Financial Tips for Parents
Critical Financial Know-How for Growing Families
Whether you’re expecting or that new bundle of joy has already arrived in the world, it’s an incredibly exciting time. Your family is growing. You are probably thinking about things like whether your home is large enough, or perhaps you’ve already moved to a new home. Perhaps you’re thinking about trading in your car for something larger. You could be struggling with sticker shock when it comes to things like diapers and formula. Below, we’ll provide 7 financial tips for parents.
Love might be the most important ingredient for a happy family, but money also plays a critical role. Parents often face unexpected costs related to their children, from labor and delivery to bringing the baby home to childcare, clothing, food, and saving for college. In this guide, we’ll walk you through some of the most important financial tips for parents.
Pay Down Debt
The first thing you’ll want to do when you discover that you’re expecting is tell everyone. The very next thing you need to do is start paying down your debt. The closer you can get yourself to being debt-free, the better off you’ll be once that bundle of joy arrives. If you’re struggling with credit card debt, consider either the snowball or avalanche methods to get rid of it. Every debt you’re paying on reduces your household’s budget, and parenting is usually more expensive than most people realize.
Know Your Insurance Coverage and Costs
Get to know your insurance coverage when it comes to things like labor and delivery. Having a baby is expensive, and even with health insurance, you may still find yourself saddled with thousands of dollars in unexpected costs. Know what your insurance company will cover and what it won’t so that you can go into things with your eyes open. Things that you’ll need to consider here include prenatal care, labor, and delivery.
Work and Care Considerations
Before baby gets here, make sure that you and the other parent are in agreement about how you’ll care for that new bundle of joy. Will mom be staying home with the baby after her maternity leave expires? If so, do you have a plan to cover that reduction in your finances? Will there be any unpaid leave on the part of the other parent? Know how your finances look following the birth of the baby.
You should also plan for the impact of childcare on your life. Often, new parents find that childcare can be so expensive for a baby that it may make more financial sense for one spouse to stay at home to provide care and return to work later. Of course, that will have an impact on your family’s overall financial health.
Track Every Dollar
Parents should create a budget before their baby gets here, but financial planning should extend far beyond that. Unless you’re financially independent, you’re going to want to track every dollar you spend, whether it’s on diapers or coffee, baby furniture, or lunch, co-pays for well-checks, or something else. Know what you’re spending and where, so that you can make any needed adjustments to your budget.
Cutting wasteful spending before your baby arrives is crucial, and will help with tracking your expenses. Ideally, you’ll follow a zero-sum budget that accounts for all income and expenses per month with every dollar that comes in being properly allocated and accounted for so you can easily identify extraneous expenses and overspending.
Build an Emergency Fund
It’s amazing how often unexpected costs crop up in life with a family. Parents need to have an emergency fund to account for these unanticipated costs. This is one area where parents often struggle, as they feel that dealing with the unexpected as a parent will be similar to dealing with surprises that cropped up prior to parenthood. The problem is that family-related emergencies are often orders of magnitude greater than those experienced by singles and couples without children.
Ideally, you’ll have between three and six months’ worth of living expenses saved up in an account that is never touched for any other purpose. It’s even better if you can save up to cover an entire year’s worth of living expenses. That way even the loss of a job will not have a detrimental effect right away.
Plan for College Now
When should you start planning for your child’s college education? As soon as possible. It’s ideal that you look into this as soon as your child is born – saving for college over time is a great deal more affordable than worrying about it when your child gets older. There are also plenty of ways that you can create a college fund for your child, including 529 plans.
Just opening an interest-bearing savings account and then depositing money in that account regularly can at least offset the cost of college, even if it won’t pay for school outright. For a full discussion on how to save for your child’s college education, read this post.
Consider Life Insurance
Life insurance – most of us don’t think about it much when we’re young, but it pays to invest in this protection early on. Many young, healthy parents assume that life insurance is a needless expense. After all, they’re still in great shape with decades of life ahead of them. Why bother now? Actually, the right life insurance plan can provide your family with financial security in the case that something unexpected happens to either parent (if both parents have life insurance policies, of course). Life insurance policies can also help later in life – even adult children will need financial help paying for end-of-life expenses, and the right policy can even provide your children with at least a small inheritance after your passing.
These are just some of the financial considerations that parents will need to make. Financial planning begins before the baby is born and will play a central role in your life for many years to come. The good news is that when handled properly, you can ensure a bright, stable future for your family.
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Further reading for new parents: