Financial Planning Tips For New Parents (2024)

I’ve only been a mom for eleven years, but I remember wishing that all those “baby how-to” books told you how to prepare financially for having a baby. No joke, less than 24 hours after my oldest child was born, and before they allowed me to shower, a woman came into the hospital room asking me for payment. I was so sleep deprived and so confused. I had failed to plan to have money ready to go. Not only was this moment jarring, but it wasn’t the only moment my husband and I found ourselves lost as to what to do when it came to money as new parents. So here are a few of the financial planning tips we wished we had had as new parents all those years ago.

1. Know Your Insurance Coverage

Right out the gate, if you have insurance, you need to know what your insurance covers and doesn’t. This was a huge mistake that we made. I failed to pay attention to the fact that our health insurance was an 80/20 plan at the time. This meant that our insurance was only going to cover 80% after we met our deductible, and we were responsible for the remaining 20% plus our deductible. This is why that lady came into our hospital room asking for payment.

So if you don’t know what your insurance will cover, make sure you go check that now, especially if you haven’t yet given birth. Plan now so you’re not caught off guard later on.

2. Take Advantage of Your Employee Benefits

If you aren’t taking advantage of the benefits at work, you’re missing out. Employee benefits are a part of your compensation package at work so it’s in your best interest as a new parent to max them out. The most common benefits are employer contribution matching (in your retirement account), student loan reimbursem*nt (or even direct tuition payments), life/disability insurance, dental and health benefits, paid maternity or paternity leave, free classes, and catered lunches.

3. Pay Down Debt

Hands down, the greatest gift we ever gave our three children was becoming consumer debt-free. When your income is no longer being swiped away by minimum payments every month, it’s like giving yourself the biggest pay raise. I know that when you become a new parent, it’s tempting to buy everything for your new babe. But trust me – as a mom to three, there are very few things that your child truly needs in the early years. Please don’t go into deeper debt being influenced by the mom influencers selling you boutique cuteness.

Make a goal to pay down your debt this year and avoid going back in it. Ultimately, your family will be happier, and life will feel more sustainable without that burden weighing you down.

If you’re struggling with this idea of paying off debt, here are a few previous posts that I’ve done about our own debt-payoff process. And if you need even more help, my book Getting Good with Money (the Kindle version is currently only $2.99 for the month of April!) will give you a blueprint to follow to help you figure out the best way to achieve your financial goals!

Our 6-Year Debt Payoff Journey –> https://jessifearon.com/2019/04/how-this-family-became-100-percent-debt-free.html

Simple Steps to Take to Start the Debt-Free Journey –> https://jessifearon.com/2019/03/simple-tips-for-starting-the-debt-free-journey.html

Have over 6 figures of debt? Here’s the debt payoff plan I created for one of my coaching clients —> https://jessifearon.com/2017/08/over-six-figures-in-debt-heres-how-my-friend-is-overcoming-an-impossible-situation.html

4. Protect Your Family in an Emergency with an Emergency Fund

Life will happen. And you won’t always be ready for it when it does. That’s why you need to have an Emergency Fund. My best advice is to have an Emergency Fund of at least three months when you first become a parent (with the ultimate goal of six months). If a major car repair of more than $2,000 would completely wreck you financially, you need an Emergency Fund. After all, you can’t keep yourself and your new family out of debt if you don’t have an Emergency Fund that can protect you in the event of life hitting you.

So how do we make building up an Emergency Fund possible?

First, you want to establish your Starter Emergency Fund, which should only hold about one month’s living expenses. What you need to do is tally up all of your living expenses for an average month. Now keep in mind this is just your living expenses. If you were to lose your job tomorrow, you’re probably not hitting up happy hour with friends this weekend. Nor would you go on lavish vacations or spend any money because you no longer have the safety net of a job, right? Well, that’s what you’re doing here. You’re tallying up the living expenses – the things you would pay for even if you didn’t have a job. Things like your rent/mortgage, utility bills, insurance payments, groceries. Just the things to keep a roof over your head and food in your belly.

Once you’ve tallied up those costs, you know how much of a Starter Emergency Fund you need. And since you know how much a typical month’s living expenses are, you can easily figure out how much you’ll ultimately need to have in a six-month emergency fund by multiplying that number by six.

Practical Ways to Set Up an Emergency Fund

• Set up small weekly transfers to your Emergency Fund (join the $5k Challenge here for ideas on how to do this!)
• Apply cashback earned from sites like Rakuten immediately to your Emergency Fund.
• Use a High Yield Savings Account for your Emergency Fund (we use CIT Bank for ours)
• Go on a No Spend Month
• Immediately transfer your bonus money or tax refund money to your Emergency Fund.

Remember that the initial goal is to save up that Starter Emergency Fund. Then, figure out the next best course of action once that’s done. Should you pay off one of your high-interest rates debts? Do you need to save up for an upcoming home project that needs to be done? It’s okay to hit pause on aggressively saving up a full six-month emergency fund, but remember that you must hit the unpause button and build it up. I recommend building up the Starter Emergency Fund, then temporarily pausing for a month or two and working on another financial goal. Then build up to a three-month emergency fund then temporarily pause to work on another financial goal. Once that’s done, pick it up again and build up a six-month emergency fund.

