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By Claire Hegstrom
How much does your budget need to shift for the first year with your new baby? One study shows that the average American household making a combined income of $200,000 will spend $52,000 on their baby in the first year alone! Don’t let this number panic you, as they accounted for an upgrade in housing, a new family vehicle, and a generous amount set aside for college. Let’s take a look at some actionable steps to save you some cash and better prepare your budget for your baby’s arrival.
Reevaluate your health insurance plan
Child birth counts as a qualifying life event that allows you to update your employee benefits such as medical insurance. Lowering your deductible and making higher monthly payments could be helpful to you, as doctor visits and check-ups will be increasing. It may also benefit your family to switch to a high-deductible insurance plan so you can start contributing to a Health Savings Account (HSA). HSAs let you set aside pre-taxed dollars you can use toward your deductible and other qualifying medical expenses.
Join baby subscriptions for diapers and other daily essentials
Babies generally go through about ten diapers a day. That math comes out to at least $1,000 a year spent on disposable products alone. The good news is that many companies offer delivery services with a discounted rate for repeat subscriptions on products like diapers, wipes, and formula. Check out some prime retailers to score these deals, if you catch my drift.
Practice living off one income
If one of you is planning to stay home with your little one, start practicing living off one income before the baby is born. Automatically transfer one person’s paycheck to a high-rate savings account while you’re both still working, and you’ll have a great baby fund saved for your little one’s arrival. This will give you the opportunity to rebalance your budget before the stresses of a new baby kick in, and you won’t have to use your emergency savings when the baby comes.
A baby shower can by the perfect source to get the more costly expenses out of the way. Be sure to register for your car seats, stroller, and the big ticket items you can cross off your list. There will be plenty of newborn outfits gifted from friends and family as soon as the baby arrives. If you’re thinking about having multiple children, ask for a two-seater stroller right away to save hundreds of dollars in the future. It’s also helpful to know what you can get for free! Thanks to the Affordable Care Act, all mothers are offered free high-end breast pumps, saving you a pretty penny. Just give your insurance company a call and they can help you get yours.
Adjust your budget regularly once baby arrives
Revamping your budget a few times a year is one of the easiest ways to ensure you’re on track. From new-born to elementary school, your monetary needs will shift drastically from season to season. For instance, your baby going off formula could save you $1,200 a year, while summer childcare for your school-aged child could cost three times that amount. Don’t forget to also budget in the yearly expenses that are commonly forgotten, like back-to-school supplies, birthday parties, and so on.
Start a 529 Savings Plan
This college savings account can be a great tool for parents looking to start saving for their children’s tuition early on, while your money grows tax-free. When your young adult is ready to go to college, the funds in this account can be used at almost all colleges nationwide, and can be spent on tuition, books, and any other qualified expenses. One downside to the 529 Savings Plan is that your investments could increase or decrease based on the funds chosen. So in order to be sure you’ll have funds when you need them, you’ll need to start this plan early and adjust your investments to be less risky as the time for college grows closer. Another disadvantage is that if you use the funds for any reason other than educational expenses, you will be penalized a 10% fee upon withdrawal of the funds.
Plan for childcare costs
On average, full-time childcare can cost a whopping $972 a month at a daycare center. Of course, this is all dependent on your location, the type of daycare you’re looking for, and the amenities of the facility. If you’re a parent to multiple children in daycare, you may be in luck. Many centers offer discounted rates for families with multiple children in their programs. These discounts are often not advertised anywhere, so you have to be proactive and ask. Another option is to opt for a nanny or an au pair. While these options can be more costly, there are a few monetary benefits such as not having to pay for a daycare meal plan. Some nannies and au pairs will offer light cleaning and laundry while your child is napping, so that may be worth the additional cost for working parents. Here’s another bonus, you may be able to claim your childcare on your taxes if you’re using the childcare so you can work, or even look for work. Be sure to ask your tax professional if this deduction is available for your family.
While there will always be unexpected expenses along the way, these small budget hacks will get you on the road to saving so that your finances aren’t derailed by baby speed bumps along the way.
Claire Hegstrom is an advocate of the credit union movement through and through. Passionate about financial education, she approaches money conversations from a candid and inclusive space focused on growth and awareness. As our credit union founding father, Ed Filene, once said, “Progress is the constant replacing of the best there is with something still better.” Claire hopes reading Money Mentor will help transform your life from the best to even better.
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