How to Financially Prepare for an Unexpected Baby

Katie Danilich

11/6/2024

A pregnancy, whether planned or unexpected can spark concerns about financial stability. You might be worried that a new child will disrupt your financial planning.

Parental leave, college savings, and emergency funds can get complicated quickly. There is no need to be alarmed! There is a way for you to prepare for a baby financially before giving birth.

Identify Current Financial Situation

Many of us have no idea how to financially prepare for a baby and need to start with the basics. It’s important to understand your financial situation before beginning to plan financially for a baby. If you don’t have a monthly budget already, now is a great time to start.

Tracking your spending each month can help you identify areas where you might need to cut back and give you the confidence to make financial changes to prepare for the newest member of your family.

One free budgeting app is mint.com. It’s very user-friendly and lets you categorize expenses to make it easy to see where you’re spending the most money. Being aware of the real numbers where you tend to overspend (for me it's Starbucks...) can help you save money each month.

Finding out that you’re expecting can also be the perfect time to check your credit score. Depending on your credit usage, paying down your credit cards before the baby arrives can put you in a better place to focus on the future rather than being held back by debt.

Determine Your Priorities

Once you have a good idea of your current monthly income and expenses, it’s time to decide on the priorities for your growing family. This is going to look different for every person, there isn’t one right way to make a financial plan.

When I was facing an unexpected pregnancy, my priority was saving for my last semester of college and my living expenses while I was on unpaid maternity leave. I was lucky enough to be living with my family during this time, but some other things to prioritize are housing, medical bills/insurance, food, child care, and baby items.

You will also want to think about any big upcoming financial changes. Do you need to move to a larger space? Is your car on its last legs? Having to spend more each month on rent or purchasing a new car can throw off your plans, so it helps to anticipate these costs if possible.

Think Long-Term

Saving for Your Retirement and Kid’s College

Do you have a retirement fund set up, like an IRA or 401(k)? If so, try to continue setting money aside each month for education expenses, especially if your employer matches contributions. Having a baby comes with increased costs, but it doesn’t have to derail your future.

If you have room in your budget to think about the long-term, starting a college fund is a great step to take. There are several options like a 529 or an ESA account that have tax benefits and good interest rates. You’ll need to have your child’s social security number to set one up, so this will have to wait till after they’re born.

Insurance Options and Will

Navigating the world of insurance and estate planning can make your head spin, but it doesn’t have to be complicated! Below I have listed 3 simple steps you can take to ensure you and your child are taken care of:

Add them to your health insurance. Most insurance companies allow you 30 days after the birth of your child to add them to your health insurance. However, I recommend calling before their birth to inquire about additional costs and complete the preliminary paperwork.

Create a last will and estate plan. If heaven forbid, something were to happen to you and/or your partner, you want the correct legal paperwork in place to ensure your child is taken care of. This includes writing a will, adding your child as a beneficiary on your retirement account, and designating a caretaker for your child in an emergency. Mama Bear Legal Forms is a cost-effective resource to draft a will. You will need to have the documents notarized and filed appropriately, but it is possible to do without an attorney.

Get life insurance. Having life insurance protects your child financially in a very hands-off way. It is recommended to purchase term life insurance that is six to eight times your annual salary. A healthy woman in her 20’s can get $600,000 of coverage for only $20 a month. This is a small price to pay for the assurance that your child is financially provided for.

Maternity and Paternity Leave

If your employer provides paid parental leave, congratulations! It’s an amazing benefit to have time off to bond with your child without worrying about the financial impact. However, if you don’t have the option of paid maternity or paternity leave, you can still have time off to recover and enjoy your baby. You can apply for short-term disability or simply do a little extra planning to prepare for unpaid maternity leave.

After tracking your spending, you should be able to estimate your monthly necessary costs, and the basics to pay the bills. Figure out how much you need to save to take the maternity leave you desire.

For example, if your monthly costs are $3000, in order to take six weeks off work you will need to save $4,500. This might seem like a lofty goal, but over six months it’s only $375 per paycheck! The earlier you start saving for the birth of your child, the easier it is.

Try talking to your employer about your options if this is important to you! She Might's Maternity Leave Roadmap is a great resource for preparing for unpaid maternity leave, should you choose to pursue it.

Create A New Budget

Once you know what your goals are, you can plan for them. Set up a recurring deposit for each payday. Have a new savings account to build an emergency fund.

Once you have identified your current spending and decided what your goals are, it’s time to put those plans into action. Create a budget to anticipate the upcoming changes. By creating and sticking to a budget, you can find areas you can reduce spending to build your savings.

I recommend opening a separate savings account to put this money. Whether you are saving for unpaid maternity leave, a bigger place, or simply to have an emergency fund, having a separate account can help avoid the temptation to spend.

I also like to set up a recurring deposit to this savings account each payday. This can make saving money much easier. Even $20 each paycheck adds up and can give you financial peace of mind down the road.

PRO TIP: Use our free Baby Cost Calculator to figure out the costs you could incur in the first year of your child’s life.

You can face the future with joy!

Welcoming a new child into your home is a time of excitement and joy that does not need to be darkened by financial worries. By creating a budget, anticipating costs, and taking precautions for the future, you can ensure that your financial future is bright!

Financially Prepare for your baby using our free, step-by-step Financial Priorities Budget Template