Financial Planning for New Parents

Becoming a parent comes with a lot of responsibilities, and financial obligations are no exception — from budgeting for everyday needs to forward-thinking about investing in your child’s future.
Creating a secure financial future for your new baby is one of the most important things you can do — but few parents know where to begin.

Estimate childcare costs

Perhaps the biggest potential cost of raising babies and kids, however, is childcare — especially if both parents plan to continue working full-time.

Costs vary dramatically based on geography and whether you opt for a lower cost day care center, or live-in nanny.

You’ll eliminate that expense if one of you quits your job to stay home with the baby, of course, but you’ll lose a second income. There is also the financial impact of forgone promotions to consider, which may impact your future salary if you return to work in a few years, plus the opportunity cost of temporarily sidelining your retirement contributions.

As you do the math to determine what works for your family, keep in mind that plans are subject to change. Many new parents who expected to stay home with the baby decide they’d be happiest returning to work — and vice versa. Financial planning gives you the tools to stay flexible.

Start saving for your child’s college tuition

Only a small percentage of millennial parents place college savings as one of their top child-related financial priorities—perhaps because the expense seems so far off. While it might not feel like an immediate priority, the sooner you start saving for school, the more options your child will have. A common way to save and invest for kids’ education is through a 529 plan—a tax-advantaged savings plan that can be used for qualified educational expenses. These plans have historically been used to pay for college-related expenses; however, now they can also be used for qualified expenses earlier in your child’s life, such as private K-12 education. There are numerous 529 plans to choose from, and the specific tax incentives vary by state, so be sure to research the best option for you.

Get your insurance in order

Understand your health insurance and anticipate costs. Having a baby is expensive, even when you have health insurance. You should forecast your expected costs fairly early in the pregnancy.

Build an emergency fund

Unemployment is stressful, but especially so when your family is growing. That’s why it is helpful to have an emergency fund that will cover 6-12 months of living expenses in the event of a layoff or change in employment. An emergency fund provides a comfortable cushion for a new parent while searching for a new job, and should be calculated based on the new family budget. An emergency fund is especially important if your family is reliant on a single family member’s income.

Beneficiary forms and wills

After any life event, including a marriage, divorce, or birth of a child, you should update the beneficiary forms for your life insurance policy, annuities, and retirement accounts, such as your IRA or 401(k).

Such forms, which typically trump your will if a discrepancy in beneficiaries exists, help ensure those assets will eventually pass to your heirs outside of probate. Probate is the lengthy and costly legal process by which the courts settle your estate after your death.

If you haven’t done so already, both parents should also work with an attorney to create a will, a living will, and powers of attorney, especially if you have children from a previous marriage, says Bennett.


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