Schwab MoneyWise ®
Schwab MoneyWise®

Budgeting for a Child

What to consider when becoming a parent.

Our Two Cents

Apply for a Social Security number for your child right away. You'll need it to claim a dependent on your income tax return, to designate him or her as a beneficiary on your 401(k) or IRA, or to open a custodial account or 529 plan. For details, go to SSA.gov.

Having a baby is an incredibly exciting and happy time. It also comes with new responsibilities and shifting financial priorities. Whether this is your first child or your fifth, be sure to update your financial plan with every new addition to ensure a healthy financial beginning for you both.

Updating your budget

If you don't already have a budget, take the time now to create one. Use our Monthly Budget Planner to calculate your new expenses and allocate your income to handle them.

On top of the initial cost of having or adopting a child, be sure to factor in these expenses:

  • Daily essentials like diapers, formula, and clothing
  • Child care
  • Increased medical premiums and potential out-of-pocket costs for doctor visits

If you're coming up short, you may need to review your spending patterns to see how you can cut back.

And don't forget to update your W-4. Increasing your personal allowances will keep you from having too much withheld from your paycheck—and put a few more dollars in your pocket each month.

Your parent checklist:

  1. Get a Social Security number for your child. You'll need this to get your child's health insurance, to open a bank account on his or her behalf or to apply for government benefits. It's easiest to apply for a Social Security number at the same time you apply for a birth certificate. If you wait, you'll have to provide proof of your child's U.S. citizenship, age and identity, as well as your own identity.
  2. Make adequate health insurance a priority. If you have insurance through your work, notify your employer as soon as your child is born. In the meantime, review your options to make sure you have the best combination of deductibles and coverage. If you need to provide your own insurance, check out what's available under the Affordable Care Act either through the federal exchange or your state's exchange.
  3. Build an emergency fund. An emergency fund is more important than ever when you have a child. After all, you have a very important person depending on you! Strive to have enough cash in an easily accessible account to cover three-to-six months of necessary expenses. If the unexpected happens—an illness or job loss—it will help pay the bills until you get back on your feet.
  4. Look into life insurance. A term life insurance policy, which is generally low-cost and easy to get, should definitely be on your radar. Consider having enough to at least pay off your mortgage and debts and to cover your child's education.
  5. Create a will. If you have a lot of assets, a will or trust will help ensure they're distributed according to your wishes. But even if you don't, a will is essential to name a guardian for your child. It doesn't have to be a complicated document, but we suggest consulting with your family attorney. If it's not in writing, the state could decide who would care for your child.
  6. Complete an advance healthcare directive. This designates not only the type of care you want in a life-threatening situation, it also allows you to appoint someone to make medical decisions for you if you can't speak for yourself. It can be your spouse or anyone you choose. Just be sure it's someone you trust and who's comfortable with the role. Protecting yourself with this safeguard ultimately protects your kids, as well.
  7. Start saving for education. Everyone thinks about saving for college—and that definitely should be on your list—but there's more to consider. Might you want to send your child to a private elementary or high school? A college savings account such as a 529 Plan should be a priority, but also think about an Education Savings Account, which can be used for elementary or secondary education, too.
  8. Plan for the extras. While you're focusing on savings, don't forget about extras such as music lessons, gymnastics training, summer camps—even family vacations. Having a general savings account to cover these things will help you make choices that don't break your budget.
  9. Start your kids' financial education early. Kids can learn at a very early age to make good money choices. A trip to the store, handling an allowance, saving for something special—all of these provide opportunities to pass on your own values while teaching your kids the value of money.
  10. Contribute to your retirement account. This is as important for your children as it is for you. (In fact, it should be your number one savings goal—even before education!) Contribute to a 401(k) to get the company match and open an IRA. Your kids will be financially independent one day. You need to make sure you're equally independent.

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