Financial planning looks different for people at different stages of life and in different situations. For parents, every money decision must consider both their own needs and the current and future concerns of their children.
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According to Laura Cowan, an estate planning attorney and founder of 2-Hour Lifestyle Lawyer, “It’s not just about paying for diapers and daycare; it’s about rebalancing how every financial resource is allocated.”
From taxes to priorities, every major financial decision shifts when you become a parent. Here are five planning concerns that are uniquely challenging for parents.
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1. Balancing Short-Term Expenses With Long-Term Financial Goals
When raising kids, the early years are about managing cash flow and budgeting for daycare, medical costs and insurance, Cowan pointed out. These expenses just evolve as your kids age, she said, growing into costs like extracurriculars, tutoring, summer programs, braces — and eventually, college tuition.
“By the time they’re young adults, you may be helping with first apartments, down payments or a wedding,” Cowan said. “People without children do not have any of these financial concerns.”
Parents need to regularly adjust their financial plan to reflect these evolving stages — without putting their own long-term goals at risk. Moreover, parents should plan for up to two decades of financial dependency, Cowan added, citing research showing that around 40% of young adults ages 20 to 34 still live at home.
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2. Delaying Savings To Pay for Child Care
Before children start school, parents often find that budgeting becomes harder and their savings rate drops significantly due to high child care costs, according to Ari Weisbard, a CFP, managing partner at Values Added Financial LLC, and principal attorney at the Law Office of Ari Weisbard.
“They shouldn’t feel badly about that or think they’re failing in any way,” he said. “The key is to make sure the drop is temporary and that when the children enter public school, the new financial slack is used to catch up on needed savings.”
3. Balancing College Savings With Retirement Planning
Parents also often struggle to prioritize between saving for their kids’ education and planning for their own retirement. But Cowan stressed, “Retirement comes first. Your children can borrow for school; you can’t borrow for retirement. If you deplete your savings trying to ‘do right’ by your kids, you may become a financial burden to them later.”
Instead, focus on maximizing contributions to your retirement accounts first, Cowan advised. Once that’s in place, you can begin contributing to a 529 plan or other college savings vehicle.
4. Ensuring Financial Protection Through Life Insurance
Parents have a much stronger need to consider term life insurance and estate planning than non-parents, Weisbard said. “Funds for raising their children and a clear guardian for their children, and trustee to manage the funds, matters much more for parents than for non-parents.”
He recommended term life policies in the ballpark of $1 million to $2 million, if possible, for a term of at least 20 years. “Thirty-year policies are more expensive and usually only necessary if there won’t be a lot of other property — house, retirement savings — in the picture or if children are really spaced out in ages,” he said.
5. Using Estate Plans To Build a Foundation
While parents are not the only ones who need an estate plan, they do need to think about how any inheritance they leave can help set their children up for success. “Many parents skip estate planning entirely,” Cowan said. “They think they don’t have enough money and fail to realize that estate planning is actually financial planning in disguise.”
She pointed out that even a $50,000 inheritance can disappear quickly if spent on “rent, takeout or impulse buys.” But if that money is placed in a trust, it can be used to fund college, start a business or buy a home.
“The wealthy don’t just pass down money — they pass down structure. That’s what helps keep them wealthy,” Cowan said. She recommended all parents use estate planning to put rules in place that help their kids use an inheritance to build a stronger future.
“Every parent should have a plan that protects their legacy and sets their kids up for success.”
Looking to build a legacy? Check out our Life to Legacy guide for expert advice and smart moves you can make today.
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This article originally appeared on GOBankingRates.com: 5 Financial Planning Concerns That Are Totally Unique to Parents
