16 Essential Financial Moves Parents-to-be Should Make

As you prepare to grow your family, consider making some of these key money moves to help ensure your household’s financial success.
Last updated Dec 3, 2020 | By Stephanie Colestock
Pregnant woman reviewing finances

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It’s no secret that having, and then raising, children is an expensive undertaking. In fact, the average cost of raising a child from birth through age 17 is more than $284,000, according to the U.S. Department of Agriculture.

Even with expenses coming in at more than $250,000, most of us parents would consider our children well-worth the cost — but that doesn’t mean we can’t make certain money moves today to ease the pinch of those expenses down the line.

Here are the best things you can do today to ensure your family’s financial success in the future, plus some tips for avoiding common money mistakes new parents often make.

Budget for baby expenses

Whether you’re making plans for a family or are already expecting, those initial baby expenses are probably at the forefront of your mind. Your new baby will need to be fed, clothed, diapered, and entertained — and very little of that comes cheap.

You’ll want to budget for gear such as baby carriers, car seats, strollers, and jumpers/walkers, in addition to furniture like a bassinet, crib, baby swing, and rocking chair. Your new baby will also need clothes for each season, many (many) diapers, and depending on how you plan to feed your child, things like bottles and formula.

You may also want to start setting aside money for medical bills. Although your insurance may cover a large portion of your maternity and postnatal care, your child’s birth, and newborn care, you may be responsible for certain deductibles and copays.

Review and update your medical insurance coverage

On that note, now is a great time to review your medical insurance coverage and, if desired, make changes.

Just how much does it cost to have a baby? If you are already expecting, call your insurance company and request an explanation of benefits for all routine charges. This might include things like prenatal doctor’s visits, hospital or birthing center costs, and postnatal visits.

If you aren’t happy with the coverage your current insurance plan provides, you might want to consider switching. To do so, you’ll need to change providers during the open enrollment period or, if you qualify, a special enrollment period. You may also qualify for coverage through Medicaid; or, after your baby is born, you may be able to enroll in the Children’s Health Insurance Program (CHIP).

To learn more about health care coverage as it pertains to pregnancy, birth, and after your child is born, you can read more at Healthcare.gov.

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Consider purchasing a short-term disability insurance policy

Disability coverage can be valuable if you are injured or become ill and are unable to earn your usual income. If your workplace offers short-term disability, it may be wise to opt into coverage in order to protect both you and your family.

But did you know that many disability insurance policies also cover pregnancy-related situations, as well?

As long as you purchase coverage before you get pregnant, you may be able to take advantage of certain benefits during the perinatal and postnatal periods. Depending on the policy, this could mean postpartum coverage for a set number of weeks, or income replacement if you’re put on bed rest during your pregnancy and cannot work.

If complications arise from your pregnancy or birth, a short-term disability policy could continue to provide assistance. In some cases, this coverage could last for up to two years, and even covers conditions like postpartum depression.

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Buy life insurance

There are a few important milestones that may prompt you to buy life insurance coverage: getting married, buying a home, or starting a family are some of them.

Buying life insurance is a wonderful way to ensure your new family would be cared for financially in the event of your death. This coverage can be used to replace your lost income, pay off a mortgage on the family home, provide for your child(ren)’s college education, clear out any debt you may share with your partner, and more.

The best life insurance for you will depend on your unique situation. Life insurance can be permanent (such as a whole or universal life policy) and last the rest of your life, or temporary (called term) coverage that lasts for a specific number of years. With term coverage — which you can often buy online in just minutes through a company like Bestow — you can own an affordable policy that lasts for a set time period, like until your children are grown or until the house is paid off.

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Reduce monthly spending

Lowering your household’s monthly spending is a valuable task, which can be even more impactful once you have kids. The less you spend each month, the more you can save or put toward fun expenses, and the more flexible you can afford to be with your budget.

Spend time learning how to manage your money better and more effectively, both now and in the years to come. This doesn’t have to mean drastically altering your lifestyle, either; reducing monthly spending could mean:

  • Menu-planning and grocery shopping with a list to cut out spontaneous purchases
  • Taking your own lunch and/or coffee to work
  • Opting for a used car and/or driving a paid-off vehicle for longer
  • Canceling or downgrading services and subscriptions you don’t use often 
  • Using the best cashback credit cards to earn on the things you’re already buying

Look at what you’re spending each month and where that money is going. If you are willing to make some changes, big or small, you can seriously reduce your outgoing cash flow.

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Lower your bills

Bills are an unavoidable part of running a home. Luckily, lowering those bills is also an easy way to start saving more money, and fast.

Cutting your bills could look like:

  • Refinancing student loans or auto loans to reduce interest and/or monthly payments
  • Cutting the cord with cable
  • Bundling insurance policies (renters, homeowners, auto, personal property) and rate-shopping every six months
  • Asking your cell phone provider about special pricing or reduced plan options
  • Raising deductibles on insurance policies

You can also call and negotiate many of your bills down. If you don’t know how to do so, or aren’t comfortable asking for a lower monthly price, you can let a service like Truebill do the hard work for you.

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Create a plan for paying down your debt

Some types of debt are better than others. If you are still whittling down your student loans, personal loans, or credit card balances, however, you might want to make paying off debt a priority.

High-interest debt can mean hundreds — or even thousands — in interest charges each year. That kind of money could completely transform your household budget, especially if you’re planning to add to your family soon.

Create a solid plan for paying down your debt as soon and for as little as possible. This may even involve refinancing the debt for a lower interest rate, or utilizing one of the best balance transfer credit cards.

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Start an emergency fund

Emergencies happen when you least expect them. Whether it’s a broken arm, blown transmission, or sudden household repair, having an emergency fund is a great way to give your family a safety net.

