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10 Crucial Components of First-Time Parents' Financial Planning

Prospective parents should adhere to these key financial steps before beginning the journey.

By Odedele BadiruPublished 2 years ago 6 min read

Financial duties are one of many responsibilities that come with becoming a parent, including planning ahead to invest in your child's future and setting aside money for basic requirements.

A child can be a jumbled bag of emotions. Fear, anxiety, and uncertainty can be difficult to deal with even while anticipation, enthusiasm, and exuberance are all good things to enjoy. Obstacles abound in parenthood, but having a road map can help you get over most of them. Being financially stable is among new parents' top priorities. Everything begins on the first day, from taking care of necessities like food and clothing to taking care of your child's future medical and educational costs.

Before starting the journey, prospective parents should follow these 10 crucial financial steps:

1. Purchase a Life Insurance Policy

Now is the time to purchase life insurance if you don't already have it. Although no parent wants to consider this possibility, purchasing a term life insurance policy online requires very little effort, according to financial advisor Taylor Jessee, director of financial planning at Taylor Hoffman Wealth Management.

Jessee says it normally makes sense to purchase a larger insurance for the parent who earns more in order to make up for their lost income if both parents are employed. Consider purchasing life insurance for the parent who stays at home even if only one parent works outside the home to help with child care costs.

2. Making a New Budget

Your expenses as a couple or an individual may be very different from those you might incur as parents. The majority of people's money is typically spent on themselves and their specific future demands, including retirement, possessions, loans, etc. However, your spending is going to vary significantly when you have a child.

Some of the most frequent costs borne by new parents include clothing, food supplies, utilities, baby proofing, the costs of doctors and nannies, etc. These could cover a sizable percentage of your spending. Therefore, you might need to change some of your normal spending if you're thinking about having a kid, expecting one, or already have one. Reduce your debt as much as you can.

The usage of credit cards should be stopped, and debts and mortgages should be paid off as quickly as feasible. To make room for the child, you might also have to cut up on a lot of small extracurricular costs like eating out, traveling, etc. Now is the ideal moment to prioritize saving money and purchasing safer tools. The higher quality of life you and your family can experience depends on how financially stable you are.

3. Adjust Your Emergency Savings

Savings must increase as your family grows. To ensure that your entire family and all of your new costs are covered in case of unanticipated financial events, you'll need to boost your emergency fund.

"Depending on your family's needs, you should start by setting aside three to six months' worth of your most recent spending. This implies that as opposed to what you had previously planned for, your emergency funds now represent the expense of having a child or another child "says SoFi's financial planning manager and financial adviser Brian Walsh.

4. Start Thinking About Childcare Early

Childcare may seem like a far-off responsibility if you just found out you're expecting. It's never too early to start thinking about it, according to financial advisor Melissa Anne Cox, and waiting too long might lead to unforeseen costs.

Before the baby is born, "visit a few daycare centers to get a sense for the setting and ask about waiting lists and registration," she advises. "I've seen a lot of new parents wait until the month before they return to work, only to discover that centers are full, which frequently results in having to pay more than is affordable," she said.

5. Automate Everything You Can

You might not have much spare mental power to think about expenses while you're busy raising a baby and managing your daily life. Misty Lynch, director of financial planning at John Hancock, advises all first-time parents to set up automatic bill payments in order to manage their finances despite the turmoil and exhaustion of parenthood.

Since you don't have extra mental room to take on additional chores after having a child, it's easy to let some things fall by the wayside, she explains. "When I had my first kid, I was overwhelmed with all the things I had to accomplish.

"I ultimately failed to make a bill payment, which caused my interest rate to soar. Fortunately, I called the company, and they changed it back to normal, but it cost me time and energy that I could have spent on other tasks."

6. Meet With a Financial Planner

Financial expert Jordan Benold suggests meeting with a Certified Financial Planner for additional advice on how you and your partner may best manage your finances as parents. A CFP can help you make sure you're financially prepared and can guide you through investments like college and retirement.

When he was a first-time father, he met with a CFP, which gave him the peace of mind that, in the event of an emergency, his financial and guardianship interests would be adequately protected.

7. Setting Up or Updating a Will

A will is a crucial component of every parent's financial strategy. Make sure to revise your will if you already have one whenever you have children. It's a good idea to start one when you become a parent if you haven't already.

A detailed legal instrument like a will can be utilized to protect your child's life. A will allows you to leave your property to your children. In the case of minors, it is also essential to establish a trust so that choices can be made in their best interests in the event that you pass away.

Additionally, it is advised to cover all bases, such as designating a guardian for your kids. This individual is capable of raising them until they are adults and managing your estate until it is distributed to the correct heirs. Additionally, you must have a will if you get remarried and adopt your ex-kids, spouse's foster a child, get divorced, or get widowed.

To ensure that your children ultimately benefit from your will, make careful to revise it whenever a significant life event occurs.

8. Saving for their Education

Parents have been concerned about higher education costs for decades. It may be difficult for the youngster to bear the full cost of tuition in the form of student loans. By beginning early, you as a parent can share this burden. You can contribute to a 529 education plan to save money for your children's future college costs.

If withdrawals from a 529 plan are used for qualified expenses like tuition, school fees, books, supplies, computers, or other course-related equipment, they are tax-free. With regular payments, you can amass a sizeable sum over time. The rate of return from this account can also be utilized to adjust for inflation and the nation's rising expense of higher education.

9. Teaching Good Financial Habits

It's crucial to teach your child important lessons about how to handle money from the beginning, along with making the required preparations and implementing the proper tactics to give them the greatest possible life. Providing your children with financial education can help to ensure that they have comfortable lives.

You can start out by simply assisting them in creating a budget for their pocket money before moving on to more complicated financial plans. For instance, it is beneficial to inform your children of your savings in a 529 plan or your intentions to leave specific assets to them in your will.

Depending on the age of your child, you can do this whenever you feel like it. The youngster gains discipline as a result, and their role models also teach them important financial lessons.

10. Getting Health Insurance for the Child

Without sufficient insurance, it is impossible to guarantee your child's future. Every member of your family, including your youngster, needs health insurance. You can look for a way to add your child to your family coverage if you and your partner have one. Most insurance companies provide you the option to add members based on your evolving living circumstances.

You may also do this if your work offers an insurance program. Insurers typically provide a time frame within which you can add the child after birth or adoption to the current plan. To prevent any lapses or delays later, try to find out these specifics ahead.

Another crucial factor to keep in mind is that children with specific medical conditions may have different health insurance coverage. Additionally, compared to a typical plan, the insurance premium for children with special needs may be greater.


About the Creator

Odedele Badiru

Odedele Badru is a freelance content marketer who promotes growth of businesses. His articles have appeared on a number of websites, including BusinessDaily, Entrepreneur. He holds both a marketing and public relations diploma and an MBA.

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