Starting a family is an exciting, yet sometimes scary, decision. You know you want to welcome children into your home, but you may feel nervous about the financial impact of having a baby and wonder how you’ll adjust.
To help ease your mind, PSECU reached out to Brad Decker from PSECU Financial Services® (PFS), available through CUSO Financial Services, L.P.* Below, he offers tips on financial planning, including budgeting and preparing for your baby’s arrival.
How Do You Know When You’re Financially Prepared to Start a Family?
There’s no set amount of money you need to have a baby, but you should have your finances in order. Decker suggests taking these actions beforehand:
- Make a budget: Everyone, from ages 18 to 108, should budget their money to ensure they don’t spend more than they bring in. You can use paper, an Excel sheet, an app, or other types of software to track your budget monthly.
- Start saving for retirement: Do it now, because once kids come along, it becomes a far bigger challenge if you haven’t gotten a head start. Take advantage of employer-match programs and ask about automatic increases. Self-employed? Set up your own retirement account.
- Begin an emergency fund: You want to save the equivalent of three to six months of your paycheck. It’s a smart idea to put the money in a savings share or money market account that’s accessible and not at risk of losing principal.
- Assess your living situation: While you may be fine in a one-bedroom apartment now, you’ll overrun that space quickly with cribs, toys, and swings. Consider buying a home before the baby arrives.
How Do Children Change Family Budgets?
Children change everything, from your definition of privacy (you’ll have none) to your definition of love (you’ll have more than you ever thought possible). Your budget will evolve, too. There are a multitude of expenses that you may have never considered before kids that now become part of your new reality. Ask yourself some tough questions related to your budget:
- Will one parent stay home full time?
- If both of you work, will you have to pay for daycare? Do you live close to relatives who could provide free childcare?
- Will one parent need to change their work schedule to accommodate daycare hours?
The day-to-day costs of caring for a baby, such as diapers, wipes, and formula add up quickly. You’ll also discover expenses you didn’t anticipate, like co-pays for doctor’s visits or a new car to accommodate all the baby gear. Even a tiny person requires a lot!
Be flexible with your budgeting. Cut back in some areas, such as entertainment or dining out, to account for the increased costs of medical and child care. You can even start a baby fund as a cushion for when your bundle of joy arrives.
How Can You Prepare Financially to Welcome a New Baby?
Budgeting will be the key to making a new baby financially feasible. The more you prepare in advance, the better off you’ll be.
One tip for a smooth transition is stocking up on vacation time. You’ll want to ask in advance about your employer’s parental leave policy. Many companies only offer the federally mandated 12 weeks of unpaid leave, which means you could be without a paycheck for some time. Saving up your vacation or other paid time off will help ease that burden. Having enough paid time off accrued can relieve some of the stress associated with the possibility of having to forego a paycheck while settling in as a new family.
Adopting a more economical mindset for purchases can also free up funds. Here are two ways you can gather baby items on a budget:
- Do you have friends or relatives who recently had babies? Inquire about hand-me-downs. Babies grow so quickly that they only wear some outfits once or twice, so you can receive almost-new clothing from your loved ones.
- Consider shopping at consignment sales. The clothing you buy for your baby doesn’t have to be perfect. In fact, with diaper disasters and spit-ups, babies stain a lot of their clothing anyway. Buying gently used items at consignment stores will save you loads of money and give a second use to clothing that would be thrown away otherwise.
Saving money wherever you can is good advice, but there are some things worth splurging on, both for your own peace of mind and your baby’s comfort. For example, car seats and crib mattresses are two items that should be bought new. You should never buy something used that could compromise your baby’s safety. For other less-important items, you can get creative about saving and being as economical as possible.
You can take steps to prepare yourself financially before having a child, and at some point, you’ll know when the time is right. Read about more money-saving tips by visiting our WalletWorks page.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. PSECU has contracted with CFS to make non-deposit investment products and services available to credit union members.