How will we budget for a baby?
Show me the money
Preparing for a baby is exciting, but it can also be stressful, especially when it comes to finances. With a little bit of planning, you can create a solid budget that will help you navigate this new chapter in your lives and avoid money-related stress when your little one arrives.
What is a budget?
A budget is a plan for every dollar you have. You estimate how much money you'll make and spend over a period, such as a month or year. It's a way to track your income and expenses, and can help you make intentional decisions about your money.
Budgeting is fun for some people, and others find it painfully boring. When we first did a budget together, we learned that one of us was in the former category and the other was in the latter! But while I still wouldn't call it fun, I've come around to seeing how useful it can be to helping us spend money in ways we want to create a life we love.
Assessing your current financial situation
First things first, take a look at your current finances together. Grab a pen and paper or a spreadsheet and jot down your post-tax income and expenses. If you get a regular paycheck, that is most likely your post-tax income. If you have other income sources like being self-employed or side gigs, subtract any relevant taxes.
For expenses, remember to include everything from your monthly rent or mortgage payment to groceries, entertainment, dining out, and any debts you may have, like student loans or credit card balances.
Subtracting your expenses over a period from your post-tax income over the same period will give you a sense of how much disposable income you have and how much you can allocate towards baby-related expenses.
If you'd rather keep your finances separate, discuss how you'll allocate money for baby-related expenses. You may decide to create a joint pool of funding for this or determine the expenses for which each of you will be responsible.
Identifying one-time costs
Once you understand how your finances look today, you can start to build out your budget for the baby. Start with one-time costs.
These expenses can add up quickly, and it's helpful to prioritize and budget for them in advance. These include things like cribs and any additional furniture and decor you may want to get, especially if you're planning to set up a nursery.
Another significant expense is investing in a car seat and stroller. These items are essential for your baby's safety and mobility, so choosing high-quality options that meet safety standards and fit your lifestyle is important.
You may also want to consider baby gear like a carrier and monitor, bathing essentials, and maternity and nursing clothes. When shopping for these items, you can look for sales, buy second-hand, get hand-me-downs, or borrow from friends and family to help save money.
If you need help figuring out which baby items to get, check out our article on this topic.
Estimating ongoing expenses
It's important to think about the ongoing costs of raising a child. This includes items like diapers and wipes. You might be changing your baby’s diaper up to 10 times a day in the early months! If you’re planning to use formula, you'll need to buy that too. Don’t forget about clothes, healthcare costs like doctor visits and medications, and any childcare expenses.
Check the prices of diapers, wipes, formula, and baby clothes in your area. Estimate how often you’ll need to buy these items and create a monthly budget for each category. If you’re considering childcare, research the costs of daycare centers, nannies, or other options. Knowing these ongoing expenses will help you make a more accurate budget and plan better.
Planning for unexpected costs
While budgeting for the expected costs of raising a baby is important, you may also want to prepare for unexpected expenses. Emergencies can happen, and accidents may require repairs or replacements of baby gear, like a broken stroller. These unforeseen costs can strain your budget if you're not prepared.
Having an emergency fund to help with unexpected expenses is a good idea. Aim to save enough to cover 3 to 6 months of living costs. You can set up a separate savings account for this fund and automatically transfer a portion of your monthly income. This way, you'll have a financial cushion for job loss, medical emergencies, or other surprises.
Thinking long term
It can be easy to get caught up in the day-to-day expenses of raising a baby. However, it's also important to keep your long-term financial goals in mind. One of the most significant long-term expenses for many families is their child’s education.
Consider opening a 529 plan, a tax-advantaged savings plan designed to help families save for future education costs. For more information on saving for education, check out our article on this topic.
As your family grows, discuss how you’ll want to make sure your loved ones are financially protected if something happens to you. If you have life insurance, review your current policies to make sure they still meet your needs and update your beneficiaries to include your new baby. If you don’t have life insurance, think about whether this makes sense.
Finally, remember to review and adjust your retirement savings plan. Although retirement may seem far off, starting to save early gives your money more time to grow. Consider increasing your contributions to your retirement accounts or adjusting your investment strategy to fit your new family situation.
Exploring ways to save money
Raising a baby can be expensive, but there are plenty of ways to save money without compromising on quality or safety. One great option is to get hand-me-downs from friends and family or shop second-hand. Many consignment shops and online marketplaces sell gently used baby items at a fraction of the cost of buying new items.
Another way to save is by buying diapers and wipes in bulk. Many stores offer discounts for larger purchases, so stock up when you find a good deal. You can also compare prices and use coupons to maximize your savings.
If one parent is thinking about staying home with the baby, consider the financial impact and potential savings on childcare costs. While living on one income can be tough, it may end up being more cost-effective than paying for full-time childcare.
Creating (or updating) your budget
Now that you have a view into the different expenses associated with raising a child, you can compare these with your current income and expenses. If you have enough disposable income to cover all your baby-related needs, that's great. If you don't, that's okay too.
Take a look at your current expenses and see where you can make some adjustments. If you already had a budget before this discussion, make your adjustments accordingly.
If you haven't created a budget before, you can use popular templates such as the 50/30/20 budget, where 50% of your post-tax income goes to necessities, 30% to wants, and 20% to savings. Categorize your current spending and planned baby spending and make adjustments as needed.
Communicating openly
This can be easier said than done. Budgeting isn’t just about numbers; it reflects your values and what matters to you. Examining spending can feel uncomfortable, especially if you and your partner have different views on money.
It’s important to find a balance between avoiding judgment and having honest discussions about how you both want to spend and save and how that affects your ability to provide for your baby and create a happy life.
If you’ve combined finances, have regular check-ins to review your budget and make adjustments. If your finances are separate, it’s still important to discuss baby-related expenses often. Remember, you’re in this together, and budgeting for your baby will benefit your future family.
Seeking financial advice if needed
If you’re feeling overwhelmed by the financial side of having a baby, don’t hesitate to seek professional advice. A financial planner can help you create a personalized plan based on your situation. They can guide you in setting financial goals, saving for your child’s future, and making smart investments.
Also, check out local resources and support groups for new parents. Many communities offer free or low-cost workshops and classes that can help you manage the financial challenges of parenthood. Connecting with other new parents can also provide support during this exciting but sometimes overwhelming time.
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