Becoming a parent is a life-changing experience that will bring plenty of joy and excitement. At the same time, it is ok if you feel a little bit of panic as you prepare for your new baby.
For many new parents, there is the concern of being financially prepared to be able to support your new baby. This is a completely normal concern and there is some good news.
You should have several months to prepare and budget for the new baby. It will be ok if you are able to plan and stick to a budget that fits your family.
Budgeting For a Baby
So you and your partner are going to have your first baby. Congratulations, this is an exciting time in your life! One of the first things you’ll want to think about is setting up a baby budget.
A recent study shows that 54% of new parents drastically underestimated how much they thought a new baby would cost. 18% of Americans thought that the first year of a baby’s life would cost less than $1,000. Another 36% thought it would be under $5,000.
However, the true cost of a new baby could be around $21,248 for the first year. It could also potentially be as high as $52,000, depending on your choices and lifestyle.
A baby budget is made to cover both all of the startup costs along with the first few years of their life. By budgeting for a baby, you’ll know what you can afford and make sure you can financially support them.
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Fitting Your Baby Budget into Your Overall Budget
Although new, having a baby is only a part of your overall expenses. You still need to budget for housing, food, utilities, transportation, and entertainment. The challenge is fitting considerable baby expenses into your existing budget.
If you don’t have a monthly budget already, it’s time to start tracking your finances. Learn how to set up a spreadsheet and track your expenses here.
One of the best ways to quickly understand your finances is to use Personal Capital. Personal capital is an app that automatically tracks all of your income, expenses, and savings so you know where you stand every month.
A basic starting point for a budget is to aim for the 50/30/20 rule. This means 50% of your income is spent on living expenses, 30% on discretionary spending, and 20% on savings.
When you have a baby, your living expenses will go up to include more food, diapers, childcare, and other supplies. Knowing this, the 30% you used to spend on other items will have to be reduced.
If at all possible, try to keep saving at the same rate that you did previously. Continue to contribute to your retirement accounts and keep investing. You can always take loans out for other expenses, but stopping saving for retirement will put you much farther behind.
How to Create a Baby Budget
Creating a budget for your new baby isn’t terribly hard but you do need to try to plan for as many expenses as possible.
Here’s how to build a baby budget in a few simple steps.
- Break down your overall budget and your financial priorities. You baby is clearly a priority, but you should continue to save for retirement. You will also need an emergency fund and may have other plans for home ownership or entertainment.
- Determine how much you can realistically afford to spend on a baby. This should be the maximum amount you can spend based on your current income.
- Estimate the baby expenses you will likely face during the first year. While an average may be around $21,000, you’ll want to do some research to get a better estimate.
- Cut costs and make more money. If the baby expenses will be higher than you can currently afford, you’ll need to try to make up the difference. Do this by cutting out extra costs in your budget or starting a side hustle to make more money. You may also need to reduce some of your baby expenses by looking at less-expensive options.
Types of New Baby Expenses
Baby expenses can vary based on your lifestyle and the cost of living of where you live. Couples with higher income generally have a little extra money to spend on a baby, so they will have higher expenses.
Some of the differences in expenses is determined by how much you are willing to pay for clothing and supplies. Strollers can range from a few hundred dollars to a few thousand dollars.
There are other optional costs, such as life insurance for the parents and saving for the kids college.
An example of some of the baby expenses in the first year include:
- Diapers, clothes, toys: $1,500
- Crib, stroller, car seat, furniture: $1,400
- Baby food and breast pump: $1,800
- Child care: $12,000
- Healthcare: $2,000
- Life insurance for parents: $800
- College savings: $5,000
On top of that, there are medical costs associated with the actual birth at the hospital. Cesarean, better known as c-section, births are more expensive and can cost over $17,000.
Natural births are less expensive but still can cost close to $12,000. Higher levels of care for both the mother and baby after birth can also rack up extra costs.
Depending on your insurance, you should have a much lower out-of-pocket cost. That said, you should expect to pay a few thousand dollars for a birth. Be sure to ask your doctor and insurance company what the actual cost will be.
Join our free membership to download our baby expense workbook.
How to Save Money on Baby Expenses
As you are preparing for your new baby, there are a few ways that you can save money.
When you are setting up your nursery, you can likely find a used crib and changing table from local parents that have grown children. Just clean it up a bit and replace the mattress, but it could be a cheaper alternative.
There are Facebook groups and online tag sales that can be a treasure trove for finding used baby items. As kids age, parents often try to sell their unneeded baby items at a lower cost than buying new.
When it comes to clothes, wait on buying new clothes until your baby needs them. Buying them too far in advance can be a waste if they outgrow them rapidly. Instead of buying shoes that your baby won’t actually walk on, just use soft booties that are cheaper.
Breastfeeding is another good way to cut down on food expenses for the first year. You can also either borrow a breast pump instead of buying new, or see if your insurance will cover it.
Be Flexible With Your Planning
Having a baby comes with plenty of surprises and unexpected costs that may pop up. Hopefully, your baby is healthy and doesn’t get sick over the first year. However, there may be some unplanned doctor’s visits in your future or extra items you didn’t originally budget for.
While not the most fun to have extra expenses, just be aware that it is not always possible to stick to your budget. Be flexible in your planning and build in some contingencies to your budget.
Having an emergency fund is essential to making sure you can cover any extra costs. Start by putting aside $500 and then try to build that until you have around six months of living expenses.
Once you find out your pregnant, use the time until they are born to save as much as you can. You likely will have 8 or 9 months that you can use to save some extra money. Try to cut out extra costs during that period and save that money in a separate baby fund.
Planning Beyond the First Year
Besides the costs for the actual birth and the first year, your baby will continue to have expenses for quite a while. As they get older, you’ll have to get more clothes, school supplies, toys, and extra-curricular activities.
Another important piece of planning for your family’s future is to get life insurance for you and your partner. For a small amount each month, you can get up to $1 million in coverage to make sure your family is covered if anything were to happen to you.
College may seem like it is very far off for your newborn, but it is the perfect time to start investing for their future. Contributing a few dollars a month to a 529 plan can grow into a tidy sum after investing for 18 years.
Finally, you may also want to consider creating a will for your family to give you some extra peace-of-mind.
Good luck with your little one!
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