Having a Baby! (On a Budget)

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Well, my wife and I just got the exciting news that we are going to have a baby this August! While we have a healthy fear about this, as the person responsible for our budget, I have a very real fear about how much this will cost. Put simply, babies are expensive! From the moment you conceive, plan on spending some major bucks the rest of your life. In my research and planning, I’ve arrived at some conclusions, and figured I would share them with others who may be fretting.

1. Talk It Out

The first thing you really need to do is sit down with your spouse and make sure you’re on the same page about taking care of a baby. While you envision a two income household and childcare, she may envision being a homemaker. While you may want your children to earn scholarships to college, your spouse may want to save money for them. Hopefully you discussed these topics before marriage, but if not, definitely spend the time to do it well in advance of the due date. On a non-financial note, it’s also time to make general plans of how you feel about punishment, babysitting, names, religion, nursery decor, etc.

2. Plan Healthcare

The fact is a baby can cost you a lot before you even see it’s pink cheeks for the first time. Monthly prenatal visits, vitamins, maternity clothing, healthier foods, and the delivery costs add up tremendously. Now would be a good time to make sure you have health insurance, and be aware of your deductible and covered expenses. Depending on your level of insurance, plan on spending anywhere from $1000-9000 on your entire pre-birth experience. Also, be aware that you will need to add your baby to your health insurance almost immediately, which can increase prices significantly per month. If both spouses have access to insurance, you may choose to hold two separate policies to save costs. Also, you should now consider increasing your life insurance benefits; if you or your spouse were to die, how would the remaining spouse be able to care for the child?

3. Budget, Budget, Budget!

It may go without saying, but you seriously need to go ahead and plan what it’s going to cost per month and find where that money is coming from. For us, we just finished off paying my old debt, which means we now have that $400 extra to spend. We were going to put it toward a house, but it looks like that will have to wait now! You may need to find ways to cut other categories down. Maybe less entertainment, or less eating out (especially since you will likely not be going out much anyway). But plan now so you will know what to expect! If you are totally clueless to the expenses of a baby, don’t worry; I was too. As a general rundown, I will give some basic monthly costs for you to consider:

  1. Disposable Diapers (200-300/month) – $100
  2. Wipes (4 boxes/month) – $15
  3. Formula (30 cans/month) – $110
  4. Childcare ($125 per week) – $500

Obviously, you may be able to cut costs in these categories, but do your research. You can save money by breastfeeding and cloth diapering, but those have very big drawbacks, especially for working couples. You may also be able to work from home, and save on childcare for awhile (while they don’t demand 100% attention) Also, this does not include the larger purchases such as equipment, nursery items, clothes, bottles, etc. that will be needed. And you may want to work on increasing that emergency fund! Now, you have one other member of the household that may need something unplanned!

4. Get Family & Friends Involved

You may have one untapped resource right nearby, and that is your friends and family. Maybe they will throw you an amazing baby shower that provides all your needs for the next year. Maybe someone is planning to have permanent birth control soon, and is getting rid of all their baby stuff. Maybe they will offer childcare. The point is, now is not the time to be proud. It does take a village to raise a child, and you do not have to do it completely alone. Allow them to help you out, and you will not be sorry! Even in a bad economy, family and friends will come through for you. As an example, my dad is going to build a cradle that will be both useful and become an heirloom of sorts. Our church will throw a shower, and one family member has offered up lots of gadgets, clothes, and equipment (car seats, swing) from her previous babies.

5. Cut Corners

This is where you decide what you really need. Does a baby need a a whole new changing table, or would an existing bed or dresser suffice? Do you need 3 strollers, or would one good one work? Do you need brand-name diapers, or would more generic brands work? Do you really need to outfit a whole new nursery, or would the baby be just as happy with the basics? Let’s face it – babies only use half of this stuff for a few months of their life and then it is worthless. And I’m not here to judge you if a decked-out nursery is what you want to do; it’s all about discovering what you believe is most important, and cutting corners on the rest. But at least explore your options – go to a baby consignment shop, or visit some garage sales in nicer neighborhoods. Research how to select quality, sturdy equipment.

