How To Budget For A New Baby
Congratulations! There's a bun in the oven!
Having a baby is one of the most exciting and fulfilling experiences in life. However, if you experience a tinge of panic when considering the baby budget, you aren't alone. Many parents fret over how they'll be able to afford all the diapers, food, clothing, and toys that come along with having a baby. Others spend too much on their newborn, going into unnecessary debt before their babe even reaches its first birthday.
To avoid overspending and worrying about future expenses, take a close look at your current financial situation. What is your saving to spending ratio without a little mini-me in the picture? Creating a budget can help you determine what this ratio should be right now and what it should look like as you enter parenthood.
Here are a few things to consider as you outline your budget and prepare for the baby's arrival.
1. Determine Financial Priorities
One of the first steps in creating a baby budget is to determine your financial priorities. Of course, saving money for your child's college education is important, but doing so shouldn't prevent you from paying bills. Use this time to pay off debt, build an emergency fund and deposit money into your retirement account, instead. Then, if you have some cash left over, you can focus on saving for future expenses regarding your child.
2. Track Your Spending
Sometimes, though, that leftover money doesn't end up in a savings account. Instead, it goes towards coffee, eating out and fun activities with friends. How much are you really spending on these extracurriculars? Tracking your spending using apps or online budgeting services can reveal areas you have difficulty managing. Some platforms will even categorize your spending habits and compare them to your budget. This way, you'll be able to see which areas you may be able to cut spending.
3. Live On Less
Once you've gained some insight on your saving and spending habits, take action. Begin living on less and saving more — both for yourselves and your future child. Living this way now is also good practice for when baby arrives. Odds are your income will temporarily or even permanently change if mom takes maternity leave or one of you stays home. In this case, you'll want to be able to live on one income and support yourselves and your newborn.
4. Prepare to Make More Sacrifices
No matter how many expenses you cut, sometimes there simply isn't enough money. Prepare for this scenario by creating a backup plan. Maybe the stay at home parent will return to work or one of you will ask for a raise. Downgrading your car, refinancing your mortgage and finding a second job may also be good options for cutting costs and generating income. While some changes may be temporary, prepare to make more sacrifices as your child grows.
5. Be Resourceful
Once your little one makes his or her debut, it may be tempting to dress them in cute, frilly outfits complete with matching headbands, bibs and shoes. Doing so can be expensive, however. Instead, ask your friends for hand-me-down clothes and try to buy discount toys. You might also look for furniture and accessories that serve more than one purpose, like a changing table that doubles as a dresser. These small, everyday choices will help you stick to budget.
6. Use Financial Tools
After birth, it's also smart to take advantage of financial tools that can help you save money and give your little one a bright future. For instance, you might use investment tools like a 529 plan or a UTMA account to save for your baby's education and shield them from tax consequences. It's also a good idea to get life and health insurance coverage if you don't already.
7. Be Flexible
Inevitably, your budget will fluctuate as your child grows. Many costs to first-time parents are one and done expenses, like a crib and stroller. Unless these items break, you won't have to purchase additional ones. Others, like diapers and baby wipes, are temporary ongoing expenses. Try to anticipate how long certain costs will last and factor them into your budget accordingly. Just remember to be flexible and continue to save if you can. Things won't always go according to plan.
You Can Do It!
As you can see, having a baby is a huge investment — one that you'll be paying on for the next 18 years of your life. That being said, it's easy to become discouraged when you consider the hundreds of thousands of dollars it will take to raise your child during that time.
However, practically anyone can have and afford a baby if they put their mind to it. For those who don't have much saved, it'll just take a lot more creativity and sacrifice. Of course, having a budget can make the entire childrearing experience much more doable — and less stressful. Thus, preparing one now is one of the smartest choices you can make as you anticipate the arrival of your baby.