7 Financial Planning Strategies Every Parent Needs To Learn

Becoming a parent is a major milestone. Not only does it entail a significant change to your lifestyle, but it also brings a significant change to your finances. In addition to ensuring your own financial security, you’re now responsible for the financial security of someone else.

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This requires careful financial planning and the use of strategies you might not have had to tap into before. Here are some essential financial planning strategies every parent needs to learn.

If you have young children, protecting your income is crucial.

“Life insurance provides a death benefit to help cover expenses, like a mortgage and daily living costs, in the event of a parent’s passing,” said Christine Lam, CFP, an investment advisor representative at Financial Investment Team in Portland, Oregon. “Disability insurance, on the other hand, provides income replacement if a parent is unable to work due to a severe illness or injury. Both types of coverage are essential if your family relies on your earnings.”

Having an emergency fund is always a good idea, but it’s particularly essential for parents.

“Unexpected expenses can arise at any time, so it’s important to have an emergency fund covering three to six months’ worth of essential living costs,” Lam said. “Keeping these funds in an accessible high-yield savings or money market account helps avoid reliance on high-interest credit cards during financial emergencies.”

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Child care and college are two of the biggest expenses parents face. Fortunately, there are special accounts that can help you plan for both.

“Take advantage of tax-advantaged accounts like a dependent care FSA to set aside pre-tax dollars for child care expenses,” Lam said. “Start saving early for education using a 529 college savings plan or a custodial account to benefit from tax advantages and compound interest.”

Ideally, you should start saving for child care costs in advance.

“The average annual cost of child care in the U.S. in 2023 was about $11,500, and this number continues to grow thanks to inflation and the rising cost of living,” said Steve Sexton, CEO of Sexton Advisory Group.

“If you’re planning to have children in the near or long-term future, this isn’t an expense you want to catch you by surprise,” Sexton warned. “Planning, budgeting and saving for this cost upfront, whether through a sinking fund, shifting or cutting back on certain payments to make room for this expense, or searching for higher-paying jobs or positions that subsidize child care, will help soften the financial blow when it’s time to welcome your little one.”