Start preparing early to secure your family’s financial future.
When preparing to welcome a newborn — whether it’s your first child or the latest addition to your family — it’s important to baby-proof your budget.
Even if you’ve already welcomed your little one without setting a solid budget, chances are some financial fine-tuning can help get your family on track where spending and saving is concerned.
Forming A Plan
It’s true that a tiny baby can require some big purchases — a crib, car seat and stroller are just the beginning.
The American Academy of Pediatrics advises to bear in mind “there may be added financial pressures upon the family, spending a lot more on diapers, clothing, food, car seats and dozens of other items, and perhaps needing a larger family car or even a larger home.”
Start saving early to budget for the large, one-time expenses and, most importantly, live within your means, recommends Melanie Ross, senior financial advisor for Cleveland’s NCA Financial Planners.
“Avoid using your new baby as a reason to go out and buy something you can’t afford or something you don’t need,” Ross says. “You won’t need to buy a top-of-the-line minivan for your newborn. Instead, spend money on a quality car seat for your existing car.”
Karey Edwards, also a senior financial advisor for NCA Financial Planners, notes that having a baby is a good time to reassess where a couple is spending their money and what new monthly expenses they’ll incur.
“If parents have not already lived with a budget, they should write down their current expenses and start to consider new expenses to see if they can live within their means or if they need to make cuts,” Edwards advises.
The biggest monthly baby-related expense is childcare, whether it’s a nanny, private sitter or a daycare center. According to Amber Bowling, district manager for KinderCare Learning Center, monthly costs of full-time daycare in Northeast Ohio can range from $600 for preschool age children to more than $1,000 for infants.
“Daycare is going to be a huge cost if you both go back to work,” Edwards says, “so it’s important to start thinking about how much you’re going to need for that plus other monthly expenses.”
As a couple, you have to start weighing the options of staying home or going back to work, along with preparing for unexpected decisions that might come after the baby arrives.
If you or your spouse plans to stay home with the baby, now is the time to plan for that loss of income. “You have nine months to figure this out, so practice living off of one person’s income and see if it’s possible,” Edwards says.
Other Considerations
There’s also a host of other expenses to consider, including insurance, healthcare and saving for your child’s education.
“Financial security through life insurance now becomes a top consideration since you now have this little person who’s going to be dependent upon your income for a very long time,” Ross says.
In general, she advises first-time parents in their 20s or 30s to opt for term insurance, since it’s the least costly option to achieve the objective.
Regarding healthcare, research the options offered through your employers.“If you have a flexible spending account, take advantage of it,” Edwards advises. “You can use a lot of the money you set aside for pediatrician visit copays and anything else that might come up.”
If saving for your baby’s college education is a priority, consider a Section 529 Plan, Ross says.“The sooner you can get those funds growing, the less you’ll ultimately have to save over time. Even if you can just do a little bit here and there, it’s a help.”
Cutting Expenses
If your spending plan requires some caution when it comes to purchasing items for your new bundle — or bundles — of joy, there are several ways to cut costs.
“When you’re registering for your first child, take a friend who’s had a baby with you,” Edwards says.“Talk to other parents and get a feel for what you really need and what might not be that important.”
Ross notes to explore ways to cut costs, for example, considering breastfeeding versus formula, which can cost more than $100 each month. A significant savings can come from borrowing clothes, toys and other items from friends, or shopping yard sales and resale stores, she adds.
“The savings potential of buying resale is enormous — it’s like hitting the end of the season deep clearance all the time, but for in-season clothing,” says Ginger Borshov, owner of Pete & Polly Children’s Resale Shop in Brunswick. “You save when you buy, and when your kids grow out of the clothing, you can sell it back and earn store credit.”
She notes there’s a big difference between thrift and resale: “If you’re looking for quality items at a deep discount, you won’t be disappointed in a good resale shop.”
Lastly, when it comes to budgeting for a baby, don’t underestimate the power of saving a little bit at a time — even $25 a week will begin to add up, Edwards notes.
“At the end of the day, wealth is created by living within your means, so set a realistic budget and stick to it,” Ross says.
