Financial Tips for New Parents

Starting a family is a huge time and financial commitment.  The greatest gifts you can give your children are love, a happy and safe home, and security.  We all strive for financial security and to achieve that goal requires diligence, planning, and common sense.   Obviously, the earlier you start planning the greater chance for success and prosperity.  My tips for new parents:

Set a Budget You Can Live With
Setting a budget is the cornerstone to your security.  Best case scenario is being able to create a budget that allows you to live on one salary; the worst case is living paycheck to paycheck.  Examine your spending habits.  Are you spending a great deal of money with nothing to show for it?  Where can you cut expenses?  Find creative ways to have fun without breaking the bank.  The envelope system, although old fashioned, is still one of the best budgeting tools.  Create spending envelopes for monthly expenses that vary and are not necessities or could be trimmed:  clothing, entertainment, groceries, etc.  When the envelope is empty your spending in that category is done for the month.

Start Saving
Life is full of surprises.  When you don’t have the resources to pay for unexpected expenses (replacing a home appliance, car repairs, medical deductibles, etc.) it causes stress and likely arguments.  The industry rule of thumb is to have 6 to 12 months of monthly living expenses in your emergency fund.  This can take some time to build, be patient and diligent.

Get Life Insurance
Insurance is for a catastrophic life event.  A couple with two working spouses can likely survive if one spouse should die unexpectedly, but for a couple with a child, the loss of a spouse could result in devastating financial consequences.  Not only is the remaining parent responsible for all of the childcare, but also the financial support.  Protect your child and your spouse from having to sell the family home and drastically reducing their standard of living. Term life insurance for a young and healthy individual is the most affordable life insurance product.  Determining how much life insurance you need as a new parent is a function of need and affordability.  Generally a good starting point is paying off the mortgage and putting your child through college.

Put an Estate Plan in Place
Estate planning is for all ages and is one of the most important steps you can take to protect yourself and your family.  At a bare minimum you need a Will and Health Care and Financial Durable Powers of Attorney.  The Will is important for choosing a guardian for your child if something should happen to both parents; you want to decide who will raise your child, do not leave it up to the court.  You can also stipulate in your Will that your child receives their inheritance over a period of time, rather than a lump sum when they turn 18.

Start Saving For College
Paying for college should not be put off; the longer the money has to grow the more you can harness the power of compounding.  If you contribute to the MESP, Michigan’s 529 Plan (, you can deduct up to $5,000 from your state income tax ($10,000 for a married couple) and the funds grow free of federal and state income taxes.  When you withdraw funds for qualified higher education expenses there are no taxes due.

All questions or comments are welcomed.

Suzanne M. Antonelli, CFP®