From birth to college: how to budget for having children

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At some point between the pregnancy test and the due date, you realize: life will never be the same again. Becoming a parent should mostly bring excitement and joy, but a little panic is normal, especially when thinking about the family budget.

Having a child can wreak havoc on your household finances. Here are some of what to expect and how to budget for baby and beyond.

But first, a warning: parenting will keep your finances on the move for years to come. You have left for a difficult race. Stay calm. When it comes to budgeting for parenthood, the keys are equal parts preparation and flexibility.

The basics of budgeting still apply

Both your expenses and your income will likely change when you have a baby, but your budget approach doesn’t have to change. You are always stretching your income to cover your expenses and debts, as well as your savings.

If you are new to budgeting, we recommend that you split your income with the 50/30/20 approach:

  • 50% for needs such as household bills, minimum loan payments, and expenses such as child care, diapers and formula

  • 30% for financial needs

  • 20% for savings and payments on toxic debt, such as payday loans and credit card balances

This split is a goal. You might find that your needs are well over 50% of your income – which is not uncommon for many middle-income families, especially those with a child in daycare – and that’s okay. The point is, you are tracking your spending and aiming for improvement.

This 50/30/20 budget calculator can give you a better idea of ​​how your current budget is broken down.

Once you’ve established a spending base, track your month-to-month progress. You can do this using one of the many budgeting tools available online, personal finance software, or a pen and pad of paper.

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Financial priorities: retirement vs. education savings

New parents are often in a rush to save for their child’s education, and that’s commendable. But it shouldn’t come at the expense of your current and future financial security. After all, you can borrow money for college, but not for retirement.

Once you have a small amount of emergency cash to cover unforeseen expenses, say $ 500, your financial priorities should be:

Pension saving: Make sure you are saving enough for your retirement. You should ideally set aside 15% of your income, but save at least enough to qualify for the maximum employer match on your 401 (k), if your workplace offers one.

Toxic Debt Payments: Pay off the debts that are hurting you. Balances on payday loans, credit cards and securities loans, for example, cost you daily and prevent you from focusing on other financial priorities.

Contributions to an emergency fund: Build your emergency fund from that $ 500 seed, aiming for enough to replace several months of income.

Once you progress on these items, you can think of some education savings strategies.

That being said, if your loved ones are eager to help fund the undergraduate academic years and you can afford to set aside an additional $ 15-25 per month, set up a 529 plan. minimum required at the moment, and generous family members can also contribute.

Train to live on less

Your income will likely change after you have a child, even temporarily. One parent can take unpaid maternity or paternity leave, or another can quit work altogether.

Practice living on that lower income in the months leading up to your due date. Sheri Conklin, CFP and Founder of Conklin Financial Planning in Florida, New York, suggests setting aside the income of the future stay-at-home parent to get used to a smaller budget and save for child care and other expenses future.

Anticipate the continuous evolution of expenses

Household expenses will change when your baby is born, and they will continue to change throughout childhood. A recent NerdWallet Study found in the first year alone, the cost of raising a baby can reach up to $ 21,000, and the cost of raising a child to adulthood eclipses that.

“You have a lot of expenses associated with parenting, but a lot of them won’t last forever,” says Conklin. Infant formula, diapers, and child care are just a few that will decrease your budget as your child grows up, and costs like dance lessons and car insurance will eventually take their place.

During this time:

Estimate how much you will spend the first year using this baby calculator cost. Adjust this amount by obtaining quotes from local daycare centers if you plan to put your baby in daycare.

Look for ways to reduce this cost:

  • Compare the cost of adding a child to all working parent health insurance plans

  • Buy a second hand

  • Ask for the essentials for your baby shower (s)

  • Shop for child care

Anticipate how long these costs will last. Many of the costs for first-time parents are one-time expenses, including the crib and strollers. Others only last a few years, like babysitting until your child goes to school.

Review upcoming expenses each month as you sit down to pay your bills. You don’t want to be caught off guard, so find space within your budget as best you can ahead of time.

When there just isn’t enough

Sometimes there just isn’t enough money. Cutting back on spending and increasing household income are the two basic strategies for balancing your new budget, but it can be easier said than done. If you haven’t already, carefully consider these options:

  • Find part-time work

  • Ask for a raise or find a better paying job

  • Downgrade your home

  • Downgrade or sell a car

  • Refinance your mortgage and / or student loans

  • Consolidate and compare for your owners and car insurance

  • Eliminate unnecessary monthly subscriptions, such as streaming services or unused gym memberships

Like some of the increases in household spending associated with parenthood, these sacrifices can also be temporary.

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