Parenthood: How Children Change Your Financial Picture

If you’re a new parent, congratulations!

Becoming a new mom or dad means taking on many new responsibilities. Not only are you now in charge of another human’s financial well-being, you also have more expenses to plan and budget for. Also, how you spend and save money, and your overall attitude about your finances will likely shape how your child approaches finances in the future.

While all this can seem a little overwhelming at first, with a strategic approach, you and your family can prepare for the exciting days ahead.

Here’s a look at some of the best ways to financially approach a new bundle of joy.

Look at the Big Picture

Kids can give us a new perspective and really ground us in what’s most important,” says Ashley Feinstein Gerstley, mother, CEO of the Fiscal Femme and author of Financial Adulting. “This can really help align our finances with our values.”

First, keep in mind that your costs in the first few years of your new baby’s life will vary greatly depending on where you live, Gerstley says. Childcare for one infant, for example, can be many thousands of dollars per month in New York City, or $800 or so in a city with a lower cost of living. There are other fixed costs you’ll need to budget for, including diapers, formula, copays for doctor visits, clothing, and other items, including baby toys, a stroller, a changing table, a car seat, and all other baby essentials. (We’ve had a lot of soon-to-be parents enroll in Jean Chatzky’s FinanceFixx money course. It helps to get your money straight before the big delivery.)

Once you take a look at all your expected costs in the first year, you may want to open a separate account at your credit union so you can start making contributions to your “baby fund” early on. (And if friends and family don’t know what to get you, you can always point them in the direction of making a contribution to this account!) And note: Even if you’re only able to save a small amount, it’s better than nothing, and making a list of all your expected expenses will help you incorporate these new costs into your budget before your bundle of joy arrives.

Once you’ve made it past your baby’s first year, it can be a good time to start preparing for larger irregular expenses. With children come new reasons to spend, such as birthdays, holidays, school tuition, camps, sitters, extracurricular activities, and added travel costs. You may find it easier to open up several savings accounts at your credit union and start socking money away each month for each individual goal, so you’re not suddenly caught off guard by all the extras. (Behavioral finance experts teach us that having a specially labeled account for each goal will make it easier for you to succeed when saving for them.)

Revisit Your Emergency Plans & Protection

Next, check in on your emergency fund. Losing a job or experiencing another financial crisis has new significance when you’re a parent. The amount you’ll need to have saved to feel comfortable may be significantly more with a baby on board. For example, if you already have three months worth of living expenses saved in a separate account, start adding to your stash so you can get closer to four or five months of expenses. (Think basic necessities such as rent, food, and utilities.)

You’ll also want to get quotes for term life insurance and disability coverage, in case you don’t have them already. If anyone in your household depends on your income, you need both. And if something happens to you, you’ll want to make sure your family is covered.

Speaking of protection, now is also a great time to update or create your will. All too often, we think of estate planning as something only for the wealthy — but it’s not. Every parent should have a will so they can share their plans for who will look after their child should the worst happen.

Teach Children the Value of Money

Finally, as your kids get older, don’t hesitate to talk to them about money. “It’s important for kids to learn the value of money in terms of how hard we work for it,” says Kerry Gaertner, mom and Principal of Ver Sacrum Fine Art Consulting. “But also how unfair it is. Hard work doesn’t always equate to being richer. That's a myth. It’s been important for my child to see financial diversity in school, and see his parents work for our money, and be grateful for what it affords us.”

There’s nothing like earning money to make children appreciate how much work it takes to afford the things and experiences they want, Gaertner says. “It also gives them a sense of agency and self-worth. I tell all my kids that financial independence is key and that they should never plan to depend on anyone else to take care of them.”

Money lessons with your children can start small, even when they’re young. For example, a quick trip to the grocery store can turn into a conversation about budgeting. You can point out how the name-brand cereal costs $2 more than the store brand, and go into a broader discussion of what it means to be a smart shopper. Likewise, when you talk about going to work, you can engage your child in conversation about being paid for the job that you do, and how the money you earn is how your family affords to buy the things you want and need. In other words, starting with the most simplistic concepts is great — they can be eye-opening to a child who is brand new to understanding how money works.