Baby Steps to Wealth - Financial Tips for New Parents

Becoming a parent is a life-changing experience, and with it comes new financial responsibilities. Since Tom was born, we've learned that babies are tiny, adorable money vacuums—diapers disappear like magic, medical bills pop up out of nowhere, and we never imagined how expensive berries could be! But as we adjust to life with our little one, we’ve also realized how important it is to start planning for the future. From saving for college to securing Tom’s financial future, early planning can provide peace of mind and long-term benefits. Here are some key financial steps we’ve found helpful for new parents.

1. Build an Emergency Fund

Children bring joy, but they also bring unexpected expenses. A well-funded emergency savings account can help cover medical bills, child care costs, and other surprises without derailing your financial goals. Since Tom was born, we’ve had our fair share of unexpected costs—whether it’s last-minute trips to buy more baby essentials or the unplanned costs of getting things ready at home. Trust us, it’s a lot easier to handle these surprises when you have an emergency fund in place. Aim for 3-6 months' worth of living expenses in a high-yield savings account.

2. Get Life Insurance (It's More Affordable Than You Think)

If your family depends on your income, life and disability insurance for parents are essential. Even stay-at-home parents need coverage, as their contributions to the household, such as childcare and household management, would be costly to replace. Wayne and I have already taken out a term life insurance policy to make sure that if something happens to either of us, Tom would be well taken care of. The good news is, it’s actually pretty affordable, especially for young, healthy parents!

3. Update Your Estate Plan

Every new parent should have an estate plan, including a will, guardianship designations, and beneficiary updates on financial accounts. We’ve had to think about who would raise Tom if anything were to happen to us. It’s one of those tasks that’s easy to put off, but it’s crucial to have in place. Establishing a trust can also provide more control over how assets are distributed to your child.

4. Start a College Savings Plan

Higher education costs continue to rise, making it crucial to start saving early. Before Tom was born, I set up a 529 College Savings Plan in my name, and once he was born, I changed the beneficiary to him. 529s offer tax-advantaged growth and can now be used for a wider range of expenses, including K-12 tuition, apprenticeships, and even student loan repayments. Plus, it’s a great way for grandparents to contribute toward their grandchild’s education.

If you’d like to learn more about 529 plans, check out our full blog post here.

5. Maximize Tax Benefits

Take advantage of tax benefits available to parents, such as the Child Tax Credit and Dependent Care Flexible Spending Accounts (FSAs). These can help lower your taxable income and provide financial relief. Every little bit helps, especially with the rising costs of caring for a baby!

6. Adjust Your Budget for Growing Expenses

Reassess your household budget to account for new expenses like diapers, childcare, and medical bills. Tracking spending and setting new financial priorities can help ensure your family stays on track. For example, we quickly realized that we were spending more on blueberries than we had anticipated. Adjusting our budget has helped us stay in control while keeping Tom’s needs met.

7. Open a Custodial Investment Account

A custodial account (UTMA/UGMA) allows parents to invest on behalf of their child, providing them with a financial head start. These accounts can be used for various expenses, not just education, but they transfer to the child when they reach adulthood (typically at age 21 in most states). Just like 529 plans, custodial accounts are another great way for grandparents to gift toward their grandchild’s future, helping to ensure they have a solid financial foundation when they’re older.

It’s easy to focus solely on your child’s financial future, but don’t forget to prioritize your own retirement savings as well. Your child has options like student loans for education, but there are no loans available for retirement! By taking steps now to secure your child’s future—whether it's building an emergency fund, saving for college, or securing life insurance—you’re laying the foundation for their financial security while ensuring you’re on track for your own long-term goals.

Would you like to discuss your family’s financial plan? Alpha Financial Management is here to help you navigate this exciting stage of life with confidence.