Financial Planning & Parenthood: What New Parents Need To Know

Bringing a new life into the world is a life-changing experience. It’s a new chapter in your life that comes with many challenges. But let’s be real: It’s also expensive. The most significant change will be with your finances.

The cost of raising a child can be crazy, from diapers to daycare. In fact, according to a recent study, the average price of raising a child from birth to age 18 is around $250,000.

Are you prepared for the financial impact of parenthood? If you’re wondering how to prepare financially for parenthood, this guide will help you understand what to expect and provide tips on how to start a financial plan.

Financial Realities Of Parenthood: Expect Higher Monthly Expenses

Many new parents are caught off guard by the expenses of a new baby. Having a child can significantly alter one’s financial plans, from immediate costs like medical bills and baby gear to long-term expenses such as childcare and education.

Immediate Expenses to Expect

• Medical Costs: Even with insurance, out-of-pocket expenses for prenatal care, delivery, and postnatal care can range from $3,000 to $5,000.
• Baby Gear: Essentials like a crib, car seat, stroller, and highchair can easily cost $1,000 to $2,000.
• Diapers and Formula: If you are not breastfeeding, expect to spend about $80-$100 per month on diapers and $100-$180 per month on formula.
• Parental Leave Income: Many new parents take unpaid or partially paid leave, which can impact their household income.

 Financial Challenges To Prepare For

• Loss of Income: If one parent stays home or takes an extended leave, be prepared for a temporary drop in income.
• Childcare Costs: Full-time daycare can cost anywhere from $6,000 and above, depending on where you live.
• Emergency Fund: With an extra family member, unexpected expenses (such as medical bills and car repairs) will always arise.
• Future Education Costs: College or university may feel far away, but starting a savings plan early can make a huge difference.

Parenthood isn’t just about extra expenses. It’s about changing priorities. The sooner you start a budget, the smoother the transition will be.

Will Having a Baby Change Your Financial Status? Having a baby will likely impact your financial status in several ways. You will need to adjust your finances and develop a financial plan.

1. How To Build A Financial Plan For Parenthood

Create a Baby Budget (Before Birth!)

• Begin by estimating your monthly expenses related to your baby and adjust your spending habits accordingly. Cut back on unnecessary expenses now to make room for upcoming costs.

Tip: Track current expenses for a month, then start budgeting as if you already had the baby.

2. Build Or Boost Your Emergency Fund

With a baby in your life now, expect unexpected expenses. Try to save 3-6 months’ worth of income.

Where to start: If saving seems overwhelming, begin with a small goal, like $500, and gradually increase it.

If you have extra cash left over from your budget, apply it to your emergency fund.

3. Reassess Your Health & Life Insurance

Health Insurance: Review your policy to understand your coverage.

Life Insurance: If you don’t have one, get term life insurance to protect your child financially in case of the unexpected.

Disability Insurance: If one parent is the primary breadwinner, disability insurance is essential.

Tip: Even a simple term life policy will be beneficial. Shop around to see what you can afford.

4. Plan For Childcare Costs Early

Look into daycare early. Many centres fill up months in advance, and the waiting list can be very long.

Explore work-from-home or flexible job options if one parent wants to reduce work hours for the first few years.

Consider seeking family help if available to reduce childcare costs.

Tip: Research local daycare costs now and start setting aside funds.

5. Open A Savings Account For Your Child’s Future

RESP (Registered Education Savings Plan) in Canada: The government matches 20% of contributions up to $2,500 annually.

High-Interest Savings Account: A great place to save for future expenses like school, extracurriculars, or big purchases.

6. Reduce Debt Before Baby Arrives

Carrying high-interest debt while managing new expenses can be overwhelming. Focus on paying off credit card debt, personal loans, and car loans before your due date.

Debt Repayment Strategies:

• Use the avalanche method (pay off high-interest debt first to save money on interest).
• Try the snowball method (pay off small debts first for motivation).
• Consider a 0% balance transfer credit card to consolidate and pay off faster.

Real Life Example

Mary and Tom, both 28, were excited to welcome their first child. They had stable jobs with a combined income of $90,000. However, after calculating potential expenses, they realized they needed to adjust their financial plan.

• They started saving an extra $300 per month during pregnancy.
• Mary negotiated a flexible work arrangement to reduce childcare costs.
• They opted for second-hand furniture and accepted hand-me-downs from friends and family.

They opened a college savings plan, contributing $100 monthly.

These steps helped them manage the initial financial shock and set them up for long-term economic stability.

Parenthood brings many changes, but with thoughtful financial planning, you can ease the financial stress that comes with it. The key is to start a financial plan, stick to it, and watch your future prosper.

Check out this article: https://masteringpersonalfinances.com/hidden-costs-in-having-a-child/