5 Financial Planning Tips for Expectant Parents

From diapers and childcare to medical bills and education, the costs of raising a child can be substantial. In fact, the U.S. Department of Agriculture estimates that raising a child from birth through age 17 costs $233,610, which doesn't include the cost of college.¹

It's crucial to prepare for the financial impact of parenthood so you can begin this journey with confidence. These are the steps new parents can take to budget effectively, ensure financial stability and create a secure future for their growing family.

1. Set Up an Emergency Fund

To handle life's surprises without derailing your financial plans, you need to establish a robust emergency fund.

The general rule of thumb is to have at least three to six months' worth of living expenses saved in your emergency fund. However, as a new parent, it's wise to aim for the upper end of this range to account for your added responsibilities. With Synchrony Bank's savings accounts, you can take advantage of competitive interest rates to help your emergency fund grow.

2. Start Saving for Education Costs

College and other forms of postsecondary education can be expensive, with the average cost of attendance for a student living on campus at a public, four-year, in-state institution reaching $26,027 per year, or $104,108 over four years.² The sooner you start saving, the more you'll accumulate over time.

To help you save for your child's education, you can use savings vehicles like a 529 college savings plan, which can include general savings accounts or prepaid tuition plans. Or consider opening a custodial account—a taxable investment account—on behalf of your child. Both offer tax advantages and a structured approach to education savings.

In addition, Synchrony Bank's certificate of deposit (CD) accounts can be an excellent option to grow your education fund securely.

3. Reevaluate Your Health Insurance Policies

Review your policies to ensure adequate coverage for prenatal care and childbirth. You should also:

• • Understand your deductible, co-payments and any out-of-pocket expenses.
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• • Make sure your chosen healthcare providers accept your insurance plan, and be prepared for other potential costs associated with pregnancy and delivery.
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• • Consider opening a health savings account, which is a personal savings account paired with health insurance plans to help you cover qualified medical expenses.

Life insurance and disability insurance

Life insurance is an essential financial tool for parents, as it provides financial security for your family in case of unforeseen events. Additionally, disability insurance can protect your income in the event that you're unable to work due to illness or injury. Explore your options and ensure you have the right coverage in place for you and your growing family.

4. Create a Baby-specific Budget

Create a detailed budget that covers all baby-related expenses as soon as you begin to prepare for your new arrival. Categorize these expenses, from healthcare and childcare to diapers and clothing. Accurately estimate each category and continuously monitor your spending to ensure you stay within budget. Your baby-specific budget should be integrated into your overall family budget. Review it regularly to make adjustments and accommodate changes as your family grows.

5. Maximize Tax Benefits

Tax benefits can significantly reduce the financial burden for parents. Explore tax credits and deductions available to you, such as the Child Tax Credit, the Earned Income Tax Credit and the Child and Dependent Care Credit, as well as any state-specific tax breaks available where you live.

Tips for maximizing tax benefits

Let your employer (and accountant) know that your family has grown, as your change in circumstances may make you eligible for new credits and deductions. You may also want to:

• • Provide your workplace with an updated Form W-4 if you'd like to change how much tax is withheld from your paycheck.
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• • Get a Social Security or Individual Tax Identification number for your child when they're born—this is the only way the IRS can confirm their birth and apply appropriate tax credits to your account.³
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• • Consult a tax professional or use tax software to ensure you're taking full advantage of available tax benefits.
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• • Keep thorough records of child-related expenses and maintain up-to-date knowledge of any changes in tax laws that may affect your family.

Protecting Your Child's Financial Future

Speak with an attorney about setting up a will and estate plan to specify guardianship arrangements in case something happens to you or your partner. Also, consider opening a trust or savings account in your child's name for future expenses, such as college tuition or their first car.

With a little forethought, you can confidently navigate the financial challenges of parenthood. Synchrony Bank offers a range of financial products, including high yield savings accounts, CDs and more, that can help expectant parents secure their financial future as they embark on this incredible journey.

 

Fiona Tapp is an award-winning writer. Her work has appeared in The Globe and Mail, The Washington Post, The Atlantic, The Sunday Times and others.

 

READ MORE: New Child, New Savings Plan

 

Sources/references

1. The Cost of Raising a Child. U.S. Department of Agriculture. January 13, 2017.

2. Hanson, Melanie. Average Cost of College & Tuition. Education Data Initiative. November 18, 2023.

3. Tax tips for new parents. Internal Revenue Service. August 17, 2023.