When a couple decides to start a family, there are a lot of things to prepare for. In addition to painting the nursery and stocking up on diapers, parents-to-be need to get their finances ready for the new baby.
Here are a few financial preparations you may want to make.
Start Saving
Your bundle of joy will cost you a bundle. According to the U.S. Department of Agriculture, it could cost the average U.S. family an estimated $284,570 to raise a child through age 17. And this estimate doesn’t include the cost of college! So, it’s a good idea to start saving now.
Even saving a small amount each week can add up quickly. Another smart move: Deposit any financial gifts you receive in an account you set up for your child’s college expenses.
Begin To Budget
Figuring out your anticipated future income and expenses ahead of time will help you prepare. Be sure to include any child care costs you anticipate having in your budget. Couples may need to adjust their spending to accommodate a change in income or added expenses. You may want to make any adjustments now and save the difference to give your savings a boost before baby arrives.
Go over your family budget carefully and separate essential spending items and nonessential or discretionary items. Essential items include:
- Housing (don’t overlook homeowners/renters insurance and utilities)
- Food
- Health care
- Child care
- Transportation
- Debt repayment (include student loans, credit card debt, and other consumer debt)
Creating a Budget When One Parent is Considering Being Stay-at-Home
Create a budget to see if it might be possible to live on only one salary while still meeting your essential expense obligations. During this trial run, you may be able to identify areas in which you can reduce your spending. For instance, you may be able to cut back on your food expenses or renegotiate some loans at a lower rate of interest. You may be able to reduce your heating and cooling expenses by adjusting your thermostat. And remember to deduct the cost of child care since it won’t be a day-to-day expense if one parent stays at home.
Deal with Debt
Couples who have large mortgages and car payments and a significant amount of credit card debt may want to make some changes before their baby is born. This may be a good time to sit down with a financial professional to go over financial priorities and come up with a realistic spending plan. Take control of any debt you have now before your expenses increase.
If you currently carry a mortgage, see if you can refinance at a lower interest rate and free up some cash. Even then, it may be a stretch to cover a mortgage and other essentials on one salary. If you are renting and hope to buy a home, consider applying for a mortgage based on one income. Doing so will give you a more realistic view of what type of home you can afford.
Consider Your Health Care Coverage
Before baby arrives, check your health care plan’s maternity and pediatric coverage. You’ll want to know if there are any out-of-pocket expenses you should budget for. For instance, does your policy provide for well-baby care? If not, you need to be prepared to cover such costs yourself. Note that if the spouse whose employer provided the family’s health care coverage is giving up his or her job, the family will need another health care plan. Living on one salary may require you to switch to a less expensive plan. It’s important to compare your current plan with other plans to see what you might have to pay in total for premiums, copays, and out-of-pocket expenses.
Prepare Your Estate Plan
The imminent arrival of a new baby may not seem like the time to look at your estate plan. Yet, responsible parents will want to make sure their new arrival will be taken care of in a worst-case situation. Check your life insurance coverage to see if it would provide enough for your child’s future, including college. You may have to budget for higher premiums to protect your family’s future financial security. Consider purchasing disability insurance in case of an accident or illness. And parents should update their wills, if necessary, and choose a guardian for the child.
Take Care of Taxes
If your new baby is born before the end of the year, obtain a Social Security number for the child so you can claim the child tax credit on your return if you are otherwise eligible for it.
Don’t Ignore Your Retirement Security
Becoming parents often brings new financial pressures, even when both partners continue working. With added expenses and shifting priorities, it can be tempting to pause or reduce retirement savings. That can be a costly misstep over time.
Staying consistent with retirement contributions—at least at a reduced level—helps protect your long-term financial independence while you adjust to this new stage of life. If cash flow feels tight, consider scaling back contributions temporarily rather than stopping them altogether. You can also look for opportunities to supplement your savings, such as directing part of a tax refund or bonus toward your retirement accounts.
Balancing today’s needs with tomorrow’s goals is one of the most important financial decisions new parents face. Thoughtful planning now can help keep both on track.
Saving for Retirement When One Parent Chooses to Stay-At-Home
Giving up one salary can place a strain on most budgets and may tempt some couples to stop saving for retirement. That can be a mistake. You do not want to do anything that could threaten your future retirement security. If money will be tight while living on one salary, consider scaling back but not eliminating your retirement plan contributions. You can always consider using some or all of a tax refund or a bonus to add to your retirement savings.
Maintain Life Insurance
As your family grows, so do your financial responsibilities and your need for protection. When new expenses start adding up, life insurance premiums might feel like an easy place to cut, but doing so can create real financial risk. The loss of either parent, regardless of income, can affect not just earnings but also childcare, household responsibilities, and overall stability.
Maintaining appropriate life insurance coverage for both parents helps create a financial safety net during an unpredictable time. If cash flow is tight, consider adjusting coverage rather than eliminating it altogether so you can protect your family while still managing today’s budget.
Have a Financial Plan in Place
If you don’t have a financial plan or are not working with a financial professional before parenthood, it is a great time to start. Don’t let a lack of time get in the way, we are here to help make creating a financial plan personalized for you easier. Your future self will be glad you took the steps to get your finances in order so you can focus on celebrating your family’s milestone moments. Schedule a meeting if you’d like to have a conversation.
