Becoming a parent will bring you excitement and joy — and you’ll also feel some panic and stress especially when it’s time to develop your baby budget. Many things change quickly when you start planning for your bundle of joy, so we gathered some tips to help you prepare for your baby.
Budgeting Basics
When you start budgeting your money, it helps cure the stress of finances because you know what your money is going towards. Now, you’re adding another person to your calculations, so it is vital to budget your money.
If you haven’t started a baby budget, we have an approach to help you divvy up your income. Try the 50/30/20 method. 50% goes towards household bills, minimum loan payments, and your baby’s needs, like diapers, formula, and childcare. 30% should be used for financial wants, and 20% is for savings and payments to your debt. This breakdown is a goal, and it’s okay if you don’t meet it right away. Your needs might cost more than 50%, especially if you are aiming to have childcare and that’s OK. The point of the baby budget is to track what you are spending and where, so you can improve.
Financial Priorities
It is essential to continue to contribute to your current and future financial security. Many new parents get swept up in having to save for their child’s education, and while that’s commendable, just remember you can borrow money for university.
Once you have a small amount of money in your emergency fund to cover unexpected expenses, use that 20% to fill in the rest. First, put money in your retirement savings. If your employer matches on your 401(k), save enough to qualify for the maximum. It is a good rule to try to set aside 15% of your income towards retirement. Next is your debt payments. Pay off the debts that are affecting you the most like credit card debt and title loans, so you can focus on putting that money towards savings. Finally, contribute to an emergency fund with the goal of having several months of income.
Expect Change in Expenses
When you have a little one, it is important to be able to handle surprise expenses. A way to reduce costs, so you can build your emergency fund for the unexpected, is pretty simple. Start with comparing the cost of adding a child to the working parents’ health insurance plans. Try to buy second hand and shop around for childcare. Also, when you have your baby shower, request must-haves.
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Budgeting for your new baby will help give peace of mind. When you have a plan for breaking out your income with expected and unexpected expenses you can spend more time enjoying instead of worrying. If you have any questions on how to improve your financial planning contact us online, by phone, or walk into one of our branches.