Five Money Moves to Make Before Your First Child Arrives

An expectant mother sits on a park bench with her head back, enjoying the sunshine. — (Image credit: Getty Images)

Having children can turn your life and finances upside down.

On average, a child costs two-parent families in the U.S. from $9,300 to $23,380 every year, according to the U.S. Department of Agriculture.

Before becoming a mom, I was unaware of how quickly your finances can go into the red without proper financial planning.

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However, with a little planning, you can ease into parenthood — at least the financial aspect — and be ready to tackle all the new challenges and adventures that are a little harder to prepare for.

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Use these five money moves to help prepare your family financially before your new bundle of joy arrives.

No. 1: Set up your emergency fund

The biggest understatement of the year is that kids are unpredictable.

When my first son was born, my husband and I faced many "surprises," including being in the neonatal intensive care unit (NICU) for five days and attending extra doctors' appointments throughout the following year.

Luckily, we had a sizable emergency fund to fall back on and didn't need to charge those expenses to our credit cards. If we had, those costs might have built up high-interest charges. The NICU stay alone costs nearly $5,000 out-of-pocket after insurance.

As a soon-to-be new parent, I recommend that you have three to six months' worth of living expenses saved for unplanned situations such as these that are true emergencies you can't predict.

No. 2: Update your budget

When having kids, there are additional expenses you can prepare for, such as clothes, baby furniture and diapers.

However, not all items are expected, such as needing to buy baby formula. Many moms plan to breastfeed, but if the plan doesn't work out, the cost of formula can quickly add up.

On average, powdered baby formula can cost $100 to $150 per month. This amounts to about $1,200 to $1,800 per year for babies who are formula-fed exclusively.

Before you start a family, research the cost of common baby items and estimate a monthly budget for these necessities.

To help prepare for these costs, implement your new budget, which includes diapers and baby gear, a couple of months before the baby arrives to give you plenty of time to adjust.

Childcare and health care are two additional expenses that can be very high, depending on your plan.

When thinking about childcare, it's important to explore all your options, such as family, nannies and day care, or if you or your spouse plan to become a stay-at-home parent.

As of 2023, the average weekly day care cost was $343, with a nanny costing an average of $827 a week.

When it comes to medical insurance, it's a good idea (if applicable) to explore the benefits offered by your employer and your spouse's employer. Does one of your companies cover family members?

If both do, compare the medical plans carefully because some might offer you more flexibility and better coverage.

One key thing to check is whether your current insurance covers the pediatrician you have chosen.

No. 3: Look into life insurance

As a parent, you're taking on the responsibility for someone else's life and well-being, at least until they're 18 years old.

Although no one wants to think of the unimaginable — that your kid would be left without one parent or both parents — it's vital to make sure you have a plan to ensure your children will be taken care of.

Parents should have a life insurance policy to make sure that if tragedy or sickness does hit, their child is financially secure.

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Talk to a financial planner or insurance professional to figure out which policy fits your future family and situation best.

Also consider naming a legal guardian in your will and determine how your life insurance benefits will be managed, such as setting up a trust for your children to receive the funds.

No. 4: Update (or create) an estate plan

When I started my family, I set up a family trust and filled out all the important estate planning documents, such as a durable power of attorney and health care directives.

These documents serve as a safeguard to your family's finances and help ensure that your children are cared for if something happens to you.

It's vital for parents to set up an estate plan or update their estate plan to provide their children with security and peace of mind when they're no longer with them.

To help with this process, work with an estate planning attorney to begin the process of creating or updating all necessary documents.

No. 5: Start thinking about education planning, plus explore FSA

Consider whether you want to help with your child's education expenses, such as college. An important savings vehicle to explore is a 529 plan, which allows you to save tax-free for future education expenses. This account is a great tool to help invest in your child's future.

Another helpful account to utilize for childcare costs is a Dependent Care Flexible Spending Account (DCFSA).

A DCFSA is a pretax benefit account that is eligible for dependent care services such as preschool or after-school programs.

Now that my kids are a little older, I use this account to pay for the dreaded summer costs.

Hopefully, some of these tips will help you start planning for your future family. Although it's been almost 10 years since I had my first son, I honestly wish I had known about some of these tips to have a more prepared transition into parenthood.

My biggest suggestion is to consult a financial planner to help alleviate some of your new-parent stress and make sure that you and your finances are prepared to welcome your little one.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Kelli Kiemle holds multiple roles with Halbert Hargrove. As Managing Director of Growth and Client Experience, she sets the tone for the quality and character of Halbert Hargrove's client service relationships. She also manages the associate wealth advisers. Kelli is also responsible for overseeing the firm's wide-ranging marketing and communications initiatives, including their mentor program. She is also the Co-host of Halbert Hargrove's Fearless Money Talks podcast.