Post last updated: Feb 28, 2021

Babies in daycare and still paying student loans? Been there!

Buying a fixer house with a baby in tow? Check.

I get it. Having lived it myself (still living it…), I know young families have unique financial challenges. You likely have debt, whether student loans or credit cards, as well as rather little overall wealth of any form built up yet. Therefore, financial planning for families to ensure a future of security is critical.

But hang in there! This is the early stage of your family life and honing your personal finance skills at this stage will pay off big time. This family financial planning guide covers the major areas you need to think about to master your money game during this season. It’s full of financial advice for young families that will help free you from money stress in this exciting and rapidly changing stage of life.

1. Organize your finances

Know your credit health

First, check in on your credit health. Even if you’re not relying on credit now, it will likely come into play. It will matter for renting a house, buying a house, refinancing a house, financing a car, and even qualifying for credit card promos to take advantage of free money (next level credit card strategy stuff!). First, check your credit report to ensure it is free from errors, including all three credit monitoring bureaus.

Next, keep a pulse on your credit score. You can monitor this perhaps through your bank or one of your credit card accounts. It’s being made increasingly available for free with such accounts. Or you can look up your score and report directly through Experian, Equifax, and TransUnion. This is a financial health stat you should always be aware of.

What’s your vision for your family?

Next, think about your goals, your vision for your family. Things might look a certain way now. You may be downright struggling. Or you’re just starting to cruise and finally have settled into a community and a career. But when you look ahead 5 or 10+ years, how do you see your life as a family?

This big picture vision should define the smaller individual financial goals which will take you there, step by step. And perhaps with kiddos, your vision has changed. It will likely change more over time, so revisit your vision for your family regularly.

What are your savings needs & plan?

With a motivating vision in mind, you can set some specific short- and long term goals. Perhaps it’s a strong down payment for a house. A house in a certain school district. Annual family trips overseas. Acreage for your future homestead. A parent leaving work to be with kids at some stage or homeschool (careful, this one’s expensive!).

Your savings should then begin to be built with these exciting goals in mind- BUT those dreams are only protected if you have the other types of savings money in place: 1) emergency fund for unknowns (major vehicle or home repair, health problem, etc) and 2) cash stashed for those known-unknowns or big ticket items you will encounter (e.g. plane tickets to see grandparents, annual vacation, new appliances in a few years, etc). To protect your monthly bill paying plan, as well as your big dreams, get this savings account started. Even if you start at saving $25 a month and increase your savings rate by $5 a month, that is better than having nothing. Use my straightforward method to get these key numbers organized.

Make a simple debt management plan

Along with identifying your savings target, it’s time to have a plan in place for any debt repayment. Is everything in good standing? How much money goes to minimum payments in total? What debt account are you targeting for elimination first? You can read how to develop this debt repayment plan here. Remember, you don’t need tons of extra money. You just need a plan so you know how this fits into your financial picture over time.

Related reading:

• Organizing personal finances: where to start?
• Family budget pie graph: how to use pie charts to build your family’s future

2. Identify your new fixed expenses

A growing family necessitates new costs that your single or married life did not include. These need to be factored into your spending during this season of life.

Paying for childcare

The most substantial cost most families face with very young kids is daycare. Remember, this expense is temporary and is a substantial investment in your earning potential as a parent- read this post on childcare costs as an investment for more details. Figuring out how to work these expenses in will take some effort.

Check out my post on how to come up with a whole month’s income for a few ‘finding money’ tricks to get started! This is about the only spending category that I believe taking on some reasonable amount of debt for is worth it. Definitely don’t hesitate to reach out if you’re grappling with this one!

Related reading: How to afford a baby: paying for childcare or quitting my job?

Insurance & estate planning

When we had our first baby, it was made clear to me by a good friend that we needed life insurance. Like immediately. It’s that important.

If you develop a chronic disease or are suddenly diagnosed with a terminal illness, it’s too late to wish you had life insurance. Even if you beat cancer, the cost of getting life insurance after the fact will be outlandish- if it’s even possible- compared to when your health history was clean. The younger and healthier you are when you shop for a plan, the less expensive it is.

I purchased term life insurance when I was 30 and we pay about $45 a month to provide $750,000 to my family in the event of my untimely death. The peace of mind that $45 per month provides is sooo worth it. Check out this comprehensive and no-nonsense guide to life insurance for parents!

Because such large sums of money are at play, consider estate planning as well. In other words, if something happens to both parents, what do you want to have happen to that roughly $2 Million in total life insurance money when your kids turn 18? If you don’t want it going straight into their hands, you need to talk to an estate planning lawyer about how to plan out those funds.

They can also provide you with an advanced health directive and wills. We found a lawyer on Avvo.com and it was a pretty painless process. But it does cost money, depending how you decide to proceed with your document options.

Bigger homes & vehicles… or not!

As new family members move into your house and life, it’s very natural to believe you need to up-size your home and vehicle. Indeed, the minivan purchase is practically a young family rite of passage. And many online calculators and such for estimating the cost of raising children include increased spending in these categories. In fact, housing is the largest proportion of the “The Cost of Raising a Child” from birth to age 17 in the U.S. published by the USDA.

However, neither a bigger house or vehicle is usually absolutely necessary. They are choices like anything else. And these two categories- homes and vehicles- have enormous financial impact. Is moving to a larger house the right solution for your particular home needs? Larger homes come with greater maintenance costs (heating, cooling, cleaning, furnishing, repairing) and are basically a larger container for holding too much stuff, so be mindful of your motives and true needs.

