4 Steps to Financially Prepare for Parenthood
Starting a family is a life-changing—and budget-altering—experience. The transition of welcoming a new family member into your home (and tending to their every need) will come with challenges. While parenthood overall is not something that you can entirely prepare yourself for, you can prepare yourself financially with these four steps.
Save for the upfront costs
On average, new parents spend $5,000-$6,000 on upfront baby costs (not including out-of-pocket fertility costs). Reviewing your benefits (especially your health insurance benefits) will help you figure out some of the upfront costs you need to prepare for. Other upfront costs include big-ticket baby items like a stroller, car seat, and crib. Set up a separate account to save for the costs of starting your family.
Practice your baby budget
The transition of welcoming a new family member into your home (and tending to their every need) will come with challenges and is something you can’t entirely prepare for. Luckily, you can practice your baby budget in advance to alleviate some of the inevitable impact on your bank accounts. In the previous step, we talked about setting up a separate account for your baby fund. Now, it’s time to practice your budget by saving the monthly amount by which you expect your expenses to increase into this account. For example:
Daycare = $1,800
Health Insurance Premium Increase = $200
Day-to-day supplies = $300
Save $2,300 per month
If it’s difficult to make the budget work before the baby comes, you’ll have time to tweak your budget. Keep in mind that your life and priorities will change as a parent and you’ll probably save in other areas of your budget. For example, if frequent nights out or regular travel were big expenses for you, you’ll likely see some savings in these categories when you are home caring for your newborn.
Strategize for the long-term
When a baby is coming, most of your effort goes into the short-term planning of the upfront and monthly costs and it’s easy to put off long-term thinking for retirement and college savings. For many people, the first few years of their child’s life is when their budget is at its tightest. During this time, contributing big bucks to those “someday” goals isn’t realistic, but that doesn’t mean it should go completely on the back burner. In most cases, it will still make sense to contribute at least enough to retirement to get a full employer match. If you have to cut back during those early years, plan to aggressively boost your retirement savings once the kids are in school full-time. Without intentional planning, these freed-up funds often get absorbed into another part of the budget.
Work on your money mindset
Consciously or not, parents set the framework for their kids’ relationship with money. Even if money is not actively discussed in the home, kids pick up on how their parents spend, save, and invest. They also pick up on how their parents feel about money: are they avoidant? Do they feel shame? Do they feel in control? Because of this, you should spend time examining your own money beliefs to figure out which you do and don’t want to pass on to your kids.
Ready to take your finances to the next level?
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