Budgeting for baby

June 8th, 2012 Melisa Henley
Budgeting for Baby RS

Having a baby is a life-changing experience. In addition to all the joy and wonder, it brings with it a considerable impact on your family’s finances.

Every year, the U.S. Department of Agriculture estimates how much families spend on children until they go to college. The latest report found that middle-class parents of a child born in 2010 could expect to spend more than a quarter of a million dollars in the child’s first 18 years.

It’s clear that your baby needs a place in your budget – and a big one at that. Here are some tips to help you fiscally prepare for your new addition.

Start preparing immediately.

The 9 months of pregnancy gives your family plenty of time to prepare for your bundle of joy. The first thing you should do (even before you get pregnant) is review your health insurance coverage to determine how you will be covered. Ask about your co-pay, deductible and any other related costs. How many doctor visits are typical? How much will you have to pay out of pocket? What are the costs for a premature birth? If your partner’s health insurance coverage offers better pre-natal care benefits you may even want to consider switching.

Also discuss with your employers’ human resources department how much time you have for maternity or paternity leave and if an extension is possible.

Another thing you can do is start accumulating baby necessities, like diapers, ahead of time. If you pick up a box of diapers every time you go to the store, you are spreading the cost over nine months, making it a gradual expense.

One income or two?

If both you and your partner are currently employed, you’ll have to decide whether you want to put your baby in daycare after maternity leave or if one parent will stay home.

If one of you is considering leaving the workforce to stay home with a baby, try to live on a single salary throughout the pregnancy. Not only will this give you an indication of whether you can actually live on what you make, but it will give you nine months worth of an emergency fund.

Start thinking about childcare.

If both parents will return to the workforce after the child is born, begin discussing childcare options. Childcare typically falls into three categories: family, private nannies or daycare centers.

Since regional childcare costs vary widely, ask your friends what they spend on childcare or nanny services, and then determine what will work best for you.

Update your budget.

Run the numbers to determine exactly how much you’ll need to spend on your new baby, including food, formula, diapers and other items. Also reduce from your budget your determined income reduction. Finally, calculate child-specific expenses using the estimates you’ve found for daycare, supplies and medical costs.

But before you panic, remember that you’ll save in other ways. You’ll cut back on money spent on commuting, entertainment, eating out and travel.

Also, begin setting aside money for baby items. Some banks now offer automatic savings programs that make it even easier to save. For example, MidWestOne’s, Bank Your Change program is an automatic savings program for your check card. Every time you make a purchase with your MidWestOne Check Card™, the amount is rounded up to the next whole dollar and the difference is automatically deposited into your savings account.

Don’t be tempted to overspend.

One of the biggest early financial pitfalls of new parents is to overspend on cute onesies, toys or complicated baby gear and services that don’t add much value.

It’s ok to start accumulating baby items, but do so in a fiscally savvy way. For example, don’t buy your infant expensive designer shoes – after all, he or she will outgrow it fairly quickly. Consider buying used or borrowing from family and friends who have already had children.

Melisa Henley

About the author

Melisa Henley is Retail Managing Officer at MidWestOne Bank. She specializes in checking and savings accounts, consumer loans, auto loans and home equity loans.

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