There are a handful of milestone moments that change your life—and your finances—in unparalleled ways. Moving out on your own for the first time, receiving a paycheck from your first full-time job or getting married are high on that list. However, there is arguably no life milestone more impactful than becoming a parent.

When a little one enters your life, it often changes your priorities, concerns and spending habits. When couples find out they’re expecting, soon-to-be parents often jump to preparations like creating the baby registry or buying nursery decor, but there are at least four ways you should be prepared for a child to alter your financial situation.

Higher Expenses

From the start of a pregnancy, little ones can prompt additional costs in the form of prenatal care, labor and delivery expenses or unpaid parental leave. Over time, medical expenses could include pediatric visits and medications, and the cost of baby supplies should not be underestimated. Diapers, formula, clothes, car seats and strollers add up and warrant adjustments to your household budget. The most significant increase in expenses for most new parents, however, is the sizable cost of childcare. In California, the average annual cost of infant care is more than $20,000, and according to a recent study by LendingTree, California ranks fifth highest in the country for the total cost of raising a small child—at $30,059 per year.

Adjustments to Income

Many new parents experience shifts in their career—out of preference or necessity—to accommodate the needs of their growing family. Additional time off, reduced hours/fewer shifts or cutting back to part-time might allow for lower childcare expenses, but they also come at a cost of reduced income. Since the COVID-19 pandemic, remote work opportunities are more prevalent and can afford greater flexibility for working parents, but some families find it necessary for one parent to leave the workforce to stay at home with their children. Transitioning to a single-income household can have big implications for your pre-baby budget.

Increases to Insurance

Health is not the only insurance policy that growing families need to protect themselves against unforeseen expenses and potential risks. Disability insurance helps replace lost income if you are unable to work due to illness or injury—because those daycare costs keep coming even if you can’t work. Life insurance policies provide coverage for beneficiaries if a parent passes away but also can be used as a savings vehicle to cover debt or replace income as you get older. Although most new parents don’t need to start thinking about long-term care insurance quite yet—depending on their age—it is important to begin thinking about your future and start an estate plan to name legal guardians for your new child.

Saving for the Future

Due to rising costs of higher education, it’s best to start saving for college while your little one is still young—even if college might not be in his or her future. Thanks to the impact of compounding interest, even contributing as little as $50 a month beginning in the early years can make a meaningful difference over time. Many new parents open a 529 savings plan, which is a tax-advantaged way to save for a variety of education expenses. Recent legislation expanded the use of these accounts to include credentialing, licensing and continuing education costs as well as broader K-12 education expenses. And although saving for college early is important, don’t forget to prioritize saving for retirement. There are other ways to help pay for college, but if you don’t save sufficiently for your post-working years, you could end up draining the estate you hope to pass on to your children in the future.

Becoming a parent is a wonderful, challenging, life-altering experience. It leaves few people unchanged—in one way or another—and it will certainly change your financial situation. However, with open communication, a little proactive research and clear plans for the future, you and your partner can navigate the needs of your growing family while you bask in the new-baby bliss.

Sources:

• https://www.cnbc.com/2025/04/12/how-much-child-care-costs-in-every-us-state.html
• https://www.lendingtree.com/debt-consolidation/raising-a-child-study/
• https://www.savingforcollege.com/article/big-beautiful-bill-education-savings-529-plans