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Step-by-Step Guide to Creating a Baby Budget
Family Finance

Step-by-Step Guide to Creating a Baby Budget

Do you want to prevent financial panic from overshadowing the joy and excitement of bringing a child into the world? Then you'll need to prepare a solid budget well in advance. Simply put, adding a new member to your family will drastically change your household budget and your entire finances.

The financial obligations that come with raising a child are not easy. You'll need to reassess your finances and update everything. But with enough preparation, you can plan how you'll spend money when your kid is born and avoid any financial stress that might lead to panic and rushed decisions. 

The purpose of creating a budget when expecting a baby is straightforward. You want to account for how you'll spend money on your child and how you will save for their future without affecting your current lifestyle or personal financial goals. 

This article will explore how you can build a baby budget in seven steps that ensure you achieve all your financial goals, avoid money wastage and give your child the best life possible. Read on.

Read Also: 7 Smart Ways To Manage Finances With Your Partner

Step 1: Align Your Financial Goals and Prioritize 

Becoming a parent doesn't mean you have to give up on all your financial goals and start saving and investing for your kid's future. While this is commendable, you should learn to control that parental instinct and balance your goals. This won't not only mean you can save for your kid's education but also for retirement and help you accomplish your other milestones.

So what should you prioritise before saving for your child's college tuition?

Debt-income-ratio: Debts can hurt you and create hurdles that slow you down from achieving your goals, especially bad debt with high interest and long repayment terms. Having a high debt-income ratio can also prevent you from accessing good credit that helps you build equity like a mortgage loan. Make it a priority to eliminate or reduce debt and concentrate on accumulating assets.

Emergency Funds: With a child in the picture now, you have to think about how the loss of income or unexpected financial emergencies can hurt you. With that in mind, it's time to adjust your rainy day fund to cover your family's needs in case you find yourself in a fix that could force you to dig into your savings or take out a loan.

Retirement Planning: Yes, you want to save enough money to see your kid through higher education, but as you do that, don't forget about your golden years. After all, your child can take a HELB loan, but you can't borrow money to fund your retirement. Ensure you put a portion of your income away monthly to build a healthy nest egg that will keep you financially stable in retirement.

Also Read: Financial Goals to Set For Your Family

Step 2: Determine All Child Expenses 

Before you create a budget, you need to know what you intend to spend your money on. Your budget will drastically change now that you are a parent, which might mean you have to adjust how you've been spending money. But to do that, you have to learn about all child expenses, which can be divided into two.

One-time Expenses: This will cover things you'll pay for once or at an extended interval of years. They'll include costs like baby delivery, nursing equipment like a breast pump, travel gear like a car seat and diaper bag, and furniture like baby cribs.

Recurring Expenses: This will include expenses you'll regularly need to pay for and will take centre stage in your budget. They include everything from feeding, diapers, formula, clothing, daycare, toys, and medical expenses. The amount you put away monthly towards educating your child can also be considered a recurring expense and qualify to be in this category.

Step 3: Separate Baby Needs from Wants

Once you have a clue of all the child expenses you'll be paying for; it is time to separate the needs from wants. As a parent, you are tempted to go into a store and buy your child all the cute and comfy things that will make them more joyous. 

Their nothing wrong with that, but you'll still need to know when overspending on your baby can become unhealthy and even money-wasting. And a budget will help you set a limit on how much you can spend on baby discretionary every month.

The thing you should prioritise and ensure you account for in your budget include the basic needs– food, clothes, and education planning. Once you have this in place, start exploring other things and set a specific amount that you'll spend every month to cater to your baby's wants, including the type of toys you should buy. 

When it comes to clothing, children outgrow them fast; keep that in mind when you are out shopping. And let's be honest, do you need to buy three different types of strollers and two baby cribs?

Controlling how much you spend on your baby doesn’t mean you don't value them. But rather, you are prioritising their future and long-term goals over short-term consumerism. While at it, you don't have to be frugal; rather, set aside an amount that doesn't hurt your other financial obligations and doesn't lead to you overblowing your budget.

