Having a baby is expensive. According to the latest “Cost of Raising a Child Report” released in 2015 by the U.S. Department of Agriculture, a middle-income family will spend approximately $12,980 each year on child-related expenses.
While prepping ahead is key to managing a new child’s needs, there are many unknown costs that can send even the most budget-conscious parent into a panic. However, proper financial planning and a solid savings plan will give first-time moms and dads peace of mind that at least they have one item under control when their bundle arrives — their finances.
With that in mind, use these expert-backed strategies to effectively budget for your new baby.
Track every dollar. New parents may anticipate basic baby needs such as diapers and wipes, but there are less obvious costs that can cause budgets to soar, such as babysitting services and infant day care, supplies, takeout expenses and emergency medical visits. This is why it’s crucial to cut wasteful spending and give yourself an extra cushion for unpredictable expenses.
Holly Johnson, a U.S. News contributor and author of “Zero Down Your Debt: Reclaim Your Income and Build a Life You’ll Love,” recommends using a zero-sum budget to outline income and expenses each month. This budgeting system allocates each dollar to cover living expenses, health care and other costs, allowing you to quickly pinpoint and reduce excessive spending, she says. “Once you realize where you are overspending, it’s much easier to rein things in and reallocate your funds,” Johnson adds.
And, if you’re tempted to buy a bigger house or bigger car to make room for your new bundle of joy, carefully weigh your decision. Spending more on living expenses will put a strain on your household finances and cause more stress, says Ashleigh Allman, owner and blogger behind SmartCentsMom.com. Instead, Allman recommends downsizing so you have more wiggle room in your budget for new baby expenses, as well as reduced stress.
Prepare for a drop in income. Give yourself plenty of time to make a plan for a potential drop in income by figuring out what type of maternity or paternity leave benefits your company or state offers.
“The policies of your employer decide how much you’re going to be compensated during maternity and paternity leave, and in some cases, you may not have employer coverage at all,” cautions Jessica Landis, certified financial planner and assistant vice president at Janney Montgomery Scott, a wealth management firm. Though some states provide disability, those who are not covered by their employer or state will have to find a personal disability policy or begin saving early on to bridge the gap between their income and expenses while not working, she says.
Review child care options in advance. Finding the best care for the best price is one of the biggest struggles for working parents. To stay ahead of the curve, don’t delay searching for options in your area, which can derail your budgeting plans. Many popular day care centers fill up quickly and those who wait until the last minute to plan child care could be left with fewer and less desirable options that cost more, warns Ashley Agnew, associate director of relationship development at Centerpoint Advisors, LLC, an investment management and wealth services firm based in Needham, Massachusetts.
It’s also a wise idea to ask your employer if they offer a dependent care savings option to offset day care costs. “Dependent care savings accounts allow employees to contribute to pretax dollars to a special fund that can be used for approved dependent care expenses like day care,” says Mike Molitoris, managing director at Flagship Wealth Management Group in Cary, North Carolina.
Don’t overbuy baby goods. New parents will often buy items they think will make their lives easier such as expensive gadgets that promise to help their baby sleep better or keep them entertained for hours. However, most of these products are a waste of money.
Kayla O’Neill, the blogger behind ParentingExperttoMom.com, says babies don’t need much to thrive. “Giving babies lots of time to play, do tummy time and explore on the floor is one of the cheapest and best ways to encourage new skills,” she says. Plus, you never know what a baby will like, so wait to purchase things as needed that land outside of the necessities, she says.
When it comes to necessary baby goods, such as a crib, stroller or car seat, look for ways to reduce the financial burden by borrowing from family and friends or searching for gently used options available in your local listings. Otherwise, give yourself plenty of time to save and spread out purchases over a few months so you don’t feel the extra pinch in your budget when buying several expensive items at once.
Try meal planning. Food often takes the biggest bite out of the household budget and considering that new parents often have less time and energy to cook most nights, it’s a good idea to begin preparing meals in bulk so there’s always something to heat up quickly.
According to Alli Wittbold, co-founder and blogger of MomSmartNotHard.com, “It also saves us so much time in the evenings meaning more time is spent as a family and with the baby.”
For those who don’t know where to start, you can find inexpensive meal-planning services to help map out favorite dishes through sites such as eMeals.com or The Fresh20.
Fully understand your health care policy. Medical costs are unavoidable, from hospital and doctor fees for delivery to frequent pediatric checkups and emergency care. Understanding your policy is critical in managing these expenses and preparing for those unexpected bills.
“Many families have high out-of-pocket deductibles, which, when you consider the cost of having a child, can quickly set parents up for that high $12,000-plus potential expense,” Landis cautions. “It should be a priority to understand how much out-of-pocket expenses are going to fall on you and try to contribute to a health spending account to cover that deductible.”
Ashley Patrick, financial coach and blogger at BudgetsMadeEasy.com, recommends stashing away enough cash to cover your annual insurance plan deductible, and budgeting up to your maximum out-of-pocket expenses as a safety net.
Don’t wait to save for college. If you want to help pay for your child’s college education, start planning and saving from the moment your baby is born. The longer you wait, the more you will have to put away each month to meet your goal, and the difference can be hundreds or thousands of dollars. By saving in small increments early on, you can have enough money set aside to cover many educational costs by the time your child is ready to head off to college, which will save you stress and budgeting restrictions down the road, advises Janet Alvarez, personal finance expert and executive editor at WiseBread.com, a personal finance blog.
And in lieu of toys and other gifts for holidays, graduation and birthday celebrations, ask that grandparents and relatives contribute to a 529 college savings plan instead.
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