Budgeting for Baby’s First Year

Budgeting for Baby’s First Year

January 2, 2018

Budgeting for Baby’s First Year

Budgeting for Baby’s First Year
Budgeting for Baby’s First Year

From the moment you find out a new baby is coming into your life, all of your energy goes to getting your house in order for your little one. Decorating the nursery, picking out a crib, babyproofing sharp corners and outlets. But what about your financial house? Budgeting for baby should be near the top of your list.

Raising a child isn’t cheap—it costs over $230,000 on average to raise a child to the age of 18 (not including college). So how can you make sure your budget is as ready for baby as your nursery? Here are some of the costs you’ll need to plan for during baby’s first year and beyond.

Baby’s First Year

Babies may be small, but it sure feels like they require a lot of stuff. At that top of that list? Diapers. So. Many. Diapers. Babies go through an average of 2,200 diapers in their first year alone. If you’re using disposables, that’s easily upwards of $600. If you decide to go the disposable route, consider stockpiling early (add different sizes to your registry if you have space to store them or register for a diaper subscription service).

If you opt for cloth, know that your up-front investment might be more—buying the diapers, inserts and covers—but it’s typically less expensive in the long run, even when you factor in the extra loads of laundry you’ll do each week. If you use a diaper service, though, cloth diapering can be even more expensive.

Other first-year expenses? Formula and pumping equipment aren’t cheap, and as baby grows, they’ll need a high chair and move onto solid foods. You’ll be amazed at how the cost of all those jars and squeezable packets of food can add up.

And let’s not forget other gear, toys and bigger clothes. Buying used or borrowing from friends is a great way to save on these. Trust us—they’ll be more than happy to provide hand-me-downs.

Monthly Budget for Basics: $150-$300. As you start to prepare your life-with-baby finances, factor in these costs now, so you won’t be surprised when the time comes. Plan for at least $150-$300 a month, depending on where you live, how much you buy new and when they start solids.

Budgeting for Childcare

Childcare costs way more than you think. In fact, 70 percent of parents say this is one of their biggest household expenses. For infants, full-time, center-based care averages $9,589 annually, while for in-home nannies, it’s $28,354 (this varies wildly depending on your region). So what can you do?

Start planning now. Research your childcare options before baby is born—tour local daycares, start interviewing nannies—to understand how much your choice costs. Then create a budget. Your first childcare choice may not be what you can afford.

Determine what spending you can cut. Some might be relatively painless, like your morning latte or fewer restaurant meals; others might be deeper, like not taking vacations. If one parent is thinking of staying home with baby, try living on one income now and see what type of adjustments to your spending you’ll need to make (and stock that other income in savings for the future).

Monthly Budget for Childcare: For full-time care, budget for at least $800-$2,400 a month. If a parent will stay home, remove their income from your overall budget.

Quick Budgeting Basics: Start with your family’s after-tax income. If you have any automatic deductions for retirement or health insurance, include that in your total. Add up ALL of your household monthly expenses, from biggies like housing, transportation and groceries to incidentals like the gym, smoothies and Netflix. Look at how much you have left, make a budget plan for what you’ll cut and where you can save, then track your spending to make sure you’re meeting your goals (there are lots of great online tools for this). Adjust as necessary.

Don’t Forget Life Insurance

If you don’t have life insurance, look into it. Life insurance can be invaluable to your loved ones’ financial future if the unthinkable happens. It’s something every parent should consider having, no matter if they stay at home or work full or part time. It also probably won’t cost as much as you think.

For example, a 30-year-old nonsmoking woman would pay around $250 a year for a $295,000 10-year term policy. That’s less than $1 a day.

If you already have a policy, now is the time to review to see if you have enough coverage for your growing family.

Monthly Budget for Life Insurance: It depends on your policy, but you should plan for at least $20 a month per parent.

Prudential Term Life Insurance

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Let your village help you out with money you can put toward your life insurance premiums for one year—or more.

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4 More Things to Consider

1. Health Care: You’ll be making lots of well-baby doctor visits in that first year. Be sure to add your little one to a parent’s health insurance within 30 days of delivery or adoption—and be sure to find out how much having a dependent on your plan will cost before you bring baby home so you can budget accordingly. Sometimes the premium can as much as double. Consider opening a health savings account or flexible savings account to help cover expenses like copays, prescriptions and other medical costs.

2. An Emergency Fund: This should be your first savings priority. Financial rule of thumb recommends having three to six months saved up to cover expenses (rent/mortgage, utilities, food, insurance and debt payments) in case of unemployment or an inability to work. Even saving in small amounts can add up in the long term.

3. Retirement: Your retirement probably seems like a million years away, but someday, it will come, and you’d probably like to have some money saved to enjoy it. If your employer matches 401(k) contributions, save at least whatever that maximum is, but as much as you possibly can. If you don’t have an employer plan, consider opening an individual retirement account (IRA) and contributing as much as you can afford each month.

4. College Savings: It’s never too early to start planning for your child’s educational future. Even if you don’t have the money to save right now (your emergency savings and retirement should come first), you can set up a 529 college savings plan or a bank savings account for your child and encourage family or friends to contribute in lieu of other gifts.

Monthly Budget for Savings and Health Care: Whatever you can budget for saving, do it. Even $10 a week adds up to $520 a year. As for health care, it depends on your insurance plan, deductible, cost of copays and how often you visit the doctor.

Preparing for your financial reality now will help you focus more on baby and less on your bank account. While budgeting can be hard, a healthy financial outlook makes for a happier family.

Creating a family budget is one way to help financially protect your loved ones. Life insurance is another. Now you can crowdfund your life insurance policy premiums for the first year by adding it to your Babylist registry. Learn more here.

Article sponsored by The Prudential Insurance Company of America, Newark, NJ.

The pricing example provided is based on Term Essential (PLTIC-2016 or ICC16 PLTIC-2016) issued by Pruco Life Insurance Company except in NY, where it is issued by Pruco Life Insurance Company of New Jersey. Both are Prudential Financial companies located in Newark, NJ and each is solely responsible for its own financial condition and contractual obligations.
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