Starting your new life as a parent is something that’s sure to bring you plenty of joy and excitement, but don’t be surprised if you feel a little bit panicked too – particularly when it comes to figuring out your budget. Ultimately, as wonderful and fulfilling as parenting can be, it’s also extremely expensive, with the first year alone costing a fortune in childcare and baby essentials.
It’s worth taking some time to understand that becoming a parent does mean that your finances will be in flux for a little while. However, you shouldn’t panic. There are some steps you can take to get yourself back on track in no time.
Start with the Fundamentals
Everything changes when you have a child – including your budget. However, you can still take a fundamental approach to the way that you manage your money. One good tip is to try the 50/30/20 approach to splitting your money.
With the 50/30/20 strategy, you put 50% of your monthly income towards household bills, essentials, and minimum loan repayments, then either 30% or 20% towards your financial wants. The remaining money that you have at the end of the money goes towards your savings accounts. Obviously, you might not be able to get the ratio right straight away – as your essential payments may take up a lot more than 50% of your income, to begin with. However, you can at least work to bring your money as close to this balance as possible.
Know Your Financial Priorities
New parents are often keen to start putting money towards their child’s education and future. While this is a good goal, it’s worth thinking about your financial security first. After all, you can’t do much to help your kid until you’ve dealt with the debts that are stopping you from having any money to yourself each month. Look at your financial situation and prioritise things like:
- Retirement savings: It’s great to save for your child’s future, but don’t forget to protect your own as well. You need to ensure that you’ve got some money aside for when you’re no longer able to work.
- Debt repayments: The quicker you get rid of your debts, the less money you’ll have to pay out each month on things like interest. That means more cash left to put towards your savings and “wants.”
- Emergency funds: Disaster can strike at any time in our lives – particularly when you’re looking after a child. Make sure you’re ready for anything with an emergency fund.
Practice Living on Less
There’s a good chance that your income is going to change in two ways when you have a child. First, you’re going to have a lot more things to pay for than you once did. Secondly, you might not have as much money coming into your home – particularly if you or your partner decides to work fewer hours so that they can look after the child.
Ultimately, child care can be one of the most expensive things you have to pay for as a parent. If you decide not to go back to work, then you can save some money there, but you also need to prepare for a cut in your income. To get ready, practice living on a smaller income for a few months before your baby is due to arrive. This will also give you a savings pot to put towards your emergency fund.
Remember that as you become a parent, you’ll see a huge change in your finances, but that won’t be the only transformation that happens. Over time, your income will continue to fluctuate as you take on more hours at work, find new things to pay for and look for alternative ways to save money. With that in mind, it’s a good idea to keep going back to your budget and altering it when necessary.
At the same time, try and think about what you’re going to do in the months where you just can’t seem to make ends meet. You may find that simply cutting expenses isn’t enough if you or your partner wants to become a stay-at-home parent. The other spouse may need to look for a higher-paying job, or you might need to think about selling your car and relying on public transport.
Other ways to make ends meet include refinancing your mortgage, or looking for freelance work that you can do in your own time when you’re looking after the child.
Note: This is a collaborative post.