New babies bring lots of joy—and many new expenses, Grownups. Independent financial planner Matt Becker shares the advice he typically offers new parents.
Congrats! You’re having a baby! Now the big question: How the heck do you budget for a baby?!?
OK, so maybe that’s not the best way to phrase things…but you’re probably thinking about it, right?
The truth is while your baby will absolutely be a cute little bundle of joy and sunshine, she will also cost money. But how much will you actually spend on your baby? And how can you prepare for the change?
Here’s the process my wife and I used to budget for our first baby. It helped us tremendously, and I hope it helps you too.
Step 1: Where Are You Now?
The first thing we did was take stock of our current financial situation. Primarily, that meant three things:
- What was our income?
- What were our expenses?
- What savings did we have to help with baby costs?
We’d been using Mint.com for years to track our finances, so that was our go-to source for baby budgeting. You Need a Budget is another great tool, and my friend J. Money has some great templates to help you organize it all. This was our starting point. It showed us all the financial resources we had available and where those funds were currently being used.
Step 2: How Will Your Income Change?
Some parents have a temporary change in income with maternity and/or paternity leave. Other parents have a more permanent change when one stays home with the baby. We fell into that second category, which meant that as soon as our son was born, we would suddenly have a smaller pool of resources available to us.
To calculate what that change would be, we subtracted my wife’s income and factored in a little tax savings from both the reduced income and the addition of a child. In the end, we understood what our new estimated take-home pay would be and began planning accordingly.
Step 3: How Will Your Expenses Change?
On the other side of the equation, we wanted to know just how much more we would be spending each month with a baby. Our goal wasn’t to be super precise, since it didn’t seem realistic that we’d be able to predict exactly how much we’d spend on everything. We just wanted a reasonable ballpark estimate.
We started with Babycenter’s cost estimator, which showed us annual averages based on our income and geographic location and broke it down by category. We took out things we wouldn’t be spending on, like day care and housing (since we already had a place to live), and added things they didn’t include, like life insurance and disability insurance. We ended up with a rough estimate of $400 per month in new baby costs, plus the cost of new insurance.
If you want to get even more detailed, Babycenter has another calculator that helps you add up all the individual expenses that come with having a baby, like a car seat, crib, diapers, etc.
Step 4: What’s the Total Change?
Armed with estimates for how our income and expenses would change with the addition of a baby, we could calculate the total change in our monthly cash flow. Here’s a simple example:
- Income decreasing by $2,000 per month
- Expenses increasing by $400 per month
- TOTAL change = $2,400 per month
In that example, there is currently $2,400 per month available to spend or save that won’t be available once the baby gets here.
Step 5: Start Saving the Difference
All of the above steps were helpful with giving us a sense of what to expect, but this is the step that made sure we were truly prepared for the change. Six months before our son Aiden was born, we took that $2,400 per month and started putting it into a savings account. This did two incredibly helpful things for us:
- It allowed us to get used to the new baby budget ahead of time. We could experiment with changes, make mistakes, and take our time adjusting without the additional pressure of also having a newborn that required all our time and attention.
- It helped us build a savings buffer—money that ended up being a big help as we inevitably overspent and dealt with the unforeseen expenses that all new parents encounter.
Step 6: Keep on Tracking!
All this planning was incredibly helpful. But of course, nothing ever goes exactly as you expect. Some things cost more than we expected and some cost less. So we kept tracking our expenses, talking things over on a regular basis, and making adjustments to our budget as needed.
To this day, we still don’t have it all figured out—there are still expenses that come up that we didn’t expect. I’m sure that will always be the case, but our experience has taught us a lot. By keeping a close eye on things we’ve been able to improve our habits, find a new norm, and actually enjoy our children without stressing out over day-to-day finances.
Matt Becker is the founder of Mom and Dad Money, a fee-only financial planning practice dedicated to helping new parents build happy families by making money simple. His free time is spent jumping on beds and building block towers with his two awesome boys.
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