A new baby is exciting, delightful, tiring, and challenging all at the same time. A new baby also marks a major financial transition, especially if it’s your first. A family presents new challenges in both the short and the long term. These financial tips for new parents should give you a head start.
If you’re expecting a child, you’ll want to think about the financial implications before the big day: you’ll have more than enough on your mind after! If you didn’t plan, don’t despair. There’s time to catch up.
To help the process along, we asked a panel of finance experts for their #1 financial tip for new parents.
What They Said
This was a popular topic: we received responses from 59 people with experience and credentials in financial planning for new families. Unsurprisingly, many of them offered similar suggestions.
Some of the answers were similar, as you might guess. These were some of the most common.
👶 The most common advice was to exercise caution when buying baby “essentials”. A significant percentage of our answers suggested buying only essentials, shopping in thrift stores, and asking friends and relatives about baby goods they’re no longer using.
Several other topics got multiple responses.
- Set up a college fund early, so the money has time to grow.
- Start saving and investing, if you haven’t already.
- Consider additional insurance and estate planning.
- Prepare to adjust your budget if you have one, and make one if you don’t.
We’ve omitted some very similar responses, but these pointers should give you a range of ideas to consider as you prepare your finances for your new arrival!
What’s Your #1 Financial Tip For New Parents?
Here’s what our panel of finance experts and businesspeople had to say.
Focus On the Basics
It sounds simple, and it is: stick with the fundamentals of personal finance when you become a parent. You don’t need to run around opening new life insurance policies and 529 plans. You do need solid health insurance, an adequate emergency fund, and recurring monthly investments for retirement.
Which are all things you should be doing already.
In particular, a lot of middle- and upper-middle income parents worry about paying for college for their children. While that’s “nice,” it’s not necessary. Retirement is necessary however, and there’s only one way to make sure you don’t run out of money before you die: by saving and investing enough money while you’re young and healthy. If you can’t help your kids as much as you’d like with their college tuition, they have plenty of other ways to pay for college, from scholarships to grants to student loans to work-study and loan forgiveness programs.
Besides, if you really want to, you can always pull contributions out of your Roth IRA tax- and penalty-free to help your kids with tuition.
Set up automated monthly savings and investments through a robo-advisor. Take advantage of tax-sheltered retirement accounts like IRAs and 401(k)s, but also invest through standard taxable brokerage accounts.
Stick with the boring fundamentals. Over time, they’ll build wealth quietly for you in the background.
Buy Only What You Need
I think one of the best financial pieces of advice for new parents is to not buy “all the things” (especially buying them new). Babies need very few tangible goods, and store suggestion lists overflow with “necessities” that almost no baby actually needs.
Before buying all the latest goods or adding everything to a registry, see what you can get from friends or secondhand. Ask friends and family who already have kids which items you do not actually need. And then ask for lots of diapers on your registry instead of extra sheet sets or fancy baby gear because new babies definitely need lots of diapers in different sizes.
Frank Murillo, CFP®
Partner & Managing Director
Snowden Lane Partners
Get Your Estate Plan in Order
As a new parent myself, my top advice would be to get your estate plan in order. Being a new parent is an extremely hectic time in your life and you’re always playing “catch up.” While you’re busy changing diapers and trying to catch up on sleep, it will be comforting to know that this part of your financial plan has been taken care of.
What to look for? The biggest hurdle I’ve seen from clients is not so much around “who gets what”, but mainly “who gets the baby.” Guardianship of your little one in case neither parent is around is a highly contested topic. You might have a clear idea as to who it should be, but more often than not your partner has a different idea altogether. And therein lies the challenge. Sorting and coming to an agreement on guardianship will take time, so it’s best to start early. Sorting out the money part is easy by comparison.
The good news? You don’t necessarily have to choose a single person. You may know someone who’s a great parent but terrible with money and vice versa. Estate planning can be extremely flexible on these terms and you can select one person to manage the finances and another to provide caretaking services. After that’s squared away, everything else flows from there. A close second? The usual suspect, college funding.
Only Buy the Essentials
As a father of four, my best money advice for new parents is that you should only buy the essentials and then wait on everything else until you have a better idea of how you’ll use it. What I mean by this is that you need a car seat and crib, but wait before spending a ton of money on a stroller until you know how often you’ll use it, the conditions and situations, because that will help you decide what kind of stroller to buy and how much to spend.
There is a huge industry that works very hard to make new parents believe they need the most expensive stroller or the best baby carrier or the most complicated diaper bag – but many of those items didn’t exist, or if they did were not nearly as expensive, so you want your needs to dictate what you get.
Also, if possible (and safe), buy second hand or seek out families giving stuff away. You won’t believe how much stuff people give away (especially clothing and toys) once their kids are grown and they’re looking to declutter. Look on Facebook for local groups because there’s always someone giving something away.