Also Read: How to Save For Your Child's Education By Age

Step 4: Incorporate Child Expenses into Your Budget

Having a baby comes with new responsibilities, leading to changing your budget and your entire financial priorities. Now that you know all the expenses you'll have as a new parent, it's time to update your budget and include your kid in it. You have to allocate your income in such a way that your previous lifestyle isn't interrupted; you are still able to save for future goals and provide for your child. 

You might have to revisit your budget and remove any expense you no longer need, whether it's a streaming subscription you no longer use or lowering your entertainment budget to afford a stay-in nanny. 

If you don't have a budget already, this could also be the perfect time to create one. As you create or update your budget, the expense you should factor in will include the daily essentials like diapers, baby food, clothing, child care costs, and medical bills, whether insurance or out-of-pocket costs. 

If you find yourself coming short after incorporating the baby expenses into your budget, you'll have to review all your spending habits and start cutting back on everything that you don't consider essentials. 

Step 5: Start Early Practice

Once you have incorporated your child's expense into your budget, the next logical step is to see if you can hack it. Set aside all the projected money you'd spend on a child and try living on a parent's budget well before your child is born. The rationale behind starting early is simple:

  • You want to see if it's possible to support your family with your current income while saving for the future.
  • Your income might be affected after your child's birth; for instance, you or your partner can take an extended unpaid maternity or paternity leave. 
  • The test will help you know if your new budget is viable and gives you room to make changes where necessary. 

Step 6: Plan for Unexpected Child Expenses 

Unexpected bills are unavoidable when raising a baby. When creating your budget, ensure you leave some room to cover these bills. It doesn't matter how solid your budget is; unexpected bills can destroy it when they take you by surprise.

The best way to prepare for these bills is to 

  • Have an emergency fund you can dig into when your allocated budget isn't enough 
  • Anticipate changing expenses - your bills won't stay the same year on year, and what you spend on your baby this year will be different from what you will spend next year.
  • Review and update your budget regularly to make any necessary changes that reflect your current position and needs as your child grows 
  • Consider ways to reduce costs, like adding your child to your medical insurance and comparing different childcare options. 

Also Read: 6 Ways to Deal With an Emergency Without an Emergency Fund

Step 7: Use Insurance to Protect your Child

You can never be sure about what the future holds, but with insurance, you can develop peace of mind knowing your child will be taken care of no matter the scenario. Insurance allows you to protect your child and grant them a future where they don't have to worry about food or paying for education.

Income protection policies are the first insurance you need to have as a parent. In case your income is interrupted, funding your budget mind be challenging. But with this type of cover, you can expect your insurer to provide part of your lost income due to retrenchment or another event that left you jobless such as chronic illness.

Next, you should buy an education cover and start saving for your kid's education. This is one of the easiest and most direct ways to invest in your kid's education without breaking a sweat.

Finally, consider buying a life insurance cover for when the inevitable happens. In the event of your untimely demise, you want to live with your dependents in good financial health. Your insurer will pay them an annuity, a larger sum that can go towards educating your kid and providing a decent lifestyle to your dependents in your absence.

Also Read: Money and Me: Insurance, a True Life Saver


Your budget is the foundation of your financial planning, especially now that you are preparing to embark on a new journey that can be financially demanding. Without it, you won't be able to track where your money is going, which might present hurdles that can delay or prevent you from meeting your financial goals. As much as a budget helps you live within your means, don't forget to prepare for when your income isn't enough.

When you find yourself in such situations, there are only two things you can do: Increase your income or cut expenses to balance your budget. To avoid this dilemma, prepare well by looking for ways to generate income, ask for a raise at work, find higher-paying jobs, or downgrade your car. Whatever action you take, the end goal should be to prevent exposing your family to poverty or inconveniences that can be avoided.

Coming up with a baby budget for new parents is no easy task, and you don't have to do it alone. Take time to talk with and exchange ideas with other parents, learn from their mistakes, and use their guidance to put yourself on the right track. Alternatively, you can talk to your financial advisor, who can help you create a budget specifically tailored to your needs.

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Farah Nurow is an experienced Content Writer who enjoys writing creative and educative articles meant to provoke readers' thoughts. He loves sunny weather and thick books. You can connect with him on LinkedIn.

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