Congratulations on becoming parents! After welcoming your first child into the world, one of the most important things you’ll want to do is take a close look at your finances. Money management is likely a conversation you’ve had before even getting pregnant or married. Remember, though, children are an ever-changing part of life that require frequent financial consideration. Buckling down on your finances to prepare for your newest family member will ensure success in the future. Read on to learn more about how to handle finances as new parents.
Set Your Budget
Before anything else, you’ll want to set a family budget. By proactively working to save money in even the smallest ways, you can save up for financial goals down the road. Such goals could be buying a larger car or house that will better accommodate your growing family. Cut down on unnecessary expenses such as frequently dining out or excess subscription services. And, consider slashing pricey memberships or credit cards with high fees. Your credit cards should actually have rewards rather than fees if you really want to save money, so read our article about maximizing your credit card rewards. Lastly, reconsider your insurance and see what you can do to lower your rates.
When purchasing supplies for your newborn, you’ll also want to budget for this. Now, this doesn’t mean sacrificing quality, but rather choosing items with the best value. Purchasing in bulk also gives you more bang for your buck. This won’t be possible for everything, but for smaller or disposable items like diapers, wipes, bibs, and even some clothes or pacifiers, bulk purchasing may be an option and will help save some money.
Buying secondhand is a great method for conserving money as well. Ask your friends and family members if they have any baby items, such as strollers, baby carriers, or even infant clothes or blankets. Even larger items like cribs can be bought used or even borrowed from a friend or relative.
Related read: The Best Budgeting Methods: A Complete Guide
Save, Save, Save!
While just as important as budgeting, saving is an active way of accumulating and allocating your money appropriately. With each paycheck, you should be directing some amount of money to a savings account to be used for later. Putting at least 10% of your paycheck into a 401(k) or retirement plan is also wise. If you can, raising your contribution to 15% or even 20% will build up more money for when you eventually exit the workforce.
Related read: 7 Tips for Maximizing Your 401(k)
With a newborn, it’s more essential than ever to allocate enough money to build an emergency fund, in case anything goes wrong. Much like your retirement plan, you should be allocating some amount of each paycheck to a separate account reserved for emergencies. These emergencies can be trips to the hospital, spontaneous purchases, car repairs, home repairs, or even to use short-term in the case of sudden unemployment. This ensures your baby will be taken care of under these potential circumstances.
Another account you should have is a savings account. As parents, you’ve probably already established this, but it’s a good idea to reconsider how you’re saving. It’s best to choose an account with high interest rates. A certificate of deposit, otherwise known as a CD, is an account with elevated interest rates, but you have to deposit a minimum amount and leave the money for a designated period of time. This is a good long-term method of saving money. However, remember that taking the money out early may result in penalty fees.
You’ve recently entered the wonderful world of parenthood and this is only the beginning. You and your partner will need to think ahead and determine your next steps or financial goals so that you can appropriately prepare. The next large cost may be paying for daycare when your newborn becomes a toddler or paying for a nanny or babysitter. If you haven’t already begun your search for a good daycare program, it’s a good idea to start that as soon as you can, since many have waitlist times of over a year.
As mentioned previously, a common goal for new parents may be a new house, especially if you expect to have more children or want to leave your current home. There’s a lot of preparation in the process of buying a new house, and one of your first steps is to get a mortgage preapproval. This allows you and your partner to see how much money you can borrow to purchase a home, which can determine the size and location of your future house. This does rely on your credit score, so ensuring that your credit is at its best it can be can help lower your interest rates.
Related read: How to Get Pre-Approved for a Mortgage Home Loan
Another future event is possibly sending your child to college. If you plan to help pay for their education, it’s best to start saving for that now by opening up a 529 plan, which is an investment account for the use of higher education. College costs are only rising, so starting to save for this expenditure as early as possible will help you tuck away more money.
With all of these future costs to consider, you’ll also want to think about timing your financial goals. It will be financially taxing to pay for larger things such as a house or college at the same time and can be risky if you don’t know how to handle your finances. If you need some aid, a financial advisor or planner is a great resource, or you can do the research yourself. Either way, planning out a timeline that puts less stress on your finances will make it easier to manage. For example, it could be optimal to finish paying off your mortgage before beginning to pay for your child’s education.
While juggling life, finances, and becoming parents is no easy feat, it’s good to do your research and be prepared to take on these challenges. Finances are a long-term game. Planning meticulously as soon as you can helps set you and your family up for success as you navigate the journey of parenthood.
The views and opinion in this article are those of the author only and are not endorsed by Credit.com.
You Might Also Like
April 17, 2023
Budgeting and Saving Money
April 3, 2023
Budgeting and Saving Money