The 8 Most Important Financial Steps a New Parent Can Take

Photo courtesy of Kenny Louie

As a new parent, you’ve got a lot on your plate.

Diaper changes. Late nights. Early mornings. Feeding schedules. Nap schedules. At least a few moments where you feel like you don’t know what the heck you’re doing.

Oh, and somewhere in there are a few new financial responsibilities as well.

You already have plenty of new things to figure out, and I don’t want the money stuff to be part of the confusion. I want it to be as easy as possible for you to not only know which financial tasks are important, but how to do them.

So, here are the 8 most important financial steps a new parent can take, with plenty of advice on how to take them. If you can handle these, you can rest easy knowing your family is in good financial shape.

1. Build a cash cushion

Having some cash set aside to handle the unexpected is a good idea no matter what, but it’s especially helpful when you’re going through a big life change like having a child. You’re going to be dealing with a lot of changes, both in how you’re living and in how you’re spending, and having some extra savings will let you navigate them without worrying about is where the money is going to come from.

Here are some posts that will help you build a cash cushion slowly but surely:

• How to build your emergency fund in stages
• How to prepare for the switch to a single income
• How to make irregular expenses regular

2. Create a system to manage your saving and spending

You want some kind of system in place to make sure that you have enough money to spend on the essentials, hit your savings goals, and still have at least a little bit of fun.

This is where most people would recommend making a budget. Not me.

I have my own system for managing my spending and saving, and it doesn’t involve keeping a traditional budget. You can read all about it here:

• How to budget without actually sticking to a budget

3. Write wills

Most importantly, a will lets you dictate who would care for your children in the event that both parents passed away. Otherwise that’s left up to the courts to decide.

For more information on getting your wills and other basic estate planning in place, check out these two posts:

• The basics of estate planning
• The basics of a living trust

4. Get life insurance

Life insurance is one of the best ways to make sure your family has the financial resources it needs no matter what. It’s also one of the sleaziest industries out there and it can be really hard to know who’s trustworthy and who’s trying to swindle you for a quick buck.

My wife and I made our own mistakes when buying life insurance for ourselves, but over the years I’ve learned a lot and I want to help you do it right. This guide will help you get the coverage need at a price that fits your budget:

• The new parent’s guide to life insurance

5. Get health insurance

You may not have any choice here if your employer only offers a single plan. But some employers give you multiple options, and for the self-employed or unemployed it can get even more confusing.

If you need to find health insurance outside of an employer, your first stop should now be healthcare.gov. This is the home of Obamacare, and it will lead you to the site for your state’s health insurance exchange. And let me tell you from personal experience, the process here can take a long time so the sooner you can do this the better.

Another way to look for health insurance is to find an independent health insurance agent in your area. If you can find a good one, they can help you understand all the different terminology and evaluate which options might be best for your situation. That isn’t an easy thing to do, so having some help can be great. But make sure to ask them which insurance companies they do and do not represent. You’ll want to make sure you have the full range of choices.

With my recent move to self-employment, we’ve been going through the process of finding health insurance and it certainly isn’t easy. For some thoughts on how to compare different policies, you can read this post:

• The 6 biggest factors we considered when choosing a health insurance plan

6. Get disability insurance

This is one of the most overlooked types of insurance out there. Disability insurance will replace some or all of your income if you’re unable to work for an extended period of time because of medical issues, which is much more common than you might think. The truth is that if anyone depends on your income, including yourself, you should be thinking about disability insurance.

This comprehensive guide will help explain what disability insurance is, why it’s important, and what to look for in a policy: Disability Insurance: The Crucial Protection You Probably Don’t Have.

7. Up your liability insurance

Liability insurance is another one that often gets overlooked. Basically, this will cover you in case you accidentally injure someone or damage their property. It’s already a part of both your auto and homeowners/renters policies, but chances are that you’ll want to increase your coverage. You can also buy some extra coverage on top of those policies, which is a good idea in a lot of cases.

Here’s a post explaining more about what liability insurance is and how it works:

• What is liability insurance and why do I have so much of it?

8. Define what it is you’re working towards

Each of these things is important, but in the end money is only valuable if you can use it in a way that creates happiness. Which means that completing a checklist of to-do’s is only a starting point. The end point is your vision for what you want out of life.

Whenever things with the new baby start settling down and you have a chance to come up for air (it may be a little while), take some time to think about the life you want to build for your family. It’s that vision that will give your financial decisions a purpose and will make it easier and more enjoyable to actually follow through.

If you’re not yet sure what that vision looks like, here’s a process that can help you figure it out:

• 6 steps towards creating your ideal life

Take it one step at a time

If you can get these 8 things handled, you’ll have set a really solid financial foundation for your family. There are still next steps to take (things like investing and planning for college), but those will build on the foundation you’ve created here.

Still, don’t feel like you have to get all of these things done all at once. Whether you need to handle just one of them or all eight, the most productive thing you can do is spend each day trying to take one small step forward on just one item. If you can make just a little bit of progress every single day, you’ll have them all handled before you know it.

So, let me know in the comments, what’s one thing you can do today to make progress on one of these items? How are you going to take a step forward?