Having a baby? Here's where to put your money

It's not often that expecting parents know, well, what to exactly expect with a new addition to the family. A few truths are almost guaranteed, though — parenthood is magical, memorable and, as we often hear, expensive.

A 2023 analysis by the nonprofit Child Care Aware of America found that the national average annual cost of child care alone was $11,582, which is roughly 10% of the median income for a married couple with children.

You can't lower the costs of diapers and daycare, but you can make the following financial moves to prepare for your baby's biggest expenses.

Swap that standard savings account you've had for years with a high-yield savings account to maximize the interest your cash earns. Making this move can grow your savings faster, which translates to more money in your pocket for all things baby-related.

The best high-yield savings accounts earn above-average returns and have no monthly fees or minimum requirements to meet. Similar to traditional savings accounts, high-yield savings accounts let you easily access your money. And setting up automation is simple so you don't have to remember to save. Just note that the account may have monthly withdrawal or transfer limits.

One high-yield savings account we like for new parents is the online-only Ally Bank Savings Account because it offers a solid APY on all balances, plus a savings bucket tool where you can divvy up your savings based on different goals. With a newborn, this could look like having designated savings buckets for childbirth costs and another for child care expenses and so on.

Finance nerd tip: It may be worth paying a bit of money each month for a premium budgeting app that helps you oversee all of your financial information. You can link your high-yield savings account and other bank and investment accounts to an app like Monarch Money to get a good visual of your cash flow now that you're managing more expenses. Monarch also lets you collaborate with your partner so you can budget as a family together.

A dependent care FSA, or DCFSA, is a tax-advantaged account sometimes offered by your employer that can offset child care expenses like daycare, babysitting and nursery or preschool. Basically, you'll contribute pre-tax money throughout the year and then use those funds to reimburse what you spend on child care. (Just remember you have to use the funds before the year is up or you lose them.) Using pre-tax money also means you're lowering your taxable income. The annual contribution limit is $5,000 per household or $2,500 per spouse for married couples filing separately. There's also a $2,500 limit for those earning $155,000 or more.

Finance nerd tip: A DSFSA would be a good financial account to enroll in once your child is born — this is considered a qualifying life event that allows you to change your employer-provided benefits outside the open enrollment period.

We get it, college isn't top of mind when you have a newborn at home. But the earlier you start saving for your child's future education, the better.

529s are state-sponsored education savings accounts where parents, relatives or friends can make after-tax contributions. 529 earnings grow tax-free and withdrawals are tax-free if used for qualified college educational expenses (think tuition, room and board, books or tech equipment). You can also use the funds for private elementary or high school tuition (up to $10,000 per year per student), depending on the state's plan. You don't have to live in the state of the 529 plan you choose, but many plans like my529 (Utah) and NY 529 Direct Plan reward their residents with state tax benefits.

The best part? If the child you opened the account for doesn't need the funds, you can transfer the plan to another child, a grandchild or use it for your own qualified educational needs. You can also roll over the unused 529 funds to the same beneficiary's Roth IRA, untaxed and unpenalized, up to $35,000. Note that rules vary from state to state.

Finance nerd tip: Consider a 529 college savings credit card, which automatically deposits cash-back rewards from your everyday spending into a designated 529 plan. Two of our favorites are below:

Adding a new member to the family is the perfect reason to start thinking about life insurance, which ensures that your family will be protected financially in the event something happens to you.

Northwestern Mutual® is one of the largest issuers of life insurance policies in the U.S., offering term life insurance, whole life insurance, universal life insurance and variable universal life insurance, along with high financial strength and customer satisfaction ratings.

Finance nerd tip: Your employer's life insurance plan may not be enough. With a separate, standalone policy you buy on your own, you can get higher coverage limits and more customization.

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