New little ones bring so much joy and excitement as well as late nights and higher expenses. I can’t help much with the late nights, but I can share tried-and-true advice on how to budget for a new baby.
It can be tough to figure out what is truly needed, especially if it is your first child. Salespeople know this, and will pull at your heartstrings to make a sale. Of course you want your baby to have everything he or she needs to be happy and healthy. It’s one of the most special times of your life after all, so how could you deprive your little one of the Wipe Warmer 3000? (For more, see: 3 Crucial Tips for Living Within Your Means.)
Here are a few tips for new parents to help limit these kinds of costs and focus on what’s truly important.
1. Baby Stores Usually Provide a "Must Haves" List for New Parents
The list usually includes far more than you really need, so don't feel like you need to buy everything. Talk to your friends to find out which items are truly a “must-have” versus a “nice-to-have.” If you ask a store clerk, don’t be surprised if they try to convince you that everything is a “must have.” It's important to keep things in perspective. Allow yourself a budget to have fun with welcoming the new member of your family, but remember what's most important is the baby about to enter your life, not the stuff.
2. Don't Customize Everything
If you want to, monogram just a couple things. As my colleague found out with his twins 14 years ago, these items are very cute but hard to pass along as hand-me-downs. And if you plan on expanding your family in the future, remember the younger sibling who gets these items secondhand may not appreciate wearing your firstborn's name on everything.
3. Don't Be Shy to Accept Pre-Owned Things from Friends and Family
Children use equipment and clothes for only a couple months and they are careless about keeping them clean or neat. So do not feel self-conscious about accepting these hand-me-down gifts. In all likelihood, you will be handing them down to another friend soon. (For more, see: A Look at Protecting Children With an IRA Trust.)
4. Nothing Lasts Forever
Although there may be a few things you want to save as a keepsake, you will say goodbye to kids’ stuff sooner than you think. Besides, the evolution of baby gadgets within even just the past five years is tremendous. Also keep safety issues in mind, since new recalls and design improvements come out every year.
5. Look Toward Your Future Financial Security
A lot goes under this topic, but here are a few of the big areas to cover:
- Understand your health insurance and health saving options. Prior to the birth of your child, it is worth your time to understand your health insurance and prepare for anticipated medical costs. You can even save for up to $5,000 of these costs in a tax-free way if your employer offers a health Flexible Spending Account (FSA). Each parent can save up to $2,500 per employer-provided FSA account. Later, you can use a Dependent Care FSA for childcare, preschool and other qualified costs (maximum savings per year may vary depending on your employer’s plan). Saving in these pre-tax accounts is like getting a discount equivalent to your tax bracket.
- Protect against risk. Getting your life insurance in order and selecting a guardian for your child in case something happens to you and your spouse should be top priorities. Meet with an estate attorney to create a will as well as any other necessary estate planning.
- Prepare for the future. The earlier you start saving for college, the more time your money has to compound and grow tax-free. Saving for college in 18 years may seem overwhelming when there are so many costs to new parents, but it is well worth it. To give an example, if you started saving $200 monthly at your child’s birth, you could have over $30,000 more than you would by waiting five years to start saving the same amount. That is the power of compounding. Keep this idea in mind for any other financial goals for your child like a bar or bat mitzvah.
- Put on your own oxygen mask first. The power of compounding holds true for your own retirement saving too—so do not sacrifice your retirement savings to save for children’s college, or any other expenses along the way. Think of it as putting on your own oxygen mask first before trying to help others.
There is nothing more empowering than having financial security for yourself and your family. I hope these tips help you along the way. (For more, see: The Awesome Power of Compounding.)
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