5 Budgeting Questions New Parents Ask, Answered By an Expert

Every parent wants the best for their baby—including what’s best for them financially. Caring for your baby financially can mean budgeting some of your monthly income for the things they need right now (like food, diapers and clothes), putting money aside for future costs like education or, in some cases, a mix of both. 

But budgeting can be a tricky thing to navigate, especially if you’re a new parent trying to anticipate everything your baby might need (both now and in the future). So we asked Babylist parents to submit all their questions about budgeting and financial planning for their little one, and they covered a lot of ground: How do you budget for all the costs that a baby comes with, including childcare? Should you be regularly putting money in a savings account for baby? And how do you budget for a second (or third!) child?

Lauren Stewart, an accredited financial counselor, answers all these questions and more below.

How much should I budget for my baby’s needs?

There’s quite a bit of research out there on how much it costs to raise a child. On average, you can anticipate spending anywhere from $10,000 to $15,000 per year on your child. That estimate doesn’t include childcare or education, though, so be sure to look at what options cost in your area and add that. 

To get a more specific budget for your child, here are three big needs to consider:

Feeding

Will you be breastfeeding or bottle-feeding your child? 

If breastfeeding, you’ll save at least some money by not buying formula exclusively, but you may still want to consider other items like storage bags, bottles and a breast pump. 

Editor's note: If you're giving your baby formula, it can be challenging to accurately calculate how many cans you'll need every month. Your baby's appetite may fluctuate month to month—they'll drink more as they grow, and they'll likely drink less if they happen to get sick—but do your best to figure out approximately how many fluid ounces your baby drinks per day.

From there, you can at least somewhat estimate how much you may need to budget per month for formula using this calculation:

• Take the total number of fluid ounces that one can of your preferred formula will make (it usually says somewhere on the packaging, like "Makes 25 8-ounce bottles") and divide it by the average total of fluid ounces of formula your baby drinks per day.

• 30 divided by the above answer is how many cans you can expect to go through in one month.

• As an example, if one can of formula makes 200 fluid ounces and your baby drinks 20 ounces a day (five four-ounce bottles), then one can will last you 10 days, and you’ll go through three cans of formula in one month.

As your baby gets older, you’ll introduce solid foods. That may be tough to estimate at first, but the USDA Food Plans can give you a good idea: according to their July 2024 report, families with a moderate food budget can expect to spend about $177 per month on food for a one-year-old.

Diapers & wipes

Whether you’re using disposable diapers or cloth diapers, babies go through a lot! But just how many diapers do they need? You’ll need about 2,500 to 3,000 disposable diapers for the first year, or 24 cloth diapers in each size. 

Diapers and wipes are great items to add to your registry so they can impact your monthly budget less once baby arrives—basically, have your friends and family buy diapers as gifts so you don’t have to spend your budget on them! 

Clothes 

It’s difficult to know ahead of time how quickly your baby will grow and how much you’ll need to spend on clothes, but some basic budgeting can help determine how much to set aside each month. 

For example, assume your baby will be in size 0-3 clothes for an entire three months and you’re comfortable having 15 outfits. If you allow $20 for each outfit, that’s $300 total for size 0-3 months. Based on that, you can set aside $100 per month for new clothes to make sure you have enough when baby changes size. But before you put “$100” into your budget sheet, consider all the amounts and types of clothes you might want to have for your baby.

How much should I budget for childcare per month?

Even though some financial experts recommend capping childcare expenses to between 7–15 percent of your household’s income, more recent research has found that actual childcare costs are as high as 32 percent. That’s a huge chunk of any monthly budget! In dollars, the national average cost of childcare is around $16,000 per year for infant daycare (per child). 

But keep in mind that there are several other factors to help determine whether the amount you pay for childcare is “worth it.”

• Are meals provided for your child? This can lower your overall monthly grocery expenses.

• Does the childcare program include academics? Your toddler might be ahead of the curve when they begin school thanks to education-based childcare at an early age.

• How far away is the childcare center? Consider how much the distance will contribute to higher transportation costs.

• Is your child happy? Despite the phases children go through with separation, be conscientious of whether your child’s well-being appears positive when they’re dropped off or picked up each day.

If you determine that the cost just isn’t worth it, you might consider finding another childcare option. Here are some other childcare options to consider that might work better for your budget than a traditional daycare center or nanny:

• Part-time care: Full-time childcare is probably ideal for most situations with two working parents, but part-time childcare may be more affordable. If one parent works from home or has a shift outside the regular 9–5, this might work for your family! Reduced hours at a childcare center or with a nanny generally means a lower childcare bill each week or month. Before a work-from-home parent takes on childcare too, make sure your employer allows it. You don’t want to risk losing that valuable income when you’re trying to save money.

