Having a baby? Here are the big 3 expenses to start budgeting for

Expecting parents undoubtedly have a lot on their mind when preparing to welcome an additional member to the family. Finances is certainly one of those things.

While it's obvious that a new baby means an influx of spending on everything from diapers and baby gadgets, to outfitting a nursery, there are three big expenses that you don't want to wait to the last minute to start budgeting for.

Monica Sipes, a Texas-based CFP, senior wealth advisor at Exencial Wealth Advisors and mother of a 3 ½-year-old, suggests expecting parents put their money toward birth costs, childcare expenses and future education when they can.

"This one usually hits new parents hard," Sipes tells Select. "They walk out of the hospital with their new little bundle of joy and are expecting to pay X, when it is actually X-squared."

Hospital births, even with insurance, are expensive. In the U.S., the average cost for labor and delivery with insurance is more than $4,500, according to a peer-reviewed Health Affairs study published in January 2020.

"Bills will trickle in sometimes for months after birth, so be sure you are financially prepared for this," Sipes adds. She recommends starting to set aside $500 to $600 each month for hospital bills during pregnancy. This amount could range, depending on the deductible on your insurance plan.

Non-profit organization FAIR Health offers a free healthcare expenses tool where you can estimate childbirth costs in your state, with or without insurance.

"This is a big one, and probably the largest new cost that parents will incur," Sipes says. She adds that childcare expenses can really add up if both parents are working and therefore need additional help.

Childcare expenses can run the gamut, depending on the level of care and time commitment required. Sipes' best tip is that parents-to-be prepare themselves for what they plan to do after childbirth. Research options and costs in your area for things like daycare, a babysitter or a nanny. Shopping around beforehand can help you create a very realistic budget before it's go-time when you may feel forced to make a rash decision that ends up costing you more.

"It might be a good idea to set aside this expense during pregnancy, or early on, to make sure you are comfortable with the added cost and it works within your cash flow," Sipes says.

"It is hard to think about your little newborn going to college, but it will sneak up on you!" Sipes says.

When it comes to saving for a large expense like college, the earlier the better. Sipes recommends setting up a 529 savings account and contributing to it every month — almost like treating it as if it were a bill.

By contributing to a 529, you can choose where you invest, such as in stocks, bonds or target-date funds. Your investments in a 529 state-sponsored plan grow tax-free and withdrawals for qualified educational expenses, such as tuition and books, are also tax-free.

"I love the my529 (Utah) plan," Sipes says. "The interface is awesome, and you can direct family members to make contributions along the way as well. Talking openly with your family can help here. Emphasize that you would like support for education rather than lots and lots of toys and things your child may not 'need.'"

While some states offer better incentives for their residents, you can shop around for a 529 from any state no matter where you reside. Select reviewed and analyzed more than a dozen 529 plans, considering features like fees, expenses and investment choices to help parents find the best 529 college savings plans for them.

The my529 (Utah) made our ranking, alone with these others:

• Bright Start College Savings Program (Illinois)
• CollegeAdvantage (Ohio)
• Michigan Education Savings Program
• ScholarShare 529 (California)

Read more about our methodology on selecting the best 529 college savings accounts below.

To determine which 529 plans offered the best underlying investments, low fees and a variety of investment choices, Select analyzed dozens of offerings and narrowed it down to a list of 10 finalists. We looked at plans with offerings from reputable companies and investment managers and a variety of options to help the investor meet their goals. We didn't evaluate 529 plans based on advantages (such as lower fees) for in-state residents or prepaid college plans. 

We focused on the following features when comparing the best 529 plans:

• Management fees: The plans on our list offer some of the lowest management fees, important since these fees can affect your annual balance. Even a small fraction of a percent in fees can mean thousands of dollars in savings for the investor. 
• Investment returns: Past results do not guarantee future performance of any investment. However, seeing historical patterns of returns may indicate the plan manager is doing their job well. We looked at returns over a five-year time period.
• Fund expenses: Aside from management fees, we chose plans offering the lowest maintenance fees for their underlying funds. We looked at 529 plans offering more passive types of securities like index funds, with the expense ratio being a major deciding factor. These costs also affect the amount investors will be able to save. 
• Investment options: Having more choices means that parents and guardians can decide how involved they want to be when selecting their portfolio. We looked at 529 plans offering more hands-off choices such as age-based portfolios as well as individual funds. 

Each state's 529 plan may have different minimum contribution amounts. Some may not have minimum contribution amounts but do for automatic contributions, such as payroll deductions. Each state also imposes its own cumulative contribution limit.