Planning Financial checklist for new parents

Becoming a parent is a life-changing experience, and financially preparing for it is one way to help relieve yourself from the stress of all the changes that come with it. Just look at the numbers: The Brookings Institution in 2022 estimated that it costs $310,605 to raise a child up through age 17,¹ which is a large jump from 2017, when the estimated amount was only $233,610.² Seeing those figures might set off some alarm bells, but don’t panic. You don’t need to come up with hundreds of thousands of dollars before your child is born, but it should help put into perspective the amount of responsibility coming your way.

With all that coming down the line, preparing as much as you can while your baby is still young – or still on the way – can make a huge difference for your financial health. If you want to get ahead of the game, follow this financial checklist to learn about some things you might be overlooking and should be thinking about when it comes to preparing for your new child’s arrival.

Update wills and estate planning documents

Welcoming a new child includes revisiting any wills or estate plans you may have worked on with an attorney. If you want your assets to be handed down to your child, it’s important to take care of this as soon as possible.

As grim as it sounds, you never know when something might happen; the earlier you are able to handle these things, the better. You’ll be very busy caring for your new child and learning how to be a parent in general, meaning things like meeting with an attorney to go over legal documents might not top your priority list. As time goes on, though, your child could become an adult before you make sure you’ve added them into your will and estate plan.

It’s important to work with an estate planning attorney to make sure your documents are all in line. It can be a complicated process, so you want to make sure you do it right.

Determine first-year expenses

There are lots of things you’ll need to pay for during the first year of your child’s life, especially if you’re a new parent. Whether these are things you need because it’s your first child and you don’t yet have them, or because they’re things that only young babies need, there will be many first-year expenses to account for. Here are some to keep in mind:

• Furniture like a crib, rocking chair or changing table
• Things that only young children need like a walker, high chair, pacifier or even formula
• Child care, whether that’s a nanny, sitter or daycare
• Regular doctor visits or other health care assistance for your child when they get sick

Make a list of all the things you’ll need for your child, as well as all the ongoing expenses you’ll have to factor in. Writing all of this out can help you visualize what kind of expenses to expect. From there, you can start preparing for them.

Update health insurance coverage

Health insurance coverage should be updated as soon as you have a child. Although Americans can typically only change their health insurance selections once a year during the open enrollment period, there are a few major life events that allow for you to make changes to your plan immediately – and having a child is one of them.

If you or your partner have health insurance through your employer, contact HR to figure out when and how you can do this. If you’re able to choose between two plans, you might find that one plan has more benefits than the other. Child care is an ongoing and very expensive cost, but comparing coverage for each plan will ensure that your child gets the best benefits possible. To help yourself out even more, speak with your HR department before you welcome your child so that you know how the process works beforehand – it might save you some stress.

Reevaluate the household budget

You’ll also need to rework your budget so that it incorporates all ongoing expenses your child will need. These include things like food/formula, clothes (that they will rapidly outgrow, no less) and diapers.

After determining your budget for one-time expenses and monthly costs, you might have some extra cash that hasn't been allocated to expenses. If this is the case, you might want to consider taking some of that excess cash and allocating it in ways you might not have considered before your baby was born, such as in a savings or investing account for your child.

Recalculate your emergency fund

The reevaluation of your household budget will impact your emergency fund, too. Let’s say you have three to six months’ worth of savings to live off of in case of an emergency – you’re going to need to recalculate this to figure out how much extra money you’ll need a month to accommodate your new child.

This might be hard to do before your child has been born, but having a robust enough fund to cover your growing family is critical. Once you figure out how much more you need, start building up your emergency fund again so that you’ve got what you need saved.

Plan for education

Planning for your child’s education when they are young can help you out more than you might think down the line. A 529 account is a tax-advantaged investment account specifically designed for qualified educational expenses. While it’s typically used for higher education, it can be used for K-12 schooling in some situations, too.

Here’s how it works: You contribute money to the account, where it will grow over time tax-deferred as an investment. Once your child is ready to attend school, the money can be withdrawn tax-free to pay for tuition, room and board and even school supplies. One advantage of a 529 account is that, unlike a custodial account, the owner retains control of the assets even after the beneficiary reaches the age of majority, helping to ensure the assets are used for education expenses. However, if the money is not used for qualified education expenses, the earnings will be subject to income taxes and penalties. 

Although it’s difficult to know if your child will want to attend college once they’re an adult, it’s not a bad idea to consider saving either way. The cost of college tuition has skyrocketed in recent years and will likely only continue to get more expensive. What’s more, this 529 account can also be gifted to someone else if your child never uses it, or up to $35,000 can be rolled over to a Roth IRA for the beneficiary.³

Opening a 529 account for a young child and regularly contributing to it can be a helpful way to plan for qualified expenses like tuition for your child’s education.

Consider investing

Although investing may seem like something your child can’t benefit from until they’re an adult, you can actually start investing on their behalf before they are of legal age via a custodial account. An adult might open a Uniform Transfers to Minors Act (UTMA) account, which is a type of custodial account that can hold virtually any asset, including stocks. You can store and invest assets on behalf of your children while they are still minors, and they will eventually inherit the account once they become legal adults. At that point, the child can access the funds and use them without restriction; these assets don’t have to be used specifically for education expenses but a custodial account has different tax advantages than a 529 account.⁴

Those who invest understand the power of compounding and how much money can grow over the long term. The earlier you invest, the more time you have to do this.

The bottom line

Preparing yourself financially to become a parent is crucial for keeping your finances in order – and to help give your child a financial leg up in life. The earlier you can prepare, the better. But even if you’ve already welcomed your child into the world, doing as much as possible to organize your finances around being a parent can still help out enormously. Better yet, you don’t have to do all this alone – consider speaking with a J.P. Morgan advisor today to get started on your financial checklist as a new parent.