Adding a baby to our family has turned our budget upside down. Any tips to share as we restructure our spending to include formula, child care, insurance, etc.?
A: Few events are as disorienting as a new baby arriving. It’s exciting but also completely overwhelming—to both your life and your budget. Given all of the new expenses you are dealing with, from diapers to babysitters, you’re going to need a new budgeting plan to keep all of those costs from eating up your entire paycheck (and going beyond it).
Step one is to map out all of your current expenses and see where you can cut back to compensate. Perhaps you can cook more meals at home, skip gym fees in favor of long walks with the baby, or replace your monthly cable bill with a cheaper (or free) streaming service.
Next, take a close look at your earning power. Can you build a new stream of income for your family in a way that doesn’t add to your stress? Depending on your background and experience, taking on freelance work, even while you’re on maternity leave, can help reduce the strain on your family’s budget.
You’ll also want to make sure your expenses are far enough below your household income that you can save for the future. Your own retirement, your baby’s college fund and a general emergency fund are all key components of your long-term plan for financial security.
You might also be able to reduce some of your baby-related costs by working with other parents. Taking advantage of gently used clothes can easily cut hundreds of dollars off each season’s budget, and books and toys can also be passed around for more savings. Parents with flexible work schedules might be able to trade child care duties to further cut back on babysitting costs.
Lastly, if you or your partner has access to employee benefits, then make sure you are signed up to take full advantage of them. Flex spending for child care costs and health care expenses can put a huge dent in some of your biggest expenditures. You’ll want to carefully compare the health insurance options available to your family to make sure you select the best one for you. Keep in mind you might also be eligible for tax savings in the form of child care credits.
It’s a lot to think about—especially when you’re in the sleep-deprived blur of new parenthood—but the effort you put into financial planning now will pay off quickly. Working toward financial security for your family is one of your most important new jobs.
-Kimberly Palmer, author of Smart Mom, Rich Mom: How to Build Wealth While Raising a Family