6. Start now!

I use the toilet paper analogy – it is very expensive when you wait to buy until you need it. But if you use sales and coupons and stock up ahead of time, you can spend much less! Diaper coupons are common, but do not run all the time. Start saving coupons now, and you will appreciate it later. Even better than that, start buying them! Go ahead and start stocking up when they are on sale and you have a coupon. Look for free samples of baby products online. If you start deal-hunting now, you can be well stocked up when the time comes, and spend much less per month on the essentials. It’s also ok to start buying clothes on sale; post-Christmas we found several outfits for just a few dollars each! Be clever and wise, and you may get away without much budget increase at all!

Having a baby almost guarantees you will be spending more than you anticipated, but with some advanced planning it does not have to be a bad thing! Some smart budgeting and deal-hunting may make the transition almost effortless. The main point is to start talking about it with your spouse, and the two of you getting creative to find ways to give your baby a great childhood without ruining you financially! The more you plan now, the easier it will be when the time comes.

UPDATE: Evan from My Journey to Millions has featured this post in the 241st Carnival of Personal Finance. Be sure to check it out; there are several great articles in the carnival this week!

Weathering the Tough Times

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We got bad news at work last week. There’s an issue with cash flow, and our pay has to be cut in half for the next month, maybe two at most. While the economy is finally improving and we have work coming in, we’re simply out of money. Perils of a small business, I suppose. But since it’s small, we can adjust and make it out, instead of losing our jobs!

I’m just happy that half pay is not going to kill me! I’m down to my last 2 grand or so in debt repayment, and my monthly expenses are noticeably less than they used to be. While I won’t have any extra money and my debt repayment will be on hold, I’m not freaking out. I have an emergency fund in the bank, my expenses are down, and by using coupon shopping the past month, I am well-stocked on enough groceries to supplement me for a month!

So in light of many people having to adjust to similar situations, or possibly having to adjust in the future, here are the things I’ve done to help me weather what would otherwise be a dark time in my financial life:

1) Build an emergency fund. A month’s income is about right. That is enough to fix a car, pay for small medical bills, keep you afloat for a month in case of job loss, etc. Since I’m at half salary, I could easily live at my current means for two months before I felt an impact. That’s a long time, and enough time to find a small side job or take on small projects.

2) Reduce expenses. It goes without saying, but the best way to reduce debt is by spending less. Now that my budget is way below the money I make, making less is not going to kill me! I won’t be able to put as much extra money towards my remaining debt, but I can survive on half salary, possibly without even dipping into my emergency fund! The money is there if I need it, but now that my expenses are low, I won’t need much of it. Now, this isn’t easy to do. You’ll have to become frugal…

3) Become frugal. There is a “cheap” person, and there is a frugal person. The latter is pretty much the same, just less annoying. Don’t go to a restaurant with people and bring grapes and crackers to eat – that’s being cheap; just pick something that doesn’t cost much, or don’t go at all. Frugality is a mindset in which you don’t spend more than you have to on the things you need, and don’t buy the things you don’t need. Chances are, you don’t need a lot of things. You probably don’t need digital cable or satellite, a netflix subscription, and internet. Most TV is available for free online. Use the library for books, which can provide hours of entertainment per week. Borrow DVDs from a friend instead of buying them all the time. Use coupons when you shop (google The Grocery Game). Check for better prices on phone, insurance, and utilities. Research online ways to get those services even cheaper.

4) Calm down. Stress is evil. If you freak out about losing pay, then you will not sleep, your productivity will be down, and you might even lose your job! Just keep calm, and plan for these situations ahead of time. If you are well-planned, you have nothing to fear. Calculate a worst-case scenario, and find a way to live through it. My worst case scenario was temporarily moving back home, and lately it is moving up to get married earlier. Yes, it would be terrible to have to do things that way, but it is the worst case.

5) Build relationships. We’re in a new era, and people are starting to go back to relationships. In the end, the government won’t be able to help you, your boss won’t be able to help you. The people you can trust to keep you afloat are your family and friends. Build a network of close friends that can support you. Then, the worst case becomes bunking on someone’s couch for a few weeks. I have volunteered at a lot of soup kitchens, and the common thread among the poorest among us is that they didn’t have family or friends to fall back on. When you’re building a career, it’s easy to sacrifice other people along the way. The problem is that careers are fickle. People will stand by you forever.

I hope this helps some people. A year or two ago, this would have nearly done me in. I likely would have had to move back home. I probably wouldn’t have met my fiancee, and things wouldn’t be going this well at all. Get rid of your debt today! You’ll gain peace of mind, financial freedom, and the ability to weather small storms in life, like this one. It’s tough, but if you persevere, there’s nothing that will be able to take you down!