Being a first-time parent is an exciting and for many, an overwhelming experience. As you adjust to taking care of a new family member and reorienting your life around your little one, you’ll also need to consider your financial priorities.
One of the many challenges you may face in the months and years ahead is reallocating your money to support your growing family. The following ideas might help you think about how to approach spending, saving and setting yourself up for a secure future.
Consider your expenses
Take some time to think through your short-term and long-term costs. Research common expenses for new parents. Carefully considering what’s to come could help you start to plan and prioritize the bills that are most important.
In the short term, you may be focused on the immediate costs of a new baby — healthcare, diapers, baby gear and childcare are just a few expenses that will add up quickly. As you look to the years ahead, education, housing, transportation, medical needs and everyday purchases, like clothing and food, will add to your bottom line.
If thinking about the future makes you concerned about the amount of debt you might have now, you could consider consolidating your debt. However, there are pros and cons of debt consolidation. The main benefit is that you can roll multiple debts into one fixed monthly payment, optimally with a lower interest rate than what you’re currently paying. However, you could end up paying more interest over time depending on the length of your repayment term. It’s important to read all the fine print before you sign.
Build a budget
Before you welcome your new little one, look at where your money is going. Track your daily expenses to get a clearer picture of the money you have coming in and going out. Then, use that information to create a budget you can stick to — this is a helpful way to ensure the new expenses you have as a family don’t eat away at your savings.
There are several budgeting methods. A popular approach is the 50-30-20 method, where 50% of your income goes toward needs (household bills), 30% toward wants (seeing a movie) and 20% toward savings. If you want to add even more to your savings, look for ways to cut down on your non-essential expenses, such as streaming subscriptions and eating out.
If trimming your spending on baby-related costs is a priority, you could purchase some items secondhand. Or see if friends or family will let you borrow expensive items like strollers and playpens that their babies have outgrown, and hand-me-down lightly used clothes.
Add to your savings
It’s never too early to start saving for your family. Contributing to a savings account is a great way to ensure money is set aside for the future. Even if you don’t need to access savings in case of an emergency, knowing the extra money is there could help you achieve your financial goals and give you peace of mind, especially as a first-time parent.
Automating your savings through your bank is a good way to add money to your account regularly without thinking about it.
Create an emergency fund
Establishing an emergency fund that is separate from your main savings account could help you put an additional safety net in place in case of any future financial challenges, such as job loss or expensive medical bills. Saving three to six months of living expenses is a good starting point, although experts often recommend more for a family. Remember, every little bit helps.
Plan for the unexpected
No one wants to think about dying, especially when you’re young, but having a will in place could be helpful if something ever happens to you or your partner. Beyond listing someone as a guardian for your child, you’ll also want to make sure you have a beneficiary for your money, including any life insurance and retirement accounts. You could also consider setting up a trust for your child.
Beyond listing someone as a guardian for your child, your will can also outline who gets your money and belongings. For example, you might:
- Leave a certain amount of money to a specific person
- Give away personal items, such as your car or jewelry with sentimental value
- Decide that a certain percentage of what’s left after other gifts — the rest of your money and property, known as your estate — goes to your partner
- Set up a testamentary trust within your will that holds and manages your assets for your descendants until they reach a specific age or meet conditions you’ve outlined.
It’s also important to review the beneficiary forms for your life insurance policies and retirement accounts, like a 401(k) or IRA. A beneficiary form names the person who will receive the money from these accounts after you pass away. These funds typically go directly to the people listed on the forms, even if your will says something different. You can contact your insurance company or retirement plan provider to check or update these forms.
Establish a secure financial future for your family
Tackling your finances head-on can take some of the stress out of being a first-time parent. By considering your expenses, building a budget, padding your savings, creating an emergency fund and planning for the unexpected, you can work toward providing a solid financial foundation for your loved ones.
Notice: Information provided in this article is for informational purposes only and does not necessarily reflect the views of aggr8budgeting.com or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.
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