Motherhood Finances: How to set yourself up for success

Motherhood is an exciting journey, filled with joyous milestones and cherished moments. However, this journey also brings new responsibilities, one of which is managing finances. Adequate financial planning can ensure a secure future for you and your child. The financial landscape of motherhood is a complex one, characterized by fluctuating personal finance dynamics and a myriad of challenges that often fall under the radar. The “motherhood penalty” is a stark reality for many women, especially for single mothers and women of color. The gender wage gap is further magnified by this penalty, with new research from the Pew Research Center indicating that American mothers earn significantly less than their male partners and childless women.

Despite these challenges, financial independence is not only possible but also necessary for today’s women. Central to this journey is the understanding and effective use of financial tools such as credit and debit cards, bank accounts, and even life insurance policies. It is important for mothers, specifically those in the labor force and stay-at-home mom alike, to gain this financial education. Financial advisors can play a pivotal role in this regard (I am not a financial advisor, this post is my thoughts and my own personal process behind mommy-hood finances!)

Disclosure: This blog post may contain affiliate links. This means, should you click on the links, I may receive a commission at no cost to you. For more information please review the disclosures here.

Understanding the Costs of Motherhood

The first step to financial success as a mom is understanding the costs involved. From diapers to education, raising a child can be a financial endeavor. According to a report by the USDA, the cost of raising a child until they turn 18 is estimated to be about $233,610. It is important to note that motherhood finances goes beyond the concept of the daily needs. It encompasses a multitude of factors – the potential pay cut due to career pauses, the pay gap faced by women, especially for a single mom, and the extra financial pressure that arrives with each child. Recent data by the U.S. Census Bureau highlighted that women’s earnings tend to drop after the birth of their first child, a stark reality for many working moms. 

Stay-at-home mothers also face an uphill task in ensuring financial stability for their families. The task is even more challenging for single parent families, particularly in high-cost areas like New York City. 

Creating a Budget

Managing finances can often be a challenging task for mothers, especially when juggling multiple roles and responsibilities. However, by creating a robust and realistic budget, mothers can effectively allocate resources and ensure financial stability for their family. I personally use Mint to track my monthly budget and an old school pen and paper template (that you can get here) Here’s a step-by-step guide on how to accomplish this using Mint.com, a leading financial management platform.

1. Understanding your income: Start by gaining a clear understanding of your income. Include all possible sources such as your salary, spouse’s income, child support, etc. Mint.com offers an ‘Income’ section where you can conveniently input these details for an accurate overview.
2. Listing your expenses: Mint.com provides a ‘Spending’ section where you can input your monthly expenses. Be sure to include all costs, no matter how insignificant they may seem. Remember to account for expenses such as groceries, utilities, rent/mortgage, transportation, children’s education, medical costs, and other miscellaneous outlays.
3. Setting financial goals: Mint.com’s ‘Goals’ feature can be a great tool for setting and tracking your financial objectives. Whether it’s starting an emergency fund, saving for a vacation, or contributing to your child’s college fund, establishing clear goals can help guide your budgeting decisions.
4. Evaluating and adjusting your budget: Once your income and expenses are outlined, Mint.com will provide an overview of your cash flow. If your expenses outweigh your income, it’s time to make adjustments. This could involve cutting back on non-essential expenses or finding ways to increase your income.

Remember, a budget is not a one-time task but a dynamic process that requires regular reviews and adjustments. By leveraging tools like Mint.com, mothers can take control of their financial future / family finances. Want a paper version to track your budget? Click here for a free download!

Start Saving and Investing Early

Investing and saving can be the cornerstone of financial stability, and platforms like Acorns and Albert provide tools to make it simpler and more accessible. 

Acorns is an investment app that allows you to invest spare change from daily purchases in diversified portfolios. By rounding up your transactions to the nearest dollar, Acorns makes investing a seamless part of everyday spending. In addition, Acorns offer financial educational content to help users understand the basics of investing. 

On the other hand, Albert provides a holistic approach to personal finance. Along with automated savings and investing, it includes features such as budgeting assistance, instant cash advances, and even access to financial advisors. Albert’s Genius feature is particularly noteworthy, offering personalized advice to help optimize your financial decisions.

Both platforms demonstrate how technology can simplify investing and saving, making it easier to build wealth over time. However, as always, consider your unique financial needs and circumstances when selecting a platform. 

Investing involves risk, including loss of principal. Past performance does not guarantee future results, and the likelihood of investment outcomes are hypothetical in nature. Please consult with a financial advisor for personalized financial advice.

Invest in Your Child/Children

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. Sponsored by states, state agencies, or educational institutions, these plans allow you to make deposits that grow tax-free as long as the funds are used for qualified education expenses (these plans change from state to state so be sure to check out what your state has to offer). 