This just-in-case fund should be easy to access (think high-yield savings account) whenever you need it. Start with a goal of setting aside $1,000, then work toward saving three-to-six months’ worth of expenses

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Create a family-friendly budget

You probably realize by now that your finances will look a bit different once you have kids. Spend some time shifting your budget now to make the transition a little less painful. The best budgeting apps and tools can simplify this process significantly, and help ensure your new family’s financial security.

Budgeting is one of the best ways to keep your family on track over the years. Allow for new necessities — like the aforementioned diapers, bottles, and child care — as well as fun family stuff, such as saving for a bigger home or vacations.

Over time, your budget will need to be revisited and adjusted. After all, jobs and incomes change, monthly bills shift, and tiny babies become teenagers (who practically double the grocery expenses). Make it a point to analyze and rebalance your family budget once a year or so.

Start planning for child care

Child care is one of the biggest expenses that today’s parents face when having a baby. In fact, the average cost of licensed infant and toddler care exceeds the federal definition of “affordable” in every single state in the U.S., so this is a very important conversation to have early on.

Will you or your partner stay home with your child(ren) or will you both return to work? Is a grandparent willing and able to watch them, or will you opt for child care?

If you or your partner plan to stay home with the baby — permanently or temporarily — you may want to adjust both your spending and savings habits now to account for lost income. If you opt for child care, talk about what that will look like: a personal nanny, in-home care provider, or a daycare facility?

Start crunching the numbers to see what you can afford and what makes the most sense for your family goals. If you’re hoping to get your child into a top-notch facility, you may also want to begin touring now and even getting your name on a waitlist. Where I live, some of the top daycares and preschools have waiting lists that are months or even years long.

Know your options for parental leave

Before you have or adopt a baby, figure out what options are available to you (and your significant other) in terms of parental leave for the weeks leading up to your child’s birth or placement, as well as the weeks and months to follow.

Some states (Washington, New York, Rhode Island, California, New Jersey, and Washington, D.C.) require employers to provide paid parental leave to eligible employees. If you don’t live in one of these states and your employer doesn’t offer paid leave, you may opt for unpaid leave instead.

Unpaid leave is offered in all states through the Family and Medical Leave Act, or FMLA. This law ensures job security while employees take up to 12 weeks of unpaid leave in a 12-month period. FMLA leave can be used following an injury or illness, to care for a sick family member, or to stay home with a newborn (or newly placed) child.

If your budget permits, you and your partner may choose to stagger your paid and FMLA leave allowances. And if you have short-term disability coverage, you may be able to pull from that, as well.

Draft a will

Once you become a parent, creating a last will becomes an uncomfortable necessity. Not only can this document declare your wishes for your estate, but it can also clearly name the guardian(s) who would take care of your child(ren) were something to happen to you and your partner.

Your will can be as complex or simple as you’d like, and you can always revise it over the years. You can also create a joint will along with your partner, or you can each create your own document.

Build an emergency binder

If you were to be injured or fall ill tomorrow, would your family know how to manage the household finances? Could they find important information regarding bills, insurance policies, investment portfolios, bank accounts, and safety deposit boxes?

If not, it’s time to consider building an In Case of Emergency (ICE) binder.

An ICE binder (also sometimes called a life binder or money binder) is exactly what it sounds like: a folder that contains all the important information your loved ones would need if you died or became incapacitated.

It could help your significant other manage the household and navigate finances on their own, it could help extended family manage your affairs, and/or it could provide important information about your children’s care if something happened to you and your partner.

This binder should contain anything you deem relevant, including:

  • Information about investments and bank accounts
  • Copies of your will and life insurance policy
  • Passwords and account access instructions
  • Instructions regarding your children and their care

As with life insurance, an emergency binder is one of those things you hope you never need, but it could be invaluable to your loved ones if something were to happen.

Start taking estate planning more seriously

In our younger years, we tend to think in the moment. We are busy building our careers, buying a home, having children, and paying off college debt. Things like estate planning have a tendency to take a backseat.

Once you have kids, though, it makes sense to start taking estate planning more seriously.

You may have already done many of the tasks involved with estate planning, such as buying life insurance, creating a will, and naming guardians for your children. If so, you’re a step ahead.

To really get your estate in order, also consider:

  • Setting up a durable power of attorney
  • Establishing a living trust
  • Naming an executor
  • Thinking about your preferences and last wishes, such as the type of funeral you’d like to have

The benefit of early estate planning is that you can spend the next few decades making financial decisions with taxes in mind. Tax planning can help you take advantage of any and all federal benefits allowed to you, and also reduce the taxes that would be imposed on your estate after your death.

Establish a college savings account

College tuition costs are rising every single year, so it’s never too early to start planning — and saving — for your kids’ education.

By establishing college savings accounts early, you give the funds more time to grow over the years as you regularly contribute. Compare the various options available to you, from basic savings accounts to 529 plans, custodial accounts, Roth individual retirement accounts, and even certificates of deposit (CDs).

Then, automate your monthly contributions for an easy, hands-free approach to college savings.

Consider investing for your child early

One of the most valuable factors when it comes to investing is time. Although all forms of investment come with risk, the more time you have to let your money compound and grow, the greater your returns might be.

You can invest for your kids as early as you’d like. Once they come of age, the funds (and the many years of growth) will be available for your child to use, or as the strong foundation of their very own personal portfolio.

Final thoughts

Becoming a parent for the first time is a nerve-wracking thing. There are suddenly so many things to worry about, many of which may have never crossed your mind before. As with most aspects of parenting, though, a little bit of planning can go a long way in ensuring your success, especially when it comes to the finances of your expanding household.

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