5. Buy Term Life Insurance

Yes, you need life insurance. As mentioned in number one, check to see if your employer offers this, but if not, get your own policy. Term Life is cheap insurance and will ensure that your loved ones are cared for should something happen to you. You and your spouse need to have Term Life Insurance. You can easily update the insurance to a new policy as you grow your family. But make sure you’re protecting them today with proper insurance.

6. Keep Saving (or Start Saving) for Retirement

If you aren’t already contributing to your retirement, it’s time to start. Please don’t leave your child to have to care for you financially when they’re an adult raising their own family. Plan and save now for your future. This doesn’t have to be complicated. First, check with your employer if they offer a match. If they offer a match, take advantage of it up to that match. For example, if the match is 6%, contribute only 6% of your before-tax income to your 401(k) and then contribute to a Roth IRA or Taxable Brokerage Account.

And whatever you do, please do not stop saving for retirement, no matter what. Don’t skip out on saving for retirement to save for your child’s college education. Yes, it’s a nice gift to provide for your child, but if you don’t first build up and save for your retirement, you will burden your child in the future with having to care for you. Put your own oxygen mask on first and then save for your child’s college education if you so choose to.

7. Create a Written Budget

It seems strange to leave this one for last, but it’s essential. Most folks skip this step even though it’s one of the most important things you can learn to do when managing your money. Creating and working on a written budget for every paycheck will help you achieve your financial goals. This will make sure that you can effectively pay off debt; save up an emergency fund; save for retirement; and bless your family with other financial goals you deem important.

A quick rundown of creating an effective budget:

• Start your budget with your current money sitting in your checking account.
• Look at the calendar – when do you get paid next?
• How many days/weeks does the money in your checking account need to last you?
• Looking back at your calendar and your upcoming bills, what will be due between now and next payday?
• Subtract those bills from your current checking account balance.
• What’s left is what you must make work between now and your next payday.

The key to budgeting is giving yourself information. That’s what you’re doing with this budgeting method. You’re giving yourself information to learn to manage your money better. The more you do this, the better you’ll get at it and the better prepared financially you’ll be as a new parent.

8. [Bonus] Create a Sinking Fund

One of the best ways we’ve been able to make sticking to a budget effective as parents is by setting up Sinking Funds. We have one for auto-related expenses (minor repairs and normal maintenance things like oil changes); kid-related expenses; pet expenses; vacations; Christmas; home maintenance.

By using Sinking Funds, we guarantee that our family has money set aside for various expenses that could pop up – planned or unplanned. My best advice to new parents is to set up a Sinking Fund for baby expenses if your child is not yet born. Put some money in this account to help build up funds to pay for the things you don’t receive from baby showers. The next fund I would suggest you go ahead and set up is a Christmas Sinking Fund. With a babe, Christmas probably won’t be expensive, but as your child and family grow, this expense could go up faster than you’re prepared for.

Next, set up a Vacation Sinking Fund. Even if you don’t vacation for a few years while your baby is small, you’ll have cash ready to pay for that next beach trip (or maybe even a trip for you and your spouse!). By utilizing these various sinking funds, you’ll keep your family from having to rely on debt. You’ll be able to enjoy life without worrying about how you’ll pay for it.

Common FAQs:

Q: Should I set up a Will?

Having a Will is a great idea! Especially after you become parents. However, this is always tricky to answer because creating a Will can sometimes be expensive. If you plan to grow your family even further in the future, you could end up paying a lot for multiple Will creations. The best thing to do is to research your specific state laws about creating a Will. For example, here in my state, Georgia, we can write our Will on a paper napkin, and it can be deemed legal. This, though, is not always the case, so check with your own state. You can use sites like LegalZoom, which can be less expensive than going through an estate attorney.

Q: How do I afford childcare?

This one starts with managing your money well through intentional budgeting. After all, you can’t plan for childcare expenses if you don’t know what you have to work with. The next step is to check with your state or local municipality to see if they offer any programs or assistance for childcare expenses. Sometimes these programs have long waiting lists, so check on this ASAP, even if your baby isn’t yet born. If your state doesn’t offer or you don’t qualify for childcare assistance, set up your kid-related Sinking Fund and start contributing money to it right now. Build up that account so you’ll have money ready for childcare expenses once your baby arrives. You may also decide that you or your spouse should stay home while your baby is small to save on those expenses. Here’s a post detailing ways to make becoming a stay-at-home parent possible.

Q: When should I open up a savings account for my child?

We opened our children’s savings accounts as soon as we received their SSN cards. We use high-yield savings accounts for them (we call these their Life Accounts). They don’t earn as much interest as an investment account like a 529 would, but this money can be used for other expenses. A 529 account is a great option to save for college tuition for your children and can also be opened once you have their SSN.

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