If you've got a brand-new bundle of joy on the way, there are a lot of things you'll need to consider. Aside from choosing a name, decorating a nursery, and deciding what you're going to do about college savings, you'll also need a new budget.
After all, while the birth of a child is an exhilarating thing, it's important to remember that raising a youngster costs a lot of money - particularly these days as prices for education and healthcare are growing higher.
While there's no one-size-fits-all strategy to creating the perfect budget as a new parent, there are a few tips you can follow to improve your chances of success.
1. Identify your Goals
First things first, your financial goals are going to change drastically when you become a parent. With that in mind, you'll need to rethink how you're going to assign your cash. For instance, in the past, you might have put 30% of your income towards things you wanted, like entertainment and extra treats. However, now that you have a child on the way, you might decide to keep only 10% for yourself and put another 20% towards savings and other expenses.
Whatever you do, make sure that you and your co-parent agree on the goals that you're going to be pursuing. Both parents need to be on the same page for a financial strategy to work.
2. Create a Budget and Start Tracking your Spending
Once you have your goals in mind, the next step is to create a strategy for how you're going to reach them. This means understanding how much money you have coming into your household and how much you spend each month. Go through your budget carefully and highlight any problem areas that you're going to need to work on in the months to come.
If possible, it's a good idea to start tracking your spending and adjusting your budget as quickly as you can - potentially as soon as you learn that you're pregnant. This will help you to make sure that you're prepared for the day when your new arrival gets here.
3. Make Every Financial Decision Carefully
If you've ever been impulsive with money in the past, now is the time to start getting control over your spending. This means that you need to think carefully about every purchase you make and how it affects you in the long term. Rather than just taking out a loan when you need it because it comes with an easy application process, make sure that you're getting the deal with the lowest interest rates and fees.
You can check the price of virtually everything online today, so make sure that you're never paying more than you should be for anything from utilities, to insurance, and even loan repayments. The more cautious you can be with your spending, the better.
4. Set up an Emergency Savings Account
When you're trying to find the extra cash in your budget to pay for a new baby's needs, it can be difficult to track down additional money for a new savings account too.
However, disasters can happen at any time in your life. You could lose your job, your baby could need emergency medical care, or you may end up with a suddenly broken down car. The best thing you can do to prepare for the future is to build a reserve of about 3 to 6 months of income. The more emergency cash you have, the better off you'll be if something unpredictable happens in the long term.
One of the easiest ways to make the most out of your emergency savings is to set up an automatic transfer into a separate savings account every month. This will ensure you don't accidentally spend the money you want to save.
5. Get your Insurance Sorted
Finally, when you're preparing for a new baby, it's easy to get carried away looking at things like room decorations and soft toys. However, for most people, a new baby is also a reminder that it's essential to get their estate in order. Consider buying life insurance, and making sure that you get the right kind of coverage for you and your family.
Most of the time, you'll be able to find professionals that can give you advice on the kind of insurance you need. However, a general rule of thumb is to look for a payout that's about ten times your yearly income.
However, you might want to get more coverage than that to account for things like mortgage costs and college funds.