Budgeting for a Baby

There is no question that having a baby is an exciting time for the entire family. It is also a time for careful planning, including budgeting. Unfortunately, babies can be expensive, but with a little financial planning, you can be prepared for whatever comes your way.

The bills start mounting when you decide to have a baby. Delivering a baby in the United States carries an average cost of $10,808, which increases to $30,000 when you factor in prenatal and postnatal care. Even with health insurance, you should plan for extra healthcare costs throughout the pregnancy. Your best strategy is to have a financial strategy.

If you haven’t already done so, you need to start with a comprehensive household budget. This will give you a baseline for coming expenses. Be sure to account for all sources of income and all your household expenses. The 50/30/20 approach is a good way to calculate your expenses—50% of your income for necessities, including rent, food, and loan payments; 30% for wants; and 20% for savings. Of course, this is the goal, and you may need more than 50% for household expenses, especially with a new baby.

Budgeting for Immediate Baby Needs

When budgeting your household expenses, you also should prioritize your spending into necessities and “nice to have” items. When the baby arrives, you should plan to economize. Your household spending will change, so prepare yourself by calculating what it will take to live on one income, or how much you can save by carefully economizing.

Make sure you continue to save as much as you can for retirement. Do what you can to reduce toxic debt such as high-interest credit card balances. Also be sure to save at least two months of expenses in an emergency fund.

You also need to start calculating child expenses. In addition to baby formula and diapers, you will need to buy a host of new things for the baby. To get organized, try budgeting using specific care categories:

• Home needs: These may include a crib, a bassinet, blankets, a changing table, a baby monitor, a nursing chair, childproofing the house, and whatever else you can think of. Some items, such as baby clothes, you might consider buying secondhand since kids grow out of their clothes quickly.
• Travel needs: These may include a car seat, a stroller, a diaper bag, a portable playpen, and so on. You can buy some of these items secondhand, such as a stroller, which can cost $1,000 or more.
• Nursing and feeding needs: These may include a high chair, burp blankets, baby bottles and nipples, a breast pump, and so on.
• Pediatric care: You should prepare for regular checkups, immunizations, and those unexpected visits to deal with colds, earaches, and other routine infant ailments.

Budgeting for Long-Term Needs

In addition to immediate baby needs, budget for your child’s future, including short-term and long-term planning.

Start with health insurance. Check your policy coverage to make sure your baby is protected. Plan to add to your current premium payments if you need additional coverage.

If you don’t have life insurance, now is the time to consider it. For a small investment, you can secure your child’s financial future in the event that you or your partner dies unexpectedly. Talk to your insurance agent about life and disability insurance.

Now is the time to establish a college savings account as well. A college education today costs an average of $25,290-$50,900 per year, depending on whether you attend a state college or a private university, and fees will only go up. Now is the perfect time to set up a 529 account or an education savings account (ESA). That money will be useful for all future educational expenses.

Also consider establishing a flexible spending account (FSA), which allows you to put away pretax dollars for qualified expenses such as medical care or dependent care. FSAs are typically established through your employer.

Plan for the Unanticipated

As any parent will tell you, when it comes to budgeting for child expenses, you need to be flexible as well as prepared. Consider setting extra money aside and adding to your savings account. If you don’t have one, open a savings account; it’s a great place to maintain your emergency fund. Look for a savings account that not only pays a good interest rate but also offers other benefits such as automatic savings (i.e., regular automatic transfers from your checking account) and cash bonuses. A few additional items to consider when setting more money aside:

• A money market account offers the same advantages as a savings account, but you can write checks against the account, which can be useful in an emergency.
• Sign up for overdraft protection so you can be prepared if you encounter unexpected expenses that have to be paid immediately.
• Credit cards, especially rewards cards, can be useful tools as well. If you use cards that offer points or cash rewards, you can redeem them for things you need, such as items for the baby.