Managing baby expenses and your retirement goals
Juggling the added costs of a growing family with your long-term financial goals can be a challenge. Use these tips to help you stay on track.
Many new parents find that — financially speaking — having a baby is the equivalent of adding a second mortgage. According to a 2010 USDA report, parents spend an average $12,000 during Baby's first year.
For new mom Sona Charaipotra and her husband, the biggest baby-related expense is day care since the Jersey City, N.J. couple works full-time. "But there was also prepping for the baby, the crib, the stroller and all the hospital expenses," says Charaipotra. It's not surprising, then, that 70 percent of new moms say they become more anxious about money after having a baby.
So how do you adjust to all those new expenses and still stay on top of your long-term financial goals? The answer: With very careful planning. We'll help show you how.
Make a budget
If you don't yet have a budget, it's time to make one. Whether you've just learned you're pregnant or made the decision to adopt — or you already have a new baby at home — tracking your spending will help you identify which expenses are essential and which you can forgo so you can channel the money to savings or your retirement account. This colossal life change is also a good time to update account and life insurance beneficiaries, and create (or update) a will.
Save in advance
Baby's first year involves a lot of up-front expenses, so consider starting a separate savings account as soon as you learn you're pregnant or decide to adopt, if not sooner. "Part of our savings account was allocated for baby expenses," Charaipotra says.
Along with saving in advance, making smart shopping decisions can help your budget as well. For example, if this is your first baby and you intend to have more, buy neutral items that you'll be able to use if the gender of the second baby is different. And consider buying clothes on clearance at the end of a season in the size your baby likely will be wearing next year.
For more help, use our budget calculator to find out how much it may cost to raise a child.
Tap family and friends
A little help goes a long way when it comes to handling baby expenses.
- Consider buying only the essential baby gear before Baby arrives. You'll be surprised at how relatives and friends will pitch in, either by buying gifts or passing along clothes and supplies they no longer need. For example, Charaipotra benefited from her sister-in-law's hand-me-down baby clothes.
- If you'll need child care, ask family members to pitch in. Even a little help will save you a lot — and let your child develop a lasting bond with a relative. If you pay for child care, see if your organization offers a flexible spending account for child care expenses. The pretax dollars you set aside from each paycheck can help make budgeting easier.
- For help saving for college, ask relatives to pitch in to a tax-advantaged 529 college savings plan for your child.
Charaipotra went online to find out which car seats and cribs were the safest and the retailers who offered them at the best prices. "I tend to research everything to death," she says. And that research paid off when she was able to use coupons to buy her favorite items on sale. In addition, some stores offer a percentage off every purchase and/or coupons if you use a store card. Doing a little research could save you a lot of money.
Consider how long the baby will use certain items; for things you'll only use for a few months, consider purchasing second-hand items. Items such as car seats, which decrease in safety after repeated use, should be purchased new. Get an idea of what you want, but shop consignment stores before you buy new to see if you can get what you want at a big discount.
And remember: It's good to take a step back and ask yourself whether your baby will feel less loved if you don't buy him or her something. While it's okay to splurge on a few things, make a list of necessities. Limit the purchase of items that aren't on the list.
See how another family is successfully juggling its long-term financial goals with raising children in this video.
Ask a financial professional for help balancing day-to-day family expenses with saving for retirement.
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