Financial Planning Tips for New Parents

According to the U.S. Department of Agriculture, child rearing is a costly endeavor. From birth through age 17, for middle-income households, the costto raise a child in 2015 was $235,670. Add in post-secondary education and child rearing expenses, from cradle through college, can easily exceed $300,000.

Conventional cash flow wisdom is to increase income and reduce expenses to make ends meet. Having children often results in the exact opposite scenario. Expenses increase at exactly the same time that income either stays the same or is reduced. What to do? Below are seven recommendations to consider:

¨      Revise Your Spending Plan- Prepare a new spending plan (a.k.a., budget) that includes new child-related expenses such as baby food, toys, life insurance premiums, pediatrician co-payments, and child care. The only way to pay these new expenses with the same or a reduced income is to decrease expenses elsewhere.
¨      Revise Your Income Tax Withholding– Having a child affects the parents’ income taxes. There is a child tax credit for parents of children under age 17 ($2,000 in 2018), the earned income tax credit for income-eligible workers with children, and the child and dependent care credit for parents who pay for child care to work or search for a job.
¨      Plan Proactively- Prepare a list of anticipated expenses and calculate the total cost. Add a “miscellaneous” category for unanticipated items. Try to pro-rate prenatal expenses (e.g., $4,000 divided by 9 months = $445 per month) and “pay as you go” rather than purchasing everything at once on credit.

 

¨      Shop Inexpensively– Consider making purchases at consignment and thrift shops and garage sales for clothing and nursery equipment in good condition. Another money-saving option is hand-me-downs from friends and family.

 

¨      Investigate Employee Benefits Related to Parenting– Explore your options for parental leave, Family and Medical Leave, maternity coverage, disability coverage, and pediatric care. Contact your employer’s human resources department for information and assistance.

 

¨      Plan Your Estate- Draft a will, or revise a previous one, to name a guardian and back-up guardian for a newborn child. Guardians do not necessarily have to be family members. Parents can choose anyone they feel would be best suited to raising their child. Be sure to discuss your selection with the designated guardian first.