If you’ve just become a parent, changes to your personal finances will be one of many ways that your life is going to transform. Having a plan for how to manage your money as a parent will go a long way in the coming years. Here’s a look at some of the basics of what needs to change.
Personal Finances for New Parents
- Redo your budget: Everything in your budget is going to need a second look with this change. With new expenses like food, clothing, diapers and healthcare, you might have to adjust your lifestyle or take on new sources of income to make your finances work. Your early budgeting might not be accurate, but as you continue to track your spending with your new baby, you will be able to hone in on the proper numbers. Accounting for the financial realities of parenthood will help you maintain a budget and avoid taking on too much consumer debt in the early months.
- Grow your emergency fund: If you have been smart about money in the past, you likely have an emergency fund. This is a lump sum of cash set aside in the event of an expensive emergency like a medical accident or a car crash. With a new child in the family, you are going to have to substantially increase the size of this fund. If you haven’t already, start saving money to address any possible emergencies your child might have. Don’t get discouraged if you can only save a small amount each month. Remember, once you set aside the money, it will likely last a long time. Emergencies are rare, but you’ll be glad you have the funds if one happens.
- Understand tax changes: You need to do your homework and understand the many tax benefits of being a new parent, such as the child tax credit, the child and dependent care credit and changes to the earned-income tax credit. Leveraging tax changes will help you build a better financial future for your new family.
Becoming a parent is arguably the biggest change a person faces in their life. In many ways, it is impossible to prepare for what is in store. Understanding the most likely changes to your finances will make it easier to focus on the parts of parenthood that are truly important.
Kevin D. Judd is a DC bankruptcy lawyer who fights to provide his clients with a gateway to financial freedom.