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When I found out I was pregnant, a decade of working as a personal finance reporter didn't shield me from all the worries new parents face about how they'll afford to have a baby. As I prepared to become a mom to my now-18-month-old, I sharply increased my emergency fund, started a new savings account for my daughter and upgraded our family's insurance policies.
I hope sharing my experience can benefit any new parent—and validate that no matter how much financial expertise you have, becoming a mom or dad is all about learning on the fly.
Here's how I had to adjust my finances as a new mom.
Ramping up Savings for Baby
Before my daughter was born, my husband and I reduced expenses and—particularly in my case—increased our income so we could save as much as possible, and fast. I'm a freelancer, so without an absolutely certain paycheck, I had to prepare in case the work I expected wasn't there for me during pregnancy or after my maternity leave.
As soon as I got pregnant, I took on more freelance assignments across a wider range of clients and automated more savings from my checking account each month. While experts say that three to six months' worth of expenses is a good amount to keep saved for emergencies, I kicked it up to nine months' worth.
While our baby-related expenses went up, especially in the first months after my daughter's birth, we now spend way less on travel and restaurant meals. So when we recently retooled our budget and tracked our expenses over time, we noticed that for the past six months or so, our overall expenses have been about the same as before the baby; it's what we spend money on (hello, diapers) that's changed.
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Rude Awakenings—and Not Just for Late-Night Feedings
Like many new moms, I didn't know how much support I needed after my daughter was born until I was in it. I wish I had saved up extra for a postpartum doula or meal delivery for the first few weeks or months to make those sleepless stretches a bit easier.
There were lots of expenses we didn't expect: snowsuits that our daughter grew out of at lightning speed. Baby-and-parent classes that gave me much-needed community during the beautiful and bewildering first year. Despite increasing our emergency savings, there were pockets of time when we felt squeezed, including directly after maternity leave when I worked less than expected while my daughter was settling in at daycare.
Planning for Our Family's Future
Financial prep for a new baby includes a lot of high-level "adulting": thinking about things like life insurance, estate planning and college savings, which probably weren't on your to-do list before the baby arrived. Here's how my husband and I went about it.
Setting up a Savings Account for the Baby
The cost of college in the U.S. is enough to keep even the most sleep-deprived new parent up at night. Saving in a 529 plan is an excellent choice for new parents, since it's a tax-advantaged investment account that grows with the market and has a favorable impact on financial aid. That's because it's considered a parent's asset, not a child's asset, on the Free Application for Federal Student Aid (FAFSA), so the government expects less of the money in the account to go toward college costs.
Since my husband is German and we will encourage our daughter to go to college in Germany, where tuition is free, we opted not to save in a 529 plan. Instead we chose a custodial brokerage account that lets us save for her until she's 18, and then automatically transfers ownership to her. For families planning to send their children to a U.S. college, a custodial brokerage account can reduce the amount of financial aid a child is eligible for, so a 529 plan is often a better choice.
Updating Our Insurance Policies
Our insurance needs changed when we had our daughter. We shopped for life insurance for the first time, as well as dental insurance to add on to our not-so-great existing dental benefits. We also got travel insurance when we traveled internationally, which we weren't as conscientious about before we had a baby.
Saving up for a New Home
Now that I'm back to work after maternity leave, we've switched gears to saving up for a home. We plan to rent until we're really sure we've found a place we want to live long term. That gives us time to slowly build up a down payment by setting aside work bonuses, gifts and other windfalls and investing a small amount of our savings—but keeping the majority of it safe in a high-yield savings account.
The Bottom Line
Becoming a mom gave me the rare opportunity to look at my finances holistically, and from a totally new perspective. It encouraged me to have a lot of fruitful conversations with my husband about our long-term goals as a family. While managing a ton of bureaucracy and hustling to grow our savings was sometimes hard, it's been the most meaningful work of my life to apply my financial knowledge toward giving my daughter all the joy and security she deserves.