If you’re a new parent or are expecting your first child, you might be wondering how much a baby will cost you. Although it’s quite tricky to determine the exact amount of money you’ll spend on raising a child, it’s always a good idea to financially prepare for the unknown and start to get comfortable with a new budget.
Whether you have nine months to save, or you’re trying to coordinate your finances with a newborn baby in your lap, there is always time to get your money on track and build a budget that works for you.
How to Determine How Much You Need and How Much Does a Baby Cost?
The first thing you’ll want to do when budgeting for the cost of a baby is to look at your numbers. If you go from earning a full-time income to maternity leave, the switch can feel overwhelming – especially if you see a significant decrease in your monthly income.
Tom Drake, the founder of MapleMoney and dad of two, says that in a sense, saving for your baby is similar to saving for an emergency fund. You want to make sure that you can cover all of your expenses when you suddenly experience a significant life change or lose part of your income.
“In this case, having a baby is more predictable than a job loss,” says Drake.
The one benefit of budgeting for the cost of a baby is that you can calculate what you will earn depending on how much maternity or parental leave you plan to take.
The Government of Canada has a great calculator to determine precisely how much money you could receive while on maternity leave and parental leave. You will need to know your annual salary or average weekly earnings, what type of government benefits you’ll require, and when you plan to stop working.
Maternity and standard parental leave benefits are 55% of your average weekly earnings, up to a maximum of $595 per week. If you plan to take an extended leave of 18 months, the benefits are 33% of your average weekly earnings, up to a maximum of $357 per week.
“If you know you’ll be on maternity leave for 15 weeks and parental leave for the next 35 weeks, then you should calculate what 55% of your salary would look like,” says Drake. Remember that if you earn over $56,000 per year, you will receive a maximum of $595 per week.
How to Build Your Baby Budget
Budgeting comes in many different forms. Whether you plan to make a budget using pen and paper or prefer to use an app, like Mint or You Need a Budget (YNAB), there are plenty of ways to form a realistic spending plan.
Regardless of what budgeting method you use, here are some simple steps to get you started making a financial plan for when your first baby arrives.
Review Your Current Financial Situation
Many people think they know where their money goes each month, but it’s better to be sure than to take a wild guess. The first thing you need to do when creating a budget for the cost of your baby is to know your income and expenses. An easy way to do this is to go through your past three to six months of bank statements and write down recurring costs and each payday.
Practice Tracking Your Spending
If you have time before your baby arrives, a good habit to form is to track your spending for one to three months. Getting to know exactly where your money goes each day and month can help you create a budget that works with your lifestyle.
Determine What Your Financial Situation Will Look Like After the Baby Is Born
Now that you know your current numbers, it’s time to look at your Employment Income (EI) and how much you’ll receive on maternity leave and parental leave. With these new numbers, start to build out a budget that reflects your new income.
“In addition to working the calculation of maternity and parental leave versus your regular income into your budget, there are a couple of major expenses that you may or may not need,” says Drake. He recommends asking yourself what the next year or two will look like. If you plan to send your child to daycare, you may need to prepare for these expenses sooner rather than later. “Whether you plan to return to work or stay home with your child, the choice will affect both the income and expense lines of your budget.”
Adjust Your Spending as Needed
Now that you know what you earn and where your money typically goes each month, it’s a good time to reevaluate your habits and adjust your spending as needed. Don’t be afraid to cut back on non-essential spending that can help give you a bit more wiggle room to save for when the baby arrives. One way to eliminate expenses is to cut back on areas you typically spent that no longer suit your new lifestyle.
Give Your New Budget a Trial Run
Having a budget is great, but it’s only beneficial if you continually review and reflect on whether or not the numbers are working. If you find yourself overspending, it might be a good idea to sit down and make some more changes. It’s normal to adjust a budget until you make it work in a way that allows you to enjoy your money while still living within your means.
Working on your budget in the months leading up to becoming a new parent can help alleviate the onslaught of changes that you’ll experience when you welcome a new member of the family to your home.
Save a Little Bit Extra for the Cost of Your Baby
Another great way to prepare for the first year of parenting is to create a realistic financial goal to help cover some of the unexpected expenses that you’ll inevitably face. For me, takeout coffee and dinners were a regular expense in the first six weeks as a new mom, and although it was unplanned, it felt essential to keep my partner and me sane.
Another important thing to remember when you are becoming a new parent is that comparison can significantly impact your budget. Designer strollers and diaper bags might feel like a necessity, but remember that every item you buy has to pass the same safety guidelines.
You also don’t need to buy everything for your baby brand new. Drake says that was a mistake he and his wife made. The couple bought brand new baby clothes that were only worn once or only fit for a short period. “If we had bought used, we could have resold the clothing for about the same price we paid,” says Drake.
Having a baby is stressful enough. You don’t need to add any more pressure by keeping up with the latest trends and luxury baby items. Instead, focus on creating a budget, stick to the plan, and make the most of your finances by only spending what you can afford.
