7 New Parent Financial Tips
First-time parents can be so preoccupied with the love they feel for their new babies and the constant care required that they may lose sight of their larger financial goals. When you’re busy getting to know your little human, you may not prioritize money management.
But securing your growing family’s finances is an important consideration. You have new needs and goals evolving, such as your child’s education and your retirement. Here’s smart advice to help you manage your money well during this new life stage and beyond.
Key Points
• Parents can avoid overspending on baby gear by considering secondhand items or accepting hand-me-downs.
• Creating a budget using the 50/30/20 rule may help first-time parents manage new expenses like daycare.
• Parents can prepare for unexpected expenses by building an emergency fund in a high-yield savings account.
• New parents should continue to prioritize retirement savings by utilizing employer 401(k) plans or IRAs.
• Parents can start saving early for their child’s education with 529 plans or Coverdell ESAs.
7 Financial Tips for New Parents
Raising a child can cost more than $15,000 a year, according to one recent calculation using U.S. Department of Agriculture data. That can put some serious stress on your finances. Here’s guidance on making your money work for you and your family.
1. Avoid Overspending on Baby Gear
As a first-time parent, you likely have quite a bit of work to do before the baby arrives. You may need to create and furnish a nursery for your child, and stock up on diapers, bottles, clothes, toys, and so much more.
As you’re setting up your new life with a baby, it can feel like buying everything brand-new is the only option, but that can be costly. You might consider taking advantage of used or gifted items so as not to deplete your bank account.
You can buy a lot of items secondhand at a lower cost through online marketplaces or used goods and consignment stores. Or you might see what “freecycle” networks in your area have available at no charge. That’s one way to save money daily.
And if you have friends, family, or neighbors that already have children, they may be looking to unload some of the gear their children no longer use. Families with older kids are often happy to pass on items such as clothes, cribs, playpens, toys, and books. You might check Nextdoor.com and other community sites, which can be a good resource for local families seeking to offload these items.
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2. Don’t Live Without a Safety Net
As a parent, you have a host of new responsibilities, and expenses you never imagined may pop up. So consider these moves:
• An emergency fund becomes even more important when you have a child or one is on the way. You’re now responsible for all of their needs, and there may be unplanned costs that pop up along the way. Or, if you were to endure a job loss, you’d need to continue to provide for your child.
• Saving for an emergency is a process, and it’s okay to start small — even just $25 a week will add up over time. Some people opt to store their emergency fund in a high-yield savings account or checking account. Earning interest that way will help your money grow faster.
• Review your health insurance. You may want to opt for a different plan now that you have a child. An addition to the family is usually a qualifying life event (QLE) that can allow you to make changes regarding your plan outside of the usual open enrollment period.
• Consider life insurance and disability insurance if you don’t already have it or, if you do, see if you want to update your coverage. When a little one is depending on you, you probably want to protect their future if you weren’t able to earn your usual income. Maybe you can only afford a modest policy at this moment. That can be fine; it’s a start and something you can revisit later as you grow your wealth.
3. Keep a Budget
With a baby on board, you likely have a host of new expenses, from the life insurance mentioned above to daycare to toys (and more toys). Making a budget can help you prepare to pay for the extra expenses.
The word “budget” can conjure up fear, but it’s really just a helpful set of financial guardrails that help you balance how much you have coming in and how much is going out towards expenditures and savings.
• You might try the popular 50/30/20 budget rule which says that 50% of your take-home pay should go toward needs, 30% toward wants, and 20% toward savings.
• You could check with your financial institution to see what kinds of tools they provide for tracking your money. This can be a great resource as you work to improve your money management and hit your goals.
• To make a budget, you might also see what apps or websites offer products that could work for you. Check with trusted friends to see what they may recommend.
4. Don’t Put Off Retirement Savings
Another financial mistake new parents: Learning to pay yourself first isn’t easy for a lot of parents to do, but it’s vital. (For instance, while you can borrow money for college expenses for your child, you can’t likely borrow for your retirement.)
For retirement saving, one way to start is by enrolling in your company’s 401(k) plan if one is offered. Some employers will match your contribution, up to a certain percentage, and you’ll be able to have your contribution taken directly from your paycheck.
If your employer doesn’t offer a 401(k), you could open an individual retirement account, or IRA, instead. Getting in the habit of saving at least a little for your own future can be important as your focus shifts to your new addition.
It’s never too early to start saving for retirement.
