But when you decide to start a family, the game changes. “The only guarantee is that children are not free,” says Christy Matzen, CFP, the director of financial planning at Zoe Financial. “Every child comes with unique expenses, so a savings account is crucial.” While love and care go a long way towards supporting and raising your little one, saving money is also critical to making sure your baby (and your family) are safe, nourished, and happy. We spoke to financial experts to learn about the biggest reasons why you need savings when you’re starting a family, plus the best tools and strategies for saving and how to determine how much money to put away.
Why Savings Are Important
Starting a family is a completely novel experience for first-time parents, one that comes with new and unforeseen expenses. “You never know when an unexpected event or expense will arise and as an adult and a parent, you are responsible for it all,” says Sahirenys Pierce, a financial educator, owner of Poised Finance and Lifestyle, and mom of two. Unforeseen situations can be incredibly stressful to deal with, especially when you also have a newborn at home, and uncertainty around how you will pay for something only compounds that stress.
Emergencies
Starting an emergency fund before starting a family (and at any time, really!) can help bring peace of mind when emergencies come up, baby-related or not. “During our gender reveal for our second child, we found out that our son had a heart defect,” shares Pierce. “This was one of the most challenging times of my life. But knowing that we had an emergency fund, I felt relieved that I didn’t have to focus on the money and could focus on what really mattered.” Even if you’ve planned and saved for baby-related expenses, emergency savings remain key for handling unforeseen costs that arise. “Additional unexpected costs that anyone can experience include house maintenance, vet bills if you have a pet, car troubles, or dental visits,” says Rogel Spencer, a wealth management advisor at Northwestern Mutual. “You want to keep money on hand to accommodate for these and any other potential obstacles your family might face.”
Medical Expenses
Most new parents, especially those giving birth, are so concerned with the well-being of their kids that they don’t always think of their own. But even if everything goes smoothly, the arrival of their healthy baby may be accompanied by a large medical bill. “For many women, childbirth is the first time they’ve ever really needed major medical insurance coverage, and it can be a rude awakening to see just what your coverage actually gets you and what you will owe out of pocket. It’s not readily transparent,” says Meghan Rabuse, the Family Finance Mom and a mom of three. “Before you become pregnant, make sure you understand your medical benefits.” Rabuse suggests making sure the following are in-network with your health insurance in order to avoid unplanned costs: the hospital you will deliver at, the obstetrician or primary healthcare provider for your pregnancy, the anesthesiologist and any other specialists you might end up needing during delivery, and your pediatrician or the pediatrician who will see your baby in the hospital. If any of these are out-of-network and you can’t help it, make sure to plan for those expenses.
Childcare or Extended Leave
The last thing to take into account is who will be watching your child in the weeks and months after they are born. “Once you are pregnant, start checking out local childcare options. Most families have sticker shock—infant care, especially, is incredibly expensive, and often costs families more than their monthly mortgage,” shares Rabuse. Rabuse had been planning to return to her full-time job after having her first child until the nanny she hired fell through. “We did the math: what did our life look like with and without me working? What costs would we eliminate if I stayed home: childcare, dry cleaning, commuting, perhaps wardrobe?” Likewise, you need to be ready for those plans to change if needed. “Not every pregnancy or delivery is easy. You could experience challenges post-baby that could result in a parent taking additional time to recover,” says Spencer. “A substantial savings account could help alleviate the financial stress of feeling like you have to go back to work even when you may not be ready.”
Tips for Saving From the Experts
Once you decide to start building your savings, Matzen recommends opening a new separate account just for that purpose. “This should be a cash account dedicated to your childcare expenses (and separate from your checking account) that is earmarked for specific goals, such as emergencies, childcare, or expected medical bills,” she says. “High yield savings accounts are great to get a little extra interest on your money too.” Spencer agrees and suggests online savings accounts (like Chime, Ally Bank, or Marcus by Goldman Sachs) as opposed to going to a traditional bank. “Online savings accounts typically offer higher rates of returns than brick and mortar banks with convenient apps that make transferring funds seamless,” he notes. “With this in mind, confirm that your funds are FDIC insured.” To ensure that you’re actively growing your funds, Rabuse recommends automating as much as possible. “If you wait to save what’s left in your checking account every month, it’s too easy to never end up saving,” she says. “Just like your retirement savings get automatically deducted from your paycheck, make things like 529 contributions come directly from your paycheck or bank account. The more you automate your savings, the more likely it is to happen.” If you want to break things down even further, Pierce suggests what she calls the High 5 Banking Method, which includes two checking accounts, one for bills and one for lifestyle/non-bill expenses, and three savings accounts, one for emergencies, one for short-term goals (less than 12 months) and one for long-term goals (more than 12 months). “I needed a clear and easy way to organize my finances and savings goals,” Pierce shares. “This way you can clearly see what is going on with your finances without having to pull out a spreadsheet or do math.”
How Much To Save
Experts agree that there is no set amount of money you need to save per month or per paycheck in order to have “enough” savings since that number is going to be personal to every family. “Whatever your goal, start with the end in mind, and then you can back into the savings rate required to succeed,” says Matzen. Pierce suggests determining your reason for saving. “I believe that saving money needs to have a purpose. You are saving for new baby gear, for an emergency fund, or for a safer car. All of those goals have a specific price tag to them,” she explains. “That is the number you want to save up to and focus on. Then break that goal price into bite-size pieces that you save up for each month.” What’s also key is figuring out your budget. “To those who say they don’t have enough to save, do you know where all your money goes every month?” asks Rabuse. “Often the simple task of looking at what you actually spent the last few months is an eye-opening exercise.” Once you’ve determined your budget, Spencer suggests revisiting it on a regular basis, such as monthly, to make sure you’re staying on track. “A budget helps, but understanding your cash flow (income vs. expenses) on a monthly basis pre-baby and then revisiting post-baby can be more impactful,” he adds. “You can then determine which changes to the budget are temporary and which may be for longer periods of time.”
A Word From Verywell
Savings can help you be prepared for the unexpected costs that can come with raising a family from last-minute childcare needs to a new tire for the family van. If you have any questions about how to save for a family or as a family, reach out to a family financial advisor for help. They can assist you in setting up a budget, determining how much you should save for your emergency fund, and navigating any other financial situations you have questions about. The bottom line: while savings are important, cutting yourself some slack as you navigate parenthood matters more. “Give yourself some grace,” urges Spencer. “Your first child is a new experience, and figuring out what will fit best with your family will take time.”
