Having a baby is a beautifully emotional event, and it is also something of a wild card. You can count on it changing your life in many ways, but you can't always predict how. One thing you can do is try to control the extent to which having a baby shakes up your budget.
This may be the biggest challenge to your financial discipline that you've faced so far. Not only are children expensive and unpredictable, but the instinct to do anything you can for your kids can convince you that spending money on them is always the right thing.
It's not. In the long run, having firm control of your finances may be best for you and your children. Here are some tips that can help you plan and stick to a baby budget.
1. Start saving while expecting
The increased expenses really hit once the baby is born, so start setting some extra money aside as soon as you find out you are expecting. At minimum, build up enough of a savings cushion to see you through expenses like setting up a nursery or to cover for any time you might miss from work, and if you are really ambitious you can start building up college savings by starting a 529 plan college fund for the future scholar who is about to join your household.
2. Budget for childbirth expenses and leave
Check your health insurance to establish what is covered and what is not. Find out what your employer's policies are regarding family leave and whether you will be paid for any of that leave. If both you and your spouse work, check both employers' policies because that might influence your decision about who should stay at home with the new baby.
3. Line up childcare before you need it
You may have more time and energy to check out childcare options before the baby is born, plus having a solution lined up should help you avoid missing any more work than planned. From a financial standpoint, being able to anticipate childcare costs can inform budgeting for your baby.
4. Register your baby shower strategically
If you anticipate having a baby shower, you can expect to receive a variety of baby gifts from your friends and family. Some of these gifts may be more cute than practical, and some may be duplicates. For example, new parents often receive several baby outfits as gifts, but if they are all outfits for newborns your child might outgrow them in a matter of a few weeks and you'll be faced with the expense of buying the next stage of clothes. Several retailers allow you to register what gifts you want for a baby shower, and this allows you to request the things that can be most useful not just now but over the months ahead. In addition to retail registries, you can let interested people know they are welcome to donate to your child's 529 plan where a gift now can grow significantly over the years.
5. Get life insurance for both parents
As a young couple you may not have thought much about life insurance, but once you have a child to provide for it is essential to get some coverage. Even if you plan on one of you being the breadwinner and one being the primary caregiver at home, it's a good idea to get insurance for both of you. Besides just providing for the potential of lost income, you should insure to cover the added childcare costs that would come from being a single-parent family.
6. Spend carefully within your baby budget
Baby clothes are so adorable that parents often can't resist spending extra money to dress the baby up. You may excuse this as an attitude of "my baby is worth every penny" but the truth is all an infant knows about what he or she is wearing is whether it's comfortable. So go for practical rather than cute when choosing outfits, and you could save a lot of money.
7. Recycle and reuse baby items
Speaking of baby outfits, one of the challenges is that infants grow so quickly they soon require a new wardrobe of larger clothes -- and then one after that, and one after that, etc. The good news is that this rapid turnover means many of their outfits are only lightly worn. Store them away carefully so you can use them again if you have another child and explore garage sales, thrift shops and online marketplaces to get significant discounts on useful items.
8. Prepare homemade baby food
Those tiny jars are convenient, but you pay dearly for that expense. If you own a food processor, look up healthy recipes for pureeing your own baby meals. In no way is this selling your baby short -- most of what you pay for when you buy ready-made baby food is packaging and advertising, not what actually goes in your baby's tummy.
9. Budget for a college fund now
Strange as it may seem to envision your seven-pound infant heading off to college, now is the time to set up a 529 plan. Paying for college is a big job, but the more years you can spread it out over the easier it becomes. Plus, because investment gains on 529 plan investments are tax-free, the longer you can have a plan set up the bigger the tax benefit can become.
The reality is that try as you might to plan and be disciplined about financial decisions related to your baby, unpredictable things will happen and you may also give in occasionally to the temptation to splurge on your child. While budgeting for your baby, be sure to include regular deposits into an emergency fund and some fairly liquid investments, such as certificates of deposits, for significant expenses down the road; a visit to the orthodontist may happen before you know it. As inevitable as some departures from your baby budget may be, if you make an effort to stay on target most of the time, you can minimize the impact of those off-budget expenditures.