Smart Money Moves for New Parents: Year One and Beyond

Robert Cohan
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Becoming a parent is an exciting, life-changing event that brings countless joys and responsibilities. From decorating the nursery to stocking up on baby essentials, the to-do list can seem never-ending. While most of your time is likely spent preparing for your little one’s arrival or adjusting to life as a new parent, it’s important not to overlook your family’s financial future. A solid financial plan will give you peace of mind, knowing that you are prepared for any eventuality. Whether you’re expecting or already have a child, this guide will walk you through important financial steps that can help protect and secure your family's future. From reviewing health insurance to setting up college savings, these money moves are designed to ease financial stress in your first year as a parent and beyond.

Before Baby Arrives: Setting the Financial Foundation

The months leading up to your baby’s birth can be a whirlwind, but it's crucial to use this time to lay a solid financial foundation. These steps will help you prepare for both the immediate costs and the long-term financial impact of parenthood.

1. Review Your Health Insurance Coverage

Health insurance is one of the most important things to consider before your baby arrives. Not only will you need coverage for your prenatal and delivery care, but you'll also need to add your newborn to your plan. Start by understanding the costs of your hospital stay, including neonatal care. Check whether your insurance covers a percentage of the final cost or if there is a fixed daily rate for the hospital stay. Knowing these details in advance will help you budget for the upcoming medical expenses, which can be significant. Next, make sure you know how to add your newborn to your health insurance. Most insurance providers require that you add the baby within 30 days of birth. Given how quickly time can pass in the early days of parenting, it's a good idea to prepare any necessary paperwork ahead of time. Once your baby arrives, you’ll be glad you planned ahead.

2. Reevaluate Your Budget

With a baby on the way, your spending patterns are about to change. From diapers to baby clothes, the expenses will start piling up. Take a moment to review your current budget and make adjustments where necessary.
  • Track current spending: Look at your current monthly spending and find areas where you can cut back. Entertainment, dining out, or luxury purchases might take a backseat to more pressing needs once the baby arrives.
  • Plan for baby expenses: Create a new budget category specifically for baby-related expenses like diapers, formula, clothing, and baby gear. You may also want to factor in healthcare costs, especially if your insurance plan has high deductibles or out-of-pocket expenses.
  • Prepare for income changes: If one parent plans to take unpaid maternity or paternity leave or cut back on hours at work, make sure to account for the temporary loss of income. Having a buffer in your emergency fund can help ease this transition.

3. Boost Your Emergency Fund

Before your baby is born, aim to have at least three to six months’ worth of living expenses in an emergency fund. Life with a new baby is unpredictable, and having a financial cushion can help you manage unexpected expenses or income changes, such as unpaid leave or sudden medical bills. An emergency fund also provides peace of mind if something unexpected happens, like a job loss. You’ll be able to focus on your family rather than worrying about how you’ll pay the bills.

4. Update Your Retirement Savings Plan

Having children can make long-term planning even more important, especially when it comes to retirement. While it might be tempting to prioritize saving for your child's future (such as college), remember that your retirement should come first. After all, there are many ways to finance education, but fewer ways to fund retirement. If you haven’t already done so, consider setting up or increasing contributions to a 401(k) or IRA. The earlier you start, the more time your money has to grow, and you’ll thank yourself later when you can retire comfortably without relying on your children for support.

In the First Three Months: Securing Your Family’s Future

The first few months after your baby’s birth can be a whirlwind, but they’re also an important time to focus on securing your family’s future. These steps will help ensure that your family is financially protected if something unexpected happens.

5. Sign Up for Life Insurance

Life insurance is an essential step in protecting your family, especially if you have dependents. If you don’t have life insurance, now is the time to get it. A life insurance policy provides a financial safety net in case something happens to you or your partner, ensuring that your family can maintain their standard of living.
  • Employer-provided life insurance: Many employers offer life insurance as part of their benefits package, but the coverage may not be enough to fully protect your family. Check the details and consider supplementing it with a private policy.
  • Private life insurance policies: You can purchase additional life insurance from a private company, and it’s often more affordable than you think. Term life insurance is a popular option for young families because it provides coverage for a specific period (e.g., 20 or 30 years) and is generally less expensive than whole life insurance.
The amount of coverage you need depends on your financial situation, but a good rule of thumb is to aim for a policy that’s 10 to 12 times your annual income. This can help cover living expenses, mortgage payments, and education costs if one parent is no longer around.

