The excitement of enlarging your family comes with the panic of managing the budget to include the baby and their growing needs. Studies show that delivery and first year could run as high as a year’s salary, at about $32K. Moreover, it does not stop there. Being a parent means joggling with money for years to come. The only golden rule is “Think ahead and don’t panic”.
Even if the expenditures will rise exponentially and the income will fluctuate as well, sticking to tried and trusted budgeting rules would help you overcome most challenges. Don’t neglect savings even if sometimes stretching your income for that too seems a bit too much.
A simple strategy is to split your income in half. The first half goes towards mandatory payments including mortgage, food, and immediate expenses. The other half should cover your wants and savings. Try to redirect at least 15% towards savings. If you have any high-interest credits, like payday loans, do your best to eradicate those first.
Don’t stress if you need a bit more than half of your budget for immediate expenses that is totally fine for mid-income families with small children. Just be sure that you are tracking your expenses and not swiping the plastic without thinking about it.
Make tracking your finances a game with your spouse and reward your small victories.
Stick to financial priorities
Being new parents makes you dream about the future and motivates you to get the best for your child. However, saving for college while they are still playing with large wooden toys is not the smartest financial move. You will always find student loans, but there are no retirement loans available.
First thing first, set aside some cash, anything between $500-1,000 for unexpected emergencies and then define your financial roadmap following the next landmarks.
Retirement funds. Even if in your late twenties or early thirties you are not thinking about retirement you should set aside at least 10-15% of your income for this purpose. It might sound like a lot, but taking into consideration inflation and other negative financial influences it might be just enough. If your employer is offering a 401(k), IRA or another type of plan, be sure to take full advantage of it.
Pay off debt. Not all debt is bad, but that with an interest rate well over 15% should be checked off your list as soon as possible. Do your best to pay off and payday loans first. Then, try consolidating the remaining debt, if you have multiple student loans, you might get a better rate at a professional service like Crediful.
Think about the future
If you are left with a couple of spare dollars each month, you can think about college savings through a 529 plan a tax-free way of saving money which will also be tax-deferred if used for qualified higher education.
Downsize at least for a while
Having children can mean a hit for the budget, at least in the short term. Maternity leave or taking a break from work entirely can leave the family budget seriously skimmed. If enlarging your family is a planned event, try downsizing a few months in advance to get used to the new situation and avoid emotional stress caused by having less money. Also, you can use the extra cash to set up a fund for the parent who will stay at home.
If you have no idea about how expensive it is to be a parent, you can try this cost of the baby calculator. Of course, you should adjust those numbers according to your lifestyle and the cost of living in your area.
If it seems too high, think about ways to reduce the cost. First, add your child to one of your health insurance plans, you can never be too careful with healthcare expenses. Next, be practical and think about reducing unnecessary spending on clothes. Your child will outgrow them in months, so getting second hand is actually a wise idea. Reusing from older siblings is also an option.
You should not be ashamed to ask for necessary items at your baby shower. This includes many costs to first-time parents such as crib and stroller.
Sometimes as new parents, you just need more money. When that happens, you need to cut on some expenses and find new ways of enhancing your budget. The stay-at-home parent can get a part-time job or a work-from-home gig on the Internet. The one who kept their job could ask for a raise. Together, you could decide on downgrading your car or cutting some expenses like a gym or other subscriptions you might not use in the immediate period.
Never be afraid to take advantage of your new status as a family. You will be amazed how many companies have products, services, and discounts explicitly designed for people just like you.