Every aspect of your life will change once you bring a new baby home. Among all the adjustments new parents must make, financial changes may be one of the more difficult to plan and implement. Some experts have estimated that a new baby can set his parents back $9000 to $11,000 US Dollars (USD) in the first year alone! The US Department of Agriculture (USDA) has estimated that it costs approximately $250,000 USD for a middle class family to rear a child to the age of 17. Add that to the staggering costs of college, and you have a definite motivation to get your financial house in order before you start a family.
While it is always smart to live below your means, if you plan to get pregnant in the near future, now is the time to implement a baby budget that accommodates a new baby. If possible, budget an amount that you determine will cover the cost of clothing, diapers, food, childcare, medical costs and miscellaneous items, and set it aside. Not only will you have a nice amount of money saved to feather your nest or to save for college but you will have become accustomed to living on less. Once you have lived with the baby budget, you won't suffer a shock at the extra expenses.
It is smart to have a rainy day fund saved up before you have a baby for unexpected expenses. If you wait until after the baby arrives, you may not have the extra income to put away.
A new baby will be a new expense, and may mean a lost income if Mom (or Dad) plans to stay at home. If both parents plan to continue working after the baby is born, then childcare costs must be worked into the budget. If you plan to have one parent stay at home, try living on one salary for several months to a year before the baby arrives. You'll save tons of money, and it will give you the opportunity to make tweaks, whether large or small, to your baby budget to accommodate this change. You may find that you have to trade in your car for a smaller payment, or move to a more affordable community to afford living on one income. Planning ahead will allow you to determine if can live on one income, or if you'll have to make other arrangements.
If both parents will be working, then the adjustment to your baby budget won't be as dramatic — but you will have to allow for childcare expenses. The National Association of Child Care Resource and Referral Agencies (NACCRRA) has estimated that parents will pay from $400 to $500 USD monthly per child for home daycare. Depending on where you live, and what type of care you choose for your child, you may be paying upwards of $5000 USD per year. If you choose to have a nanny or in-home babysitter, that figure may be closer to $20,000 USD per year.
Preparing for the Unexpected
No one likes to think about what may happen if a parent unexpectedly passes away. This is a possibility that must be planned for when making a baby budget. You may need to check with your insurance agent to see if your current life insurance policy is adequate to fit the needs of your growing family. If, for instance, the mom stays at home and the dad works, you'll need two different life insurance policies. A stay-at-home mom's will be a smaller policy because it will not be paying for living expenses, but rather for childcare and other services she was providing. A working father's policy should theoretically replace his income for the amount of years he has left until retirement. So, if for example, your salary is $60,000 USD, and you are 20 years from retirement, your insurance policy should be at least $1,000,000 USD. Some parents will calculate enough living expenses until their children are 18, or out of college. Of course, if you can only afford a policy for $500,000, it is better to have something rather than nothing at all.
Get your will up to date. You can have your lawyer draw one up or amend an existing one to include your children, or you can make one yourself online or with the help of computer software. Remember to plan for who will care for your child and how.
Although rising costs of health insurance are making it difficult for many families to have, not having medical insurance may be more expensive in the long run than having it. One broken arm or one major illness can be enough to damage a family's credit rating or necessitate bankruptcy if they are unable to afford medical bills. Just the regular cost of well baby checkups and shots add up quickly, so having good medical insurance can help keep your baby budget under control.
Disability insurance is also smart to have when adding a baby to the mix. When before, you only had yourself and your spouse to worry about, a baby is completely dependent upon you to support him. If you suddenly become sick or disabled, you should have a policy that will cover basic living expenses.
Saving for College
In your baby budget, make an allowance for college savings. If you start early, as little as $25 USD per month can add up to a nice chunk of change 18 years from now. Investigate your state's 529 savings account, or look at other states' plans to see what fits you best. You can have the monthly contribution automatically withdrawn from your paycheck or bank account. An online savings program such as Upromise™ helps you save a percentage of what you spend money online, eating out, or in the grocery store.
Raising Children on the Cheap
There are so many resources available to help parents raise their children without breaking the bank. The following are some examples of how you can save on the bare essentials:
- Breastfeeding instead of bottlefeeding.
- Cloth diapers instead of disposable (although some diaper services are equal to or more than disposable)
- Homemade baby food versus store-bought canned baby food
- Clip coupons, shop sales and compare prices online to get best deals
- Buying your baby clothes and gear at garage sales, second hand stores or on sale instead of paying retail. Also consider exchanging clothing with friends and family.
- Co-op preschool or daycare
Implementing a baby budget can take the financial burn out of a new addition, and give you the peace of mind to enjoy your baby for what he is — your most valuable "asset"!