Expectant couple sitting on couch.

What to Expect (Financially) When You’re Expecting

If you’re expecting your first child, your life is about to change in ways you can barely imagine. And while you’ve probably begun prepping things like a nursery, you may have not considered how your financial plans may change.

Here are a few stages and steps that you and your new family will be reaching before you know it:

Update Your Health Insurance

If you have coverage through your employer, a new baby is considered a qualifying life event. So long as you add your child to your plan within 60 days of their birth, you won’t need to wait for an open enrollment period, although your premiums will likely increase. Your baby’s first doctor appointment will come within his or her first week of life, so you’ll want to have a pediatrician picked out ahead of time. Make sure it’s someone in-network or otherwise covered by your health insurance plan.

You may also want to look into funding a Health Savings Account (HSA), a tax-advantaged vehicle for paying medical expenses. You can deduct your contributions to the HSA, and invest it for years, letting it grow until you need it for qualified medical expenses.  Many employers offer these accounts, but you can even start one yourself – all you need is qualifying health care coverage.

Purchase Life Insurance

A new child puts more importance on providing for your survivors, which means it’s time to review your life insurance policies, and consider where you may want to increase coverage. While you’re at it, review your beneficiary designations on any life insurance and retirement accounts to ensure they reflect your wishes for your growing family.

Evaluate Childcare Options

Now is also the time to start looking for childcare. If you and your spouse plan to go back to work after the birth, you’ll want to visit day care centers or interview nannies before the baby arrives. According to the website Care.com, the average weekly cost for an infant in 2023 is $284 for a day care center and $736 for a nanny, but can vary substantially based on where you live. The good news: Many employers offer tax-advantaged Flexible Spending Accounts to help with the cost of child care. The bad news: Your child is no longer eligible after he or she turns 13. Check your employer’s plan at your next open enrollment.

Prepare for Education

If you decide not to go with the local public school, the average tuition for a private school is between $11,534 and $15,977 per year, per Private School Review. Then you get to college. According to the College Board, total costs for an in-state public college in 2021–22 averaged $26,000 at public institutions, and $55,800 at private nonprofit institutions. It’s never too early to set up a 529 plan, and encourage other family members, such as the child’s grandparents, to contribute. There’s enough flexibility built into these plans so that even if your child ultimately doesn’t attend college, you’ll have other options for that money. And don’t forget that your child may want to go to graduate school, too.

Look Ahead to Estate Planning

And looking even further down the road, a new family member is a good reason to start considering estate planning. Make sure you have a will that designates a guardian for your child, then add power of attorney documents once they’re no longer a minor. If you already have an estate plan in place, you’ll need to update your will and any existing trusts to reflect the new family member. If you don’t already have one in place, this is a good time to explore the possibility of setting up a trust for the child, particularly if he or she turns out to have special needs.

Revisit Your Taxes

You’ve got a new dependent! This means you may be eligible for a child tax credit of up to $2,000 (for the 2023 tax year) and possibly other federal or state tax benefits. Remember to fill out Schedule 8812 come tax time to claim your credit.

…And Get Their Own Finances Going

You also have the opportunity to begin investing for your child and take advantage of their long time horizon. Set up an investment account for them, separate from the 529, so that they are encouraged to save for themselves and have a place to park all those birthday checks. Options such as a Uniform Transfer to Minors Act (UTMA), or even a Custodial Roth IRA once they start working, giving you control of the assets until your child reaches adulthood. To give them a head start when it comes to shopping for their own car, home, etc. when the time comes, consider making them an authorized user on a credit card. That way, they can benefit from your good habits even if they never use the card itself.

And finally, it’s never too soon to get them started on building their own healthy financial habits. Even younger kids will have birthday money to spend or save, and they’ll learn from the financial decisions you make for yourself.

With all these expenses on the horizon, the birth of your first child is a great time to start taking your future financial plans seriously. Your Baird Financial Advisor can help you figure out how to make plans to provide for your family – now and for well into the future.

Note: This article was originally published in August 2019 and was updated in September 2023.

The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.