Budgeting for Baby

photo: gabi_menashe

So one of the things on your 2011 wishlist is a little bundle of joy. 

It’s a life-changing decision, to be sure. And not least important in starting a family is the inevitable impact on your finances.

Consider: this year, the U.S. government reported that a child born in 2009 will cost $222,360 to raise to maturity (at age 18). That includes basic costs like food and shelter, but also education and health care. And the projected cost creeps up each year.

So the moment the thought of having a baby enters your mind, you should start a baby fund.  We’re not talking about a 529 Plan (not yet, anyway), nor are we in any way implying that you need to have saved nearly a quarter million bucks. But you should at least try to cover the cost of your baby’s birth and any extra costs anticipated in his or her first years.

Sheryl Garrett, the author of the Personal Finance for Dummies Workbook, Certified Financial Planner and founder of the Garrett Planning Network, suggests preparing for new baby expenses in the following order: medical expenses, baby supplies, income reduction, daycare, family budget tune-ups and college savings.

Medical Expenses

Depending on where you live, child birth alone could range from $8,000 to $10,000, says Brad Imler, the president of the American Pregnancy Association. Choosing a midwife or birthing center (if you’re expected to have a normal childbirth), could cut your costs by half, or more. Birthing centers are normally connected to a hospital or obstetrician/gynocologist office. However, if you choose to hire a midwife or doula for an at-home birth, ask for details on their backup plan if complications arrive.

If you have insurance, you’ll need to ask your insurance company about your copay, deductible and any other related costs. How many doctor visits are typical? How much will you have to pay out of pocket? What are the costs for a premature birth?

Baby Supplies

Few things tempt parents-to-be more than baby outfits. Ah, the tiny shoes. Ooh, the cute little dresses or dress shirts. Stock up on those before the baby is even born, receive a ton more as baby shower presents, and you’ll quickly find youself with a pile of never-worn baby clothes.

Garrett suggests that you start to accumulate baby items, but in a fiscally savvy way. For instance, she says “Infants don’t use shoes for long. Buy used.” And borrow as much as you can from friends and familyse who have baby clothing from older children. Baby clothes are usually so well-preserved that there’s no shame at all in dressing your little precious in hand-me-downs. Garrett, who is now in the process of adoption says, “Almost everything has been given to us.”

The same applies to other baby supplies, from toys to diaper genies and even cribs. Just make sure any second-hand items you buy or receive as gifts have not been subject to a recall.

One Income or Two?

Even if both parents remain employed after the baby arrives, you may want to take off for a few weeks past your paid maternity or paternity leave.  “Wouldn’t it be lovely if you could afford to choose whether or not to take advantage of company-offered unpaid leave after your paid maternity or paternity leave ends?” says Garrett.  

In that case, you’ll obviously have to make sure you are covered financially well in advance. Start by discussing different scenarios with your partner. Can you cut your spending or take on extra shifts at work so you can build a special fund to cover living expenses for the weeks or months you plan to stay at home without pay?

Also discuss with your company’s human resources department how much time you have for maternity or paternity leave and if an extension is possible. Then calculate how much you need to stash away if one person reduces their work for three months, six months, or even until the child enters kindergarten or preschool.

Childcare Prep

Daycare for your child falls into three categories: family and friends, private nannies or daycare centers. You may be fortunate enough to have grandma and grandpa watch your kids while you work. If this is the case, make sure you don’t overtap this resource, says Garrett.  Have a candid discussion with your parents about how much babysitting they can handle. Have a backup fund set aside if this option doesn’t work out.

According to the 2009 National Survey of  Childcare Resource and Referral State Networks, the average cost of childcare exceeds the annual cost of food per family in nearly every state. A private nanny can be multiples of daycare costs. Since regional childcare costs vary widely, ask your friends what they spend on childcare or nanny services.

Then there’s babyshare. Sharing childcare duties can be a community event, Garret says, as you form a network of other new parents who can take turns watching each other’s children for the evening or during the daytime. Make sure you are comfortable with such an arrangement and, obviously, that you know and trust each member of this community.

Budget Tune-Up

Your baby needs a place in your budget, and a big one, at that. Start by deducting from your budget your determined income reduction. Then see what you have left in savings. Next, look for budgeting items you’ll naturally reduce. Maybe, your natural budget cuts will be in the Restaurants category: instead of going out with friends three nights, you’ll have just one (if you’re lucky!).  Finally, calculate child-specific expenses using the estimates you’ve found for daycare, supplies and medical costs. Use babycenter.com’s Baby Cost Calculator to account for and calculate any remaining expenses. If your budget is still short, see what else you could cut or reduce the amount of time you’ll take off.

College Savings

The cost of a college education can intimidate any parent — and many find themselves stressing over it from the day their child is born. If money is tight, college savings should be your last priority. You could start with saving as little as $10, $25 or $50 a month, says Garrett, and work your way up as you have the money to do so. Never sacrifice your own retirement for your baby’s college fund.

Remember: If you plan ahead for your baby, you can focus on the joys of your child’s first steps, first day at kindergarten and school, and even the day they go off to college, instead of worrying about money.

Reyna Gobel is a freelance journalist who specializes in financial fitness. She is also the author of Graduation Debt: How To Manage Student Loans and Live Your Life.