You have been preparing for months for the moment you get to bring your new child home. The crib is set, the nursery is painted, and diapers are lined up in preparation for your new addition to the family.
Although you have your game face on, you may still be stressed about the many aspects of parenthood that you can’t predict when it comes to having a baby. One way for new parents to reduce the stress of having a child is to make sure finances are in place.
Here are 6 tips that serve as help for new parents. With these financial tips, you can put the right systems in place to make sure you can take good care of your new baby, your family, and yourself!
1. Create a budget
When you’re planning to have a baby, it’s pretty well understood that you’ll need to spend more money than you’re used to, but by planning ahead, you can ensure you won’t overdo it. If you’re awaiting the arrival of your first child, there are many one-time expenses that will need to be purchased. For example, you’ll need to spend money on a crib and a stroller.
Recent estimates put annual expenditures at just under $13,000 per child per year. Plan your budget accordingly, and take good care of these more expensive items so that you can use them for more children in the future.
When building your budget, get a realistic picture of your monthly income and essential monthly expenses, including the costs of rent, mortgages, food, gas, and more. After deducting these essential expenses, the remaining income can be used to save for retirement or college. You can also start creating an emergency fund. We’ll get to those in a moment!
To help monitor cash flow and track your budget, Moneylion®️ personal finance tracking makes it easy to set goals and stick with them.
2. Build an emergency fund
Life is full of unexpected events, from changes in employment and home repairs to car emergencies and health problems. To protect your family, it’s a good idea to have at least three-to-four months’ worth of expenses saved in an emergency fund. When taking the new addition to your family into consideration, it’s a good idea to increase the amount in your savings account with an additional $3,000 to $4,000 for added security.
Another option is a MoneyLion Plus membership which offers a monthly savings plan known as the managed investment account. You’ll also have access to 5.99% APR loans and credit monitoring. Check out the MoneyLion app or learn more online. You will be thankful you did, especially if any emergency medical bills pop up or you face changes in employment.
3. Select life insurance
Life insurance is not something many people want to think about, but it is affordable and it provides important security. For new parents, life insurance provides security of knowing that if the worst were to happen, your family would be protected. You have health insurance or car insurance, but your life is far more valuable.
Term life insurance is meant to cover your income in the event that you pass away and aren’t around to provide for your family. The term of your policy will usually be between 15 and 30 years, which is just enough to cover your child through adulthood. If you’re not sure how much coverage to get, take your yearly salary and multiply it by the number of years until your child turns 18. Then, add the anticipated cost of a four-year college onto that value.
Although it sounds like a lot of money, term insurance is known for being affordable and it can start as low as $10 per month. It is also worthwhile to consider short- and long-term disability insurance. These are meant to cover your family in the event of an injury or an accident.
4. Create a will
While you are making provisions for your family through life insurance, it is important to create a will as well. This is often a simple, notarized document that states not only who will receive assets and inheritance money but also who will take care of your children in your absence.
The idea of a will is scary for new parents to think about, but it’s important. By spending a few minutes designating a guardian and delineating financial provisions, you’ll ensure the protection of your child no matter what happens to you.
You will also want to create a living will that notes all of your medical directives and preferences, including your decision about life support and organ donation. Again, stating your decisions on these matters now will make sure you are the one in control of your future.
5. Keep saving for retirement
Many new parents get swept up in the excitement of a new baby, which makes sense. However, try not to let yourself forget about taking care of your own personal financial goals. Retirement planning is often put on the backburner by accident, too.
It’s important to recognize that your future goals and responsibilities are still just as important as they were before having a new baby. If you must discontinue contributions into your IRA or 401(k), do it for as little time as possible. You’ll want to contribute as much as you can early on in your career so that you can take advantage of all the interest you’d be earning.
Moneylion investing comes with $0 management fees which can help you invest your savings responsibly while capitalizing on long-term growth.
6. Start saving for college
If you’ve successfully checked off the first five steps, now is the time to start saving for your child’s future college tuition. Even small contributions will grow, and by the time your baby is ready for college in 18 years, he or she will have money to put towards tuition.
Currently, the average yearly cost of a four-year public school is around $10,000 for a public college and $34,000 for a private college. That’s not even taking into consideration the fact that prices go up each year. The earlier you start planning, the better!
Start a separate savings account dedicated to your child’s college education, and set up an automatic monthly contribution through your bank. An interest-bearing account works best for long-term savings but you can also try a 529 plan, which is a tax-advantaged savings plan designed to encourage college savings.
You can also start an investment account for your children. It is never too early to start investing for kids! However, if you have to choose between saving for retirement and saving for college, it is better to choose retirement savings. There are loans and financial aid available for college, but these do not exist for retirement funds.
A little planning now will pay off in the future
Although it is easy to get swept up in the excitement of having a new baby, it’s important to take a little time to ensure the financial security of you and your growing family. With the help of Moneylion’s investing, banking, and personal finance tracking features, you’ll be well on your way to financial freedom and building long-term security for your family. Congrats!