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Raising a child to the age of 17 can cost families an average of $240,000 per child, according to CBS News. This figure doesn’t even account for the rising cost of college. In the 2022-2023 school year, CollegeBoard data shows the average cost for an in-state, four-year school was $27,940 annually, covering tuition, fees, and room and board.
Kids can bring a lot of joy and meaning to life, and most parents feel they’re worth every penny. However, getting your finances in order before having kids can help you enjoy your new family without constantly worrying about money.
10 Financial Moves to Make Before Having Kids
1. Start Using a Monthly Budget
When you’re young and without children, it’s easy to overspend on non-essentials. But kids change that. Starting a monthly budget now helps you focus on your short- and long-term goals. You can use pen and paper or digital budgeting tools like Mint, Qube Money, or You Need a Budget (YNAB). Include categories for savings and investments and treat them like regular bills. This way, you’ll cover expenses, save for the future, and still have money for fun.
2. Build an Emergency Fund
Experts suggest saving three to six months of expenses in an emergency fund, and it’s even more vital when you have kids. You could face unexpected costs like medical emergencies or a job loss. Open a high-yield savings account and aim to save at least three months’ worth of expenses before becoming a parent. You’ll be glad you did.
3. Boost Your Retirement Savings Percentage
It’s easier to prioritize retirement savings before having kids. Boosting your savings now lets you benefit from compound interest and helps you learn to live on less take-home pay. Increase your retirement contributions gradually until you reach around 15% of your income. Check with your employer about adjusting your contributions, or open a retirement account like a SEP IRA or Solo 401(k) if you’re self-employed.
4. Start a Parental Leave Fund
Since the U.S. doesn’t require paid parental leave, check with your employer about your options. If you only have a few weeks of paid leave but plan to take more time off, save up to cover the gap. For example, if you need 10 weeks off but only have four weeks of paid leave, start a savings account and contribute regularly until you have enough to cover the additional six weeks.
5. Open a Health Savings Account (HSA)
HSAs are tax-advantaged accounts for healthcare expenses available to those with high-deductible health plans. In 2024, individuals can contribute up to $4,150, and families up to $8,300. The money grows tax-free and can be used for qualified medical expenses without penalties. After age 65, you can use it any way you want without penalties.
6. Start Saving for College
College costs are only going up. To prepare, open a 529 college savings account once your child is born. Some states offer tax benefits for contributions, and you can invest in various plans to grow your money faster than in a traditional savings account.
7. Pay Off Unsecured Debt
If you have high-interest debt like credit cards, pay it off before having kids. Free up cash and save money on interest. Consider strategies like the debt snowball (paying off the smallest balance first) or the debt avalanche (targeting the highest interest rate first). Balance transfer credit cards with 0% APR can also help, but make sure you have a plan to pay off the balance before the introductory period ends.
8. Consider Refinancing Other Debt
Besides credit cards, consider refinancing student loans or your mortgage to lower interest rates and payments. Refinancing can be particularly beneficial with today’s low interest rates. Compare rates to see potential savings.
9. Buy Life Insurance
Get term life insurance before having kids. It’s affordable and can cover at least 10 years of your salary. Many providers offer policies without medical exams if you’re young and healthy. Shop around for quotes to find the best deal.
10. Create a Will
A will specifies what should happen to your assets and who would take custody of your kids if you pass away. It’s not expensive to set up and can prevent the courts from making these decisions for you. You can draft one with the help of a lawyer or services like LegalZoom.
The Bottom Line: 10 Pre-parenting Financial Steps
Having kids is incredibly rewarding but also costly. Preparing your finances ahead of time allows you to enjoy parenthood without the stress of unexpected expenses. Getting a financial plan in place now will help you manage the cost of raising a family and make the most of this joyful time.
