baby: 

1. Create a new budget 

Think ahead to what your life will look like as your family grows and then adjust your budget to reflect that reality. Specifically, you’ll want to consider how your recurring expenses will increase: 

• Groceries, clothing and household items: New monthly costs for necessities such as diapers, formula and baby food can add up quickly. 

• Childcare: Childcare is often the most significant new expense that new parents will have to account for in their budget. Depending on where you live and what type of care you choose (in-home, center, full-time or part-time), costs for an infant average nearly $19,000 annually in a center.¹  If you or your partner are considering becoming a stay-at-home parent, think through all the financial considerations, including whether long-term earning potential outweighs short-term savings. 

• Housing: You may want more space as your baby becomes mobile and your family becomes larger. Consider whether you’re comfortable with your current housing situation and whether you may want to upsize into a bigger space, now or in the future. 

• Transportation: A larger, safer or more reliable vehicle may be helpful for traveling with your baby and the many things you may need to bring with you, especially if you already have children.  

• Medical: Budget for larger health insurance premiums, doctor visits and co-pays. 

• Education: If saving for your child’s education is a priority, think about how to account for this new financial goal in your budget. 

Learn more: Personal budgeting strategies to help reach your goals 

2. Revisit your emergency fund 

Once you’ve created a new budget, make sure your emergency fund accounts for all the new expenses and is still adequate as you make this life transition. Your emergency fund should cover at least three to six months of living expenses in the event of an unexpected illness, job loss or other surprises. However, it may make sense to save more. For example, if you’re more risk averse, or your household relies only on one source of income, then your cash reserve should have a larger buffer. 

Learn more: Establishing a cash reserve: How much should you have? 

3. Plan ahead for medical costs 

Medical costs related to the birth of a child can be significant — both for the mother and child. Research your health insurance policy and get an estimate of how much your costs may be so you can save for those expenses. Account for any fertility treatments, prenatal care and costs related to the hospital stay to get a complete financial picture of the medical expenses you may be responsible for. It’s not uncommon for expecting mothers to reach their insurance policy’s out-of-pocket maximum limit, so consider saving this amount to ensure all your costs are covered.  

To help save for these expenses, consider whether you’re able to set aside money in a tax-advantaged vehicle such as a health savings account (HSA) or health care flexible spending account (FSA). Both HSAs and FSAs allow you to set aside tax-free money into an account that you can then use to pay for eligible health care expenses. 

Learn more: The triple tax benefits of health savings accounts 

4. Prepare for one-time expenses 

Welcoming a new child to the family may require a few initial upstart costs. For example, you may need to purchase new furniture and other baby gear. Assemble a list of all the one-time purchases you’ll need — like a crib, stroller, highchair, etc. — and make an estimate of how much you’ll plan to spend. These expenses can add up quickly, so planning for these costs early can help you save. Consider creating a systematic savings plan to fund these one-off purchases. 

Learn more: How to save and pay for a big purchase 

5. Think about your income needs 

Once you’ve accounted for the additional recurring and one-time expenses, think about your future income needs: 

• Primary caregiver financial considerations: If one parent is planning to stay home after the baby arrives, start planning early for life as a single-income family. To prepare, it may make sense to start living off one income prior to your child’s arrival so you can get used to the new budget and identify any potential roadblocks.  

• Parental leave: Will both you and your partner take time off? Do you have access to paid leave? If not, consider how long will you be able to maintain your current household budget on one salary and what steps you may be able to take to fund this temporary gap in income. 

Learn more: Becoming a primary caregiver: Financial considerations 

6. If you’re planning to adopt, understand your costs 

If you’re considering adoption, it’s important to understand the costs involved so you can prepare accordingly. The average cost of adoption varies greatly and depends on multiple factors, most notably the type of adoption. Here are costs to consider when planning to adopt a child: 

• Home study: Typically required by law, a home study is a screening of the home and life of prospective adoptive parents and must be conducted by a state-licensed social worker. 

• Adoption agency fees vs. independent adoption fees: Costs will depend heavily on whether you plan to adopt through an agency or pursue an independent adoption.  

• Birth mother expenses: You may be responsible to cover all prenatal expenses, including medical fees and legal fees. Expenses can include delivery and hospital fees not covered by Medicaid or insurance, as well as postnatal expenses. 

• Legal fees: These fees depend on whether you plan to move forward with an independent adoption or to adopt through an agency. Adoption agency fees usually include a portion of the attorney fees. 

• Travel costs: Remember to take travel costs into account, including transportation, lodging and food. Whether you go through a domestic adoption or international adoption, travel should be factored in. 

• Unexpected costs: When planning for adoption, it’s important to have extra financial cushion to account for unforeseen events. For example, it may take a few tries before prospective parents are successfully matched with a child. 

Learn more: How a systematic savings plan can help you reach your goals 

7. Update your estate plan 

Before any major medical event, it’s smart to update your estate plan in the event of the unexpected. Prior to the birth of a child, you and your partner should review your will and beneficiaries to ensure they are up to date. The birth mother should also consider naming a health care proxy, creating an advanced directive and signing a HIPPA release authority, so that she can ensure her health care wishes are followed. Putting an estate plan in place helps ensure your wishes are carried out rather than directed by the state. 

Additionally, think through who you'd trust to care for your child if you're no longer here and start those conversations. This will allow you to promptly update your estate plan with guardian designations after birth.  

Learn more: Getting started on estate planning: key actions to take 

8. Consider how your insurance needs may change 

Your insurance needs will likely evolve as you add another member to your family. Consider how the following policies may need to be updated: 

• Medical insurance: You’ll need to add your child to your health care policy in the 30 to 60 days following their birth or adoption. In advance of this, consider how you may use this opportunity to optimize your health care to account for your growing family and manage costs. Perhaps it makes sense for you, your spouse and child to all be on one plan, together. Or maybe it’s financially smart to switch to the low-deductible plan or high-deductible plan. Review your employer’s medical plan options prior to the arrival of your child so that you’re not stressed about health care in the days after your child’s birth or adoption. 

• Life and disability insurance: As your family increases in size, consider increasing your life insurance and disability insurance coverage. The months after welcoming a new child into the family can be hectic, so consider adjusting or obtaining your policies now.  

As your family evolves, your financial plan should too 

With a growing family, your goals and priorities can change quickly. Your Ameriprise financial advisor can help you evolve your financial plan with your expanding life. Once your child arrives, they can also help identify additional financial steps and strategies you may want to pursue.