Becoming a parent is easily one of the most exciting and transformative experiences on your life's roadmap. It is also completely normal to feel a little overwhelmed by the sheer length of the to-do list, especially when you realize just how important it is to protect the people you love most. The good news is that getting a handle on your finances now is the best way to trade that anxiety for the freedom to simply enjoy being a new mom or dad.
Adjusting your budget for a new arrival
When you welcome a new child, your entire financial picture shifts. Staying in control of your monthly cash flow is the secret to alleviating stress and creating real stability. Even if you feel like you are playing catch up, it is never too late to sketch out a realistic outline of what your new family member will cost.
Give yourself grace and time to adjust to these new expenses. The best approach is to track your purchases so you know exactly where your money goes. This allows you to adjust your spending roadmap accordingly.
Don't forget about taxes
As a new parent, you may qualify for significant tax credits, such as the Earned Income Tax Credit (EITC). It is smart to check if you qualify for specific breaks and adjust your tax withholdings. This simple step could help you bring more money home each month when you need it most.
Plan ahead for childcare
If you plan to use childcare, you need to look at the numbers as far ahead as possible. Ideally, you should start planning for this expense 6-12 months in advance. A quick tip for all parents is to start applying for daycare ASAP. This gives you the best chance of finding a high-quality option that fits your price point.
The importance of an emergency fund
Surprise expenses are much more common when there is a new baby in the household. If you don't already have an emergency fund, start building one now. Even if you have to start small, having that financial cushion is vital. It helps alleviate anxiety and builds a layer of security that allows you to sleep a little easier.
Essential protections for your growing family
There are a few safeguards that every family needs. It is easy to put these tasks off, but remember that legal and financial protections are there to support the people you love when they are at their most vulnerable. If you take care of them now, your family will be secure for years to come.
Health insurance updates
Many parents don't realize that a new child won't automatically get added to their health insurance policy. You actually need to contact your HR department to handle that after the baby is born. While you are doing that, consider funding tax-favored accounts for healthcare costs. Depending on your coverage, you might want to contribute to a flexible spending account (FSA) or a health savings account (HSA) to help supplement gaps like deductibles.
Disability insurance
Disability insurance (DI) is essentially paycheck protection. It replaces a portion of your income if you cannot work due to an illness or injury. DI acts as a safety net, providing the security new parents need. Most employers offer group plans at discounted rates. If you purchase one, just double-check that it covers enough of your income for a long-term period.
Life insurance
If there is more than one parent, you will both want to buy life insurance. This applies even if one of you stays at home. The coverage amount you need varies based on your debt, income, existing savings, and education plans, but having it in place is non-negotiable for your family's safety.
Estate planning basics
There is a common myth that estate planning is only for the wealthy. That isn't true. For most of us, estate planning just means taking a few simple steps to ensure our family is secure. Both parents need wills, and possibly a trust, along with legal documents for healthcare and financial decisions. These include a power of attorney and an advanced directive, which designate someone to make decisions if you can't. Finally, remember to name your beneficiaries on your life insurance and financial accounts to ensure the money goes exactly where you intend.
Building a peace of mind kit
The odds are you will never need it, but having a response plan for natural disasters or emergencies is essential for your peace of mind. We recommend organizing the following information so it is ready to go:
- Social Security Numbers
- Birth certificates
- Wills and other legal documents
- Contact and policy information for insurance providers
- Contact info for professionals (doctors, attorneys, child care center, financial advisor)
- Username and password information for important financial accounts
You may even want to share this information with trusted family members. Emergencies might be rare, but you will be glad you planned in advance if the unexpected happens.
Saving for the future
Once your legal and financial foundation is set, you can breathe easier and turn your attention to future goals, like buying a dream home. You will also want to get started with a college savings roadmap. Even if you start with $100 per month (or whatever fits your budget), setting up and funding an account like a 529 plan is a great investment in their future.
While your energy is focused on the baby, don't neglect your own financial wellness. Carve out time to keep an eye on your retirement savings. Finally, take time to talk about what money means to your family. Keeping lines of communication open about everything from daily expenses to paying for college is key to a healthy relationship.
Why Facet is different
At Facet, we believe that financial health is about more than just investment returns; it's about making sure your money aligns with the life you want to live. Unlike traditional firms that might charge high fees or only focus on your portfolio, we offer a flat-fee membership model. We pair you with a CFP® professional who looks at your entire financial life - from insurance and estate planning to cash flow and retirement - to help you build a roadmap that truly works for your growing family.
