Short-Term Financial Planning for First-Time Parents

A seasoned wealth adviser shares his experience with the financial planning he and his wife did for the arrival of their first bundle of joy.

A newborn holds an adult's fingers.
(Image credit: Getty Images)

Welcoming a new baby to your family is an exciting time. Along with that anticipation, many parents-to-be have concerns about the expenses and financial planning challenges that arrive with your bundle of joy. There are many discussions around what mothers need to consider with their health while pregnant and giving birth, but a recent conversation with my colleague Ignatius D’Anna, who is expecting his first child with his wife, Kate, gave me a new perspective about what fathers and partners may be doing to prepare for the arrival of a child.

I interviewed Ignatius, who goes by Iggy, about what he is thinking about as both a first-time dad and a seasoned wealth adviser.

Kara: I know you and Kate are thrilled, and perhaps a little nervous, about welcoming your baby and everything that will change in your lives — and your financial situation.

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Iggy: This is an extremely exciting time in our lives, and there are many personal and financial considerations to balance as we’re planning to welcome our firstborn into our family. I hope our conversation will be valuable in supporting those who are considering the monetary impact of becoming new parents.

Kara: When you and your wife found out that you were expecting, how did you both approach the initial conversations around this major life transition?

Iggy: That is a great place to begin. It all starts with open communication so we can have meaningful discussions around what’s most important to each of us and our family. A lot of the planning started well before we found out the news, because we discuss our goals, values and vision for our lives and our marriage on an ongoing basis. My wife and I conduct what we call a “monthly family meeting” where we talk about important personal and financial topics that are top of mind, so this was naturally where we started to plan and get organized.

In this situation, she is doing all the heavy lifting, literally, and my goal is to be a present and supportive partner by taking on as much responsibility as I can outside of carrying and delivering the baby.

Kara: From a financial perspective, where did you start?

Iggy: There is so much to consider, and we needed to find a way to prioritize action items. The simplest way I could view this was to separate short-term from long-term planning topics.

First, we wanted to review our budget and plan for adjustments there. I know it is not the most fun thing to do, but it’s important to be clear on where your money is going. The cost of raising a child is one of the largest financial commitments many of us will make in our lifetimes.

If you are not already tracking your budget, there are great resources out there that can simplify the process. I personally use an online budgeting tool in conjunction with a spending plan worksheet. The website allows me to link all my bank and investment accounts, debit cards and credit cards to automatically track all transactions and organizes it in a simple manner.

From there, I export the data to the spending plan worksheet — the same one that I use with my clients — to project our expenses for the next three to six months and track our progress.

Kara: What were some of the budget considerations you reviewed as you and your wife were projecting your cash flow during Kate’s pregnancy and after the baby arrives?

Iggy: The most immediate impact was planning for upcoming medical visits, lab tests and other lifestyle adjustments. From a planning perspective, the biggest consideration is that that we are now planning for three of us instead of two. Additional costs to factor in are related to health care, medical expenses, childcare, diapers, formula and all the fancy baby gear out there vying for everyone’s nursery and car space.

We looked for ways we could save on our current expenses, while adding these new categories to accommodate our growing family. Additionally, we keep a six-month emergency fund in our liquid savings account, so we ensured that these new expenses were accounted for in that amount.

Kara: Parental leave is a big topic when planning for a new baby. How did you go about planning for parental leave?

Iggy: First, I recognize that parental leave is not something everyone has access to, so we are grateful to work for employers that offer this benefit. The key consideration for us is balancing our personal lives and our careers. The first step we each took was to schedule conference calls with our HR representatives to gather information on our options to determine a game plan.

We reviewed my wife’s parental leave options as well as how short-term disability factors into the timing and planning of it all. Two big questions that we needed to answer were how long of a leave is available and if it is paid leave. Beyond the parental leave timeline, short-term disability typically kicks in and replaces a portion of income for a specified period. In Kate’s case, it covers 60% of her salary, so we are factoring in the reduced income when adjusting our cash-flow projections.

While it is important for my wife to be able to have as much time off to bond with and care for our newborn as she can, we view my situation through a bit of a different lens. Since I do not have a teacher’s summer break or the physical recovery from delivering our child like my wife does, I feel a deep sense of responsibility and duty to be accessible for my clients and team. Our company provides a generous parental leave program that will allow me the flexibility to continue to monitor emails, make phone calls and hold occasional client meetings while I’m technically out of the office on parental leave.

I believe that having this balance of time off and remote system access will allow me to bond with our newborn without sacrificing my responsibilities to my clients.

Kara: How about employee benefits beyond parental leave like health insurance for the baby?

Iggy: Making sure we understood how health insurance works for a new baby and what the best option would be was important. My wife and I each work and have health insurance through our respective employers, so we compared plans to assess the pros and cons of adding the baby to each plan.

First, we looked at the cost, and then we checked to see which health care providers would be in-network options. While cost is an important factor, it is also important to have in-network access to a pediatrician that we trust and has come highly recommended.

An important aspect to consider is that most insurance plans typically have a 30- to 60-day window to add your newborn to your plan after birth, so it’s beneficial to contact your insurance provider ahead of time to find out what information they’ll need, such as your child’s name, date of birth, birth certificate and so on.

Kara: Any other considerations you believe would be helpful for those parents who are planning for a newborn?

Iggy: We felt it was important to really assess our situation and to ensure that we have a strong team around us to support in this transition. It can be family, close friends or even outsourced help, such as a housekeeper or childcare provider. This is where personal finance really gets personal, because it must be whatever works best for you and your family dynamics.

There are many big questions to think about. Are you both going back to work? Will one of you become a stay-at-home parent? What are the pros and cons of each, and what’s the opportunity cost in either decision?

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Certified Financial Planner Board of Standards Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors is registered as an investment adviser with the SEC. Content is for educational and illustrative purposes only and does not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate, but is not guaranteed or warranted by Mercer Advisors.

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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.

Kara Duckworth, CFP®, CDFA®
Managing Director of Client Experience, Mercer Advisors

Kara Duckworth is the Managing Director of Client Experience at Mercer Advisors and also leads the company’s InvestHERs program, focused on providing financial planning to serve the specific needs of women. She is a CERTIFIED FINANCIAL PLANNER and Certified Divorce Financial Analyst®. She is a frequent public speaker on financial planning topics and has been quoted in numerous industry publications.