New Parent Budgeting Guide

5-Step Guide on How to Create Your Family Budget

March 26, 2019

5-Step Guide on How to Create Your Family Budget

5-Step Guide on How to Create Your Family Budget
5-Step Guide on How to Create Your Family Budget

As a new parent, you want to be prepared—or as prepared as possible—for this incredible journey. You’re setting up the nursery. You’re stocking up on diapers and sleeper jammies. You’re also trying to get a handle on what your finances will look like as a family, but where do you start? Figuring out a budget can seem overwhelming, especially when you’re expanding the family.

This 5-step guide to creating a family budget can help, and you’ll have peace of mind knowing how to cover all the expected—and unexpected—costs of raising a child.

1. Come up with your monthly after-tax income

Minus taxes, how much of your paycheck do you take home each month? If you have automatic deductions for health insurance or a 401(k), include those amounts in your take-home income (we’ll factor in these expenses later). Knowing how much you make monthly will provide a framework for the rest of your budget. If you have a two-income home, combine both for your total.

2. Estimate your monthly living expenses

The biggest chunk of your budget will probably be spent on living expenses. Sit down and gather your bills from prior months to calculate what you spend in each category.

  • Housing: Combine your monthly rent or mortgage payment with your utility bills like gas and electricity. Average out your property taxes and homeowners or renters insurance to determine the monthly cost.
  • Food and grocery: Total up your usual grocery bill—including beverages and personal care items like shampoo and toilet paper.
  • Healthcare: Include your insurance premium payments and doctor and pharmacy copays.
  • Transportation: If you own a vehicle, combine your car payments with your insurance and gas. If you take public transit, note the cost of your bus or train pass.
  • Other fixed costs: Some regular expenses don’t quite fit into a category, like your cellphone bill or gym membership.
  • Miscellaneous: Take into account any variable costs you regularly spend money on, like entertainment or clothing (babies grow quickly!).

3. Allocate for childcare and other recurring baby costs

If you and your partner are planning to work after baby is born, or if you’re a single parent, you’ll want to factor in the cost of childcare. Daycare centers tend to be the most affordable, while costs for a nanny or au pair run higher (tip: nanny shares are a way to help keep nanny costs lower). Research the cost of childcare in your area and add it to your monthly expenses. If you have family nearby who can help you care for your child, this can help offset your childcare costs.

You’ll have some new regular expenses for your little peanut, like diapers and wipes. Babies go through about 2,200 diapers in a year. Get a discount by enrolling in a monthly diaper subscription through an online retailer or delivery service.

4. Account for one-time baby necessities

If your baby hasn’t arrived yet, you’ll need some initial purchases to ready your home for life with baby, like a changing spot or a crib. Add these essentials to your budget. How? Divide the total cost by the number of months you have left before baby arrives. For example, outfitting the nursery might cost $400 if you buy second-hand furniture (a great way to save!), so if you have four months to go, allot $100 a month.

If your little one is already here, look ahead to expenses for things you may need as baby grows, like a high chair, convertible car seat or childproofing gear. Start putting a little money away here and there for these expenses as well.

5. Include long-term goals and visions

While there’s plenty to consider for the here and now, try to make space in your budget for the long-term too. Financial experts suggest spending about 20% of your budget here.

Thinking ahead ensures you and your family are covered, no matter what. Expert tip? Start small and be consistent.

  • Emergency fund: Experts recommend having a safety net equal to three to six months of living expenses in case of a financial hardship, like a job loss or medical illness. Don’t worry about having the entire pot of money right away—even $50 a month can add up.
  • Debt repayment: Have student loans or credit card balances? Chip away at paying your debt off. An extra $25 a month can help. You’ll reduce your interest payments that way.
  • Education: Consider opening a 529 college savings fund or bank account for your child’s future. Even if you don’t contribute right away, offer it as a gift option for family and friends.
  • Retirement: Although retirement might feel far away, if you start saving now, your money will be worth more. IRAs are a great option, but if you receive an employer 401(k) match, aim to contribute at least as much as the match if you can.
  • Life insurance: Be confident that your little one will be taken care of should the unthinkable happen. Luckily, life insurance probably doesn’t cost as much as you may think, and it’s even more affordable when you’re young. Depending on your policy, plan on at least $20 a month per parent.

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A few more things to consider:

Factor in tax benefits

As you construct your budget, keep in mind that you’ll see some tax breaks as a parent. You can claim the Child Tax Credit, which in 2019 is up to $2,000 per child (equal to $166 a month). If you’re paying for childcare, you’ll be eligible for the Child and Dependent Care Credit. The credit gives you 20%-35% of up to $3,000 of child care, depending on your income.

Automate your savings

As a new parent, you’ll have enough to do (think extra laundry and diaper changes). You can set up regular deductions through your bank account or through an app that stows away your loose change. If it’s not easily accessible in your primary account, you won’t be as tempted to spend it. Plus, less time spent on money matters = more family moments.

Evaluate and adjust

The best news about budgeting? Just like parenting, you don’t have to be perfect. In fact, the most effective budgets are constantly tweaked. Make adjustments as your family grows and evolves. For example, maybe baby food costs more than you expected. Or you’ll be surprised how little you eat out at restaurants (yes, babies tend to have that effect).

Your spending and earnings will differ from month to month—but that’s OK. Having a budget framework in place can help ensure you’re better prepared for whatever comes your way.

What else can give you peace of mind? Life insurance. It can help you prepare your family financially for things like mortgage payments, childcare and education if something happens to you. Learn more here.

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

Life insurance is issued by The Prudential Insurance Company of America, Newark, NJ, and its affiliates.

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