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As many of you know, my wife and I are expecting our third child, a little girl. She’s due in April. My wife is an educator, and once the baby is born, she plans to plans to stay home with the baby through the end of the school year. She’ll be away from school about 8 to 10 weeks, and then home for summer-break until August. It’s cool that she’ll be able to be with the baby for 6 months before she has to go back to work. In August, when she goes back to work, the baby will go to daycare with our son.

As you can imagine, we are really, really excited about the birth of our daughter. But, we also have to keep in mind the financial impact of having the baby. My wife will make about 20% less in 2008 than she did in 2007. (The actual amount will depend on the number of sick days / personal days she has left when the baby is born. Once those days have been used up, she won’t be paid for the days she misses.)

Instead of waiting until her paycheck shrinks to deal with the income-change, we’ve already modified our budget to prepare for 2008.

Categories That Have Increased -

Grocery - When the baby arrives, we’ll be buying diapers, pacifiers, formula, food, wipes, etc. Plus, we’ll be eating-in even more than we already do, so the amount allocated to this category must go up.

Electricity - A new baby means more loads of laundry, more baths, and more lights (turned on during the middle of the night). Plus, our two older kids now have televisions in their rooms so that they can watch and not disturb the new baby. (The nursery is a converted dining room, directly next to our den. Our kids go to be early, and our plan is to let them both watch a little t.v. while we put baby number three to sleep at night.) Even with these facts, I’m doing my level best to DECREASE our energy usage. I’ve installed energy-saving light bulbs, turned down the temperature on the hot water heater, and installed power strips for all of our power-draining appliances (so that we can easily turn them completely off when they’re not in use).

Medical - Our doctor’s are all located about 50 miles from where we live. (We also have a ‘back-up’ doctor here in town, but we’ve been with our pediatrician for almost a decade, and we love her.) New babies need lots of attention - and from time to time - they need medical attention. So, we are increasing the amount that we contribute to our Medical category. (We have a family health-care plan, but we know that we’ll be facing some out-of-pocket expenses in 2008. These expenses must be accounted for in our 2008 budget.)

Clothing - A new baby needs new clothes. Of course, with four awesome grandparents, she’ll probably have enough newborn outfits for six kids! (We include anything that you might buy at a department store in our “clothing” category. So, unless we receive one as a gift, we’ll be buying a new stroller, and the money will come from our “clothing” budget.)

Daycare - In August, we’ll have two kids, not just one, in daycare. As with the other category increases, we’re not waiting until August to “deal” with the increased expense. Each month, we will allocate a portion of our income to “Daycare”, and when August rolls around, we’ll be prepared for the expense. (We have the coolest child-care provider on the planet. She’s worth every penny we pay, and more! Our kids love her, she keeps them safe, she shares our values, and she provides great structure.)

Categories That Have Decreased -

Entertainment - Let’s face it. With a new baby, we just won’t have the time (or energy) to go to the movies or rent DVDs. We are pretty much homebodies anyway, so our already limited entertainment budget will be reduced even further.

Eating Out - Not only am I trying to lose weight, but we’ve grown tired of eating out. We prepare about 80 percent of our meals, and this percentage should go up, once the baby arrives.

Vacation - We will, more than likely, not go on a true ‘vacation’ in 2008. The past several years, we’ve gone to the beach for a week each June. This year, we’ll be home with the baby. (I actually organize a week-long youth camp each summer. I’ll still do that, and my daughter is now old enough to come and stay with me while I’m away at camp.)

Other Financial Impacts -

When I file our 2008 income taxes (in 2009), we’ll be able to claim a third dependent. This should reduce our taxes for 2008, but, I’m not making any changes to our withholding until I have a better understanding of the taxes I’ll owe from blog-income.

By the way, if you are looking for an easy-to-use budget, check out YouNeedABudget.com.