How to financially prepare for a baby: a 10-step checklist
Congratulations on your growing family!
This is one of the most exciting times of your life. But, it can also be one of the most financially overwhelming. If you're feeling a mix of joy and anxiety, you are not alone. You're suddenly trying to navigate parental leave, childcare costs, insurance, estate planning, personal life, and becoming a parent all at once!
The goal of this article isn't to add to your stress. It's to simplify your financial "to-do" list. I've broken it down into 10 manageable steps so you can feel confident and prepared, letting you focus on what truly matters: your new, growing family.
Understanding your parental leave & income gap
Before your baby arrives, it’s crucial you understand how your job will be affected. More and more companies today are offering generous parental leave, for both mothers and fathers. Depending on your parental leave options, you and your spouse can coordinate timing and budgeting.
What to ask your HR department about parental leave:
What is my paid leave policy?
Does the company pay?
Do I use short-term disability?
If so, what are the details of my policy?
What is the expected percentage of pay I will receive and for how many weeks?
You can copy and paste these straight into an email or modify as needed. Having these answers well before your baby arrives gives you plenty of time to figure out your income gap (the difference in pay while on parental leave). Once you know your income gap, you can recalibrate your budget and feel more prepared.
Building a “baby buffer” fund for first-year expenses
Think back to when you bought your first home or rented your first apartment. How many things did you end up buying you never even considered before moving in? If you’re anything like me, a lot. Having a baby is no different.
To help preserve your main emergency fund and prevent cash-flow stress, you can start a separate high-yield savings account before your baby arrives. This will be for those “oh, we need this now” type of purchases. That way, when your baby brings unexpected expenses, you’ll be prepared.
Account options for your new expenses once your baby arrives:
High-yield savings account (HYSA): This is a great tool for your “baby buffer” expenses and is essentially what it sounds like: a standard savings account but with a higher rate of interest. Usually, these accounts are offered by virtual banks more often than your brick-and-mortar ones. This will have no tax advantages for you, but offers more flexibility for non-medical purchases.
Health savings account (HSA): This is a powerful tool specifically for medical expenses. If used appropriately, money goes in tax-deductible, grows tax-free, and withdrawals are tax-free (this is called “triple-tax-advantaged”). You must have a high-deductible health plan and the medical expenses must be qualified. Here is a list from the IRS as of 2025 for qualified medical and dental expenses.
Side note: a whole article can be written about the benefits of not using an HSA early on, but that’s not within the scope of this article. Email me with any questions.
Flexible spending account (FSA): Your employer might offer one or both of these accounts. Unlike an HSA, the money typically does not roll over year to year and is on a “use-it-or-lose-it” basis.
Health FSA (HFSA): This is only for medical and dental expenses. Money goes in pre-tax from your paycheck and can be used for qualified medical and dental expenses.
Dependent Care FSA (DCFSA): This is a separate account used only for childcare expenses. Money goes in pre-tax from your paycheck and can be used for eligible dependent care expenses.
When choosing which one is right for you, consider how much flexibility you want, what expenses you’ll use this account for, and what options are available to you in the first place.
How to create a realistic budget for a new baby
As mentioned in the previous step, your expenses are about to change. And as your expenses change, you’ll want to adapt your budget. You won’t be able to think of everything beforehand, but you can prepare yourself by adjusting cash flow in the few months before your baby’s due date.
What to add to your budget:
Childcare: Call local daycares to get a realistic weekly or monthly number.
As of 2025 in North Carolina, the average annual cost of infant care is $11,720 and the average annual cost of child care for a 4-year-old is $7,744, according to an article by CNBC.
Recurring supplies: Diapers, wipes, formula, etc. can quickly add up.
Gear and clothing: A one-time expense for car seats and cribs, plus an ongoing clothing expense.
Health insurance: Your premiums will likely increase.
A great way to prepare for this is to do a practice run. Three months before your baby’s due date, create this new “baby budget.” Take the extra money (especially that future childcare payment) and transfer it into your “baby buffer” account. This does two things: it painlessly builds your savings and gets you psychologically used to living on your new, post-baby cash flow.
Reviewing your life insurance needs as a new parent
Life insurance is a complex topic. It requires understanding the financial needs of both you and your spouse, as well as any specific needs of your child. In general, the goal of life insurance is to ensure your family is financially secure in the event of your untimely death.
