Smart Money Management Tips for First-Time Parents
Having kids can upend your finances—as 36-year-old Nicholas (not his real name), a first-time dad in Austin, Texas, can definitely attest. On this week's Money Confidential, he explains that even though he was able to clear away debt before his daughter was born, the expenses of new fatherhood threw him for a loop. "Having a child changes the dynamic entirely because it does come with a lot of expenses," he says. "Child care is wildly expensive in most of the country, but especially in big cities, and even in Austin, it can be like a second mortgage for a lot of people."
Nicholas is still adjusting to the new normal—and his changed financial outlook. "Now we have to think about how do we ensure that we can continue planning our own retirement and our own future, but to make sure that she feels that when she is of age, and when she decides that she wants to go to college—or whatever it is that she wants to decide to do—that she feels like she's in a good place, too," Nicholas says.
Nicholas is concerned that he's had to scale back his retirement savings in the near term, and also worries about any need to dip into savings, whether it's for expenses or a nice vacation. "Another thing that I'm now grappling with is—how do we plan for the future without losing sight of the moment."
To get some financial advice for new parents, Money Confidential host Stefanie O'Connell Rodriguez turned to financial expert Dasha Kennedy, founder of financial education platform TheBrokeBlackGirl.com. Kennedy subscribes to the zero-based budgeting strategy, which she says is ideal for new parents.
"You're keeping your money busy—you're telling it where to go, when and why," Kennedy says. "So let's say, for an example, you list all of your expenses. You list all of your income, you calculate those and at the end you have $500 left over. With the zero-based budget, it's saying, now, what am I supposed to do with this $500? Is it all going to go towards savings, am I going to put it towards school tuition? Am I going to make extra debt payments? It's counting out all of your money until it equals zero. Now that doesn't mean that you're going to have $0 in the bank. It just means that every dollar that you have coming in now has a job to do."
Kennedy also recommends prioritizing both short-term and long-term spending as part of your overall financial plan. "What becomes priority, especially for me as a parent, is making sure that I have a plan for the future, but I'm not overlooking how important it is to get my children through tomorrow financially," Kennedy says.
For parents-to-be, getting a handle on your debt and your spending is a big first step toward preparing to be parents. "That personal finance plan that you have for yourself, a lot of it is going to change," Kennedy says. "Your interest in insurance is going to change. You're going to want to adjust some of your contributions...whether it's your 401k, or your HSA. You're going to think about new things like health insurance plans, saving for college. A lot of it is going to change. And the biggest thing that anyone can do that is going to have children is to start preparing for those things now."
Once your kids get older, teaching kids about finances is a great way to pass on healthy spending habits to your kids. "I think it's very important to include children in financial planning, because you will learn that the children are eager to do what's best for the family, if they feel included in those conversations," Kennedy says. She used this technique when her kids wanted a new video game, and she explained that she could afford a used, basic model now, or they could save up for six months for the new system they really wanted. "They took the option to wait," she says.
Even more important, though, is modeling responsible behavior—as Kennedy has done with her desire for a new car, and pointing out how she's waiting to buy one until her current car is paid off and she has money saved aside. "Teaching children about money—It is 10 percent education, 90 percent imitation, she says. "So I can say anything to them, but they are going to repeat exactly what they see me do."
But even if you're still struggling with your finances as a new parent, don't panic. "Understand that it is a lifelong journey that you have to not only financially prepare your children, but guide them once they're able to go off on their own," Kennedy says.
Check out this week's episode of Money Confidential, "I'm a first-time parent—how should I change the way I manage money?" on Apple podcasts, Spotify, Amazon, Player FM, Stitcher, and wherever you listen to your podcasts.