6. Establish a Will and Name a Guardian

No one likes to think about the possibility of something happening to them, but it's important to plan for the unexpected. A will ensures that your assets are distributed according to your wishes, and more importantly, it allows you to name a guardian for your child. When choosing a guardian, think about someone who shares your values and is willing to take on the responsibility. It’s also a good idea to discuss your decision with the person you’re considering before making it official. Many people use online services like LegalZoom to create a simple will, but if your financial situation is more complex, you may want to consult with an attorney.

7. Consider Disability Insurance

Disability insurance is another key financial safety net, especially if one parent is the primary breadwinner. If an illness or injury prevents you from working, disability insurance can replace a portion of your income, helping you cover essential expenses like your mortgage, utilities, and groceries. Many employers offer short-term or long-term disability insurance, but it’s important to review the terms and consider purchasing additional coverage if needed. Like life insurance, disability insurance is one of those things you hope you never need—but if you do, it can make all the difference.

Before Baby’s First Birthday: Building for the Future

As your child’s first year approaches, it’s time to start thinking about the future. From setting up a trust to starting a college savings fund, these steps will help ensure your family’s long-term financial security.

8. Understand Your New Tax Deductions

While raising a child can be expensive, there are financial benefits when it comes to taxes. The IRS allows you to claim a dependent exemption for each child, which reduces your taxable income. Even if your baby was born on December 31, you can still claim the full exemption for that tax year. In addition to the dependent exemption, you may also qualify for the Child Tax Credit, which provides up to $2,000 per qualifying child under age 17. If both parents work and you pay for childcare, you may be eligible for the Child and Dependent Care Credit, which can offset some of your childcare expenses. Make sure to keep track of any expenses related to your child, as they could result in valuable tax deductions or credits. Consulting with a tax professional can help you maximize your savings.

9. Set Up a Trust for Your Child

If you have significant assets, setting up a trust for your child can protect your wealth and ensure it’s distributed according to your wishes. A trust allows you to specify how and when your child will receive their inheritance, which can be particularly helpful if you want to avoid probate court. In California, if your assets exceed $100,000, they must go through probate court, which can be a lengthy and expensive process. By setting up a trust, you can bypass probate and ensure your child has access to the funds they need without unnecessary delays or fees. Trusts can be complex, so it’s a good idea to work with an estate planning attorney to make sure everything is set up correctly.

10. Start a College Savings Fund

While college may seem far off when your baby is just learning to crawl, it’s never too early to start saving for their education. College costs are rising every year, and starting a savings plan early will give your money time to grow. A 529 plan is one of the most popular ways to save for college. These tax-advantaged accounts allow your investments to grow tax-free, and withdrawals for qualified education expenses are also tax-free. Many states, including California, offer their own 529 plans, but you can choose any state’s plan based on the investment options and fees. If you’re not sure a 529 plan is right for you, there are other options to consider, such as custodial accounts or even a Roth IRA. Each has its pros and cons, so it’s worth discussing your options with a financial advisor to determine the best path for your family. With just a little bit of foresight and planning, you can easily prepare for Baby - and not just for the ride home from the hospital, but for years to come.  
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Robert Cohan

Robert Cohan is driven by a belief that solutions aren’t just found – they are carefully crafted. As…
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About Robert Cohan

Robert Cohan is driven by a belief that solutions aren’t just found – they are carefully crafted. As President of Carlyle Financial, he ensures that the firm’s mortgage solutions are elegantly simple, yet flexible enough to provide custom options for our clients.

Robert is an experienced mortgage professional and industry innovator. He developed his passion for providing extraordinary service for extraordinary clients as a top mortgage professional for several national banks, including Bank of America, Washington Mutual (now J.P. Morgan Chase) and Wells Fargo Home Mortgage, where he became the first loan officer to open a mortgage-only storefront on Canon Drive in the heart of the Beverly Hills triangle.

After working with hundreds of clients at multiple national and regional banks, Robert saw the limitations of the big bank mono-channel model and developed his own lending and service philosophy. His trailblazing approach led to the founding of Carlyle Financial, where he could continue his commitment to customized home loans while changing the way his clients experienced the mortgage process. He is based in the San Francisco headquarters at One Market Plaza.

Robert has been recognized as a leading jumbo mortgage expert in The Wall Street Journal, Business Insider, Investor’s Business Daily, and many other publications. He is also active in his community, committing time and resources to causes that align with his philanthropic values. When he isn’t helping clients structure their next home, you can find Robert on the basketball court coaching youth league kids on their jump shot.