Photo of a pregnant woman preparing her finances.

6 things to do with your money before having a baby

When you’re a new parent or you’ve got a little one on the way, what was once a personal financial priority may no longer matter as much. And things you may not have thought twice about—such as college savings plans or budgets—will now become important. Taking some time to evaluate your family’s finances may help ease a few of those new-baby worries.

Here are six ways to get started—with ideas from an expectant mother who’s been through this before.

1. Start an emergency fund for your family.

One of the most important money moves—for everyone, but especially new parents—is setting aside some cash for unexpected expenses. A solid emergency fund holds three to six months’ worth of your take-home pay. If that sounds like too much, start with $1,000, then shoot for one month of expenses, and before you know it, you’ll be at your goal.

This idea in action:

Katie Babcock, a 35-year old marketing professional from Indianola, Iowa, says she and her husband, Brandon, were responsible savers already, but having children only upped their game. “You’re not only having to be responsible for yourself but also another little life—and all the things that may come up,” she says.

Photo of the Babcock family preparing their finances before their new baby arrives.

Katie and Brandon Babcock with their 6-year-old daughter, Louise.

Besides the typical emergency-fund scenarios, Babcock considers her safety net essential for medical expenses and care for her oldest, who has Down syndrome. “We can’t think of all the different scenarios in which we might have to use those emergency funds, but just knowing there’s something there to fall back on helps us sleep at night,” she says.

2. Create a budget with a baby in mind.

Develop a budget that takes into account your current living expenses, plus all of those related to having a baby. Besides ongoing costs—health insurance, copays for doctors' visits, diapers, formula, food, clothing, daycare—factor in one-time charges for things like outfitting the nursery and stocking up on baby gear.

This idea in action:

“Instead of saving for a family vacation this year, we’re saving for labor and delivery costs,” Babcock says. “It’s a hefty chunk of change! Really, there are so many things that a new baby ends up needing, and it adds up so quickly. You buy a stroller and a car seat, then you buy a couple more things, and you realize, OK this is more expensive than I thought.”

Her tip? Budget as realistically as possible, doing some preliminary research into what car seats—with your preferred ratings and safety features—really cost, for example.

3. Consider saving for your child’s education.

We don’t know what college will look like in 2040, but it's never too early to squirrel away money for higher education. When you start early, you can set aside small amounts that add up over time. Read up on your state's college savings program, which may offer preferential tax treatment.

This idea in action:

Babcock just finished paying off her own student loans, so saving for her children’s education is one of her highest priorities. “The expense is just so big,” she says. “The only way I know we’re going to be able to help is if we start saving sooner rather than later. It’s a little less daunting when you have 18 years—saving a little bit here and a little bit there—than if you only had, say, five years to catch up.”

Another idea to relieve some of the pressure? “We’ve thought about asking our folks what they think of contributing to a college fund for birthdays and gifts, rather than buying more things that I know a kid will outgrow in a few months. It’s something that’ll pay off long-term,” Babcock says.

We’ve thought about asking our folks what they think of contributing to a college fund for birthdays and gifts, rather than buying more things that I know a kid will outgrow in a few months.”

Katie Babcock

4. Keep saving for yourself.

Your instinct may be to give all to your baby. But remember to take care of your financial future, too. It’s smart to keep funding your retirement—at least up to your company's matching contribution. Skimping on contributions to save for future college expenses could hurt your retirement savings.

This idea in action:

“We’ve always prioritized retirement savings for ourselves because we know that the sooner we save, the better off we’ll be long-term,” Babcock says. “We’ve made other cuts for our growing family—some of the fun stuff, some of the entertainment—but we know in the long run, that’s going to pale in comparison to our savings.”

5. Adjust your benefits as your family grows.

Talk to human resources about changes you’re allowed to make when the baby comes; it generally counts as a qualifying event, so you can make changes outside of the typical open enrollment period. You may want to enroll in benefits you previously skipped, such as a dependent care flexible spending account (FSA) to pay for daycare or individual disability insurance, which helps protect your paycheck in case you get sick or hurt and can’t work for a while.

This idea in action:

Katie and Brandon are fortunate enough to have two sets of employer benefits to choose from. For them, it’s a matter of balancing the coverage of the policies with their costs. “We sat down to look at which options would give us the most for our money; we opted to spend a little extra on policies with more to offer, knowing that we’d need it,” she says.

6. Plan ahead so your family is taken care of.

Finally, it may be a good idea to meet with a financial professional to help ensure you have adequate life insurance coverage, as well as an attorney to help you draw up a will. Although you may not want to think about worst-case scenarios during such a happy time, you can rest easier knowing your family will be taken care of if you aren't around.

This idea in action:

“It’s hard to imagine a world where you and your kids aren’t here together,” Babcock says. “It’s an emotionally tough thing for any parent, but it’s also a reality. I don’t want to let my emotions keep me from making sure things are in order when maybe the time comes that my husband and I can’t make those decisions.

The sooner we got things in place, the better off we felt. We’ve got everything outlined and we spoke to our families about it. If something were to happen tomorrow, I know my wishes for my kids would be followed to a T.”

Katie Babcock

“The sooner we got our will in place, the better off we felt. We’ve got everything outlined and we spoke to our families about it. If something were to happen tomorrow, I know my wishes for my kids would be followed to a T.”

What to do next?

Disability insurance has exclusions and limitations. Costs and coverage details can be obtained from your financial professional.

Insurance products issued by Principal National Life Insurance Co (except in NY) and Principal Life Insurance Co. and plan administrative services provided through Principal Life Insurance Co. Principal National Life Insurance Company and Principal Life Insurance Company are members of the Principal Financial Group®, Des Moines, IA 50392. Investment advisory products offered through Principal Advised Services, LLC. Principal Advised Services is a member of the Principal Financial Group®, Des Moines, IA 50392.