Bringing a life into the world is an exciting and emotional time for many new parents.
The reality of parenthood can quickly set in when you realize that not only do you need to provide your child with love, care, and attention but also financial support.
Not only do you need to purchase all those baby items and supplies, but there are ongoing expenses that come with having a new family member.
If you are planning maternity leave or shared parental leave you may be anxious if your finances will stretch to cover the drop in income.
It’s impossible to plan for a new baby without having a good grasp of your own personal finance. In this article, I’ll go over how you can create a tight budget to put you in the best possible position to welcome your new arrival.
Let’s get started.
Why Is A Household Budget So Important?
When it comes to making a living, we all work hard and should make sure our money is wisely spent.
A household budget can help you see what’s going out and help to make saving easier as well so you can live comfortably without worrying about how much cash will be available at the end of the month or turning to credit cards!
If we’re not conscious of our spending habits, the money can fly out. Before you know it, there’s nothing left in your bank account, and all there is to show for it is unnecessary purchases. If you struggle with this already I promise you it will be SO much harder when you’ve got an adorable tiny human to splurge on.
Despite what appears to be a restrictive lifestyle, budgeting can actually give you the freedom of choice.
You’ll have more money for matching outfits, overpriced coffees, or anything else that brings joy your way!
Here Are 5 Critical Reasons You Need To Make A Household Budget Today:
1) Track Where Your Money Is Going
Knowing where your money is going can be difficult with all the different bills, purchases, and payments you have to keep track of.
Think of a budget as a plan for your money, it tracks where the money comes from and then records everything you spend it on. This can help you set a spending limit for each category.
For example, paychecks are categorized as monthly income while groceries, car payments, and rent would be an expense.
What’s left after all your essential expenses are paid is your discretional income.
Do you know how much discretional income you have each month?
2) Are You Wasting Money?
It can be hard to identify places that you’re wasting money, yet this is critical for getting on top of your financial situation.
It’s easy to buy into the idea that everything we consume is necessary but this is not always the case, and even little things can really mount up over time.
Maybe that expensive gym membership is worth it if you go regularly, but if you go once a month you’re paying for a service you’re not getting.
This is especially true while pregnant and after having the baby. Check your direct debits today, are you paying for subscriptions you no longer need?
Work out your hourly pay rate, instead of looking at expenses as money consider how many hours of work they cost you.
Figuring out where your paycheck goes by looking at is showing up month after month in black and white really helps put things back into perspective and evaluate if this is really how you want your hard earn cash spent.
3) Can You Afford An Unexpected Expense?
Do you have a financial safety net? It’s something worth thinking about and setting up.
What will happen to you and your loved ones if you lose your job for a few months? What if you get into an accident that may prevent you from earning a living?
Or what if some unexpected expenses come up. Do you have anything in place to make sure the bills continue to get paid and your family is taken care of?
If not, now is the time to get started.
Figure out what your family needs to comfortably live on for at least 6 months if all income stops. Then start saving as much money as you can until you have built up this safety net.
Read my budget guide below for the best way to calculate this.
4) Be More Proactive About Savings
Saving money without a budget is really hard.
You may go in with the best of intentions at the beginning of the month, but somehow there isn’t anything left to put aside at the end of it.
A budget gives you a chance to be more proactive. The key to saving is to pay yourself first. Don’t rely on saving what’s left at the end of the month.
Pick a number you’re comfortable with. Maybe that’s just 1% of your income, maybe it’s 30%. Put it in your budget and treat it like any other bill. It won’t take you long to get into the habit of setting aside that money for savings.
To make it even more hands-off, set up a separate savings account, then set up an auto-deposit to have the savings transferred to the new account as soon as your paycheck comes in each month.
If you don’t see it, you’ll never miss it and your savings will run on autopilot.
5) Are You Planning For The Future?
A household budget helps you plan ahead for expenses so there are fewer surprises when bills come.
Most importantly, your budget will keep you on track and help you make sure you’re not spending more than you’re making.
Over time consistently spending less than you earn will keep you in control of your finances and ultimately result in a lot less stress for the whole family.
Looking at your 30-year family plan, how much money do you need to retire comfortably? How will you get there? Are you saving enough money each month?
How To Make A Simple Household Budget
The Household Budget
- Assess your Income
Start by calculating your total household monthly income. If this is variable try to make an average from the last few months.
