The decision to have a child and start a family, either on your own or through adoption, can be one of the most exciting times of your life. Unfortunately, many people get so wrapped up in the excitement, they forget that a new family member means additional expenses.
Being financially prepared for the lifestyle change a child brings to a family can help new parents worry less about the family finances and focus their energy on what's truly important; their little one.
This article will focus on the three major steps to take so you and your family can be fully prepared for the arrival of a new child.
1. Make a Budget to Understand Where Your Money is Going
If you don’t already have a written budget in place, it’s important to start one immediately. A written budget lets you see exactly where your money is going by calculating your income minus your expenditures. Without a budget, you can’t be one hundred percent certain about where all your money is going.
Some easy steps to creating a budget include:
- Determine your income. Be sure you are using your take-home pay for this number and not your gross income. Creating a budget with money you don't have will only set you up for failure.
- Write out your monthly bills and expenses. Start with your set monthly bills, like the mortgage or car payment, then put in fluctuating categories such as food, power, and gas.
- Track your expenses. To get a good idea about the changing categories in your budget, you need to look back on your bank statements for at least the last month and calculate your spending. This will give you a rough idea of how much to allocate for spending.
- Include savings and debt payments. Don't forget to set aside money in your budget for saving and paying down any debts you owe. This includes credit card balances and personal loans.
These steps will help you prepare for the future by getting an accurate picture of your current financial situation and allowing you to adjust accordingly.
2. Reduce your Spending to Allow Room for Additional Expenses
Start looking for ways to cut back and reduce your spending. Learning to live within your means as much as possible, will not only pay off in the future, but it can also help prevent you from living paycheck to paycheck.
Some places to cut your spending without overly restricting yourself include:
- Food costs. Are you eating dinner or lunch out multiple times a week? You could save hundreds of dollars by cutting out a few of these trips and preparing meals at home, like making dinner and packing leftovers for lunch.
- Entertainment. Get creative when finding entertainment! Look online for free or discounted activities in your local area, go for a picnic in a local park, or rent a movie at the library and watch it at home.
- Shop secondhand. Shopping at consignments stores for gently used items can save you thousands on clothes, furniture, and home-goods.
3. Build an Emergency Fund to Protect Against Unexpected Expenses
Building your emergency fund before your little one arrives will not only help give you peace of mind, but it can also provide significant protection against unforeseen financial setbacks.
You should aim to have three to six months of living expenses in your emergency fund in case of job loss, emergency weather, and any other unpredictable tragedies. Having an emergency fund to back you will protect you from plunging into debt.
We know that planning for a new addition to your family can be complicated and stressful, but it doesn't have to be. At Liberty Savings Bank, we want to help build financial security for you and your growing family. Visit us online, or stop by one of our branch locations to start saving for your family's future today.