Becoming a new parent is an exciting time. But, it also brings to light the financial challenges you may face when you start a family.
Now, in addition to saving for retirement, home projects and vacations, you have expenses for your little bundle of joy.
If possible, start having conversations about finances with your partner before the baby is born.
The earlier you start communicating and making sure you're on the same page, the better.
Here are a few valuable financial survival tips for first-time parents:
1. Take some time to sit down and review your income potential.
Will your income decrease with a new baby? Perhaps one parent will be staying at home or working part-time.
For the parent(s) working, are you able to earn more through a raise, career change or further education?
2. If you haven’t already, start tracking expenses.
There are numerous tools to track expenses.
You can put all expenses on one credit card, which you pay in full each month.
You can use only one bank account to pay all bills, take advantage of free services your bank offers or check out websites that help track expenses (such as Personal Capital, Mint, You Need a Budget, etc.).
You can also download software such as Quicken or QuickBooks, or track your expenses in Excel.
Once you have an idea of what you're currently spending, calculate how a new baby will increase your expenses.
Talk to other parents to get an idea of the cost of necessities (diapers, food, clothes, etc.), visit daycares for costs (or look online) and join parent groups.
There are a number of ways to keep baby expenses lower, including making your own baby food, embracing hand-me-downs and using generic brands.
You don’t need complex toys or products for a baby. Simple items are easier to clean and maintain.
3. Set a budget, and agree to stick to it.
Cut back on discretionary spending, and see how you can make your money stretch.
If you have $100, for example, set aside as “fun money” for the month, enjoy a night out for ice cream versus dinner, or rent a movie at home versus going to the theater.
These small expense-cutting measures go a long way. Not only will you find new, fun, low-cost activities, but you'll be excited to see how much of a positive impact minor changes can make.
Set up a monthly meeting to review your goals and track your progress.
4. Take advantage of any benefits provided by your employer.
If both partners are working, determine which health care plan is best for your new baby to join.
If your employer offers benefits such as a Flexible Spending Account (FSA), Health Savings Account (HSA) or Dependent Care FSA, use them to set aside pre-tax dollars for health and childcare expenses.
Be sure to review your life and disability insurance. Both are extremely important to protect you against an unforeseen event.
In addition, see if your employer offers discounts for legal services to set up an estate plan, which includes Wills, Durable Power of Attorneys, Advance Health Care Directives (known as Living Wills in some states) and a trust, if appropriate.
5. Write down goals, and keep them in a visible location, like the front of the fridge.
Categorize them as short-term (less than one year), medium-term (between two and five years) and long-term (over five years).
An important short-term goal is to set up an emergency fund with six to 12 months of living expenses. Keep funds for short-term goals in cash or in a checking, savings or money market account.
Medium-term goals may include upcoming home improvements or family vacations. Either keep funds in cash, or invested in a non-retirement investment account, depending on the timing of the goal.
Longer-term goals, such as saving for college and retirement, should be kept on the list and still be a priority.
6. Remember to keep your plan simple.
The more complex you make it, the least likely you are to stick to it. Review your income and expenses frequently, and make adjustments where necessary.
Take advantage of all employee benefits, and talk to your HR department to make sure you're utilizing all you can. Keep your goals in a visible location, and celebrate your successes.
But most importantly, keep in mind that loving your new baby unconditionally will always go further than money.