Planning Financially for Kids
Making an addition to your family changes life in every possible way — personally, professionally, and financially. While there's no way to prepare for every single change headed your way, budgeting for a baby can help you get ready for this exciting new stage in your life. In fact, expanding your family can be a great time to reassess your financial wellness and take more control of your budget.
Whether you're already expecting a child or you're just planning ahead for the future, here are a few things to keep in mind when you're budgeting for a baby.
Assess Your Financial Wellness
The first step to effective budgeting is to take a realistic look at where you are right now. After looking at your recent credit card bills, you might find that you need to start saving more in some areas and spending less in others. It's best to know what changes you might need to make now so that there aren't any surprises later on, when your budget is stretched further.
Consider conducting a financial wellness review to make sure your current budget makes sense in light of the financial goals and responsibilities that can come with having a baby. These may include anything from child care costs or a new house to saving for your child's future education.
Come to Terms With the Trade-Offs
Having a baby requires you to make both financial and emotional compromises. While you might have previously longed for a new car or a second home, your budget will now have to reflect the costs of child care, your baby's healthcare, and other necessities. Research from the U.S. Department of Agriculture's Food and Nutrition Service indicates that it costs $233,610 to raise a child from birth to age 17. Therefore, it's important to prepare accordingly and start cutting costs where you can.
But don't forget yourself in the shuffle. Even if you can't splurge on a luxury item right now, there's no reason you can't have it in the future if you save a little at a time. And along the way, you can find pleasure in smaller indulgences, so you don't feel like you're sacrificing everything. Learn to savor the simpler things, like a morning latte, a new book, or a night out.
In addition, start seeking out new ways to have fun that are inexpensive or free. Take this opportunity to come up with creative, less pricey alternatives to your usual weekend activities — a good exercise to undertake regardless of the size of your family.
Adopt a Future-Oriented Mindset
When you're expecting a baby, you might primarily be thinking about the pregnancy itself and those first few months. But life can come at you fast once your family starts growing. Start thinking early on about your family's future needs, and you'll save yourself a lot of stress in the long run.
Shifting your mindset toward the future may be the biggest psychological change that having a baby requires. You might be used to living in the moment when it comes to spending, but now you have a new person to consider. Getting comfortable with delayed gratification and developing a big-picture perspective now will make things easier once the baby arrives.
Saving for your own retirement might seem unrelated to your new baby, but retirement savings can provide you with a safety net in your later years. If you have a 401(k) match option through your employer, take advantage of it now if you aren't doing so already. Consider starting an individual retirement account (IRA) of your own if you don't have a retirement account through your job.
While it might seem far away, try to start saving for your child's college fund as soon as possible. The sooner the better, especially as the average tuition at a private four-year college is almost $37,000 per year. Opening a 529 plan account while you're expecting a baby can set the foundation for a financially secure future for your child.
Build a Safety Net
One of the most important aspects of budgeting for a baby is becoming more risk-averse. While you might feel comfortable eating nothing but rice at the end of the month if any unexpected expenses comes your way, you don't have the option to skimp on food for your little one.
To that end, if you don't have an emergency fund already, start putting money away as soon as you can. This will help you prepare for any unexpected costs, from car and home repairs to medical bills and job loss. Save up at least three to six months worth of living expenses — and remember that even if you already have an emergency fund for yourself or for you and your partner, a fund that covers expenses for your new, larger family will need to be bigger as well.
Getting ready for a baby can bring on every possible emotion: joy, fear, worry, excitement. But by budgeting for your new, expanded family, you can feel a little more in control of the new life that awaits you.