April 25, 2024

Diapers, Drool, and Dollars: Navigating Financial Planning as New Parents

By Team Seneschal

Becoming a parent is an incredible experience filled with joy, love, and responsibility.

Along with the excitement of welcoming a new member into your family, it’s essential to consider the financial aspects of parenthood. There’s a lot to think about, from budgeting for baby expenses to saving for the future, understanding financial options for parental leave, and making wise investments.

Here are some practical tips and insights for new parents on managing their finances effectively.


Budgeting is essential for new parents. Budgeting helps avoid overspending, build financial discipline, and make informed financial decisions.

With the additional expenses that come with a baby, like diapers, formula, baby food, clothing, and healthcare, it's crucial to create a realistic budget that accounts for these costs.

By setting a budget, you can better manage your finances and ensure you have enough money to cover all the necessary expenses while saving for the future.

You can use various tools to help with budgeting like a spreadsheet or a budgeting app to track expenses and income.

Another option is to use a cash envelope system to allocate a specific amount for each budget category and use only that amount for purchases. This method can help you avoid overspending and stay within your budget. It used to refer to the exercise of creating envelopes and incrementally adding physical cash until the goal was achieved for the expense. Nowadays, this can be accomplished with the help of apps, bank accounts, and other digital tools.

Review your cash flow regularly and make adjustments as needed. This will ensure that you're on track to meet your financial goals and make informed financial decisions.


Start saving for your child's education and your retirement as early as possible. Open a dedicated savings account or investment vehicle specifically for these goals.

Consider options like a 529 college savings plan or a Roth IRA for their retirement.

529 plans are a popular way to save for college expenses. Here are some pros and cons to consider:

Pros of 529 Plans:

Tax benefits: Contributions to a 529 plan grow tax-free, and withdrawals for qualified education expenses are tax-free.

Flexibility: Funds in a 529 plan can be used at any eligible institution nationwide, including vocational and trade schools.

High contribution limits: Many states have high contribution limits, allowing you to save a significant amount of money for education expenses.

State tax benefits: Some states offer tax benefits for contributions to their state's 529 plan. It’s important to research the specific tax benefits in your state.

Cons of 529 Plans:

Limited investment options: 529 plans typically have a limited number of investment options, which may not match your investment preferences.

Penalties for non-education expenses: If you withdraw funds from a 529 plan for non-education expenses, you will be subject to taxes and penalties.

Impact on financial aid: 529 plans may impact your child's eligibility for need-based financial aid.

By starting early and being consistent with contributions, you can maximize the possibility of having enough money to cover your child's education and your retirement. Consulting with a financial advisor can help determine the best investment strategy for your family.

Understand Financial Options for Parental Leave

Navigating the financial implications of parental leave can be overwhelming. Familiarize yourself with your company’s parental leave policies and any available government programs. Research the Family and Medical Leave Act (FMLA). Explore short-term disability insurance, paid time off, or unpaid leave.

Understanding these options will help you make informed decisions about balancing your finances during this period.

Investments and Insurance

As new parents, it’s crucial to plan for the long term. Consider life insurance policies to protect your family’s financial well-being in unforeseen circumstances. Consider disability insurance to protect against lost income in the event you become disabled and are unable to work at your full capacity or in your chosen career.

Research different types of life insurance, like term and whole life policies, and choose one that aligns with your needs.

Explore investment opportunities with long-term growth potential, like stocks, bonds, and real estate. Focus on creating a globally diversified portfolio using low-fee index or exchange-traded funds.

Consult with a financial advisor to determine the best investment strategy for your family.


With the elimination of personal exemptions in the Tax Cuts and Jobs Act (TCJA) passed in 2017, there's no longer a specific exemption for each dependent, including children. However, you may still be eligible for other tax credits and deductions related to having a child depending on your level of income.

It's a good idea to review your withholding allowances on your W-4 form after having a baby. With changes in your family size, you may want to adjust your withholding to ensure you're not over or under-withholding taxes from your paycheck. If you have access to Flexible Spending Accounts and/or Health Savings Accounts through your employer, consider contributing to them to cover eligible healthcare expenses for your child with pre-tax dollars.

It's always a good idea to consult with a tax professional or financial advisor who can provide personalized advice based on your specific situation and any changes in tax laws or regulations.

Estate Planning

If you already have a will in place, you may want to update it to include provisions for your new child. This may involve specifying who will become the guardian of your child in the event of your death, as well as outlining how your assets should be distributed to provide for your child's care and upbringing. If you have already designated guardians in your estate plan, review these designations to ensure they are still appropriate given your new circumstances.

Establishing a trust can be a useful tool for managing and protecting assets for your child's benefit. You can specify how you want the assets to be used for the child's care, education, and other needs, and appoint a trustee to manage the trust until your child reaches a certain age.

Review and update beneficiary designations on retirement accounts, life insurance policies, and other accounts to ensure that your child is properly provided for in the event of your death.

It's important to review and update your estate plan regularly, especially after significant life events such as the birth of a child, to ensure that it continues to reflect your wishes and provide for your family's needs. Working with an experienced estate planning attorney can help you navigate these updates and ensure that your estate plan effectively protects your new family member and provides for their future.

Manage Childcare Costs

Childcare can be one of the most significant expenses for new parents. Research and compare the costs of childcare options, like daycare centers, in-home care, or nanny services.

Consider alternatives like sharing a nanny with another family or exploring government subsidies or tax credits that may be available.

Evaluate the possibility of flexible work arrangements or remote work options to reduce childcare costs.

Prioritize Financial Health

Maintaining good financial health is crucial for new parents. Set financial goals and track your progress regularly. Create an emergency fund to cover unexpected expenses, like medical bills or home repairs. Automate bill payments and savings contributions to ensure you stay on track. Minimize unnecessary expenses by distinguishing between wants and needs.

You can build a solid foundation for your family’s future by prioritizing financial health.

Final Thoughts

Navigating the financial aspects of parenthood can be overwhelming, but with careful planning and informed decisions, you can set your family up for long-term financial security.

By budgeting for baby expenses, saving for the future, understanding financial options for parental leave, making wise investments, managing childcare costs, and prioritizing financial health, you’ll be well-equipped to tackle the financial challenges of being a new parent.

Seneschal Advisors, LLC DBA Seneschal Family Office is a Registered Investment Advisor registered with the Securities and Exchange Commission (SEC). Registration as an investment adviser does not imply a certain level of skill or training, and the content of this communication has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority.

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