There are two types of 529 Plans: 

1. Prepaid Tuition Plans  
2. Education Savings Plans

Prepaid Tuition Plans allow you to purchase credits at participating colleges and universities for future tuition, while Education Savings Plans can be used to pay for qualified education expenses at any college or university. 

The benefits of a 529 plan extend beyond tax savings. Many states offer tax deductions or credits for contributions, and the donor maintains control over the account—deciding when withdrawals are taken and for what purpose. Fun fact, the plans are transferrable. If the original beneficiary does not need the funds for education, the plan can easily be transferred to another family member.

Given the rising costs of education, a 529 plan can be an excellent tool to prepare for this significant future expense. However, it’s important to understand the plan’s rules, impact on financial aid, and your state’s specific benefits. As always, I am NOT a financial planner and this is just an educational post!

Investment in a 529 plan does carry risk, including loss of principal. Before investing in a 529 plan, consider whether your state’s plan or another 529 plan may offer state tax and other benefits not available through the plan you are considering. As always, consult with a tax advisor for personalized advice.

Just like we invest for our retirement you can for the kids too with… Roth IRAs for kids! Let’s dive into this world of ‘grown-up piggy banks’ and see how they can help your little ones develop a golden nest egg for their future. 

This is essentially a type of individual retirement account (IRA), where your child can contribute their earnings from jobs they’ve done (like babysitting or mowing the neighbor’s lawn OR chores around the house – check out this chore chart to help them track) and watch it grow tax-free until they retire. Yes, you read that right – tax-free! 

But here come the two magical words – “compounded interest.” This means that the money they put in now, no matter how small, will multiply over time (like rabbits tehehe). Plus, they can withdraw these contributions later in life for things like a first home or their own children’s education.

For more in-depth information, check out this comprehensive guide at Fidelity. So, let’s start this amazing journey and give our kids a head start, because nothing says ‘I love you’ quite like a robust financial future! 

Plan for Retirement

While providing for your child is important, don’t neglect your retirement savings. Prioritize contributions to your retirement accounts to ensure a comfortable future for both you and your child. 

According to an article by CNBC, individuals planning for retirement should consider simultaneously funding both a 401(k) and a Roth IRA. This dual strategy can yield significant benefits, including the opportunity for a future tax break. The 401(k) offers immediate tax advantages, whereas the Roth IRA, funded with after-tax dollars, provides tax-free withdrawals in retirement. Balancing these two types of accounts can provide flexibility in managing tax obligations now and in the future. Here are a few reasons why having both a 401(k) and Roth IRA may be advantageous for your retirement plan:

1. Diversification of Tax Strategy

Having both a traditional 401(k) and a Roth IRA allows you to hedge against potential changes in tax laws, providing diversity in your tax strategy. With the traditional 401(k), contributions are made with pre-tax dollars, lowering your taxable income each year. Withdrawals from this account in retirement will be taxed as ordinary income. In contrast, the Roth IRA is funded with after-tax dollars and offers tax-free withdrawals in retirement. By having both types of accounts, you have the flexibility to choose which account to withdraw from based on your current tax situation.

2. Potential for Higher Contributions

While the 401(k) has a higher contribution limit compared to the Roth IRA, having both accounts allows you to potentially contribute more towards your retirement savings. If you max out your contributions for the year in your 401(k), you can still contribute to a Roth IRA as it has separate contribution limits. This gives you the opportunity to save even more for your retirement.

So there you have it! Equipped with both a 401(k) and a Roth IRA, you’re not just preparing for retirement – you’re becoming a master of tax strategy. Your future self might not remember the exact difference between these two accounts, but they’ll certainly appreciate the financial flexibility and the extra savings. So gear up, strategize your contributions, and set sail towards a comfortable and well-deserved retirement. Remember, it’s not just about saving; it’s about saving smart! Having a diverse tax strategy is just one part of the puzzle, but it’s an important piece that can provide you with more options and potentially save you money in the long run.

Seek Professional Advice

If managing finances seems overwhelming, don’t hesitate to seek professional advice. Financial advisors can provide tailored strategies to help you reach your financial goals.

Motherhood brings about a world of change, requiring you to be financially prepared. With careful planning and prudent decision-making, you can ensure that your journey through motherhood is as financially secure as it is rewarding. Remember to continuously review and adjust your financial plans as needed. Your child’s future is worth the effort. So start planning today, and give your family the gift of financial stability and peace of mind for years to come.  So don’t wait any longer, you can always start slow by downloading the budget template and tracking monthly for now! Happy mommy hood! Let me know in the comments below what your favorite financial tips are!

Here are the resources mentioned: