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Babies are a cause for celebration. But a new child also requires some careful financial planning by the parents. Indeed, that little bundle of joy comes with some pretty big expenses.
The average cost of raising a child born in 2015 to age 18 for a middle-income family in the U.S. is roughly $311,000 when adjusted for inflation, according to an analysis of government data by the Brookings Institution. That figure does not include the cost of a college education.1
To provide for your growing family, you must take steps to get your financial house in order. The financial checklist for new parents includes:
- Reworking your budget.
- Estimating childcare costs.
- Adding your baby to your health insurance.
- Considering life insurance.
- Getting your estate planning documents in order.
- Prioritizing your retirement savings.
Rework your budget
For starters, you’ll need to budget for basic needs. (Related: How to create a family budget)
According to Babycenter.com's calculator, you can expect to spend roughly $21,000 during your baby’s first year. That includes the cost of childcare, diapers, food, healthcare, college savings, and gear such as strollers and cribs.
And, if you plan to continue date night with your spouse (highly advised for parents), you should factor in babysitting expenses, which average roughly $24 per hour for one child, and $27 for two children, according to Parents magazine.
Don’t forget to utilize all child-related tax credits for which you are eligible, which may help reduce your tax liability and stretch your income further.
Financial professionals recommend that families have an emergency fund of at least three to six months worth of savings held in a liquid, interest bearing account so they don’t have to dip into their retirement account or take on high-interest debt in the event of a job loss of sudden significant expense. (Related: How to set up and maintain an emergency fund)
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Estimate childcare costs
Perhaps the biggest potential cost of raising babies and kids, however, is childcare — especially if both parents plan to continue working full-time.
Costs vary dramatically based on geography and whether you opt for a lower cost day care center, or live-in nanny.
Overall, the average child care cost for one child in 2025 was $870 per week for a nanny, $332 per week for a child care or day care center, and $323 per week for a family care center (up from $177 per week.2
You’ll eliminate that expense if one of you quits your job to stay home with the baby, of course, but you’ll lose a second income. There is also the financial impact of forgone promotions to consider, which may impact your future salary if you return to work in a few years, plus the opportunity cost of temporarily sidelining your retirement contributions. (Related: How to reinvest the cost of childcare into your family's future)
As you do the math to determine what works for your family, keep in mind that plans are subject to change. Many new parents who expected to stay home with the baby decide they’d be happiest returning to work — and vice versa. (Related: Financial planning for expectant parents)
Financial planning gives you the tools to stay flexible. Some people opt to consult a financial professional to sort out the options.
Health insurance
Once the baby arrives, you will also need to add him or her to your family’s health insurance policy promptly.
Many plans require new parents to do so within 30 days or risk the loss of certain benefits until the next open enrollment period. Contact your insurance provider to find out what their terms are and get any enrollment forms you may need.
Here again, the expense of family health insurance will impact your disposable income.
The average annual family premium for employer-sponsored health insurance in 2025 was $26,993 with workers on average contributing $6,850, according to the KFF Employer Health Benefits Survey.3
If you and your spouse are offered health insurance coverage through your employers, crunch the numbers to determine which offers the better benefits.
Life insurance
You’ve got a dependent now. Life insurance is a must for many new parents, said Paul Bennett, a financial planner in Great Falls, Va., in an interview.
Such coverage helps to replace a portion of your income if you should pass away prematurely, which may enable your spouse and children to maintain their standard of living.
How much coverage and what kind of policy you need depends on your family’s monthly expenses, net worth, and income. Some financial planners, however, suggest seven to 10 times your annual income as an appropriate starting point.
Life insurance comes in three basic varieties: term, whole life, and universal.
- Term life policies provide coverage for a limited number of years -- often 15, 20 or 30. If you outlive the term, the policy’s coverage expires and no benefits are paid out. Most term policies allow for continuation after the initial term, although usually at a higher premium. Term insurance is generally more affordable than whole life or universal coverage.
- Whole life insurance is designed to guarantee for your lifetime a specified benefit payable to your spouse or other beneficiaries upon your death. It also accumulates cash value over time and offers the opportunity to earn dividends.