Higher Education and Personal Finance Expert
Student Loan Hero
Start a 529 Plan
It’s never too late or too early to save for college, and every little bit helps. Whether your child is a newborn or new to college, contributing small amounts to a 529 plan or other savings vehicle can go a long way toward helping pay for higher education.
Fortunately, many states have lowered the minimum required contribution for 529s, so you don’t have to be well off to benefit. The longer the time horizon you have, of course, the better, but contributing as little as $50 a month can help, as 529s and other accounts gain and accrue — and capitalize — interest over time.
Perhaps most importantly, every dollar you save is one less dollar you will have to borrow (and PAY interest on). It might be scary for the non-savvy to get started saving, but this is something you can do on your own and without hiring professional help (though consulting a certified financial expert is always wise). Get over that hump and you’ll be glad you did.
Intercontinental Wealth Advisers
As a mother of a 4-year-old that is now expecting my second child, the best advice I can give is to start investing as soon as possible. How many times have we wondered when we look at our own accounts: “Imagine if I had started to invest when I was younger”?
One thing my family has done is instead of asking for plastic toys that will barely get played with since babies and toddlers usually prefer to play with the box anyway, we ask relatives for cash as gifts and put the money away in an investment account for our children. The small amounts add up quickly, and you can always help with the initial contribution to get it going.
Another important piece of advice is to look immediately into college savings plans. That is another gift that I’ve found relatives, particularly grandparents, like to contribute to.
Co-Founder & Developer
Update Your Insurance
Parents have 31 days to enroll their new child in medical insurance. A “Confirmation of Birth” document is supplied by the hospital and must be provided to your insurance company along with other information. This document is crucial since your child will have at least seven appointments in the first 12 months for immunizations and growth monitoring.
Speak with a life insurance agent to purchase a new policy or renew an existing one, whether you’ve had your first, second, or third child. Also, be sure that both spouses are insured in case of an emergency. For example, if one spouse stays at home and dies suddenly, the remaining spouse may be responsible for paying for child care for several years. A homemaker is an invaluable member of the family who is frequently disregarded since he or she helps the family avoid large costs.
On the insurance front, though, there is some good news. Consider scheduling any medical procedures during the same deductible year if you have been putting off scheduling them. You will most certainly exceed your annual deductible as a result of the costs linked with the new baby. For example, I postponed a minor medical treatment until the year of our child’s birth in order to avoid paying thousands of dollars more.
CEO and Founder
Good Life Advisors
Prepare For Your New Financial Picture
The #1 financial tip I would give to new parents is to prepare for their new financial picture. Just like anything valuable in life, preparation is the key to success also when it comes to parenthood and finance. As the saying goes, “By failing to prepare, you are preparing to fail.” Unfortunately, we see many new parents fail in this area and suffer greatly regardless of their economic spectrum.
One of the main problems is that many new parents think raising a child is expensive, but most of them never sit down, think about and prepare for how much it may cost from birth until their child goes to college. According to Havenlife (https://havenlife.com/), the average total child-rearing expense in America from birth to age 17 is $233,610. If new parents are planning to have multiple children, the costs can easily double and triple, and it can create detrimental financial troubles and hardships in their family if they are not prepared in advance.
Then, what should new parents prepare first? I will encourage them to start with a financial checklist. The financial checklist for new parents is like a guided navigation system that enables them to arrive at their desired designation. Just like the GPS in the car, this financial checklist can show them a step-by-step process of preparing for a great financial future with and for their children.
Owner & Ceo
Organize and Track Your Records
Get paper copies of important documents such as the birth certificate, Social Security card, and immunization record. Order three birth certificates for your newborn: one for you, one for your child later in life, and one for your guardian. The Social Security card for your child will be mailed to you. Also, start keeping track of your child’s immunizations, especially if you need to send him or her to daycare. Place them in a fireproof safe with all of your other important documents.
Finally, keep track of all medical costs prior to and after delivery to ensure you don’t overspend or pay for the same operation twice. Parents are often forced to pay in advance for specific doctors, such as the obstetrics/gynecologist physician, so make sure you get reimbursed if you reach your deductible before the delivery. If you have any issues or questions, call your insurance company before writing a check.
Scott Alan Turner
Rock Star Financial
Start a Custodial Roth IRA
One financial tip for long term wealth building and legacy planning is to start a custodial Roth IRA for children.
Most parents are more concerned about college planning. A Roth IRA when left untouched, has the potential to grow to $1,000,000 in retirement savings for your kids. That can be achieved by contributing $1,000 a year ($83/month) starting at age six until age eighteen. The IRS requires ‘earned income’ to contribute. This can be accomplished by paying kids for household chores or odd jobs, and proper documentation.
Most people would agree $1M in retirement is better than giving kids an allowance. Of course, you can do both.
Director of Marketing and Content
Go Back to Work
You might think to yourself, “Oh, I should simply remain at home,” as you consider the [expensive] expense of infant care or hiring a nanny. But I would advise against it since taking a three- or five-year break from your job comes at a price.
