Planning for a Growing Family

Growing your family is one of life’s most exciting journeys. You envision little hands, bedtime stories, first steps, and all those moments that redefine what it means to feel at home. But as your heart expands, so do your responsibilities and your monthly bills.

According to the most recent data from the Brookings Institution, economic and policy researchers determined that an average middle-income family with two children will spend more than $300,000 from birth to age 17 for a child born in 2015.

With figures like that, it’s easy to feel overwhelmed. However,  the good news is that with thoughtful planning, you can build a financial foundation that supports your growing family without losing sight of your long-term goals.

Review Your Budget

Colin Overweg, CFP, founder of Advize Wealth Management, recommended first “clarifying values before (or alongside) numbers: What kind of life do you want for your family? Do you envision one parent staying home, or both working? How important is living close to extended family vs hiring childcare? Once you’re aligned here, creating a detailed budget that includes new expenses becomes much more manageable.”

Here are some new expenses to think about and plan for that will accompany your new bundle of joy:

• Day-to-day supplies: Bringing home your baby comes with some upfront costs like car seats, strollers, and a crib. However, there are ongoing costs like diapers and formula (if using) that must fit in the budget, too.
• Medical appointments: In your new bundle’s first year of life, expect six wellness visits for evaluations, immunizations, etc. You should also plan for a few additional visits in case of illness or that mystery rash that you’d feel better if you got checked out. To adequately prepare for this expense, check your health insurance policy for any copays or deductibles.
• Daycare or childcare: Daycare or childcare is one of the biggest expenses that families face, and the costs are easy to underestimate. The National Database of Childcare Prices reports families spend between $6,552 and $15,600 per year, or $546 to $1,300 monthly, for full-day care for one child.
• Increasing costs: When your baby graduates to solid food, your grocery bill will grow right along with them—and keep climbing as their appetite does. You may also find yourself upgrading to a bigger car or racking up more commuting costs as your family’s needs (and schedules) expand.

Start Saving for Education

Even before your child starts talking, education costs are something many parents consider. Education costs continue to rise, and saving early can make a big difference over time. Fortunately, there are several college education investment tools that parents can use to set aside money for their future educational expenses.

529 Plan: These plans remain one of the most popular education savings vehicles due to their high contribution limits, flexibility, and tax advantages.

Coverdell Education Savings Account (ESA): Compared to 529 Plans, Coverdell ESAs have lower contribution limits, but offer broader expense coverage and more control over underlying investments.

Uniform Gift to Minors Act (UGMA)/Uniform Transfer to Minors Act (UTMA) account: UGMA and UTMA accounts let you save and invest for a child’s future, and you can use the money for education expenses. Since they aren’t education-specific, you can also spend the funds on housing, books, or even non-education costs—as long as every withdrawal benefits the child.

Review Your Insurance

Adding a new baby to the family brings more than just joy; it instantly raises your insurance needs. You’ll need to add your child to your health plan, review your life insurance coverage to protect your growing family, and consider disability insurance to safeguard your income if you can’t work.

Health insurance is the first box to check when your family expands. Most employers give you a limited window—typically 30 to 60 days after birth or adoption—to add your new dependent, so act quickly. Confirm that your plan covers well-baby visits, vaccinations, and other pediatric care, and decide whether upgrading to a different plan (or switching from individual to family coverage) better fits your budget and health needs.

Ekenna Anya-Gafu, CFP, founder of Pacific Canyon Investments, told Investopedia, “If someone depends on your income, life insurance is a necessity. Life insurance, much like an emergency fund, is about income replacement. If your children were to lose one or both parents, life insurance ensures they don’t also lose their lifestyle.”

To figure out how much coverage you need, Anya-Gafu suggested using the DIME method (debt, income, mortgage, education) or the income multiplier method (annual salary × 10–15).

“Disability insurance is just as important, but it’s often more occupation-specific,” Anya-Gafu added. “Roughly 1 in 3 Americans will be disabled before age 65, and about 1 in 4 experience some form of disability in their 20s. If your employer offers disability coverage, I always recommend taking it. For personal policies, I use what I call the ‘2 vs. 1’ rule: if having two feet, eyes, or hands versus one doesn’t impact your ability to work, you may need less coverage. But if losing one of those makes your job impossible, higher coverage is warranted.”

Ultimately, both life and disability insurance play a critical role in protecting your family’s future, but the right amount of coverage will depend on your unique situation.

