Financial Boot Camp for New Military Parents

Congratulations on adding a tiny new recruit to your family. Welcome to parenthood, a mission more challenging and rewarding than any you’ve faced in your military career. Just like you prepare for a deployment, navigating parenthood requires careful planning, especially when it comes to your finances.

Now that you have a dependent, you’ll have new expenses, potentially reduced income if one parent leaves their job to become the primary caregiver and increased financial responsibilities. There is more to this new financial life than just budgeting; it’s about building a secure financial future for your family, a future that can weather the uncertainties of military life and provide peace of mind for your family. Consider this blog post a financial boot camp for your financial mission as new parents.

Step 1: Assess the Situation

The first step in any successful operation is a thorough assessment of the terrain.

Calculate the Real Cost of a Baby: Beyond the adorable onesies, the real cost lies in recurring expenses like diapers and childcare, plus essential one-time purchases like cribs and car seats. Online calculators can give you a ballpark figure but your best resource may be talking to other new parents in your unit or neighborhood.
Estimate Child Care Expense: Depending on where you live, the cost of caring for your little one while you and your spouse work may be the single biggest line item in your new budget. On base child development centers (CDCs) will often provide the most affordable high quality care you can find because installation CDCs are partially subsidized by the DoD ensuring your weekly care rates are calculated based on your total family income.

If you’re not able to access a CDC either because of extended waitlists or you live too far from a military base, investigate your service’s childcare fee assistance program which is designed to help offset the cost of quality care in your local community. You can also explore options like the Dependent Care FSA which allows you to set aside pre-tax money to pay a portion of childcare costs.

Understand Potential Increases to Your Allowances: Depending on where you’re stationed and your family composition, adding a dependent may have a positive impact on your housing allowance or cost of living allowance. Consult your unit financial office for details on how your allowances might change when your child is added to DEERS.
Consider Changes to Your Taxes: For most military families, adding a dependent to your federal tax return provides an additional tax credit. The current Child Tax Credit for a child under the age of 17 is $2000 per child; this credit may reduce the taxes owed on your federal return.
Understand Your Tricare Coverage: One of the biggest advantages of military service is the comprehensive healthcare coverage provided by Tricare. Understand what your Tricare coverage provides for your new baby, including coverage for well-baby check-ups with your pediatrician and breastfeeding support, including access to lactation consultants.

Step 2: Develop Your Financial Strategy

Now that you understand the terrain, it’s time to develop your financial strategy. This is your battle plan for achieving your financial goals and financial security.

Emergency Fund – Your First Line of Defense: An emergency fund is crucial for everyone, but it’s even more important for new parents. Aim for at least 3 months of essential living expenses like your rent or mortgage payment, utilities, groceries, and transportation costs. This fund will protect you from taking on debt to pay for unexpected bills like car repairs or a gap in spouse employment when you PCS. Keep this money in a readily accessible high-yield savings account so it continues to earn interest until needed.
Life Insurance – Protecting Your Family’s Future: This is non-negotiable for new parents. The Service Members’ Group Life Insurance (SGLI) is a great starting point, but it might not be enough. Consider supplementing SGLI with a term life insurance policy to ensure your family is financially protected in case of your untimely death. Think about how much money your family would need to cover housing, education, and living expenses without your income.

And don’t forget to add term life coverage for your spouse. Whether they are employed or the primary care giver, you want enough insurance to cover their lost income and/or the cost of care that they provide your family. The Family SGLI coverage is an easy place to start, but an additional term life policy can improve your financial security.

Estate Planning – Stating Your Intention: Estate planning is crucial for new parents to ensure your child will be cared for and financially supported if something happens to you. Most military families can accomplish their basic estate plan – wills, guardian designations, and essential powers of attorney, at the base judge advocate’s (JAG) office. Check your installation’s website to learn how to make an appointment with your JAG.

Retirement Planning – Securing Your Long-Term Mission: Retirement might seem far off, but the sooner you start saving, the easier it will be. Maximize your contributions to the Thrift Savings Plan (TSP), especially if you’re earning matching contributions. Consider consulting with a financial advisor to develop a comprehensive retirement plan that accounts for your military pension and other potential income sources.
College Savings – Investing in Your Child’s Future: Education costs continue to skyrocket, so starting early is key. Explore options like 529 plans, which allow your savings for college expenses to grow tax-free. Even small contributions can make a big difference over the nearly two decades until your child starts college.

If you’re eligible for the Post 9/11 GI Bill education benefit, consider transferring at least one month of benefit to your child; this preserves the option to transfer additional benefits to them when they approach college age. Transferring these education benefits may incur an additional service commitment; it’s important to understand how this service commitment fits into your career plans before you decide to transfer benefits to your dependents.

Step 3: Maintain Your Financial Fitness – Staying on Course

Having a plan is only half the battle, the real challenge lies in making course corrections as you navigate military life.

Automate Your Finances: Life is busy, and sleep is rare for new parents; setting your savings on auto pilot can keep you on track. Set up automatic transfers to your savings accounts, retirement accounts, and bill payments. This will help you stay on track even when life gets hectic.
Review and Adjust Regularly: The life of a military family is in constant flux and your financial plan needs to adapt. Review your budget and financial goals at least annually, or whenever there’s a major life event, like a PCS move or the addition of another child to your family.
Manage Your Debt: High-interest debt, like credit card debt, can cripple your financial health. Careful budgeting and a solid emergency fund can help you avoid taking on unnecessary debt in this new phase of life.
Communicate Openly: Financial planning for a military family is a team sport. Talk openly with your partner about goals, concerns, and progress. Make sure you’re both on the same page and working together to achieve your shared family goals.

Embrace the Journey

Parenthood is a marathon, not a sprint. There will be challenges and setbacks along the way, but by being proactive, intentional, and disciplined, you can build a strong financial foundation for your family that will provide security and peace of mind.

Working with a financial planner who understands the unique challenges of military families can prove invaluable. The financial planners at Military Financial Advisors Association understand your life and can help you develop a personalized financial plan, navigate complex financial decisions, and stay on track toward your family’s goals.