At some point between the pregnancy test and due date, you realize: Life will never be the same. Becoming a parent should bring mostly excitement and joy, but a little bit of panic is normal, particularly when you think about the family budget.
Having a child can upend your household finances. Here is some of what you can expect and how to budget for baby and beyond.
But first, a warning: Becoming a parent will keep your finances in flux for years to come. You’re in for a challenging ride. Stay calm. When it comes to budgeting for parenthood, the keys are equal parts preparedness and flexibility.
Budgeting basics still apply
Your expenses and income will both likely change when you have a child, but your budgeting approach doesn’t have to. You’re still stretching your income to cover your expenses and debts, plus savings.
If you’re new to budgeting, we recommend divvying up your income with the 50/30/20 approach:
- 50% for needs such as household bills, minimum loan payments and expenses such as child care, diapers and formula
- 30% for financial wants
- 20% for savings and payments on toxic debts, such as payday loans and credit card balances
This split is a goal. You could find your needs take up much more than 50% of your income — not uncommon for many middle-income families, particularly those with a child in day care — and that’s OK. The point is that you’re tracking your spending and aiming for improvement.
This 50/30/20 budget calculator can give you a better idea of how your current budget breaks down.
Once you’ve established a spending baseline, track your progress from month to month. You can do this using one of the many budgeting tools available online, personal finance software, or a pen and pad of paper.
» MORE: Best budgeting and savings tools
Financial priorities: retirement vs. college savings
New parents are often in a rush to save for their child’s education, and that’s commendable. But this shouldn’t come at the cost of your current and future financial security. After all, you can borrow money for college, but not for retirement.
Once you have a small amount of emergency cash to cover unexpected expenses — say $500 — your financial priorities should be as follows:
- Retirement savings: Make sure you’re saving enough for retirement. You should ideally set aside 15% of your income, but save at least enough to qualify for the maximum employer match on your 401(k), if your workplace offers one.
- Toxic debt payments: Pay off debt that is hurting you. Balances on payday loans, credit cards and title loans, for example, cost you daily and prevent you from focusing on other financial priorities.
- Contributions to an emergency fund: Build your emergency fund from that $500 seed, aiming for enough to replace several months of income.
Once you’re making progress on these items, you can think about college savings strategies.
That being said, if your relatives are itching to help fund junior’s university years and you can afford to put aside an extra $15-$25 per month, set up a 529 plan. You can deposit the minimum required for now, and generous family members can also contribute.
Practice living on less
Your income will probably change after having a child, even if temporarily. One parent might take some unpaid maternity or paternity leave, or one might leave work entirely.
Practice living on this lower income in the months leading up to your due date. Sheri Conklin, a CFP and founder of Conklin Financial Planning in Florida, New York, suggests setting aside the income of the soon-to-be stay-at-home parent to get accustomed to a smaller budget and to save for child care and other upcoming expenses.
Anticipate ongoing changes to expenses
Household expenses will change when your baby is born, and they’ll continue to change throughout childhood. A recent NerdWallet study found in the first year alone, the cost of raising a baby can run upward of $21,000, and the cost of raising a child to adulthood dwarfs that.
“You have a lot of expenses associated with becoming a parent, but many of them won’t last forever,” says Conklin. Formula, diapers and day care are just a few that will fall off your budget as your child grows, and costs like dance lessons and auto insurance will eventually take their place.
In the meantime:
- Estimate the amount you’ll spend in the first year using this cost of baby calculator. Fine-tune this amount by getting quotes from local child care centers if you plan to put your baby in day care.
- Research ways to reduce that cost:
- Compare the cost of adding a child to all working parents’ health insurance plans
- Buy secondhand
- Request must-haves at your baby shower(s)
- Shop around for child care
- Anticipate how long these costs will last. Many costs to first-time parents are one-time expenses, including the crib and the strollers. Others continue for just a few years, such as child care until your kid goes to school.
- Review upcoming expenses monthly when you sit down to pay your bills. You don’t want to be unprepared, so find space in your budget as best you can in advance.
» MORE: How to save money
When there just isn’t enough
Sometimes there just isn’t enough money. Cutting expenses and increasing household income are the two basic strategies for balancing your new budget, but this can be easier said than done. If you haven’t already, look closely at these options:
- Find new ways to make money
- Ask for a raise or find a better-paying job
- Downgrade your home
- Downgrade or sell a car
- Refinance your mortgage and/or student loans
- Consolidate and comparison shop for your homeowners and auto insurance
- Eliminate unnecessary monthly subscriptions, such as streaming services or unused gym memberships
Like some of the increases in household expenses associated with parenting, these sacrifices can be temporary, too.