New parents money checklist - 10 simple, easy to follow steps that all parents need to take
The 5 must-dos, 3 things not to overlook, and 2 bonus tips that might be the best investments you can make
Here’s how this article is broken down:
There’s a simple checklist that will take you 30 seconds to get through.
Then, for each checklist item, I provide a more detailed explanation. Each one is about a 1 minute read.
So, all told, this article might be a 10 minute read or you can pick and choose a few sections that are more relevant to you.
Think of this as a choose-your-own-journey kind of article. Happy parenting!
As a financial advisor for almost 20 years and a new dad myself, I can say with a lot of confidence that if you do these 10 things you will be way ahead of the game (and your peers).
Now, first things first → keep in mind that this is meant to be a checklist and a brief guide to help you make smarter and more informed decisions.
I will be sharing more detailed articles on each topic for those that want to take a deeper dive. As I add those articles, I will link them to each checklist item.
Second, congratulations! Whether you are already a parent celebrating the birth of another child, a new parent experiencing mother or fatherhood for the first time, or expecting to become a parent very soon, this is an incredibly beautiful and magical experience.
And, while it’s a special time, it’s also sometimes overwhelming, exhausting, and a bit stressful. Don’t worry, I have your back and I’m going to take you through this step-by-step.
Ready? Let’s get started!
// THE CHECKLIST //
Let’s start with the 5 “must-do” list (i.e. the more urgent items):
Get life insurance OR review and update your existing life insurance.
Get estate planning documents or review and update your existing documents.
Now for the 3 “make sure you do it eventually” list:
Talk to your partner about money (and schedule regular check-ins aka “money date nights”).
And, finally, the 2 “maybe the best investments you’ll make” list:
Create an ongoing financial plan for all aspects of your finances.
Get professional guidance from a CFP® Professional
OK, now with the checklist out of the way, let’s get into some of the details on each topic.
// The checklist with a few additional pieces of information //
Back to the 5 “must-do” items on the list (i.e. the more urgent items):
#1 - Add your baby to your health insurance plan.
In the health insurance world, having a baby is often referred to as a “qualifying life event.” In English, that means you become eligible to make changes to your health insurance coverage when your baby is born even if you are outside of your regular open enrollment period.
Now, you usually only have 30 to 60 days to make this change so make sure you check with your employer or insurance company on your deadline and make sure you add your child to the policy. Your premiums might increase as you are adding someone to your plan. If you have questions, call someone. It’s a good investment of your time.
Also, you do have the option to change your plan, but keep in mind you need to think about how this will impact your premiums, annual deductibles, out of pocket maximum, etc. as they could reset if you change plans.
Pro tip: Focus on getting the right coverage and not just on the cost. People often just look at the cost of health insurance. Remember, the wrong coverage will almost always cost you more than the premiums you pay for better coverage.
#2 - Get life insurance OR review and update your existing life insurance.
Life insurance becomes an essential part of any ongoing financial plan the day you have other people that rely on you financially.
As a general rule of thumb, you should have 15x to 20x your income in life insurance. That’s not a formal recommendation as there’s more you need to consider (income, single or dual income household, current debt, education plans, home ownership, etc etc) but, generally speaking, your family will be OK with that amount of coverage.
Also, 99.99% of the time you simply need term life insurance. Don’t fall for the sales pitch of needing really expensive permanent insurance that acts like an investment or this “infinite banking” nonsense.
Pro tip: Buy term insurance. It’s less expensive and gives you the insurance you need.
#3 - Get estate planning documents (will, financial power of attorney, medical power of attorney, and maybe a trust) or review and update your existing documents.
All parents need three basic documents: a will, financial power of attorney, and a medical power of attorney (sometimes called an advanced directive since you are giving directives about your health in advance of an event occurring).
So, get these three documents ASAP.
In some states, you will need a fourth document that is called a living will. It’s the form that shares your wishes for life sustaining health care (i.e. life support). Yeah…not a fun one to talk about but it’s important. Some states include this in the medical POA while some require a separate form.
Last but not least is a trust. It’s not a “must have” document, but it’s something to strongly consider.
Pro tip: Talk to an estate planning attorney on this one! Cheap options like LegalZoom exist. If you’re in a pinch, these options can work. In general, getting the documents right the first time (i.e. talking to an attorney) is your best bet.
#4 - Review and update your monthly expenses.
Kids are … expensive. Recent studies show that the cost to raise a kid through the age of 18 (not including college) has now surpassed $300,000.
Gulp…
If we do some simple math, this means that you can count on roughly $1,400 of additional monthly expenses. Now, it doesn’t always come monthly so there will be ebbs and flows. However, you need to start planning for added monthly expenses.
Start with looking at your take-home pay, how the new expenses will impact your spending, and then make adjustments if/where necessary.
Pro tip: Don’t worry about what you call this (budgeting, cash flow planning, intentional spending) or how you do it just yet (50/30/20 rule, etc). Start with listing all of your regular monthly expenses. Then categorize them. And then assess what’s working and what’s not.
#5 - Revisit and adjust your emergency fund.
