Budgeting isn’t easy, even in the best of times. Once you start a family, you quickly realize that not managing your expenses can cause your financial system to spiral out of control.
Here are a few tips on how to stick to a budget when you are starting a family.
Track Your Income And Expenses
The first step to creating a budget is to understand how much money you are generating a month and how much you are spending. Compile a list of all your bills, credit card statements to see where your money goes each month.
Focus On The Big Picture
Budgeting can be hard when you are just starting a family because you are so focused on the short term instead of thinking long term. You might be tempted to buy another new cute holiday onesie from Amazon Inc. AMZN 1.29%, but unfortunately, you probably don’t need it. However, it’s important to start planning for the future, and by knowing what your expenses are each month, you can do that.
Build A Baby Budget
A study found that the cost of raising a baby can be more than $21,000 in the first year alone. Because your expenses will change as you add another person into your family, you need to make room in your budget.
One of the best ways for people to budget is by using the 50/30/20 approach.
This approach means:
- 50% of your budget is spent on necessary expenses, like household bills, loan payments, and other expenses such as food, childcare, formula or diapers.
- 30% of your budget is allocated for things you want, but don’t necessarily need. This might include gym memberships, entertainment, travel, etc.
- 20% of your budget should be saved away.
Of course, you might realize that your budget plan is blown out of the water, especially if you have to spend money on childcare. This is okay, as long as you stick to the rest of the budget
Practice Living On A Small Budget
When your baby finally arrives, your income will likely be affected, even if it just for a short amount of time. One parent might take unpaid parental leave or quit their job entirely.
Practice living on a smaller budget in the months leading up to your due date. By setting aside a portion of your income, it can help you get used to living on less, and help you save up for upcoming expenses like childcare and diapers!
Plan For The Future
It’s never too early to start planning for your baby’s future. You might want to start paying off any debt you might have from loans or credit cards, build up an emergency fund, and contribute to your 401(k) retirement fund.
After you have completed that, you might want to consider setting up a 529 college savings account, which helps you invest money in a tax-free account. By visiting the College Savings Plans Network, you can learn more about the plans in your state.