Financial Tips for New Parents
January 2, 2025
Having a baby is a major life event that comes with several new expenses and decisions to think through and discuss. There is a lengthy list of items to consider updating, including your budget, bank and investment accounts, retirement contributions, insurance, tax forms, and estate documents, to name a few. These are broken down by categories below to make the process feel a little less intimidating for new parents.
Update Your Budget and Accounts
Your budget will change as your child gets older and you take on new expenses and outgrow others. Some expenses are upfront costs and others are recurring. For example, you will likely need to budget for two car seats – one the child will use for roughly the first nine to 18 months and another they will use until they no longer need a car seat. Despite the need for a second car seat at some point, you can view this as an upfront cost. Recurring expenses are those you can expect to include in each month’s budget, such as diapers, food, clothes, childcare expenses, and more. It is best to account for these costs before the baby is born so you can adjust your budget in other areas to account for the new expenses and to boost your emergency fund.
The birth of a child also marks a good time to update your bank and investment accounts. Consider adding your child as a beneficiary and opening a savings account you can contribute to each month. When it comes to investing, most U.S. states offer 529 investment plans that allow you to make federal income tax-free withdrawals to pay for qualified educational expenses. While 529 plans have historically been used for college-related expenses, many of the available state plans even consider K-12 education and trade schools qualified expenses.
Update Your Contributions
If you currently contribute toward a health savings account (HSA), it may be a good time to increase the amount you set aside each month to prepare for health-related expenses. You will likely visit a pediatrician many times in the early years of your child’s life, so take advantage of the pre-tax dollars to pay for health costs that insurance does not cover.
A flexible spending account (FSA) is another option offered by many employers. This account can be used to set aside pre-tax dollars to help with childcare expenses, including nursery school and preschool. These funds can also be used for before- or after-school care for children up to age 13. However, unlike an HSA account, the funds do not roll over from year to year, so you must use what you set aside in the account.
When it comes to retirement, it may be tempting to lower the amount you contribute from each paycheck after having a child. After all, you will be taking on new expenses that you did not previously have to consider. If you do not believe you can afford to save for both retirement and your child’s future college education, consider choosing retirement. There are other ways for your child to pay for college, such as grants, scholarships, and loans, but you cannot make up lost retirement savings.
Update Your Health Insurance
Do not be concerned if your baby is set to arrive before or after your annual enrollment period. The birth of a baby is considered a qualifying life event, and this allows you to update your health insurance or enroll in a new plan to provide coverage to your baby. Most plans require you to make necessary changes within 30 to 60 days after your child is born. If you make the changes on time, your baby should also be covered retroactively between their birth and enrollment.
Update Your Will and Beneficiaries
The birth of a child is an ideal time to update or create a will. Every parent should have a will, as it outlines important information such as who you would like to serve as the legal guardian of your children if something were to happen to you, the beneficiaries of your accounts, how you would like to divide your assets, selecting powers of attorney for health and financial decisions, and more. This information can be updated at any time but be sure to have the will notarized to help prevent potential legal issues should someone contest what is listed. It is helpful to have a conversation with an attorney to make sure everything is filled out properly, as well as the potential guardians of your children to ensure they understand your wishes.