• Nanny share: Do you live in a neighborhood with multiple children near the same age? You might consider teaming up with other parents for a nanny share, which is when multiple families employ a single nanny to care for children in one family’s home or rotating homes on a daily/weekly basis.

• State benefits: Your income level might make you eligible for some state benefits to help pay for childcare. These types of benefits can help offset the full cost of childcare or completely pay for it in some cases.

What kinds of savings accounts should I have?

The desire to set our children up financially from an early age is something many parents consider. Why wouldn’t you want to give your child a boost? Luckily, there are many ways to give them that financial head start in life.

Setting up a savings account for your child, even when they’re still a baby, is a fantastic first step to building their nest egg. This could also open up some financial benefits later on for your child because they’ll have an established banking history—they may be able to get lower financing rates or increased savings yields. 

There are a variety of savings options that can meet whatever your personal financial goals are for your family. Whether it’s saving for your baby’s future or retirement for yourself, here are some different financial products to consider:

For your child

A traditional savings account is great, but the average interest you earn on a savings account in the US is 0.61 percent APY. That means if you have $1,000 in the account for an entire year, you’ll only earn $6.10 in interest. 

Instead, look for a high-yield savings account (HYSA) or money market account (MMA) to generate more interest earned on your savings. HYSAs are more common at online-only banks but can be worth housing your savings to get that extra cash.

529 plans, Uniform Gifts to Minors (UGMA) and Uniform Transfer to Minors (UTMA) accounts are other types of custodial accounts that parents can open for their children, and they’re popular choices for saving for college expenses. They’re easy for other family members to contribute to, also, but keep in mind that while 529 plans are tax-deductible in some states, UGMAs and UTMAs aren’t. And all three of these types of accounts can impact your child’s eligibility for financial aid.

For fun times and emergencies 

Ideally, money for emergencies is easily accessible, so you may want to avoid investing it somewhere with really low withdrawal limits or where it’s difficult to withdraw. Your best options are regular savings accounts, high-yield savings accounts and money market accounts. HYSAs generally have the same withdrawal limits as traditional savings accounts, and MMAs can be in the form of checking or savings accounts for easy access to your money.

For your retirement 

Anyone can open an IRA. In 2024, you can contribute up to $7,000 into IRAs to earn interest and withdraw at retirement age. You can even open a custodial IRA for your child and start contributing to their retirement. Before you open an IRA for your child, make sure to read about 529 plans and how they can be converted to a Roth IRA in the future.

For certain accounts like 529 plans and IRAs, ask if your bank or credit union has a financial advisor you can meet with to discuss investment options.

How do I prioritize where money goes? 

Before you can prioritize where money goes, create a spending plan that includes all your income, expenses and debt payments to determine how much extra money you have each month or year. Next, you can create SMART goals. SMART goals are accountability-based goals that are specific, measurable, achievable, relevant and time-bound. Here’s an example of a “regular goal” vs a SMART goal:

• Regular goal: Save money to give my child a car when they turn 16.

• SMART goal: Save $1,000 per year in a HYSA to give my child in 15 years when they are 16 to buy a new car.

Once you’ve established what your financial goals are and understand your budget, you can prioritize them. You’re the only one who can determine which factor is more important over another. For example, if you hope to retire before your child attends college, you might consider saving for your retirement more aggressively than building a college fund.

Next, you’ll decide what types of accounts or financial products will work best for achieving those goals. Hiring a financial advisor can help you decide where to put your money so that it’ll grow the most for you and your family.

How should I budget for a second child (or additional children)?

If only it were free to have more children after bringing that first baby into the world. Having another baby doesn’t necessarily mean child costs will double though!

You can save a little money by reusing clothes for your next child, especially if they’re in good condition. Also, if you breastfeed the new baby, you’ll have a little more time before food costs increase for your family. Even if you choose another type of feeding, you can likely reuse bottles from previous children to avoid purchasing all new ones. There are other items that can be used again, too, like car seats, toys, blankets, books, and maybe even furniture.

Despite these ways to save money, there will still be some additional expenses. Depending on your insurance plan, adding a new family member may increase your premiums in addition to needing to pay for those frequent early childhood doctor appointments. And if your car seat is past its expiration date, you’ll need to buy a new one. 

With any new baby, you’ll more than likely need at least some new items. The best way to curb those costs is to remember that just because something is new to you doesn’t mean it has to be brand new. Check out groups on social media and your own social circle for secondhand items that cost less than buying new.

And once your parental leave is over, there’s the extra childcare to consider. If your older child is still in childcare, get a quote from your current childcare provider for infant care—some childcare centers and nannies will offer sibling discounts!