Start an Emergency Fund

“The purpose of an emergency fund is to protect you in the event of an unexpected change in income or expenses,” Anya-Gafu said. “The general rule is three to six months of fixed expenses. When deciding between three or six months, I generally recommend three months if you don’t have a mortgage or dependents, and six months if you do.”

For those just getting started, that may feel unattainable, especially for those juggling high-interest debt. Overweg said that in these instances, even having one month of essential expenses covered offers peace of mind and an immediate sense of stability. 

“Once that safety net is in place, the next goal is usually to pay down any high-interest debt and then grow the emergency fund to three to six months’ worth,” he added. “These milestones create breathing room so that when life throws a curveball—like medical bills or unexpected childcare costs—you don’t have to rely on credit cards or derail your long-term goals.” 

Overweg suggested paying off high-interest debt after hitting that first emergency milestone, then steadily building toward the full buffer.

Plan for Parental Leave

Anya-Gafu emphasized that “planning for a baby financially starts with understanding exactly what benefits your employer, state, or federal programs provide—and for how long.” 

“If you don’t qualify for the Family and Medical Leave Act (FMLA) due to your employer’s size, and there are no state benefits available, it’s critical to save enough to replace two to three months of net income,” he explained. “This cushion eases the financial burden if you go without a paycheck and helps you build a timeline for returning to work, planning childcare, and applying for daycare if needed.” 

In short, Anya-Gafu said, “knowing your potential sources of income replacement—whether employer, state, or federal—is key to mapping out your leave and reducing future stress.”

Review Your Estate Plan

No one likes thinking about worst-case scenarios, but making plans now saves stress later. 

Start by ensuring that your beneficiary designations on any insurance or retirement accounts are current. 

To make transitions as smooth as possible if something happens to you, make sure you have a will and that it is up to date. This includes: designating a guardian for your child and defining asset distributions. If you have modest assets, a straightforward approach may suffice, but for more complex assets, consider a trust. 

You should also consider a durable power of attorney for finances and health in case something happens to you and you cannot make decisions for yourself.

Plan for Purchasing a New Home for Your Family

If you find that adding kids into the mix means your current living situation no longer functions and you plan to move, look for a home that not only meets your current needs, but your family’s future needs too.

Parents will not only want to consider space, but also factors like safety, school ratings, and commute times.

New parents may worry about affording their new home and how that fits into their family budgets, especially when accounting for upfront costs like a down payment or closing costs. When thinking about the financial considerations of a new home, Overweg said, “The biggest one is total cost of ownership, not just the mortgage. Families should factor in property taxes, insurance, utilities, commuting costs, and maintenance. A good rule of thumb is to keep housing costs under 28% of gross income.” 

However, Overweg advised taking that one step further when children are in the picture, saying, “I prefer to run stress-tests: ‘What happens if one income drops or living expenses spike?” That helps families buy within a range that feels comfortable, even when life changes.”

“A practical strategy,” Overweg suggested, “is to live on the ‘future’ budget for six months while renting or staying in your current home. If it feels tight now, it’ll feel even tighter with a bigger mortgage.” 

Research Tax Breaks for Parents 

Growing your family is expensive, but several tax provisions can help reduce the financial burden for families.

The Child Tax Credit is likely the most well-known benefit offered to help reduce your tax bill based on a few factors, such as income and the number of qualifying children.

If adoption is involved in your journey to grow your family, the Adoption Credit may provide some relief from some of the necessary expenses you paid to adopt.

Self-employed parents or those who pay for health insurance independently may be eligible for the Self-Employed Health Insurance Deduction.

You may also qualify for a credit for the costs of childcare so you and your spouse can look for work or work. The IRS calculates the credit based on your income and the percentage of your take-home pay you spend on childcare for children under 13 or those unable to care for themselves.

Don’t Stop Saving for Retirement 

It’s tempting to put retirement savings on hold until the baby’s future is funded, but most financial planners urge keeping retirement a non-negotiable priority. 

Overweg said one of the biggest mistakes he sees new parents make concerning their financial futures is “focusing only on the baby and neglecting their own financial foundation.” There are no loans or scholarships for retirement like there are for college expenses. Experts recommend automating retirement contributions to make sticking to your goals easier. Once retirement savings are stable, it’s easier to layer in savings for additional goals for future education expenses. 

The Bottom Line

Welcoming a child changes everything. Planning for your growing family is one way to prepare for the emotional, logistical, and financial changes ahead. To prepare: build a budget to include the cost of your new bundle, secure protections like insurance, estate plans, and emergency funds, and keep your financial priorities focused on saving for both short-term and long-term goals.