The two main types of life insurance:
Term policy: This is typically the best-fit solution for people looking for low-cost life insurance with no bells and whistles. How it works: you purchase a policy for a set term (5, 10, 20 years, etc.) and pay the annual premium. Once the term is up, your policy is terminated.
Cash-value policy: A cash-value, or permanent, policy is pitched as “life insurance with a savings account,” but usually ends in a disappointing fashion. It’s much more expensive than term life, and the “savings” feature often underperforms a diversified investment portfolio over the long term. The two main types here are whole and universal life.
Per a study conducted by Life Happens and LIMRA, half of Millennials and Gen Z adults say they need life insurance or more of it. To help you decide on the right coverage amount, consider what financial needs would be affected in the event of your or your spouse’s death.
What to consider for your life insurance coverage:
How much you and your spouse make each year.
How much time you and your spouse spend on childcare.
If your spouse is a stay-at-home-parent, you’ll have to pay for childcare in the event of their death.
How long you will financially support your child.
The importance of a will and naming a guardian
When you choose a babysitter for your new little one, you’ll probably do a lot of consideration. Does this person have the experience? Do they have the time? Are they CPR certified? All these questions and more will float in your head. A guardian for your child in the event of your and your spouse’s death is no different.
The problem: if you and your spouse die or are incapacitated, someone will step in as your child’s legal guardian. If no one is officially named (either in your Will or through court documentation), the state will decide who this guardian is.
The solution: you and your spouse mutually decide on a primary guardian, and for safe measure, decide on two other contingent ones. This way, you are covered in case something happens to your first choice and they cannot act as intended.
Approach this decision with authenticity and communication. Don’t let the feelings of others sway your and your spouse’s decision, and make sure you communicate transparently with the people you’ve chosen as primary and contingent guardians.
This article is for informational purposes only. You must consult with a qualified estate planning attorney to draft these legal documents. You can find resources and information on this topic from the North Carolina Judicial Branch.
Adding your baby to your health insurance plan
Your little one is going to visit the doctor quite a few times in their first year, whether it’s for their routine well visits or because they caught a cold for the fourth time in two months. Regardless of the reason, you’ll need to have them formally added to your or your spouse’s health insurance.
What factors to consider when choosing which health insurance option to add your child to:
Overall cost and coverage
Co-pays
Out-of-pocket maximums
Deductibles
With these details, you should have enough information to determine which plan is best. If you and your spouse use different health insurance plans and want to add your child to both of them, the plan belonging to the parent whose birthday comes first in the year is the primary plan. The other parent’s plan is the secondary plan.
Don’t hesitate on this. After your baby’s birth, you’ll typically have thirty days to add your child to your health insurance. During those thirty days, the mother’s insurance will be used. You can do this because having a baby is a “qualifying life event,” meaning you can make insurance changes outside of the typical open enrollment period.
Exploring savings options for your child’s future
Your baby is eventually going to venture on their own and pursue different goals and ambitions. Maybe they want to go to school and become the scientist who figures out how to make plants water themselves (would help me a lot). Maybe they ditch school and go on to become an adrenaline junkie sponsored by Red Bull. Maybe something in between. Either way, you’ll want to decide how much parental financial support they’ll receive.
How you can save for your child’s future:
529 Plan: This is a very common way to save for your child’s future education costs. You can set up these accounts on your own and invest your after-tax money in it. The main benefit is your earnings and withdrawals are tax-free when used for qualified education expenses.
Custodial account: These accounts also go by UGMA (Uniform Gifts to Minors Act) or UTMA (Uniform Transfers to Minors Act) accounts. Once the child reaches the age of majority (18-25 depending on the state), the money is theirs to use how they want. One disadvantage to this is the money will be considered theirs for financial aid purposes.
Roth IRA: While not the most advantageous route, you can use a Roth IRA for qualified education expenses. Per the IRS, you can withdraw your contributions tax-free and penalty-free at any time. If you withdraw earnings for qualified education expenses, you can avoid the 10% penalty, though you will still owe income tax on those earnings.
Right now, your baby is young. Maybe a few years, months, weeks, or even days old (if you’re reading this and still at the hospital, take a breather and read this when you get home). When it comes to saving, time is your best friend. The longer your time frame, the longer compound interest can do its thing (grow your money). Of course, there are risks to this. Your savings can lose value and negatively impact your goals. But planning helps mitigate this.