And is changing your vehicle worth tens of thousands of dollars from your hard earned savings, or hundreds of dollars a month in car payments you’ll never see back? It’s a totally personal decision but it may be worth holding off and doing your best to live with what you have.

Then, if and when you do move forward with one of these purchases, you are sure it is informed by your values and experience as a family. You will know exactly what you are looking for and why. Just remember, if you do choose to carry on with your current vehicle, when that annual driving vacation comes up, you could rent a (rather new, freshly cleaned!) minivan for around $800 per week. Do that once a year to enjoy the benefits of a spacious vehicle for a family trip when you most need it and still save a ton of money compared to having purchased one.

Stuff, stuff, stuff

I put this category last in this section on purpose. Yes, more humans living in your home will incur some additional needs. But remember to keep it simple. A lot of articles out there on affording children are so hyper-focused on all the things that need to be purchased. But to me, this cost ranges wildly across families purely by peoples’ choices and how savvy you learn to be. It’s true baby gear can be pricey, but find out how I had a $700 top of the line double stroller that I used for two years and spent only $50.

Now that I’ve experienced having kids, I view the marketing of baby and kid care items much like weddings. There’s a massive marketing machine churning away to convince you that you need all these special (and often expensive!) things to raise kids. Take baby food for example. Did you know that jarred baby food wasn’t even a thing until the 1920’s and was developed as a convenience for parents? That stuff costs a fortune!

Until reading this post by Young House Love prior to having my own children, I had no idea that you could actually just feed babies food, ya know like actual food. The baby feeding aisle at Target would have you believe that babies learning to eat was a carefully managed multi-staged process. Who knew you could just feed them an actual sweet potato or overcooked spaghetti noodles?

Now, I also acknowledge that modern family life and the challenges early parenthood throw at you require some specialized stuff at times. With that caveat (yes, I bought any sleep sack that promised my second baby would sleep), adopting a predominantly simple mindset for the ‘stuff’ your children need is crucial. Avoid getting ‘all the things’ and focus on the specific stuff your family needs most as you go.

If you are strategic with these choices, you’ll thank yourself later. You will be better off financially and saved from dealing with an avalanche of stuff filling up your house that’s useless or ignored after 6 months.

Related reading:

• Frugal Mindset for Early Parenthood: How To Avoid Buying Short-Term Stuff (my guest post at FrugalTwins.com)
• How to afford a baby: Savvy tips for gearing up
• All in one cloth diapers: the ultimate marriage of convenience & money-saving

3. Think ahead & put pieces in place

Young families must also think of the future. But don’t let the best schools and college savings overwhelm your thoughts when you’re still swimming in diapers. The key is to educate yourself, make a plan, and put a few things into place that will facilitate future needs.

School choices

For instance, look into the school system where you live and understand early on if you wish to move elsewhere for different schools during your family years raising kids. If so, fit saving for a down payment and optimizing your credit score into your financial plan for the years ahead. Or perhaps you place a high value on a private education. You have five years from the time you bring home baby until kindergarten starts to get this financial puzzle piece heading in the right direction.

College savings

Also, learn about college savings options, such as 529 plans, and begin to think about your family values and plans towards higher education. For us, we have kept our first house as a rental property that will be paid off by the time our kids go to college. That house will have doubled in value by that time and been paid off by tenant rent payments all those years. This property is a planned source of future higher education support in our eyes. But it’s also an asset that is flexible enough to be used for something else if a lot of college money is not needed (scholarships, less expensive school choices, one of them founds the next Microsoft from our garage in high school, etc.).

Whatever your choices for supporting your kids’ higher education, the earlier you start the easier it is.

Prioritize retirement savings

Also, remember as you start to consider your options for college savings, your retirement savings absolutely comes first in the priority list. There are all kinds of ways for your kids to fund college in the future. There is no financial aid for your retirement account! Investing in your financial future is setting a strong financial foundation for your family, which includes your kids, and must take priority.

4. Relax & enjoy. You’ve got this.

It takes a village… go create one!

The greatest recommendation I can make to young families to survive not only the learning curve of parenthood, but also to help financially, is to build your village. It really does take a village to raise a child.

From getting advice from others in the thick of the same child-rearing season (seriously, parents forget reality like 1 year later) to swapping date night babysitting and borrowing gear, your village is your lifeline.

Our church became an important source of nearby young family friends for us, and I don’t know what we would do without those friends! They are the people on my emergency contact list at preschool, the ones our nanny called during a medical emergency, the people who took our kids overnight for a getaway, etc. Get out there in your community or faith organization. Be proactively social and find those people who you connect with. It is a delight to raise your kids together with trusted friends.

Tax breaks!

Remember, along with all this financial finagling to well afford family life, you will get some nice breaks too. Parents receive a Child Tax Credit and, deductions on childcare expenses. The childcare expense breaks can be realized though either a Dependent Care Flexible Spending Account (FSA) offered through your employer (take full advantage!!), or some level of the Child and Dependent Care Tax Credit when you file your taxes.

In combination, these benefits will likely reduce your total costs by thousands each year, dependent on your income level. So, don’t put off filing taxes- claim your money!

Take heart, it all gets easier in time

I am realizing nearly 7 years into our parenting journey, things change fast… and continuously. And, overall, I’d say they change for the better. The overwhelming early baby days feel long forgotten… even though I was awake 2-3 times a night just three years ago. And financially we are in such a better place now, due to the diligent small steps we’ve been taking the whole way.

So do some family financial planning, revisit and readjust often, and keep making steps forward. By committing and continually recommitting to planning towards financial goals, you will create flexibility to adapt to the changes that lie ahead. You will hone your craft over time, both in managing family life and in finances. It starts by taking that first step.