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Today episode of the Couple Money Podcast is about helping all of you who are expecting a little one become financially prepared so you two can have fun your bundle of joy without stressing about money.
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Are Kids Really That Expensive?
When we found out I was pregnant, we knew we wanted to bump up our savings for the baby’s arrival.
Being first time parents, though, we had no idea how much would be enough so we started researching and asking around to get a ballpark figure.
One source often cited in different articles and on the news is the USDA’s Cost of Raising a Child Calculator.
Based on how many kids you have and how old they are, you can get national and regional averages for the costs associated with children.
- Housing ($4,375)
- Food ($1,675)
- Transportation ($1,863)
- Clothing ($913)
- Health Care ($963)
- Childcare ($3,238)
- Other Expenses ($950)
The grand total is $13,975 for the Southeast and the national average for a child under the age of 1 is $14,938.
Looking at the numbers above, it looks like having a kid is expensive, but that’s not necessarily the case.
After our baby’s first year, we decided to go back and see how close the expenses were to our own experience.
According to the estimates that would mean that parents would spend an average of an extra $365/month for their baby’s first year.
I can see that happening if parents changed spaces, but I don’t see it being that drastic an increase, especially for the Southeast area. Our friends had their first baby around the same time as we did. As they were renting they had to wait before changing apartments, but it wasn’t that huge of an increase.
We had already bought a townhouse so mortgage stayed the same. You could argue our utilities went up, but with an infant they were negligible. Comparing it with the previous, we’re talking about a difference of less than $10/month.
This looks about right for the average family. Our plan to breastfeed our first baby thankfully worked out which meant we didn’t have to add baby formula to the budget. However our groceries bill did go up about $100/month as I was eating more to accommodate the arrangement.
When I looked at estimates for formula, the costs according to sites including Baby Center placed it around $105/month.
The only way I would think a baby would cost the parents that much money is if they swapped out cars.
We didn’t buy a car just because we became parents, but when we were hunting for our next car, we got a bigger model than we planned. Actually we had some leftover money from our baby fund that we rolled over for the car, which was nice.
If we hadn’t had our daughter, we most likely would’ve went with a Honda Civic or something comparable instead of the Accord that we purchased.
According to KBB, the difference was around $478 between the two models.
But I should also mention that the Accord had a few features that helped us get a slightly lower rate on our car insurance.
I feel like most parents feel this cost through the increased insurance premiums they have to pay for a family plan.
We certainly did.
Before the baby, our plan was costing us about $200/month. The family premiums doubled to just under $400/month. The good news is that it’s the family rate, so when our second daughter arrives, this shouldn’t jump again.
I’m really surprised with this one, but I guess one factor is where you buy your little one’s clothes. Like many parents my husband and I fall victim to cute outfits from time to time that we just wanted to see our daughter wear. However we also knew that in the first year, our baby would be passing through outfits too quickly to keep up with new outfits.
Thanks to advice from friends, we found out about several fantastic consignment boutiques in the area that satisfied our needs for cute baby clothes while keeping our wallets full.
For any listeners who are parents, I’d love to hear about your experience with the first year. What were some of your biggest expenses? What were some of the most surprisingly bills you had to deal with? Please share them on the site; it would be a huge help for first time parents who want to be better prepared.
Building Your Baby Fund
Now that you have a better idea of how much kids can really cost, you can start building a baby fund to help you prepare for your little one.
Here are a few baby related expenses to consider:
Unless your employer provides a generous maternity/paternity package, build a buffer to cover the financial change during your time with your baby. As someone self-employed, any time I take off for maternity leave would basically mean no income from my business so it was our aim to save enough to cover expenses for two months.
Health Expenses such as Doctor/Hospital
Check with your health care provider and insurance company to get an estimate of total costs for your prenatal checks, labor, and delivery.
You also might want to ask your Human Resources Department and see if your company offers any reimbursements. We were able to lower costs significantly this way.
Even with gifts from family and friends, there may be some baby supplies you’re missing. Unless it’s an essential like a crib or car seat, you might want to hold off on buying it until your little one arrives.
We heard from other parents that even infants have likes and dislikes. So cluttering up your house gear might not only be a waste of space, but of your money. Our daughter wasn’t a fan of the those vibrating rockers, but she did adore her swing.
For many couples, this is the biggest expense if both parents work outside the home. Use the time before the baby arrives to compare which options are best for your family’s circumstances and goals.
Since this will be an additional expense, try to save enough for the first month or two to help out with the transition.
How to Do Build Your Fund
Once you get the grand total for what you need, set up an automatic transfer into your savings account. We’ve found that having our contributions already scheduled made it easy to stick to the plan. There was no temptation to spend it because it was tucked away in a high interest savings account.
If the gap between your current budget and what you need for the baby fund is bigger than transfers can handle, there are a few things you can do.
First off see if you can sell some items around your home that you aren’t using, but still has some value. Having a yard sale or selling online through eBay or Craigslist can inject some cash into the account.
With the holidays coming up, you might want to check out some seasonal work and use that temporary income to fund your account.
You can also see if you can earn some money freelancing on the side using your talent and expertise.
Of course, if you can, look at your budget and see if there are some ways you can trim the fat in it. Some areas you may want to look into include:
- Cable/Satellite TV
- Cellphone service
- Car Insurance
We’ve saved quite a bit of money by changing companies. Even if you stay with your current providers, sometimes hopping around can help you get a discount.
Thoughts on Saving for Baby
For parents who have gone through the process, what were some of the biggest changes with your finances once your little one arrived?
How much do you think is enough for a baby fund and why?