Family & Friends

The Money Mom: Budgeting for Baby

Posted by Jean

I get a lot of questions about preparing financially for a baby. We’ve all heard that if you wait until you’re financially ready to have kids, you’ll never have any, and I think that’s good advice. But it doesn’t mean you can’t do a few things to pad your savings account before the new addition comes along. Having a baby means two things, financially speaking: You need to start preparing for the future, and you’re going to have more – and different – drains on your wallet. We’re going to tackle both, starting with how to handle and prepare for new expenses. Check back next week for part two, when I’ll cover preparing for the future.

Here are my favorite tips when it comes for budgeting for baby:

Use your pregnancy to save. This is going to be a long nine months – trust me, I’ve been there. Twice. So use it to your advantage by setting a goal to put away as much money as you can in extra savings by the time you go into labor. This is especially useful if one of you would like to become a stay at home parent – I highly suggest you “practice” living on only the income of the parent who will continue to work while you’re pregnant so you can see if it’s possible. Bank the other income for that nine months, and not only will you be able to give your new arrangement a trial run, but you’ll supercharge your savings.

Run the new numbers. Adding a child to the mix can add $500 a month to the budget – sometimes less, sometimes much more. You need to figure out where that money is going to come from, and what you’re going to cut back on in order to stay afloat. Take some time before the baby comes to prepare a brand new budget. To do this, go through your old budget first line by line and ask yourself: Will I spend more or less on work clothes? Commuting? Insurance? (If you’re planning to stay home, your homeowner and auto insurer may be willing to give you a lower rate, and you’ll most certainly save on clothes and commuting costs.) Then take that new budget and add in estimated expenses related to the baby. It’s easy to research costs online, or you can ask a friend. If it helps, use this worksheet – I developed it for my last book, Money 911.

Take your tax credit. Some of these new expenses will be offset by the child tax credit – so if you’re eligible, don’t forget to claim it. Married couples who file jointly, have one child, and earn no more than $110,00 a year can claim $1,000 annually, in addition to the $3,650 exemption that you can claim for each dependant in 2010.

Save where you can. You’re going to be tempted to buy every cute little baby outfit you see, but I have one word for you: Borrow. If you have friends that were recently pregnant, many of them will happily lend you hand-me-downs for the baby when the time comes – as well as maternity clothes for you. Just keep them in good shape and give them back when you’re done if they want them, or pay it forward by passing them along to someone else. If that isn’t an option, you can also buy great clothes from used children’s clothing stores, which seem to be popping up more and more. Children outgrow their clothes so fast that it doesn’t make sense to splurge here.

And don’t forget you’re likely to receive at least a few gifts from friends and family members. In fact, I might hold off on buying anything until after your baby shower.