How to Budget for Having Children

Babies can cost more than you think
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Conservative estimates set the cost of a baby’s first year on earth at $10,000. Couples preparing for family life gain from a financial plan that allows them to budget for having children realistically and strategically. Some of the benefits of budgeting for your first child include curtailing frivolous spending -- read: retail therapy, wine therapy or chocolate therapy, developing a family-conscious mindset and learning to save money for a specific goal. The most effective financial method to prepare for a baby is to live off one income for an extended period. This serves the vital purpose of teaching the two of you how to do more with less discretionary income in anticipation of life with baby.

Step 1

Talk it out between yourselves and agree on a ballpark date when you would ideally like your baby to arrive – six months from now, a year, or two years. This time frame will function as the parameters of your baby budget.

Step 2

Figure out which one of you will make the most money over that time period, and write down the amount. Be sure to factor in raises, bonuses and vesting stock options in this calculation.

Step 3

Design a budget that allows the both of you to live off that one income for the agreed-upon time frame. Calculate how much you will need for fixed expenses over the specified time frame, such as your mortgage, car payments and property taxes.

Step 4

Design ways to reduce your spending so that you can cover your flexible expenses with the amount left over once the fixed expenses have been paid. Obvious examples include spending less money on entertainment, clothes and shoes. Less obvious examples include transferring your accounts to a bank that doesn’t charge fees, inviting your friends over for dinner instead of going out, negotiating reduced interest rates on your credit cards, and using coupons at the grocery store.

Step 5

Place the second income in a high interest account that can be locked away (read: that you cannot get your hands on for the entire time frame). Good choices include high interest savings or money market accounts guaranteed by the Federal Deposit Insurance Corp. This second income will therefore function as a reliable baby fund.

Step 6

Keep your eye open for sales, and stock up whenever possible on non-perishable baby items such as diapers, wipes, and soothers. You can even stock up on baby food, provided you pay attention to the expiration date on the jar.

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