Financial Tips for New Parents in 2024
Being a parent is amazing but extremely challenging — especially for new parents. If you don’t get a handle on the chaos early, it can extend into all aspects of your life, including your finances.
I recently became a dad and absolutely love my fearless toddler, as she makes me better every day. While I wasn’t prepared for all the emotional roller coaster rides I would experience as a new parent (sleep training is the absolute worst), I was well prepared financially.
This writing covers the top financial tips I recommend making for your bundle of joy. It’s an accumulation of countless hours of researching online and talking with more seasoned parents on financial tips they made (or wish they made).
Preparation is key — it will help to maximize investment return and provide peace of mind, allowing you to focus your energy on your family. My hope is that it will help you on your journey as a parent.
Here are the eight financial tips you should make as a new parent:
Add to your health insurance plan
Consider additional insurance coverage
Update beneficiaries
Create a will
Make a budget
Build an emergency fund
Invest in yourself
Invest in your kids' future
Add to your health insurance plan
Did you know it's up to you to add your newborn to your health insurance plan? I had no idea! I assumed the doctor would notify them, considering they send all of my bills to the health insurance provider. Nope, that's on you as a parent. You can give your provider a heads-up before the baby is born, but most simply require a call once the baby is born.
No need to call that same day (most plans allow 30-60 days) - enjoy your new baby! The birth counts as a qualifying life event, no need to wait until open enrollment. When you have a few minutes, simply contact your insurance provider and you'll be able to update your benefits. It's also a great opportunity to adjust anything else you've been meaning to tinker with, such as HSA contributions.
Thankfully the medical providers are well aware of this delay and will still provide your baby treatment without insurance. Newborns will have several outpatient visits after being released from the hospital, expect the bills to add up in the first few months.
There will be this awkward period when your child's doctor is requesting payment before it has been processed by the health insurance provider. Hold off making any payments! The doctors will adjust the amount due once the insurance has been updated and the claims processed.
Consider additional insurance coverage
Life happens. Beyond health insurance, I would consider purchasing life insurance and disability insurance. On the surface, both are a bit similar. In exchange for a premium, you will receive a payout when a specific situation occurs.
Life insurance provides a payout once you pass away. The two main types are term life insurance and permanent life insurance. Term life insurance is a more affordable option out of the two and is the most common. One downside is that term life insurance only lasts for a set period of time. This means you'll need to purchase enough coverage until you believe that your family will be self-sustainable. On the other hand, permanent life insurance provides coverage as long as you pay the deductible but is typically much more expensive.
Disability insurance covers you if an incident happens and you are deemed disabled. There are two types, short-term and long-term disability. Each covers a specific set of time and depends on the policy and how long you meet the definition of disability. There are also nuances here, depending on your situation, you could file for Social Security Disability coverage as well. Consult with your insurance provider and ask for a copy of their policies to get a deeper understanding of what your coverage entails.
Many employers offer coverage for the above and usually receive a bulk discount. I'd recommend starting with your employer benefits team before seeking private coverage.
Update beneficiaries
Now that you have a new dependent, it's time to consider updating your financial accounts and adding your child as a beneficiary. Even though this doesn't have to be done right away, it's a crucial step and something that shouldn't be forgotten, especially if you don't have a will created.
By adding your child as a beneficiary, you're setting them up to provide for themselves in case something happens to you. You should be able to update most of your accounts fairly quickly, but some will require you to provide your child's Social Security Number. If so, you'll need to wait for a few months to receive it before updating the account.
If you're married and you don't have a will or any beneficiaries listed, your spouse will automatically receive the assets, at least in most states and situations (there are always exceptions). If both parents pass away at the same time, or if you're a single-parent household, it's especially important to have this detail ironed out.
Account beneficiaries should be either your children, a trust, or at the very least, the person you hope will step in if something was to happen. I'd recommend consulting with a legal and tax professional to determine the best plan for you and your child.
Create a will
After updating your account beneficiaries, I would consider setting up a will. A will is a legal document that outlines your wishes for what to do with your estate once you pass away. This document goes beyond financial assets and real estate to include who will step in and take responsibility for your child (if they are still considered underage in your state).
