Life Changes

Baby on the way? 5 key financial tips for new parents

Anna Robaton, special to

If you've just had a baby, chances are there is more keeping you up at night than a crying infant. For many new parents, the birth of a child is exhilarating on an emotional level and daunting from a financial perspective.

According to the U.S. Department of Agriculture, it will cost a middle-income couple slightly more than $245,000 to raise a child born in 2013 to the age of 18. That estimate doesn't include the hefty cost of sending a kid to college.

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Depending on where you live and how much you earn, the price of parenthood can be steeper. High-income families who live in the urban Northeast, for instance, can expect to spend nearly $455,000 to raise a child.

Becoming a parent forces people to "address financial issues they may not have focused on in the past," said Douglas Boneparth, a certified financial planner who specializes in working with millennials. He is also COO and vice president at Life and Wealth Planning and serves as CFP board ambassador for New York.

"When you have kids, the gloves are off" from a financial perspective, added Boneparth, who is expecting his first child in December.

If you are a new or expectant parent feeling stressed about putting your financial house in order, advisors suggest some of the following steps:

1. Identify your financial goals. Many people find their goals change once they become parents, so it's important to get a sense of what you are working toward in the near term, said Matt Becker, founder of Mom and Dad Money, a financial planning firm serving new parents.

Although it is always a good idea to put at least the company match into a 401(k), it may be necessary to reduce savings to keep from piling expenses like diapers and formula on credit cards.
Chris Hardy
certified financial planner

If you have a spouse or partner, you'll want to establish "a regular schedule for meeting to discuss your goals and evaluate your progress," Becker said. "Make sure you are on the same page about what you are doing and how you want to do things going forward."

Many new parents feel torn between competing goals, such as saving for college, retirement and a down payment on a house. The best course, according to Chris Hardy, an Atlanta-based CFP and fee-only advisor, is to do what you can comfortably afford, which may mean temporarily putting some priorities on the back burner as opposed to stretching yourself too thin.

Child-care costs exceed rent for many American families, according to the Economic Policy Institute. And some couples decide to forgo the hefty cost of child care by having one parent stay home, which means the entire family must make do with less money at a time when expenses are likely rising.

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"Although it is always a good idea to put at least the company match into a 401(k), it may be necessary to reduce savings to keep from piling expenses like diapers and formula on credit cards," Hardy said.

If you decide to do that, wait three to six months or even a year and then revisit your situation to determine if you can afford to start saving more aggressively, he advised.

2. Make a budget and track spending. Make a realistic budget that reflects your new lifestyle and track your spending. If your housing and other costs have increased owing to your growing family size, make a new monthly budget that reflects those added expenses, said Boneparth at Life and Wealth Planning. If you find you can't stick to the budget on the first or second try, don't give up, he said. Simply adjust your budget until you come up with one that works for your family.

"Give yourself some slack," he said. "Mastering cash flow takes time. It could take three or more months to get it right."

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According to Becker, tracking your spending can help you determine whether your money is going toward the things you really care about. "It gives you the information you need to make decisions about moving forward," he said. For new parents, "it is often an eye-opening experience."

3. Set up an emergency cash reserve. According to CFP Mary Beth Storjohann, a new mother and founder of Workable Wealth, expectant parents should establish an emergency fund of three to six months' worth of living expenses. The fund will come in handy if, for instance, there are unforeseen medical costs not covered by insurance or if the new mom must stay out of work longer than anticipated due to health-related complications.

4. Automate your savings and/or debt payments. Once you've identified your financial goals, you are more likely to make steady progress toward your goals if you set up automatic payments and/or deposits, said Becker. "By automating your savings or debt payments, you are prioritizing your goals and forcing the rest of your life to fit around them," he said.

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5. Shop for life insurance and do your estate planning. Becoming a parent prompts many people to buy life insurance for the first time. "You want to get the right life insurance, but not more of it than you need to," said Becker.

A good rule of thumb, he said, is that your coverage should equal 10 times your yearly income. Many parents, he said, buy more coverage than that to account for anticipated future expenses, like college or paying off a mortgage.

A stay-at-home parent should also have life insurance, he noted, because in their absence a surviving spouse would likely incur higher costs, for things like child care.

New parents should also make it a priority to draft estate-planning documents, which include a will, power of attorney, health-care proxy and medical directives for each spouse, said Boneparth.

A will allows you to name a guardian (and contingent guardians) to care for your minor child (or children) if you and your spouse both die unexpectedly. You can also name a trustee to oversee any assets placed in trust for your minor children.

"God forbid the worst should happen, having life insurance and estate-planning documents in place will ensure that the best is made of an unfortunate situation," Boneparth said.

By Anna Robaton, special to