Financial Preparedness for A Growing Family

When becoming a parent, the financial decisions you make early on can set your child up for their future. The U.S. Department of Agriculture projects that a middle-income family will spend an average of $310,605 raising a child from birth to age 18 – but don’t let that number send you in a panic. There are things you can do to ease the financial transition into parenthood and help reduce the stress that comes with expanding your family. Here are our tips to prepare financially when growing your family.

Create a spending plan. One of the most important things you can do as a new parent is to create or update your spending plan. This will help you understand where your money is going and allow you to be thoughtful about where you choose to spend your money. Factor in everyday expenses of having a child like childcare, diapers and clothing, as well permanent adjustments like insurance increases or a new savings account.

Build an emergency fund. Having an emergency fund can provide a financial safety net in case of unexpected expenses. Ideally, your emergency fund should have enough money to cover at least three months of living expenses. This isn’t accomplished overnight, contributing something every month is a win.

Get life insurance. Having life insurance can provide financial security for your family and care for your child in case something happens to you. It's important to consider this coverage early as the younger and healthier you are the lower the premium will be.

Review your benefits. If you or your partner are employed, review your benefits to see what kind of parental leave and childcare options are available. Some employers may offer paid parental leave, flexible work arrangements or subsidies for childcare.

Start a savings account. Contributing to a savings account for your child provides them with the flexibility to achieve their goals and lessen the burden of debt in any life path they choose. There are several options available, such as a 529 plan that can provide tax benefits while also allowing your child to access the funds for education or other school-related expenses when the time comes. Starting in 2024, you can roll over unused 529 funds into a retirement account for them.

Make a will. Having a final will and testament in place is important for parents with children as it allows them to specify guardianship for their child, distribute their assets according to their wishes and minimize the chance of disputes among family members. It will expedite any proceeding legal processes and provide peace of mind by ensuring the future of the child is protected and the parent’s wishes are clearly stated.

Take advantage of tax breaks. As a new parent, you may be eligible for certain tax breaks like the child tax credit or the dependent care credit. Speak with a tax professional or use tax preparation software to ensure that you're taking advantage of all the tax breaks and deductions you qualify for.

Becoming a parent can be financially challenging, but by following these tips and being mindful of your finances, you can provide for your child's needs and ensure a secure future for your family. Remember to take it one step at a time and don't hesitate to make an appointment with a Member Relationship Specialist at one of our Financial Health Centers to support you on your journey.