Becoming a parent brings a wealth of new experiences to your life. It also brings new financial responsibilities and considerations as you support your growing family.
From daily budgeting to long-term planning, new parents will benefit from taking proactive steps to review their finances and implement positive changes. Here are six steps you can take in the early days of parenthood to set yourself up for success.
1. Revise your budget.
New baby means new costs. Diapers, food, clothes, childcare, and checkups add up quickly. Account for these added costs in your budget, and look for ways to lower monthly expenses (if needed) elsewhere.
Keep in mind that while certain spending categories may go up, others—such as restaurant and entertainment—might go down, presenting some easy options to trim existing costs and keep your budget on track.
2. Adjust your life insurance policy, or add a new one.
If you currently have a life insurance policy, you should add your child and additional coverage to your policy during the amendment period. Life insurance can only be amended during limited periods of time, including major life events, so it’s important to make these changes within the allowed period. If you miss your amendment period, you may have to wait years before you’re able to add new coverage.
If you don’t have a policy in place, consider purchasing a policy to protect you or your family members in the event of an unexpected loss. It’s never fun to think about these scenarios, but life insurance will provide your family much-needed financial security in the event of a loss.
3. Open a Dependent Care Flexible Spending Account, if you plan to pay for childcare.
Dependent Care Flexible Spending Accounts (FSAs) allow you to commit $5,000 of your pre-tax income to childcare. This can save some families more than $1,000 on their taxes every year. Although this amount likely won’t cover the total cost of full-time childcare, it offers meaningful financial relief through reimbursement for childcare costs.
4. Consider starting a college savings fund.
If you hope to build up a college savings fund for your child, early saving leads to extra earnings. You can set up a 529 savings plan and designate your child as a beneficiary. You can also add beneficiaries over time to cover additional children, or you can set up an individual fund for each child.
In Missouri, a portion of these contributions can also be deducted from your state taxes.
5. Increase your emergency fund.
Adding a child to your family increases your living expenses, and higher living costs mean you need a larger emergency fund in case of unexpected financial challenges. With a new member of the family, it might be time to increase your contributions to that fund and build up additional financial security.
If you aim to keep three months of living expenses in an emergency fund, for example, a child’s impact on your monthly spending will mean you need to increase this emergency amount. If you can’t increase this amount all at once, make gradual contributions over time to reach this target dollar amount.
6. Create or amend your will.
Many young people don’t have an up-to-date will—or any type of will, for that matter. But with a child in your care, you should update your will to include financial beneficiaries and to designate legal guardians for your child.
Much like purchasing life insurance, the scenarios involved in preparing a will can be stress-inducing, but they provide important long-term security for not only your finances, but also your children and any other beneficiaries of your estate.
Kids aren’t just expensive—they also require extra attention to your financial planning. Get a jump start on these financial steps so you can quickly improve your financial stability.
Discover more valuable tips in The Financial Readiness Guide for New Parents.