New Parents; New Finances

Posted December 4th, 2017

Becoming a parent grows your heart. But it shrinks your wallet as well. According to the U.S. Department of Agriculture (USDA), the cost of raising a child to the age of 18 works out to around $233,610, give or take. That number takes into account housing, food, child care, and education, among other necessities. It doesn’t cover the cost of college, which can be tens of thousands of dollars on its own.

But instead of panicking, new parents should start planning. Here’s the how.

Start using a monthly budget
Before you have kids, it’s easy to justify spending money on coffee and dinners out and shoes you didn’t really need. But times have changed. There are new and often unexpected expenses involved in becoming a parent. The best way to stay on track financially is by starting a monthly budget and sticking to it. Start with how much you’re currently spending, and use your best guess for new baby expenses like diapers, clothes, and toys. You may have to revisit the budget every few months as those expenses change. Create a budget that sets limits on spending with the goal of saving more.

Set up an automatic savings plan

Kids have a funny way of spoiling our big plans. That romantic trip to Italy you’d been saving for? Yeah, the new nanny gets that money. The kitchen renovation you’ve been dreaming of? Spent on nursery furniture instead. And yes, you had every intention of taking excess cash in your checking account and move it to savings, but then your kid needed medicine, and a new car seat.

The best way to ensure the additional expenses of parenting don’t thwart your savings plans is to make all your savings automatic. Set up automatic contributions or transfers to savings as part of your monthly budget, then learn to live on the rest.

Learn to live on less
“Learning to live on the rest” may not sound like fun, but it’s probably your best bet if you want to stretch your income as far as it can go. The more you can go without or cut from your budget, the more cash you’ll have to save for the future or spend on planned activities that might enrich your children’s lives.

“A penny saved is a penny earned” is never truer than when you have kids. It takes time to earn money, whereas saving money may not take any time at all. If you want to make your dollars and time count as much as possible, it can pay to learn to live on less and be more thoughtful when it comes to spending the money you’ve taken time to earn.

Build an emergency fund
Having kids often means recovering from one financial “emergency” after another. Kids get sick. They need to go to the doctor. They might break an arm playing on the playground or crashing their bike into your car.

Kids also need braces and money to play on the soccer team. You’ll need cash for once-a-year expenses like supplies and school field trips. To prevent these expenses from wrecking your savings, or worse, put you into credit card debt, it is essential to start building an emergency fund early. Before you need it. Most experts suggest you have three to six months' worth of expenses saved.

Pay off debt

Whether you’re a parent or not, debt can be debilitating. To make your income stretch as far as it can go, pay down debt while you can. Not only will you avoid the costly drain of interest payments, but you’ll free up extra money to save for what matters.

Start saving for college

According to College Board, the average cost of a four-year degree could be as much as $152,753 in 18 years. That’s bananas!

Opening a college savings account could help you make a dent in your child’s future tuition costs. However, this is only if you start saving early. If you set aside even $50 per month for the next 18 years and earn a 6 percent return, you could save up $18,543.39 for school. Boost that amount to $200 per month, however, and you could have $74,173.57 saved. It may seem silly to be stashing money away for college before your baby is even old enough for preschool. But the sooner you start, the less it will hurt in the long run.

Buy (more) life insurance
A final money move for new parents is buying a life insurance policy. Or, buying more life insurance coverage to supplement the coverage they already have.

Before you have kids, you may only need enough life insurance to cover burial costs and your debts. After kids, on the other hand, you have so much more to plan for. You have to buy enough life insurance to replace your income for your child’s entire life, for example. You may even want to buy more coverage to pay for college.

You have to think about the prospect of your spouse or partner raising your child alone, and what kind of financial situation you would want to leave them.


While it’s true that becoming a parent is financially taxing, it’s also one of the greatest experiences a human being can have. Planning ahead can buy you some peace of mind.

Until she turns 15. That’s another blog.