- Universal life insurance is a hybrid, of sorts, allowing the purchaser to set her own premium (beyond a required minimum) and death benefit. In essence, it is a permanent insurance policy that combines insurance with an account that earns a tax-deferred rate of return declared by the insurance company.
There’s no one insurance policy or coverage amount that’s right for everyone. Some people prefer to consult a financial professional to sort through the options. Whichever policy you choose, however, it’s important to choose a company in good financial standing. (Related: What kind of life insurance should a new parent get?)
You can check an insurance company’s financial health by looking at its rating from credit rating agencies like Moody’s, which gives top tier companies an “Aaa”, and A.M. Best, which gives its highest ranked companies an “A++”.(Check here for MassMutual’s financial ratings ).
Meanwhile, disability income insurance provides you with income should you become too sick or injured to work. (Calculator: How much disability income insurance do I need?)
Beneficiary forms and wills
After any life event, including a marriage, divorce, or birth of a child, you should update the beneficiary forms for your life insurance policy, annuities, and retirement accounts, such as your IRA or 401(k).
Such forms, which typically trump your will if a discrepancy in beneficiaries exists, help ensure those assets will eventually pass to your heirs outside of probate. Probate is the lengthy and costly legal process by which the courts settle your estate after your death.
If you haven’t done so already, both parents should also work with an attorney to create a will, a living will, and powers of attorney, especially if you have children from a previous marriage, says Bennett.
Don’t shortchange yourself
It’s natural to want to give your child every advantage, including a college degree, but just be sure any savings you sock away for your child’s education do not come at the expense of your own financial well-being — a classic parent mistake. (Learn more: 6 ways to cut college costs in half)
Once you’ve paid your monthly bills and funded your retirement account, you can consider using one of the savings tools available to give your progeny a head start.
The 529 education savings plan, for example, enables parents to invest after-tax dollars in mutual funds or similar investments and any earnings are tax free if used to pay for college costs. Earnings not used for qualified expenses will be subject to federal and state taxes, plus a 10 percent penalty. Note that if your child receives a scholarship, you may make a non-qualified withdrawal for the exact amount of that scholarship from your 529 plan penalty-free, but you would still owe taxes on the earnings.
Parents who think their child may decide not to pursue a degree may be best suited saving in a Roth IRA, from which money can also be withdrawn penalty-free to pay for college costs.
Both tools have financial aid implications, however, and parents are advised to consider their options with care. Again, some parents opt to speak to a financial professional about options. (Related: College tuition: Big changes for the FAFSA)
There’s nothing like a newborn to melt your heart, or drain your wallet. By planning ahead, however, expectant parents can rest assured that their budget will be balanced and their loved ones provided for — even if they aren’t getting any actual sleep. (More tips for new moms and families)
Since 1851, MassMutual has been focused on helping people secure their financial future and protect the ones they love. That mission is why we have thousands of financial professionals to assist you on your journey through insurance, investing, retirement planning, estate management, and more. You can find a MassMutual professional with this tool or you can let us know you’d like to talk to one and we’ll have one of our financial professionals can contact you.
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Frequently asked questions about new parent finances
Q: How much does it cost to raise a child in 2026?
A: In 2026, the estimated cost to raise a child to age 18 is approximately $303,418, averaging about $16,857 per year, according to LendingTree.com. This figure covers housing, food, childcare, and transportation, but does not include college expenses.
Q: How much life insurance do new parents need?
A: While individual needs vary based on expenses and debt, many financial professionals suggest starting with coverage that is seven to 10 times your annual income to ensure your family's standard of living is protected.
Q: Should new parents start a college savings plan immediately?
A: Yes, starting early allows investments to grow over time. A 529 education savings plan is a popular option, offering tax-free earnings when used for qualified education expenses. However, parents should prioritize their own retirement savings and emergency funds first.
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This article was originally published in December 2016. It has been updated.
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1 Brookings Institution, “It’s getting more expensive to raise children. And government isn’t doing much to help,” Aug. 30, 2022.
2 Care.com, “2026 Cost of Care Survey,” Feb. 2, 2026.
3 Kaiser Family Foundation, “2025 Employer Health Benefit Survey,” 2026.
