Finances baby1. Run the numbers
"The fact of life is that there is no one number" for how much money you need to raise a child, personal finance expert Jean Chatzky tells DailyFinance. The government estimates that a middle-income family will spend more than a quarter of a million dollars to raise a child born in 2010 until he or she is 17. But the true cost of child rearing varies widely depending on parents' income, savings and goals for their children. Calculators like the one at can be a good starting place to calculate expenses for the first year.

2. Create a savings safety net
Build a safety cushion of six to nine months of savings in case one or both parents lose their income. "One of the nice things about pregnancy is that is truly gives you a chance to ramp up savings," Chatzky says. "If you are thinking of transitioning from being a two-income to one-income household, this gives you time to road test and put some money in the bank."

3. Create and stick to a budget

While food and clothes don't cost much for infants -- and new parents are often too exhausted to do anything other than sleep, eat and feed baby -- hidden expenses, such as increased health-insurance premiums, can come as a surprise in the first year. There's no shortage of parenting blogs and resources for budgeting and saving money, so use them.

4. Do the paperwork: Get life insurance, make a will
Planning for the long term can also start during pregnancy, says Jonathan Geiger, a financial adviser with Charles Schwab. Figure out how much you need to pay off your mortgage and and put your child through college. These estimates can be a good starting point for determining how much life insurance you need as a new parent. He recommends these basic estate-planning steps for new parents, including:
  • Name a person to be the guardian
  • Create an inventory of assets and debt and store it in a safe place that someone else can access
  • Review and update beneficiaries on insurance
  • Prepare a will
5. Get a Social Security number quickly
The longer you delay in picking a name -- and hence applying for a Social Security number -- after the birth, the more time you lose on saving for college. To open an special savings account under a new child's name and to claim him or her as a dependent on taxes, he or she must have a social security number.

6. Prioritize your retirement savings ...

Both financial journalist Jean Chatzky and Schwab's Jonathan Geiger agree that parents should not shortchange their own retirement funds when the new child arrives. Putting money in a Roth IRA is one way to save for both your future and your children's because it can be used for both retirement and college, Chatzky says. Geiger points out that it's critical to maximize your retirement savings potential while working. When college tuition time comes, there are other ways to make up for the shortfall, including a possible home-equity loan.

7. ...but also start saving for college as early as possible

"Many people underestimate what the cost of college is going to be," says Geiger, adding that public four-year college is expected to be in the ballpark of a quarter million dollars by 2030. "Start early. Theoretically you have 18 years to save." Special education accounts, such as a 529 College Savings Plan or a Coverdell Account, provide tax-advantaged savings accounts, and only have minimal impact on financial-aid eligibility. (Check out this comparison chart.)

8. Break the expense pie into thirds
Chatzky recommends looking at the expense of college as a pie that can be broken into three pieces. The first piece is funded by a college savings account, the second piece is funded through current cash flow by parents at tuition time and the last piece can be shouldered by the child, who can apply for scholarships, aid or loans as a student.

"It's a good thing for kids to have some skin in the education game," Chatzky says. "If there was a little more financial responsibility [on the child], I believe there would be a lot more children out of school in four years."

9. Focus on what you can control ...
While a strategy of saving and earning is key to financial growth, Chatzky emphasizes that parents need to look at what they can control and what they can't. Right now, controlling spending and saving is easier than controlling earnings, she says.

10.... but accept that you can't control everything.
For even the most organized parents, there's no way to know what the future bring. New parent David King of Davis., Calif., says he and his wife were hoping their daughter would be born before the new year so they could use their health savings account for hospital bills. But their bundle of joy arrived on Jan. 3 and the bills were considerably higher than expected. Still, it's not all dollar and cents when it comes to a baby. "It's a miraculous moment," he says.

Also See: Financial Tradeoffs Parents Make for Their Families

Catherine New is a staff writer for You can reach her at

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Eliza Winters

Thanks for the great post. My husband and I just became parents for the first time and we a re definitely not financially ready for this step. These suggestions are great though. We have looked at taking out a direct loan. What do you think of that? Thanks so much for your help.

P.S. Here's the site we are looking to go with, if that makes a difference.

October 17 2011 at 12:59 PM Report abuse rate up rate down Reply

When you find out you are going in the wrong direction you turn around and go back to where you made the wrong turn and start out again on the right road. We gave all the so called 'simple jobs' away thinking it didn't matter. Then we gave away some manufacturing jobs because SOMBODY thought that was a good idea and it would not impact our economy. Then the trickle of jobs leaving turned into a flood!! These companies that outsourced valuable American jobs bring these products back into this country selling them at approx. a 12 to 15 dollar per hour wage level price when they paid approx. 10 dollars a day in wages to get them made. How do you like that America?? Where are the Republicans and the Tea Party on this?? Nowhere...because they are being paid to keep their mouths shut in a variety of ways!!

August 04 2011 at 3:09 PM Report abuse -1 rate up rate down Reply
1 reply to blueyeagle1's comment

Jobs go offshore because of over taxation and over regulation.

August 04 2011 at 10:26 PM Report abuse rate up rate down Reply

Live below your means, NOT "within your means".

August 04 2011 at 11:40 AM Report abuse +1 rate up rate down Reply