Becoming a parent is an incredible adventure filled with joy, sleepless nights, and a whole lot of love. But let’s be honest—it’s also a bit of a financial rollercoaster.

We created this financial to-do list for new parents to help you confidently navigate these new financial waters.

Step 1. Update Your Budget

First things first, you need a budget. With a little one on the way (or already here), your expenses will change — a lot. Diapers, baby formula, cute tiny clothes (that they outgrow in a blink), daycare, and more. It’s time to revisit and update your budget.

If you’ve never budgeted before, here’s your guide to getting started.

• List all sources of income. Your income includes your take-home pay from your job or business and any extra money that comes your way regularly, like freelance work or investment returns. If your income is irregular, use the average you’ve made over the last few months.
• List your expenses. Start with your essentials like housing, food, transportation, healthcare, and debt payments. Then, make room for non-essentials like dining out, entertainment, your Netflix subscription, and other personal spending. Try to set aside money for meeting your savings goals. Don’t forget about all the new baby-related expenses.
• Adjust existing categories. Now, subtract your monthly expenses from your monthly income. If the result is a negative number, don’t panic. Just tweak your budget to get back to black. You might need to dine out less or look for ways to bring in more income.
• Track your spending.  Use a budgeting app like YNAB or Rocket Money to track your spending. Remember, your budget isn’t set in stone; it’s a living, breathing document that should evolve with your needs.

Step 2. Boost Your Emergency Fund

Life is unpredictable, and kids have a knack for turning the unexpected into a regular occurrence. That’s why you need an emergency fund — it helps you weather spending shocks, like a broken windshield or an ER visit, and income shocks, like losing a job.

How much should you keep in your emergency fund? It depends on your situation, but most experts recommend having at least three to six months’ worth of living expenses in cash or cash equivalents like a savings or money market account.

So, if you spend $5,000 per month, aim to save $15,000 to $30,000. If that seems insurmountable, start where you are. Even $1,000 or $2,500 in a savings account is better than nothing and can help you avoid going into debt when faced with an unexpected car repair or medical bill.

Automate transfers from your checking to your savings account every payday to ensure you consistently set aside money for the future.

Step 3. Review Your Insurance Policies

Kids come with a lot of responsibility, and ensuring their well-being is paramount. Now’s the time to review and possibly beef up your insurance coverage.

Here are a few types of insurance to consider.

• Health insurance. You typically have 30 days after your child’s birth or adoption to add them to an employer-sponsored health insurance plan. You can also contribute to a health savings account if your plan qualifies as a high deductible health plan (HDHP). These tax-advantaged accounts let you save pre-tax dollars for future medical expenses. In 2024, families can contribute up to $8,300.
• Life insurance. Ensure you have adequate life insurance to support your family if something happens to you. How much should you buy? Consider if something were to happen to you, how much money would your spouse or next of kin need to replace your income (or cover the costs of childcare and other support you provide the family if you’re a stay-at-home parent)? An insurance agent can help you select the right kind of life insurance and limits.
• Disability insurance. Disability insurance protects your income in case you’re unable to work due to illness or injury. A short-term disability policy covers you for a short period of time following an illness or injury that keeps you out of work. A long-term disability policy provides coverage for a longer period—usually five, ten or 20 years—sometimes even until you reach retirement age. If you have a substantial emergency fund, you might feel comfortable skipping short-term coverage and focusing on buying enough long-term disability coverage to protect your financial well-being.

Step 4. Start a College Fund

It might seem like a long way off, but starting a college fund early can make a big difference. Consider opening a 529 plan, which offers tax advantages for education savings.

As long as you use the money to pay for qualified education expenses, the money grows tax-free, and withdrawals are tax-free, too. While you don’t get a federal tax break for contributions, many states offer tax deductions or credits for contributions to the state-sponsored plan.

The earlier you start, the more time your money has to grow and benefit from compounding interest.

Step 5. Create or Update Your Will

No one likes to think about it, but having a will in place is crucial. It ensures your assets are distributed according to your wishes and that your child is cared for by a guardian of your choosing.

Consider who will care for your child if something happens to you, and work with an estate planning attorney to draft or update your will.R

Think of this as your way of looking out for your family, even when you can’t be there in person.

Step 6. Take Advantage of Tax Breaks

Having a child comes with its share of tax benefits, so make sure you’re taking full advantage of them. While the tax breaks available to you depend on your unique circumstances, some potential ones include:

• Child Tax Credit. This is available to taxpayers with dependent children under age 17 at the end of the tax year. It’s worth up to $2,000 per qualifying child. Your ability to claim the Child Tax Credit might be limited if you’re a high-income taxpayer.
• Dependent Care Flexible Savings Account (FSA). A dependent care FSA is an employer-sponsored account parents can use to set aside pre-tax dollars to pay for childcare expenses. You can contribute up to $5,000 to a dependent care FSA in 2024 ($2,500 if married filing separately).
• Earned Income Tax Credit (EITC). The EITC is a tax credit for workers with low to moderate income. Eligibility and the amount of the credit depend on several factors, including your family size, filing status, and income.

Parenthood is a wild ride, full of highs, lows, and everything in between. By taking these financial steps, you’re setting your family up for a secure and prosperous future. Remember, you don’t have to tackle it all at once. Take it one step at a time, and don’t hesitate to reach out for personalized advice to help you build a bright and beautiful future for your growing family!