How to balance retirement and college savings goals
As your pre-flight safety checklist emphasizes, put your own oxygen mask on first. It might be tempting to save everything you have for your baby, but you must prioritize your own safety net first. If saving for your child’s future is a high priority for you, it’s possible to handle both of these things successfully. But if you shift focus too much and jeopardize your retirement’s health, you could end up working later into your golden years, needing to sell your sentimental home, or even relying on your adult children.
A survey conducted by Bankrate found that 37% of parents sacrificed their retirement savings to support their children financially. With appropriate budgeting and careful thought, you can save for your baby’s future and your retirement at the same time.
How you can support your children and your retirement:
Start early: Saving early for your child’s future and for your retirement will help give your money more time to grow.
Budget: Having a good idea about where your money is already going allows you to make better decisions about where you can shift money for different goals.
Communicate with your children: Have open and honest discussions about how much you can and cannot save for their future. This will give them a better idea about how they’ll need to prepare themselves.
Handling post-birth paperwork
The hospital will likely help you with obtaining your baby’s Social Security card and birth certificate. While you won’t go home with these items, the hospital will either submit the paperwork for you or tell you how you can do it on your own.
How you can get your baby’s Social Security card and birth certificate:
Social Security card: The easiest way to apply for your baby’s Social Security number is at the hospital. To do this, you’ll be asked for both parents’ SSN. If you wait, you can apply at a Social Security office. For either option, you’ll need to show proof of U.S. citizenship, age, and identity for your baby and show documents proving parental identity and relationship to the child. The Social Security Administration provides a complete guide here: Social Security Numbers for Children.
Birth certificate: Obtaining your baby’s birth certificate will vary by state. For North Carolina residents, the two main options are to order online through VitalChek, the state's only authorized vendor, or to order directly from the NC Department of Health and Human Services (NCDHHS), which outlines all methods. You can also go in-person to your local County Register of Deeds
This is an important and sometimes cumbersome step, but these links are a good resource for checking what you need and the hospital should be able to help answer questions as well.
The importance of reviewing beneficiary designations
Just like naming a guardian, you must also decide who’ll receive your financial assets after your death. This is handled by your beneficiary designations. These are powerful because they avoid probate, meaning they don’t have to go through a long, public, and expensive court process and instead go directly to the beneficiary. This applies to your 401(k), IRAs, life insurance policies, and more. Many modern banks also allow you to add a beneficiary (sometimes called a "Payable on Death" or "POD" or “Transfer on Death” or “TOD”) directly to your savings accounts.
Now that you have a child, it is important to review these designations. It is common to name your child as a primary or contingent beneficiary. However, you must not name a minor child directly on the beneficiary line.
The problem: An insurance company or 401(k) provider cannot legally pay significant amounts of money to a minor. The money will instead go into a court-controlled guardianship, which is expensive, public, and a bureaucratic nightmare.
The solution: You must set up a legal structure for an adult to manage the money. The simplest way (without a complex trust) is to set up a custodial account for your child under an UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gifts to Minors Act) account.
This involves naming an adult (a custodian) to manage the account until your child reaches the age of majority in your state.
The reminder: Your beneficiary designations should be perfectly coordinated with your Will.
Fortunately, this usually requires little work. Most of the time you can log into your account or policy and simply update the beneficiaries right there. There might be more steps depending on what account or policy you’re changing, but it's worth it. Remember, more complexity will follow if you decide to name a minor as a beneficiary.
This article is for informational purposes only. This is a complex legal topic that blends financial and estate planning. You must consult with your estate planning attorney to ensure this is done correctly.
Feeling overwhelmed? You don’t have to approach this alone.
This checklist is a great start, but it's a lot to handle, especially with a baby on the way.
Just Advising offers a flat-fee, comprehensive financial plan that serves as your financial expedition. One that aligns with your values and gives you room to breathe. Designed to walk you through different areas of your personal financial picture, we can work on building a cash flow guide for your parental leave, setting up your child’s savings accounts for education and retirement, reviewing your appropriate insurance coverages, and more.
Don’t want a comprehensive financial plan but still have questions? Just Advising also offers an hourly service to help answer those one-off questions!
If you're ready to feel confident and prepared, let's talk.
Disclosures
The information presented in this article is the opinion of the author and does not reflect the views of any other person or entity unless specified. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. The information provided is for informational purposes and should not be construed as advice. Advisory services offered through Just Advising LLC, an investment adviser registered with the state of North Carolina. The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. CFP Board owns the certification marks CFP® in the U.S.