Also, if the cost of daycare is equal to or greater than a person’s current salary, this may be a short-term issue because a person’s income can climb while the cost of childcare decreases as the child grows older.
I’d also argue that it’s not just about money; it’s also about lifestyle choices. It was simpler for me to work more while my children were younger, and having the freedom to be around them when they were teenagers was more essential to me.
So, if someone wants to keep their job, don’t let the cost of daycare derail them. Consider the long term.
Founder and Financial Planner
True Worth Financial Planning
Open a College Savings Account
As a financial advisor and a mom of twin toddlers, I am passionate about helping parents save money. I have several tips to contribute:
Open a college savings account soon after your child is born. For holidays and birthdays, encourage family and friends to make a contribution to the account, rather than spending money on disposable toys.
Find some local new parent groups and follow them on social media. You can find other parents offloading secondhand clothes, furniture, and toys that are still in great shape.
If you have multiple children needing childcare, consider an in-home nanny. Daycares generally offer a sibling discount of only 10% off one child’s tuition, but a nanny typically gives a greater discount for additional children. If you have friends or coworkers with similarly aged children, you can set up a nanny share.
Green Building Elements
Adjust Your Emergency Savings
Growing your family entails increasing your savings as well.
To ensure that your entire family and all of your new costs are covered in the event of unforeseen financial situations, you’ll need to beef up your emergency fund. The amount you should set aside for emergencies will vary depending on your household, but you should start with three to six months’ worth of your most recent spending.
This means that your emergency savings account now reflects the expense of having a kid or another child, rather than the amount you had set aside earlier.
CFA, CFP, AIF, Founder
Clarity Financial Design
Expect Extra Expenses
The number one financial tip that I’d give to new parents is to plan for extra expenses in the first year.
Building up a solid cash reserve that can be used for the unexpected can relieve some of the financial anxiety of becoming a parent. You’ll also need to have cash on hand to cover all co-insurance and out-of-pocket medical expenses, as well as added regular expenses like diapers and baby equipment. Having a cash reserve can come in handy for getting the help you need too: babysitters, daycares, and nannies are expensive!
Lastly, we all know that lack of sleep makes it harder to control impulse buying, so a cash reserve can help cover that expensive “miracle sleep solution” you purchased for your little one during a 3 AM wake-up. Having a cash reserve can set you up for success during your first year as a parent and reducing financial pressure can help you sleep better at night… all new parents need that!
Ask About Parental Leave
While some employers offer excellent parental benefits (including paid leave for moms and dads), the Family and Medical Leave Act (FMLA) guarantees just 12 weeks of unpaid, job-protected leave each year in the United States. Take note that FMLA is not compensated. Thus, unless your firm is wonderful, you’ll need to consider any reduction in work or time off into your early baby budget.
Conduct due diligence upfront to avoid being startled. If your income will be insufficient during parental leave, try to plan ahead and save or prepare for areas where you can cut back during that time period.”
Founder & CEO
Pillar Wealth Management
Prioritize Retirement Savings
My financial advice to new parents is to prioritize retirement savings. In an ideal world, new parents would save for retirement and their child’s college tuition concurrently, but this is not always possible. If forced to pick between college savings and retirement savings, choose retirement.
Provided you have more cash available in the future, and maybe when you advance in your job or receive a raise, you can begin saving for your child’s education later. Earnings from your account can be taken tax-free if the funds are utilized to pay for approved educational expenditures.
Clifton D. Corbin
Automate As Much as You Can
The first few years after having my kids are a complete blur. I have vague memories of tiny toes, late-night diaper changes, and giggles, but the particulars are hard to recall. The sleep deprivation that most parents feel and the postpartum depression that some new mothers feel are a shock to the system. No matter how many well-meaning parents tell you to “stock up on your sleep,” the truth is you will not be functioning at full capacity once your child comes home.
My advice for new parents is to use the months leading up to their new arrival to create and automate as much of your budget as possible. You do not want to be thinking, “Did I pay the electric bill?” when you get up to do a late-night feeding.
Use that budgeting process to ensure you pay yourself first and put money into an emergency fund if you don’t have one. Setting aside as little as 10% of your take-home pay will add up over a few months to give you a buffer when you need it.
If it is at all possible, also try to live on a reduced income, especially if there will be a dip in pay due to parental leave. Living within your new budget before you need to will help relieve the strain it may cause.
Building and automating a budget in advance will help you focus on your bundle of joy, not your bills.
Let’s Sum That Up
The experts we quoted have different opinions on some issues. For example, some advise saving for education, some advise prioritizing saving for retirement and tapping retirement savings for education if needed. Those disagreements are expected: if everyone had the same advice, we probably wouldn’t need advice.
The comments here are a spectrum of opinions from different people with different experiences and professional perspectives. They will appeal to different people. We hope you find some ideas and suggestions here that will help you prepare for the next stage of your life!
What’s your number one tip for new parents? Let us know in the comments below!