When you’re expecting, and even during the first year as a parent, the financial aspect of having kids can be hard to manage. You may feel constantly bombarded by new challenges, but know that you’re not alone and that there is a well-trodden path to take when it comes to handling the initial expenses and budgeting of parenthood. There are many financial tips expecting parents should heed, but here I’ll be going over expenses to take care of out the gate – and the budgeting headache that comes with them.
Without further ado, let’s dive right into this so you’re as prepared as possible!
Draft A Budget, But Plan To Revise & Be Willing To Downgrade
You’ll need to come up with a strong, complete budget. Once you’ve come up with one, do your best to stick to it. However, as you deal with the struggles of early parenthood, you’ll likely have to revise it. Be careful when you do that. You don’t want to spend so much that you can’t reach your financial goals. Worse, you don’t want this to negatively impact your retirement investments.
So, tweak the budget a bit if you need to initially, but be careful. If the budget needs to be changed because of an unexpected (or increased) expense, you’ll probably need to find somewhere else that you can make some cuts. It will be some give and take, but it’ll be worth it in the end. A strong budget will help you stay on track.
Start Putting Aside Money Towards A Baby Fund
You’ll need to set aside money for all the expenses related to the baby. Do your best to estimate how much you’ll need. Be a bit excessive with the estimate, since it’s much better to over-save. Once you’ve gotten some of the essentials, or more of the details are ironed out, you’ll be able to get a more accurate picture and increase or decrease how much you’re saving accordingly. If you find great discounts, or get lots of gifts, you may be able to save a lot of money!
You Need An Emergency Fund
Coupled with a solid budget and a baby fund, it’s also time to build an emergency fund. If something horrible happens, like outlandish medical bills or losing a job, you want to have a little bit of a cushion for yourself and your family. I recommend saving at least six months worth of expenses to start. For more information on emergency funds, how much to save, and where you should put your savings, you can read my full article on the topic here.
Take Advantage Of Your Baby Shower
No, I’m not saying you should abuse the presents that come with a baby shower. You shouldn’t take advantage of the individuals who are generous enough to give you presents either. However, if people are offering, it’d be wise to provide a registry or wish list. Be sure to include some cheaper items with the more expensive ones. The goal isn’t to “make out like a bandit” but rather to help cushion the initial expenses as much as possible. Appreciate what your friends and family are willing to give, but don’t make outlandish requests.
Nursery
First up in the list of things you’ll need is everything for the nursery. This includes basics like a crib, a bassinet, bedding, a changing station, and so on. That is by no means an exhaustive list, but that should get you started with the pressing items. It’s possible you’ll want other things, like a chair or specific wallpaper, which you’ll have to figure out with your partner. Either way, the bill is likely to be a little intimidating. If you’re willing, and have the option, using secondhand items from your family could be a great way to save money.
Transportation
You’ll need to make sure all your transportation needs are covered when it comes to the baby. The obvious thing is a car seat, but you may also need a backpack and stroller too. Another thing worth mentioning, especially since I know many of my readers are frugal, is that it might be time to upgrade your car. I’m a fan of going cheap and using a beater too, but make sure your car is reliable and safe. If it isn’t, it’s probably about time for a bit of an upgrade.
Feeding
This is self-explanatory for the most part. You’ll need a chair, utensils, baby food, and things like that. Depending on what exactly you need the price point can vary. Make a list, check it twice, and make sure you have your bases covered when it comes to feeding.
Clothes, Clothes, And More Clothes
Your baby is going to go through a lot of clothes. And by that, I mean a lot. As I said earlier though, if you’re willing, you should get some secondhand items from your family. Some people may scoff at that, but the savings are undeniable and the quality will be no different. Also, you can shop at thrift stores if you’re looking for some good deals. You’d be surprised at the quality of baby clothes you may find there, since kids often grow out of them too fast – before they’re able to wear them down.
Hospital And Delivery Costs
You may not be able to calculate the exact price of anything going into the delivery, but expect it to be pricey. You can contact your insurer to try to figure it out, be I wouldn’t be surprised if you had to pay your out of pocket maximum – so plan accordingly.
Extra Costs For Abnormalities And Risks
If there are additional issues with the pregnancy or fertility, there may be additional fees. Hopefully you will hit your out of pocket maximum and that will be it, but that isn’t always the case. If you need surgeries or some sort of correction, you may have many additional costs. On the surface that isn’t necessarily bad, but if these surgeries or corrections plus the pregnancy and delivery span more than one year, you could easily have to pay the out of pocket maximum multiple years in a row!
Adoption Fees
If you adopt, it can get expensive. Look into any available assistance you can get. An increasingly common one I’ve seen is employee benefits that include a huge amount towards adoption. It won’t pay for everything, but working for the right employer could help you alleviate a significant portion of those costs!
Your Insurance Costs Will Increase
You’ll have to add your baby to your health insurance, obviously. An unfortunate aspect of reality is that your monthly premium will increase because of that. It shouldn’t break the bank, but it will be a significant expense you’ll need to be prepared for.
Life Insurance For The Parents
If you aren’t currently covered, it’s probably a good idea to set up a life insurance policy. In the event of your death, you want to make sure your child has the financial support they need – and it can help your partner cover all the expenses that will come. That’s not an ideal situation for anyone, but it’s a huge boon when it’s needed.
Consider Life Insurance For The Baby
Nobody likes to think about it, but it’s not a horrible idea either. Premiums are cheap, and it would cover any funeral costs pretty easily. It’s not pleasant to think about, but it is something to at least consider.
Disability Insurance
If you don’t have disability insurance through your employer, it’d be wise to sign up. If disaster strikes, and you’re not able to work, disability insurance will help make sure you can still make ends meet. It’s a bit expensive, so you’ll need to budget accordingly. However, it’s well worth the peace of mind so that you know you have it if you ever need it.
Childcare Or Lack Thereof
Childcare is one of the biggest expenses that comes with bringing a child into the world. You’ll have to do your research to find the best deals near you (with people you trust). This is another area where you can look to employee benefits. Not every employer does it, but many do offer childcare of their own, at reduced rates, or even offer other forms of assistance.
Alternatively, if you or your partner is able to stay at home, that could be even better. It’s wonderful when one of the parents can look after the kid, but it’s not possible for everyone. If one of you will stay home, then you’re probably going to end up losing a source of income. That isn’t necessarily the end of the world, but you do need to prepare for not having as much household income at your disposal.
Diapers
Ah, diapers. Well all knew this was coming. There isn’t much advice here, but be prepared to go through them constantly. Buying it piecemeal will eat away at your budget, so I recommend buying in bulk. Pick a brand you like, and buy as much of them at a discount as you can. It will be expensive, but that way you’ll at least be able to save a bit.
Use Any Tax Advantage You Can
Now that you have a dependent, your post-tax income should increase. Be sure to claim your dependents when you file your tax return, and update any relevant tax forms.
Save For Them In A Custodial IRA Or 529
Along the way, there are tons of things you can do to help set your kids up for life. If your finances are going strong, consider investing in a 529 or custodial IRA for your children. They may not appreciate it yet, but when they’re grown and on their own they’ll definitely be grateful.
Conclusion
Hopefully this helped you prepare for the first year or so of being a parent. If you have any tips or suggestions of your own, leave a comment and let us know – I’d be interested to hear them!
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