Becoming a new parent can be exhilarating and exciting, but also a little nerve wracking! What can cause the most anxiety for new parents is the financial aspect of a child. Before becoming a parent, you will need to know that babies are expensive and can turn your existing budget out of sync. The cost of raising a baby can be an upwards of $21,000, and it will only grow more as they grow up.
Parenting is a challenging ride, but it doesn’t have to be financially! The key parts to understand are how to be prepared, and how to be flexible when you are budgeting as a new parent.
Build Your Budget
Before your bundle of joy comes, building your budget is the first step. In order to do so, your income(s) must be established. This is a reference and estimate for what your budget will be based on. After your income has been established, the next step is to determine your expenses per month.
Your expenses can generally be separated into three different categories:
- Fixed Expenses- These are for expenses that stay the same per month. Generally, these are expenses such as bills, mortgage payments, or loan payments like your repayment for a title loan.
- Variable Expenses- These expenses are those that can fluctuate or change throughout the month. Usually these are expenses such as transportation costs, utility payments, and additional expenses like entertainment and food costs.
- Emergency Expenses- On top of your monthly expenses, you may also need to plan for emergency expenses as well. While you may plan for the usual expenses that you would expect, additional emergencies can arise. Your baby might need a hospital visit, or your car might need an emergency repair. Regardless of the reason, you should be planning for emergency expenses as well.
Determine Your Financial Priorities
Another aspect of your budget is to determine where your priorities are financially. Your fixed expenses should be the largest priority of your budget, as they are the most consistent expenses and important in your budget.
New parents can often be in a rush to prepare for certain future expenses and ignore the ones that are at hand. After you have established emergency expenses, you will need to budget for other pressing expenses:
- Retirement Savings-Planning for retirement is crucial for making sure your future is secure. Ideally, you should plan for 15% of your income to be dedicated towards your retirement. If your employer allows for it, utilize your 401(k) plan to the fullest extent.
- Debt Obligations- Debt can overwhelm you easily, and it should be one of the first financial priorities you should have. Any balance on a title loan, or credit card could cost you exponentially if you are not focused on it.
- Savings Fund-While you may be building an emergency fund, you should also plan for a savings fund as well.
If you are still keen on creating future funds for your little tyke, there are payment plans and strategies for saving for a future education. Regardless of the plans you intend to support, it is important to keep your financial priorities in mind when you are creating your budget.
The 50/30/20 Approach
This is a common approach to budgeting that you might have heard of before. When you have a child, your budgeting approach may have to change more than you are used to. Once of the most successful ways to effectively change your budget is through the 50/30/20 approach:
- 50% – This is usually meant for needs such as household bills, minimum amounts on the loan payments and expenses that come with childcare, such as diapers, formula, or other daycare expenses.
- 30%- These are for your financial wants that keep you motivated. Entertainment, subscriptions, and other non-necessities can be included into this category.
- 20%– This percent should be focused on building your savings, as well as making payments on toxic debts you have acquired.
Adjust as Needed
Any good budget will need to be adjusted. Before and after your child arrives, make sure you are adjusting your budget as the weeks go on. This can mean a multitude of things, but generally it is adapting and adjusting to the changes that your budget has brought about.
Wherever you find discrepancies in your budget, diagnose them and go over them with your partner to ensure you can both fix the problem of overspending.
Practice Your Budget
It’s one thing to make a budget, but it’s another thing to actual put it into practice. Your budget should be a reflection of your goals, and it requires a lot of participation and not passivity on your part. This is where being flexible will come into play.
While you may not like some of the suggestions, you will find that being flexible can help you get financial relief when your budget becomes tighter than you would like.
There are additional ways to bring down the cost of your monthly expenses that can help you save money, and become more frugal:
- Buy Secondhand
- Look for The Right Priced Childcare
- Ask for Diapers and Formula at Your Baby Shower
- Utilize Any Extra Help You Can
- Downgrade Your Car
- Refinance Your Loans
- Ask for A Raise
- Eliminate Unnecessary Subscriptions
Daycare is one of the most expensive items on your budget you will need to start planning for. Depending on your area, daycare can cost an upwards of $1,200 a month! With a little ingenuity and thriftiness, there are ways to make your budget seem more manageable.
Plan for the Unexpected
Parenting is entirely full of unexpected experiences, and your finances will have ups and downs as well. What can keep you on top of your finances is to plan for the unexpected. While you may think you are exempt, plan for your baby to get the flu at some point and have a pricey medical bill.
It is always better to be safe than sorry and planning for the unexcepted can always get you a leg up!