Budgeting for a Baby: Planning for Success
By Brian Famigletti, Managing Director & Head of Marketing
Analyzing Growing Financial Needs
Adding a new member to your family is both exciting and overwhelming, and budgeting for a baby can seem daunting. Whether through adoption or pregnancy, having a kid changes your world. With physical, lifestyle, sleep, social, and many more adjustments that take place, the last thing a new parent wants to worry about is their finances. That’s why it’s crucial to create an effective budget that takes these new needs into account.
According to a NerdWallet study, the first year of a baby’s life can cost as much as $21,000. The Brookings Institution similarly noted that raising a child to adulthood can cost around $310,000. Planning for both the short- and long-term is key to a family’s continued financial health, as children’s needs are constantly changing.
The first step in budgeting for a baby is listing and prioritizing each known expense. This includes researching the cost of upcoming expenses like healthcare, diapers, car seats, childcare, life insurance, and more. Once the essentials are taken care of, parents can focus on expenses like retirement savings and discretionary spending.
A Plan for Every Penny
The hallmark of a good budget is having a plan for every penny of income. This ensures that no money is wasted, and each expense category is meticulously tracked.
A good place to start is the popular 50/30/20 method. This budgeting method allocates 50% of an individual’s income to bills and essential expenses, 30% towards discretionary spending, and 20% to savings. Every family’s situation is unique, so these numbers can be adjusted as needed. Remember, the best budget is an attainable one.
Many younger families will find that their bills exceed 50% of their income, and that’s to be expected. Income and expenses change as seasons of life come and go, so it’s important to acknowledge your current financial situation and adjust plans accordingly.
Planning for the Future
Budgeting for a baby doesn’t just involve planning for a child’s short-term needs – their long-term success should also be considered. While events like high school sports or a college education might seem far away, the earlier these expenses are planned for, the easier the burden on the family will be.
One of the most popular ways to save for college is the 529 plan, which is a tax-advantaged education savings account. 529 funds must be used for educational expenses, or they are taxed and penalized. For parents worried that their children may not want to attend college, a UTMA account could provide another option.
Related reading: What If Your Kids Decide Against College?
Finally, it’s paramount to secure adequate life insurance. This gives parents peace of mind that their family will have its needs met should the worst-case scenario occur. Life insurance premiums should be viewed as an essential part of any budget.
Starting a family is an exciting season of life, and practicing healthy financial planning practices can alleviate fears that might get in the way of joyful anticipation.
Sources:
Nerd Wallet: Budgeting for New Parents