Write out exactly how much money is coming in, when it comes in, and where it’s coming from. You can do this on paper, or use a spreadsheet or app.
I like the Rocketbook for writing with pen and paper because it’s erasable and reusable, but I still get my “writing on paper” fix.
- Find your Expenses
Print off your bank statements for the last six months.
Where is your money going?
Again, there are apps that can help with this but I like to start with the basics of printing off bank statements and highlighting recurring monthly fixed and variable expenses.
- Identify your Fixed Expenses
These are things like the mortgage, car payments, utility bills, insurance, subscriptions.
You will most likely have these set to direct debit (if not, get that done today) and this set payment will come out of your account at regular intervals.
- Write down your Variable Essential Expenses
These are expenses like groceries and petrol money.
They should be expenses you may be able to reduce but would be unable to go without.
- Calculate your Core Costs
Add your fixed expenses and variable essential expenses.
These are the Core Costs you must pay each month.
If you lost your income tomorrow, your Core Cost is the minimum amount each month you would need to find.
- Review your Existing Savings
How much money do you have saved already?
How many months of Core Costs could you meet if your income stopped suddenly?
You should be able to meet 6 months of Core Costs as a minimum.
- Evaluate your Core Costs
Are your Core Costs too high? Do you have enough of a savings buffer?
If not, what can you do to reduce your Core Costs? Are there Fixed Costs you can cancel?
- Work out your Discretional Income
Minus your Core Costs from your total household income to work out your discretional income.
This is used for savings, emergency funds, entertainment, clothes, etc.
- Calculate how much you can Save
Once you know how much discretional income you have per month you can work out how much is realistic for you to put aside in savings.
Set this amount to come out of your account as soon as you are paid to remove the temptation to spend it.
- Create an Emergency Fund
As well as regular savings it’s a good idea to put some money aside for unexpected bills and purchases so you are not caught short.
You should be able to afford at least 6 months of Core Costs as a minimum.
Prioritize this saving account first.
- Spending Money
Once you have removed your Core Costs, Emergency Fund, and Savings your remaining amount is your spending money.
This the money you have available each month for non-essential purchases and socializing.
Make Sure You Maximise Your Savings
After you make a budget, take time to audit your savings. Auditing your savings is a great way to ensure you are saving enough, take time to do this at least once every year.
Check in with yourself and see how much more of your income can be saved before it is spent on things like new clothes or splurging in your local baby store.
Once you have done this, consider taking any extra income from events such as tax returns or birthday cash straight into the savings account. You’ll build up those savings without even missing out!
Make sure your savings are sitting in an interest-bearing account. Since you won’t be touching this money unless it’s a dire emergency, you should be able to earn at least a little interest.
Talk to your banker about your best options and start putting your savings on autopilot.
How To Stretch Your Baby Budget
Baby’s first year can end up costing a lot of money, especially if this is your first child, but the good news is you can take steps to reduce these costs. Here are some key tips for you:
- Save money on baby essentials by stocking up on second hand items where possible. It is recommended not to use a second hand infant car seat, breast pump, or mattress but items such as baby clothes are often barely worn (or not worn at all) and can be picked up for a fraction of the cost at thrift stores. If you have friends with older children they may have unwanted baby gear they would be grateful for you to take off their hands.
- Make sure you take the time to create a baby registry if you are having a baby shower. This will reduce the likelihood of you receiving duplicate gifts or items you don’t need or want. Its also really helpful for friends who don’t have kids and may be struggling for what to buy.
- Disposable diapers can contribute significantly to ongoing baby costs. Consider using cloth diapers instead, although these have a higher initial cost they will save you money in the long term. The same goes for reusuable baby wipes.
- When your baby is old enough for solid foods making your own baby food will have a much smaller impact on your grocery budget. Click here for some easy lunch ideas.
- Consider if you really need a second car while you aren’t working.
- If you’re a first-time parent and you intend to have a second child be sure to keep your maternity clothes and newborn essentials safe to cut down on baby expenses next time.
Read HERE for more tips on reducing your baby budget.
Now that you have the information on how to budget your money, it’s time for you to put these tips into action.
It’s important not to overwhelm yourself with all of this new knowledge; take one step at a time!
Download your free printable Rainbow Dreams Budget Planner and get started on your household budget today!
Together we can make sure that your family has everything they need in order to be as successful as possible starting from day 1-and beyond!
Let me know in the comments if I’ve missed anything