Preparing your finances for a baby
Whether parents are welcoming their first child into the world or a second or third, planning for the costs of a baby requires time and attention.
From clothing and diapers to furniture and medical costs, the expenses associated with raising a newborn can be high. However, similar to saving money for other life events, the key for expecting parents is to assess their current financial situation and implement a series of changes to help them prepare for where they need to be.
The U.S. is one of the few countries around the world that does not offer paid maternity leave, so it’s important that parents start saving early to cover the costs of their temporary absence. Individuals should aim to cover their living costs – food, mortgage, bills, etc. – for their expected leaves, plus the added expenses from their child. This may include hospital stays, doctor’s appointments and other immediate costs a household can expect to incur following the birth of their child.
During the savings period, parents may also be trying to de-clutter their homes to make room for their child. Many accomplish two goals in one by selling off unwanted items that are taking up space in their homes.
Another strategy families can use to both increase their cash cushion and prepare for their new financial situation is to start budgeting for their child early on. When the baby comes, parents may have to drastically reduce their spending – dinners out, entertainment and other discretionary purchases – to accommodate their child.
Getting accustomed to these changes by living on a “post-baby” budget before the child comes can make the transition easier and allow couples to increase their savings. Most financial professionals encourage expectant parents to try living on one salary.
Limiting nursery spending to curb debt
Some parents start off well by saving money and paying off credit card debt before their baby arrives. However, as they near the end of the pregnancy term and start shopping for nursery items, some overspend on items they don’t truly need. Rather than purchasing a top-of-the-line crib that is over-budget, parents should put practicality first. Seeking out items that meet high safety standards, but are not overpriced can help new parents avoid going into debt or endangering their savings goals.
The same goes for clothing, shoes, bottles, binkies and other accessories. Babies quickly grow into toddlers, and spending a fortune on designer baby threads that the child will grow out of in three months is counterproductive to parents’ money management strategies.