For new parents living with a baby, chances are there is more keeping them up at night than a crying infant. 

The price that comes with parenthood forces people to address financial issues they may not have focused on in the past. 

It is estimated that a middle-income couple would spend slightly more than $300,000 to raise a child born in 2015 through age 17, with prices reaching as high as $500,000 in some states. This estimate doesn’t include the hefty cost of sending a kid to college.

If you are a new or expectant parent, here are some steps you can take to ease the pain that comes with added financial responsibilities.

 

 

7 Helpful Financial Tips for New Parents

1. Clarify financial goals.

Saving for retirement, a down payment for a house, and saving for college may feel like competing goals for new parents.

This is because becoming a parent usually causes priorities to change. Get a feel of what you and your partner are aiming for in the near future as a result.

The best course of action is to do what you can afford. This may mean putting off some goals until a later period so that you do not stretch yourself too thin. If you have a spouse or partner, you should schedule regular meetings to discuss your objectives and assess your progress.

Make sure your actions and the way you intend to conduct yourself moving forward are both understood.

While it is usually a good idea to contribute at least the employer match to a 401(k), it can be necessary to lower contributions to prevent racking up debt from expenses like diapers and formula purchases.

One aspect that new parents have to look into is childcare costs. Child-care expenses exceed rental costs for many American families. This may mean one parent would have to stay home to forgo expensive shield care costs. But it also means that the household will have to operate on a reduced income.

 

2. Budget and track spending.

Track your spending and create a reasonable budget that matches your new way of living.

If your housing or other costs have increased as a result of your expanding family, create a new monthly budget that takes these new costs into account. It may be challenging trying to adjust to the new budget, but it is doable.

Managing cash flow and household income takes time, so it could take three or more months to get it right. Continue to tweak your spending plan until you find one that works for your family.

 

3. Build an emergency fund.

As an expectant parent, you should try to build an emergency fund of three to six months’ worth of living expenses as early as possible.

This would surely come in handy in emergencies like:

 

4. Automate your savings and/or debt payments.

Once you’ve identified your financial goals, you are more likely to make steady progress toward your goals if you set up automatic payments and/or deposits.

By automating your savings or debt payments, you are prioritizing your goals and forcing the rest of your life to fit around them.

 

5. Life insurance.

Becoming a parent leads many people to obtain life insurance for the first time.

You want to get the right life insurance, but not more of it than you need to.

A good rule of thumb is that your coverage should equal 10 times your yearly income. Many parents buy more coverage than that to account for anticipated future expenses, like college or paying off a mortgage.

A stay-at-home parent should also have life insurance, because in their absence a surviving spouse would likely incur higher costs, for things like child care.

 

6. Estate planning.

Drafting estate planning documents, such as:

...should be a top priority for new parents.

A will permits you to name a guardian (and contingent guardians) to care for your minor kid (or children) if you and your spouse both die unexpectedly. You can also name a trustee to supervise any assets placed in trust for your minor children.

Making the best of a bad situation is ensured by having estate planning paperwork in place.

 

7. Start a 529 college plan.

With the cost of college rising year over year, it’s hard to even imagine what the tuition sticker price will be when babies born in 2022 start college in the fall of 2040.  Starting a 529 college plan is an idea with huge financial implications for generations. 

One, your child would not be held down by student debt. This would allow them to achieve life milestones faster considering that student loan debt is the chief culprit that has prevented millennials and Gen Zs from higher achievements. 

It is also easier on you financially as you would not have to bend your back to pay for your child's tuition. Don't forget that when your kids start going to college, that is when you should take your retirement plans more seriously. As such, planning for both may be a herculean task. 

Photo by Laura Garcia