There are a lot of nuances to creating a will, including setting up trusts and assigning roles and responsibilities. You can assign different people to take care of your child day-to-day versus managing their money. Not all wonderful caretakers are financially savvy, and not all budget masters are the best caretakers. Consult a legal and tax professional to put a plan in place.
Make a budget
Do you know where your money is going every month? If not, I highly recommend creating a budget. Children are extremely expensive, the first year alone can cover over $20k! Creating a budget is the foundation for a good financial plan. By tracking where your money is going, you'll have a clear picture of what you're spending, where you can save, and the amount of money you have to invest.
Budgeting can also be a fun activity for the entire family, prioritizing spending together, setting goals, and setting aside money to create fun memories. A great place to start is the 50/30/20 budget, which is one of the most popular budgets to use. All your money falls into three categories: 50% needs, 30% wants, and 20% savings and debt management.
Use these metrics as a starting point, but the more you can throw at the savings and debt management category the better, your future self (and children) will thank you.
I realize that especially as a new parent, it's hard to take the time to create and manage a budget. There are some great budget apps available to download that are super easy to use. I prefer a spreadsheet to track our household expenses - it keeps my centralized information private and it only takes a few minutes per month to update.
If you'd also prefer a spreadsheet over an app, check out the budget planner I created, it only takes a few minutes each month to update and includes some great visuals.
Build an emergency fund
It's important to keep cash on hand in case of an emergency. This includes anything that is unexpected and carries a pretty big price tag, including a car breakdown, a pipe bursting in your basement, or an emergency hospital visit.
There are many opinions about how much you should keep in savings for an emergency fund. Most will say 3-6 months of living expenses. My take is that it depends on your situation. If you work in a high-in-demand occupation (ex. nursing) and lose your job, you'll likely be able to find another one fairly quickly. In that case, keeping 3 months of living expenses in cash makes sense. If you work in a very specialized position, such as a professor of bowling management, it may take you a bit longer to find another role.
As parents, you have additional mouths to feed, so I'd put away as much as needed to give you peace of mind and know you'll have enough to take care of your kids.
Saving for an emergency fund is no easy feat and takes time and determination, especially in our current economic climate. Everything cost more! It's insane. Start small - make a goal to set aside $500 and then slowly work at adding to it with every paycheck. The short-term sacrifice is worth it.
The last thing that you want to do is take on debt when an emergency happens. Credit cards and personal loans are great but carry high-interest rates that will set you back.
Invest in yourself
This is one of the most important steps - don't forget to invest in yourself! Whether you had a plan you were working towards before children or dreamt up something new, continue to make it a priority. This can be anything from putting away money for retirement, spending money to advance your education and career, or starting a business.
My only word of advice is to not take on so much at once that you miss your kids' growing up. I knew for years that I wanted to write about personal finances, but it wasn't until my daughter that I finally had the inspiration (and courage) to put pen to paper. That being said, I refuse to miss out on time with her, so I typically write late at night once the household is asleep. It takes me much longer to produce content but it means countless memories with my daughter, who I know I have limited time with. It's a no brainer for me.
Invest in your kids' future
Now that you've tackled all of the above and have your goals set, it's time to invest in your kids' future. There are approaches to consider - the top five that I would recommend are 529 plans, UGMA/UTMAs, Roth IRAs, Brokerage Accounts, and Savings Accounts. As with everything parenthood-related, the path forward depends on you and your family.
For example, my wife and I opened a 529 plan for our daughter after she was born and started putting money away for education (primarily college). We invest a few dollars per month and through the power of compound interest, she'll have a nice start for college when and if the time comes. As she gets older and our life circumstances change, we'll consider the other accounts as well. There are pros and cons to each account, take the time to figure out what works best for you.
A final thought
Our kids are always watching us, even when we don't realize it. Lead by example. Show your children how to be good financial stewards and make smart money moves. Like a baby taking its first steps, the hardest part is getting started.
