Few events in life can be more exciting than the arrival of a baby. But at the same time, few things can be more stressful — especially when it comes to your finances.

To say that having a baby can completely change your financial picture feels like a major understatement. After all, there’s more to having a baby than buying diapers and formula, though those are certainly big costs that you’ll want to plan for as well. Since my wife and I are currently expecting a baby of our own, these things have definitely been on my mind lately!

Like other major life events, meeting with a financial advisor can go a long way in helping you assess your current financial situation and start planning for important goals related to your child’s future. The way you start planning while expecting a baby can make all the difference for your entire family’s financial future.

Evaluating Your Current Financial Situation

Even with all other factors remaining equal, adding a child to your family presents a major change to your financial situation.

For one thing, simply setting up the nursery for your child is going to take a chunk out of your household budget. An analysis by The Bump estimates that new parents should set aside roughly $6,500 for supplies for their baby’s first year of life, breaking it down into the following categories:

• $1,000 for clothes.
• $1,000 for diapers and wipes.
• $1,000-$2,500 for nursing supplies and formula.
• $2,000 for nursery setup — crib, changing table, etc.
• $425-$2,7770 for car seats, strollers, portable cribs, baby carriers and other gear.

This can significantly increase how much money you spend in the months before the arrival of your little bundle of joy. While there are certainly ways to save on these expenses, like buying secondhand clothing or converting a dresser into a changing table, there is no denying that these preparations will drastically impact your budget.

“Having children is one of the biggest blessings in the world,” says KJ Kim of AdvisorCheck. The joy that they bring to life is absolutely remarkable and it’s worth the financial investments that have to be made. However, without the proper financial planning to go with it, a lot of soon-to-be parents can find themselves in a lot of trouble.”

A financial advisor can help you prepare for these essential expenses as you go over your current financial picture. Understanding your current income, spending and debt is a crucial first step to developing strategies for how you will manage these and other expenses.

Even after the nursery is all set up, you’ll still be paying for things like diapers, clothing and food for your child for several years to come. By considering these expenses while specifically accounting for your financial situation, an advisor can help you figure out how to adjust your spending, pay down debt or set up a saving or investing strategy that will make it easier to cover the costs of parenthood.

Remember, even seemingly small steps can make a big difference in the long-term. Rather than hiring a paid babysitter (with average rates exceeding $20 per hour), you could have family members watch your child for free. Getting hand-me-down clothing or toys from older cousins can dramatically reduce these ongoing expenses.

Consider the Costs of Pregnancy

On a more immediate basis, you will also want to make sure you have enough to cover pregnancy expenses that your insurance doesn’t cover. The cost of pregnancy care and delivery can range from $460 to $8,224 depending on the benefits offered by your insurance coverage. Without insurance, expect an average cost of $13,024 for a typical delivery, or as much as $22,646 for a C-section.

Costs that you could expect to be charged for during a routine hospital delivery include both the mother’s and baby’s hospital charges, anesthesia, laboratory tests, vaccines, routine obstetric care and radiology. Your plan’s standardized Summary of Benefits will tell you how much you can expect to pay.

If there are complications during childbirth or other medical conditions that your newborn experiences, you could easily see medical costs rise to reach your insurance plan’s out of pocket maximum. For example, families pay an average of $5,000 out of pocket for NICU stays. Family out of pocket maximum costs can go as high as $17,400.

Needless to say, these are major financial expenses that you need to prepare for — especially because you will also need to add your child to your health insurance plan after they are born, which could raise the cost of your premiums.

A financial advisor can help you plan for how much you should expect to pay for your delivery, and then develop a strategy for paying off your share of the expenses. Sound investing or saving can help you pay off pregnancy and delivery costs without going into unnecessary debt.

What If You or Your Partner Leaves the Workforce?

Though the majority of households see both parents continue working after a child is born, it is estimated that 28% of moms and 7% of dads stay at home full-time. And even when both parents plan to continue working, parental leave is often a necessity in the initial weeks or months after a child is born. While 70% of women take some form of maternity leave, only 23% of private industry workers have access to paid maternity leave.

This means that after the birth of a child, your household is likely to temporarily — or even permanently — experience a drop in income. Even one month of unpaid parental leave could mean a “loss” of thousands of dollars. This doesn’t have to be a disaster for your finances. After all, many households make do with a single income. But you absolutely must plan for how this will affect your finances, especially with the increased spending that comes with having a baby.

If both partners will return to work after parental leave is over, a financial advisor can help you plan for how to cover expenses during that temporary period when one or both of you will not be working. Strategic investments or setting aside additional savings to a separate account can help cover household costs during the unpaid leave period.

Of course, even when both parents continue to work, there’s another expense you’ll need to prepare for: child care. The average cost of child care with a nanny for one infant child is $694 per week, and even a lower-cost family care center can still cost $221 per week. In places like New York City, annual childcare costs can exceed $23,000, while in Los Angeles, many families spend more on childcare than on rent.

This is a major ongoing expense that results in many parents reducing their budget on vacations, dining out and other leisure activities — or changing their job or hours to make childcare expenses more manageable.

If one parent will stay at home full-time with the child, then a financial advisor’s input can become even more invaluable. Developing strategies for reducing expenses or increasing the earning potential of the “breadwinner” through investing and other strategies can help make up for the reduced income so that you can maintain a high quality of life.

Planning for Your Child’s Future

It’s never too early to start planning ahead for your child’s future. One of the most important future expenses to consider is the cost of a college education. The average student loan debt at graduation is estimated at $31,100, but you can give your kids a major step up by setting up a 529 plan with the help of a financial advisor. A 529 plan is a tax-advantaged investment account that lets you grow investments tax-free when those investments are used for higher education.

Even if your child doesn’t end up going to college, a 529 investment plan can still put them on sound financial footing for the future. Starting in 2024, families can roll over up to $35,000 from these plans to Roth IRAs — a great way to set up your child’s future retirement.

For those who run their own business, there are even options such as hiring your child in your business, which can allow them to earn nearly $14,000 per year without paying income taxes. While this is an option that is generally more suitable for teens or older children, it can be a legitimate way to bolster your family’s income and start contributing to your child’s retirement account.

Legitimate jobs could include having a teen produce social media graphics, write web copy or even provide lawn care or janitorial services for your office. However, business owners must be careful to pay their children appropriate wages and track hours worked, while also ensuring that all paperwork has been properly completed. Consulting with a financial advisor can help ensure that you set everything up properly.

Start Planning Today

When you have a clear plan and know what to do with your finances before the baby arrives, you’ll be much more confident about your own ability to properly provide for your child’s needs. And this is why meeting with a financial advisor is so important.

A quality advisor can help you fully evaluate your current situation and offer personalized strategies to account for your specific circumstances and the goals you have for raising your child.

If you don’t already have a financial advisor, one of the best things you can do is take advantage of a free AdvisorCheck membership. Our industry-leading Advisor Search tool has been curated by our experts to offer the most relevant information that you need to know when choosing a financial advisor. You’ll have all the tools and information you need to find an advisor who can help you as you prepare for a baby so you can secure your entire family’s financial future.

Written by Lucas Miller, Entrepreneur Magazine Contributor

Fact checked by Billy Quirk

Reviewed by Dan Hattori

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