A child's teddy bear sitting on a couch

Baby on the way? How to plan for the financial side of parenthood

Your baby will be a bundle of joy—and a bundle of new expenses. According to the U.S. Department of Agriculture, it costs $233,610 to raise a child from birth to 18, not including college.

New parents are often shocked by how much they spend on a constant supply of diapers, not to mention big purchases like car seats, cribs and strollers. In fact, a recent survey found that people who were hoping to become parents thought a baby would add $5,000 to a family’s budget. Actually, it’s several times that. Families spend between $21,000 and $52,000 in the first year of life.

If these numbers sound scary, don’t worry. Careful planning can help keep your finances intact.

Plan for parental leave

Only 14% of U.S. private sector companies offer paid parental leave. The good news: even companies that don’t have a formal family leave policy allow employees to use other accrued paid leave to care for a child, including sick days, vacation time and personal days. Just remember to keep a few sick days in reserve in case you or baby (or both) come down with a bug.

If paid leave isn’t in your future, start a savings account specifically to pay your expenses while you aren’t working. The Family Medical Leave Act allows certain employees to take up to 12 weeks of unpaid time off and still keep your job. Your human resources department can walk you through the different aspects of paid and unpaid leave.

Make sure your baby is covered

Health insurance is expensive at the best of times, more so when you have children. Employees pay an average of $1,129 in premiums a year for their own employer-sponsored coverage. Family coverage, on the other hand, can climb to an average $5,277.

Explore different health insurance options through your employer. If your medical costs are minimal and everyone in your family is healthy, consider a high-deductible plan that can keep premiums lower. You pay out-of-pocket until reaching your deductible, after which most medical expenses are covered. What’s even better? High-deductible plans often come with a health savings account, which allows you to save tax free for medical care.

Prepare for the unexpected

No one wants to think about it, but being a parent means planning for the unthinkable. That’s why a life insurance policy is a must. It will provide your children and their caregivers with funds if something should happen to you.

Term life insurance — which runs only for a set number of years, usually 20 or 25 — is most affordable if you buy it when you’re young and healthy. Your premium stays the same even if your health deteriorates.

Parents of special needs children may want to consider permanent life insurance. Though more expensive, permanent life insurance covers you your entire life and can be a source of funds for your child’s care after you die.

In addition to life insurance, a will is essential because it will lay out your wishes for your child’s care (and who will receive the funds to provide it) in the event of your death. Without a will, the court — not you — will have final say on who takes care of your kids.

College vs. retirement: which comes first?

You don’t need a Ph.D. to know that college is expensive. Just one year at a four-year public college costs on average $20,090, while private schools charge $45,370. Despite that, college can be worth it. College degree holders out earn those with only a high school diploma by more than $830,000 over a lifetime, which makes up for the cost of college — and then some.

To pay for college, start saving early. Even small amounts invested today can add up to significant funds in 18 years’ time. A 529 college savings plan gives you tax incentives to save for education funding. Follow these ideas to make the most of your college savings.

But don’t forget about retirement. If money is tight, your first priority must be your own retirement. Your kids have lots of options to pay for college, including work study, scholarships and loans. But there are no loans for retirement.

Whether you’re decorating the nursery now or a baby is still years away, planning ahead can help you avoid breaking the bank as your family grows.