Budgeting for a Baby

Editor’s note: The following is a Savvy Sugar guest post by Kimberly Palmer, the author of Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back, and personal finance columnist at US News & World Report. 

Along with the cute outfits, nursery and rocking chair, there’s one more thing to get ready for baby: Your bank account.

Because along with being cuddly and adorable, babies are also insanely expensive. Just how much will one little one end up costing you? Well, according to the latest estimates from the Agriculture Department, middle-income couples (earning between $57,000 and $98,000) spend around $12,000 a year on their babies.

Luckily, parents don’t need to come up with all that cash at once. In fact, we often don’t even realize when we’re spending it, because it includes the fuzzier costs of moving to a bigger home and buying more groceries in addition to the more obvious ones, such as baby clothes and baby sitters. There are ways, though, to start priming your accounts for an extra family member in advance, so you don’t have to worry about bouncing any checks during your first years together. Whether you’re pregnant or your future baby exists only in your daydreams, here are some ways to start getting ready:

Figure Out Your Work (Or No Work) Plan

Babies often make their biggest financial impact on their parents’ earning potential, since new moms (and dads) frequently decide to scale back their work hours in order to spend more time with the new love of their lives. In this country, even a relatively brief maternity leave of three or four months is usually unpaid, which means new parents have to live off savings at a time when they’re also taking on more expenses.

Meanwhile, parents who continue working full-time take on the mega-cost of nannies or daycare, which can average well over $12,000 a year, especially in cities. One way to mitigate the budget shock: Practice living off one salary before the big birth day, and sign up for childcare flex spending accounts if your employer offers them, in order to take advantage of the tax benefits.

Consider the Hidden Costs of Child Care Arrangements

Daycare might seem like the cheapest option, but it also means exposing babies to more germs, which can do wonders for their immune system in the long-run, but in the short-term, it often means parents have to miss work. Parents with flexible schedules might decide they’re happier with baby-sitting coops, babysitters from local colleges, or even an au pair. Because the “perfect” child care arrangement can be so hard to find, parents-to-be should start their hunt almost as soon as they discover they’re pregnant.

To read the rest of Kimberly Palmer’s tips, click here.