Millions of families in the US commit to having babies every year. According to ConsumerShield, 2023 witnessed 3.6 million births, and the number increased slightly to 3.62 million in 2024. Notably, it dipped a bit during the pandemic, but things are back on track now.
Becoming a parent is a blissful milestone, but it also brings many financial responsibilities and risks. Understanding these risks and planning ahead can help new parents secure their family's future. Additionally, it enables them to avoid common financial pitfalls.
In this article, we will share a few valuable insights that new parents must be aware of to stay ahead of future financial risks.
Reduced Income Due to Job Break
The US Department of Labour reports that new parents are entitled to a 12-week paid leave after birth. This means 12 weeks from the date of birth of the baby or the placement involved. Anything longer means that they do not get financial support from their employer.
Many new parents experience a drop in household income due to parental leave. In some families, one parent steps away from work, which also affects their finances. This can strain their budget in the long run, even more so if not planned for in advance.
To mitigate this risk, they can do some things before starting their journey. For example, you can start saving early for parental leave. The best thing to do is to build a dedicated fund to cover lost income during the break.
Review your employer’s leave policies and government benefits to maximise available support. Also, discuss how expenses and savings will be managed during this time. Prior planning will keep your finances comfortable after the baby arrives.
Unexpected Medical Emergencies
Medical emergencies can result in substantial out-of-pocket expenses, even with insurance. These can happen during childbirth or in a child’s early years. For example, CNN notes that the number of premature births is rising in the US. The percentage increased from 7.74% to 8.67% from 2014 to 2022.
Several complications are associated with preterm birth, including those related to formula feeding. The NEC baby formula lawsuit highlights the risk of necrotising enterocolitis among newborns being fed cow-milk-based formula.
According to TorHoerman Law, big brands like Abbott Laboratories are being named in these lawsuits. As a new parent, you must know everything about such products that may harm your baby.
Ensure that you have comprehensive health insurance for yourself and the child. Enrol in a Flexible Spending Account (FSA) or Health Savings Account (HSA) as it helps to set aside pre-tax dollars for medical costs. Also, you must build an emergency fund specifically for unexpected medical expenses.
High Childcare Cost
Childcare is often one of the largest expenses for new parents, and it can easily topple your budget. In some states, annual childcare costs can be as high as $15,000. SmartAsset notes that the national average for raising a child in 2025 is estimated at about $18,761 per year.
Fortunately, it is easy to deal with this financial hurdle. Research and compare childcare options in your state well in advance. You can offset costs with alternatives such as employer childcare benefits, dependent care FSAs, or tax credits.
You can also consider flexible work arrangements or shared care with family to reduce expenses. With these options, you will not have to pay for childcare. Either one of the parents or grandparents will be there to look after the baby.
Inadequate Emergency Fund
Emergency funds are essential for all families, even more so for the ones planning new members. Without a robust emergency fund, families are vulnerable to debt if they face adversities. These could be job loss, illness, or other crises.
Experts have some recommendations in this context. Start by saving enough to cover three to six months of living expenses. When considering these expenses, factor in the cost of supplies and childcare for your little one.
Start small if you cannot set a massive fund aside each month. However, contribute regularly to build this safety net. Remember to keep your emergency savings in a separate, easily accessible account. Commit to saving this money and avoiding unnecessary expenses.
Also Read :
How Much Money Should You Really Save Every Month?
Long-Term Financial Commitments
Raising a child involves long-term financial commitments as well. These include education, housing, and retirement savings. Many families neglect retirement or over-prioritizing college savings at the expense of parental future. This means you may be doing everything for your child without securing yourself.
Balance saving for your child’s future with your own retirement needs. That’s because you can get loans for education, but not for retirement. Also, start early with education savings plans. At the same time, do not let them derail your retirement contributions.
Another thing you must do is to get life and disability insurance. These coverage options protect your family if something happens to a parent.
Frequently Asked Questions
How to prepare for parenthood financially?
Parental preparation is not just about being prepared physically and emotionally. It is also about being financially sound. Review and adjust your budget to account for new expenses such as diapers, formula, and childcare. You must have an emergency fund and save for parental leave. Plan for both short-term needs and long-term goals such as education and retirement.
What is the yearly cost of raising a baby?
As noted by SmartAsset, the average annual cost of raising a child in the U.S. is about $18,761 in 2025. This number varies widely by location and family circumstances. Major expenses related to having a baby include childcare, housing, food, and healthcare.
What are the financial mistakes new parents make?
New parents make several financial mistakes that can disrupt their family budgets. For example, they may overspend on baby items and gear in the short term. Long-term financial mistakes include neglecting to save for emergencies or future needs, taking on too much debt, and failing to secure adequate insurance.
Parenthood brings immense joy, but it also has a fair share of new financial risks. By planning for these challenges, new parents can avoid common mistakes and build a secure foundation for their family. Remember that you should have strong finances to give your baby the best life and be stress-free about your future.
Olivia Carter is a versatile freelancer with expertise in finance-related writing, content creation, and consulting. With a Bachelor's degree in Business Administration and a focus on Finance, Olivia brings a fresh perspective. Her adaptable writing style blends professionalism with approachability, engaging diverse audiences. Olivia explores personal finance, fintech trends, and enjoys literature and mindfulness.