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5. Start Savings for Your Child’s College
Saving for your children’s tuition can be an important step for many new parents. That’s because the sooner you start, the better. Your money will have that much more time to grow. College is a big-ticket expense, with estimates of tuition in 18 years being calculated as follows:
• $25,039 per year for a public college
• $48,380 per year for a private college
While a standard savings account may seem like the easy choice, there are other options designed to help you or grandparents save for a child’s education.
• You might opt for the benefits of a 529 college savings plan. There are two types: education savings plans and prepaid tuition plans.
• With an education savings plan, a tax-deferred investment account is used to save for the child’s future qualified higher education expenses, like tuition, fees, room and board, computers, and textbooks. Funds used for qualified expenses are not subject to federal income tax.
• With a prepaid tuition plan, an account holder purchases units or credits at participating colleges and universities for future tuition and fees at current prices for the beneficiary. Money in this fund is guaranteed to rise at the same rate as tuition. Most of the plans have residency requirements for the saver and/or beneficiary.
• A Coverdell Education Savings Account may also be worth looking into. In general, the beneficiary can receive tax-free distributions to pay for qualified education expenses. Contributions to a Coverdell account are limited to $2,000 per year, per beneficiary. The IRS sets no specific limits for 529s.
6. Make the Most of Tax Breaks
Another bit of financial advice for parents is that when you have a child, you may be eligible for certain tax benefits.
• The Child and Dependent Care Credit: If your child is in daycare or preschool or you pay for another kind of caregiving, you may be eligible to claim this credit, which varies based on your income. Typically, you can get a credit of between 20% and 35% of qualifying expenses up to $3,000 for one dependent or $6,000 for two or more.
• The Child Tax Credit: This allows parents to get a tax credit of up to $2,000 per child under the age of 17. Other qualifying dependents up to age 24 may provide a credit of $500 each.
• The Earned Income Tax Credit: Lower-income parents may be able to claim this credit, which varies with income and number of children. The Internal Revenue Service (IRS) offers a calculator to check eligibility.
• Adoption Tax Credit: This offers tax incentives to cover the cost incurred if you adopted a child. In 2024, the maximum credit was $16,810 per qualifying child.
You might consult a tax professional to see which of these you can claim.
7. Teach Your Kids About Money
If kids aren’t taught the basics of financial literacy at a young age, they may struggle to make a budget, avoid credit card debt, or save money when they’re older. You can help your children learn what it means to manage money in these ways:
• Kids often love to play store, so go ahead and join in. By exchanging goods for money, they’re already beginning to understand the basic principles of commerce.
• As they get older, you may want to give them an allowance in exchange for chores or homework completion.
• You could even have them make a budget with their earnings, and encourage them to spend, save, and donate.
• You could open a checking account with them, once they are old enough, and teach them how it works.
• You might give them a gift card or prepaid debit card and coach them on sensible spending.
Can You Ever Be Fully Financially Ready for Parenthood?
It’s probably not possible to be fully financially ready for parenthood or for adult life in general. Part of each person’s financial journey is learning how to plan for the unexpected and navigate curveballs. That might mean financing a child’s dance lessons or speech therapy. You might wind up moving to what you consider a better school district and paying more for your mortgage and taxes.
That’s why embracing some of the guidelines above, such as making a budget, stocking an emergency fund with cash (perhaps sending some money there via direct deposit), and saving for the future can be so important.
The Takeaway
Being a new parent is a joyful time but also a challenging one. One priority not to lose track of is your financial health, especially since you are now providing for a little one and their future. By budgeting and spending wisely, saving for the future, and knowing which tax credits you may be able to claim, you can help yourself get on the path to financial security for your family.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
How can you plan financially for parenthood?
Planning financially for parenthood can involve updating your budget, allocating funds to the right insurance policies and long-term goals (such as your child’s education and your own retirement), and creating an emergency fund, if you don’t already have one. Also educate yourself on any tax credits you might qualify for once you become a parent.
What are the biggest unforeseen expenses of parenthood?
Some of the unforeseen expenses of parenthood include your child’s medical, dental, and mental health costs; academic support (such as tutors and prep classes); hobbies (taking tae kwon do classes, perhaps, or traveling with their soccer club); and funding any family travel and vacations.
How much does a child cost per year?
The cost of raising a child per year can vary widely, depending on such factors as medical needs and whether they are attending public or private school. That said, recent studies suggest the current average figure is around $15,000 to $17,500 per year per child.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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