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Building A Better Budget With The New Baby On Board

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.

30 thoughts on “Building A Better Budget With The New Baby On Board

  1. Good planning!

    I am going through a similar adjustment but my wife actually will be off for a full year so the reduced income will be the biggest adjustment. There are plenty of savings though when your really look at it. (Fuel, insurance, lunches)

  2. This is a great post — a very comprehensive look at the cost of a new baby! The only difference I would have is about the “eating out” comment you made. I personally would increase that category a little to budget room for pizza/chinese/whatever deliveries on the evenings after the baby had a rough night. I’d even budget it on a once-a-week basis. Sort of a night to look forward to… JMHO 🙂

  3. Rachel… In the old days, when I could eat whatever I wanted, that’s exactly what I would do… Now, sadly, I have to eat like a bird… 🙂

  4. Of course, every family has to make their own choices that work for them but we’re expecting our 3rd at the end of March as well. Since we breastfeed and cloth diaper we’re relieved to find that our budget won’t increase that much until later.

    The one that pinched us is medical for the birth itself. Giving birth is EXPENSIVE!! We elected to go the homebirth route and ironically it was cheaper for us to pay for a home birth out of pocket than pay for a hospital birth *with insurance*. Our hospital quoted us $3300 (AFTER our insurance paid out) just for prenatal care and the birth…not the newborn care, not the hospital stay and heaven forbid I have an epidural or a c-section.

  5. Try doing this with 6 kids!

    We had to upgrade vehicles twice to accommodate all the little buggers.

    We finally had our boy, though, so everything’s tied off, clamped, sealed, and plugged now…

  6. Read the feed consistently, and I enjoy your content.

    My wife and I are planning to have our first child in the next year or two, and have been unable to find a real budget on the monthly/yearly cost of child raising. Having three children, could you shed some light on the realistic monetary expectations? We want to have our budget prepared to welcome a little one!

  7. Pingback: Weekend Linkage - January 13, 2007 | The Sun’s Financial Diary | A Personal Finance Blog on Saving and Investing
  8. Congratulations on the new baby. I’m expecting a baby (my first) in April too. I’ve just started a blog on the subject of frugal parenting (second post is tomorrow). I like that you have balanced the increase in expenses by decreasing your spending in other areas. I hadn’t considered the fact that I will be able to claim a dependent on my 2008 income taxes. I wonder if this will make a significant difference in my return.

  9. You’d save a lot of money now and in the future by breastfeeding the baby. Even when your wife goes back to work, she could pump milk to take to daycare.

  10. Good post. I just wanted to add though more unexpected expenses–maternity clothes (unless your wife already has previous ones)–but I’m guessing there might be a few more expenses for your wife during her pregnancy and post pregnancy unrelated directly to the baby–you mentioned a stroller but I’m assuming you have furniture/car seat from previous child–plus the unexpected. My sibling had a HDHE plan and when her baby was born premature, the had 10K worth of copays for her and the baby. The irony is she got a letter from the state who told her if she had no insurance, they would cover the entire hospital bill 100%. Or if she made less than a certain amount, which unfortunately, she didn’t.

  11. I really enjoy reading your blog, you always have great insight! I would seriously suggest crunching the numbers on formula though – breastfeeding, apart from being free and beneficial for mom and baby, will statistically also cut down on your little one’s number of illnesses, and thus on the number of sick/personal days a parent must take. Even if your wife chooses to send formula to daycare instead of pumping, breastfeeding when possible will confer most of the same benefits. Good luck!

  12. Quick note..
    I’ve mentioned this before.. on the original post where I talked about having the baby… but, due to a medication that my wife takes, formula is best for our situation.

  13. Congratulations! I just found out we’re expecting, too. Our second. Your blog was an interesting read, because while I was thinking about the diapers and such, I didn’t think about the extra electricity and water. It really helped me to think about what I need to prepare for.

    I’m really thankful to be able to breastfeed and cloth diaper, so that will help us (and I read your comment about your wife’s medications, so I’m not suggesting breastfeeding for you all. 🙂 ) Cloth diapering isn’t bad at all, though, nowadays. Many cloth diapers are just like the disposables, but a little thicker, and well, cloth. Some daycares will use cloth if you ask. I noticed today that disposables have gone up in price (from $19.97 to $21.46) Ish! Anyway, we use cloth at home and when our son is at the sitter he uses disposables. It really cuts back on our costs! Of course, just like most things, it has to be something you are willing to do, or it’s not worth the torture!

    Anyway, I’m blabbering! If you are interested, please let me know and I can tell you more. Otherwise, a huge congratulations to both of you and your two children!

  14. I was just curious how you’re budget is doing with the new one. We have a new one, as well, and my pre-planning didn’t pan out the way I hoped, and now we’re left with $6,000 worth of debt (Read “My 2008”) at my blog. We’re lucky in that we’re holding off on daycare as long as possible, but I wanted to know how your budget is doing compared to what you pre-planned.

  15. @TexasT All of the accounts that I expected to increase did… but they increased a bit more than I had anticipated… plus, daycare costs doubled…. and, I had to hold off on further ESA contributions until my wife went back to work…

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