The rule of thumb for an emergency fund is to have 3 to 6 months of expenses saved in a checking or high yield savings account (I prefer high yield savings accounts since they pay a lot more interest).
Also, I don’t love rules of thumb because they don’t take your personal situation into consideration, but it’s an OK place to start.
Things that impact the right amount include risk of job loss, single or dual income household, owning a home, number of kids, etc. The more of these you check the box on, the higher the savings.
Pro tip: Determine the amount you want to have in savings and then make a plan to get there gradually. We often feel overwhelmed by big goals. So focus on adding one more month of savings at a time (assuming you haven’t already hit your number).
Moving on to the 3 “make sure you do it eventually” list:
#6 - Start saving for your child’s education.
Remember that $300,000 to raise a kid to age 18? Well, add to that the cost of an education.
For newborns, it could cost over $150,000 for an in-state 4 years school and over $250,000 for an out of state public school by the time the kiddo heads off to college.
Don’t worry, we aren’t funding that today, but we will be funding that over time. The best strategy is to set up an education savings account (also known as a 529 plan) and to start saving monthly. Even small amounts add up over time so start with what fits your ongoing plan (even $50/month is a great start).
There’s a lot more to consider here like how to pick a plan, tax savings, how to invest, etc so make sure you check out my longer article on this (I’ll link it once I write/post it).
Here’s a great resource for you as well: savingforcollege.com.
Pro tip: There’s a lot of uncertainty around the future of college, student loans, and many other things. Don’t let this keep you from getting started. My approach is always to start small and adjust over time as I gain more clarity.
#7 - Keep your own retirement savings a priority.
Ideally, having a kid won’t change any of your saving and investment plans for retirement. The most important thing you can do is to stay the course and continue saving and investing the way you are today.
I am also a realist and know that big changes like having a kid can disrupt the best made plans so adjustments might be necessary. Remember, investing in your future and your retirement isn’t a selfish act. Making sure mom and dad are financially secure is one of the most selfless things you can do for your kids.
Pro tip: If you do make changes, start with smaller changes - 1% up or 1% down - and see how things feel. Ideally, you are going 1% up. Next, try increasing that by another 1% every 6 to 12 months.
By the way, you may have noticed a few “pro tips” talk about small changes. That’s because small changes work and don’t create major shocks to your overall plan. Think incremental, imperfect, yet implementable.
#8 - Talk to your partner about money (and schedule regular check-ins aka “money date nights”).
In my 20 years as a financial planner, this is the most overlooked item on this list. That’s not because we are bad people, it’s just we fall into “getting things done” mode (i.e. being parents, going back to work, dealing with life, etc.).
However, I can also share having helped thousands of people personally and through my company that this might be the most important one for partners.
Making sure you are aligned on what you want for your family, each other, your careers, for college, you name it…is important to remaining on the same team and staying calm when things don’t go as planned.
Pro tip: This can be challenging so knowing how to navigate these conversations without creating emotional triggers is important. Here’s a little “class” I recorded with my own partner that takes you through a framework we created (F.A.C.E.T.S.).
Bringing us home with the 2 “best investments you’ll make” part of the list:
#9 - Create an ongoing financial plan for all aspects of your finances.
We’ve already looked at a few important topics that new parents need to explore, but there are many more areas of our financial lives that we need to address including but not limited your investment strategy, account types (401k vs IRA vs Roth vs…), tax strategies, workplace benefits, managing stock options, managing credit and debt, liability protection, and the list goes on.
The point is that financial planning isn’t just about investments and retirement. It’s about creating clear strategies for every life decision that is impacted by money.
I don’t have stats on this, but I am pretty darn confident that the vast majority of successful people have an ever-evolving plan. Most people don’t stumble into success. Start planning. Today.
Pro tip: I always say that there is no such thing as a financial plan but there is such a thing as financial planning (i.e. an ongoing, evolving strategy). Once you have a strategy in place, make sure you are reviewing it and updating it periodically as life, tax law, legislation, markets, the economy, and the world around you change.
#10 - Get professional guidance from a CFP® Professional.
OK, OK, yes I am biased in my opinion since I am a financial planner. And, also, I know that world class performers have world class coaches and I want you to be a world class mom or dad or to build a world class career or to be world class at whatever you want…
As a new parent, there’s a lot to think about and a lot more to do and a lot of questions come to mind:
Am I doing the right things with my money?
Am I making any mistakes or what mistakes do I need to avoid?
Am I missing out on any opportunities?
How do I prioritize the seemingly endless and conflicting goals?
What trade-offs make the most sense financially or for the life I want?
A good financial planner can help you answer these questions so you can make decisions with confidence, save time so you can spend it where you want to, reduce the worry and stress around money, and put you in control of your financial decisions and the life you want for your family.
Pro tip: At the very least, look into expert financial advice. In my opinion, it can be the best investment you can make. You can check out my company, Facet, or you can look for a CFP® Professional here.
Also, here’s a little article on what to ask a financial planner before choosing one.
If you take action on all ten of these items, you are well on your way to achieving financial security and success.
Cheers to health, wealth, and the good (financial) life,
Brent