It didn’t take long after my wife and I found out we were going to have a kid that the panic started to set in. You name it, I probably panicked about it. But probably the biggest thing that gave me anxiety was money.
Babies are expensive.
But the time before the baby arrives is the perfect opportunity to get a handle on your financial situation, adjust spending, and start squirreling money away. The sooner you can do this the better, because once the baby arrives, you’ll have to start spending money like crazy.
This is the plan for how my wife and I currently manage our money and it’s what we did to get ourselves on track before our son was born. The idea behind it is to make as many small changes as you can so that they add up to big savings over time. It’s usually not the big expenses that have the most impact. It’s all of the little stuff you’re not really thinking about or paying attention to.
First things first
Yeah, yeah. Set goals, right?
Yep, although I’m going to give you two goals you absolutely must do, and this isn’t some Dave Ramsey shit.
1. Start saving, know what you’re saving for, and figure out how much you’ll need to save. There are two things you’ll need to start saving for now: hospital and doctor bills once the baby is born and the loss of income if your partner works and her employer does not have a maternity leave policy.
Bills seem pretty obvious, but even with good insurance, they’re nothing to take lightly. For my wife and I, we shelled out around $3,000 when it was all said and done, and we have good insurance, we had a natural birth with no complications and a healthy baby, and we only spent two nights in the hospital. So, even under the best of circumstances, you’re going to have to pay quite a bit between the OBGYN, hospital, anesthesiologist, and pediatrician.
The other thing you’ll need to save up for is missed income. Because the toolbags in Congress don’t deem universal paid maternity leave worthy of putting into law, most employers don’t have any policy for this in place. So, most women will have to burn through all of their accrued sick time and vacation time (assuming they are not hourly employees) and then their income will stop until they go back to work. Depending on how much time your partner has accrued, how frequently she is paid, and how much time she needs for the baby, you can expect to go without a few paychecks.
Of course, there’s always Short-Term Disability (because in America, we view childbirth as a disability for some damn reason), but that’s assuming your partner’s employer offers it. And even then, that’s not going to pay for everything. (quick side note: your Short-Term Disability payment is not taxed).
All of this is to say you better start saving.
2. Start cutting back now. Babies are an added expense and if you’re going to be paying for daycare, they are even more so. Once the baby is born, you’ll need to find room in your budget to accommodate these added expenses. So it’s easy to start cutting back now, primarily so you can get used to what will be the new normal, but also because the money you cut back now can go straight into savings.
So how do you do this?
Figure out your current financial situation
Most young couples aren’t always the best at budgeting and make a lot of rookie mistakes. My wife and I definitely did. We would put things on our debit card without keeping track of our spending and then we’d always wonder why we couldn’t seem to save any money.
The simple answer is that we had no clue what was going where.
Before I get too deep into this part, let me say that my wife and I share a bank account. There’s literally only one checking account between the two of us, and all of our savings accounts are also shared. I know plenty of married couples who do not do this, and it just seems like managing everything would be twice as hard. I’ll write a separate blog post on this, but I would wholeheartedly suggest you put your money together for this. You guys are a team, right?
Make a bill calendar. Get a handle on what bills are due when. Be sure to include the amounts due for each bill in your calendar as well (utilities will always fluctuate, but you should at least be able to ballpark it). If you don’t share a bank account with your partner, make two calendars. Having a calendar will not only help you avoid forgetting a payment, but it will also help you do a little forecasting (more on that later).
Make a budget. Your bill calendar will help you keep track of recurring expenses, but a budget is going to help you keep track of everything else. Here’s how my wife and I have ours broken down:
- Cash: I withdraw a set amount every payday from the ATM and this is the spending money that goes in our wallets. Think lunches out while at work, stops at Starbucks, random stuff you buy for yourself. When you’re paying for all of that piddly shit with cash, you always know exactly how much you’ve spent and how much you have left. Plan on anywhere from $30 to $50 per person every two weeks.
- Stash: This is your rainy day fund. Withdraw a little cash every payday and put that cash somewhere safe. Don’t just transfer this money to a savings account–there will be times when you need to have quick access to actual cash. Shoot for $100 every two weeks, but try for at least $50.
- Groceries: Duh. You may have to get creative, but $150 every two weeks is doable. Try not to go over $200.
- Household: This is the stuff you buy that, like groceries, isn’t really optional. Cleaning supplies. Toilet paper. Paper towels. Trash bags. Toothpaste. Really anything you need but can’t eat. You can probably get away with budgeting $50 for this every two weeks.
- Gas: Also, duh. Depending on a bunch of different variables, try to keep this under $100 every two weeks.
- Fun: Withdraw some money each paycheck that’s for the fun stuff you and your partner do together. Dinners out. Brunch. Going to the movies. Whatever. The point is, you don’t want to (and shouldn’t) argue over which one of you will be ponying up for this kind of stuff. Nip that in the bud and just give this stuff its own line-item in the budget. Withdraw no more than $100 every two weeks for this. If you have a meal out once a week, and don’t go crazy ordering booze, appetizers, or desserts, this should be easy to do.
- Miscellaneous: Exactly how it sounds, this is all of the stuff that doesn’t fit into one of the above categories. But don’t go crazy with this one because this is also your wiggle room. If you go over budget with groceries or household, you’ll want the difference to come from here. $200 every two weeks is a fair amount here.
- Transfers to savings: Money that you’re transferring to savings. Ideally, you’re transferring money every payday, and you have an automatic transfer set up. Transfer as much as you can. And if you come in under budget anywhere, transfer that, too.
However much you budget for each of these categories, I would suggest doing a bi-weekly or weekly budget. Fortunately, my wife and I are both paid bi-weekly and we both get paid the same day, so ours is bi-weekly.
Use cash whenever possible. You’ll notice that the way I’ve broken down the budget, we’re using cash for all non-necessities. You can absolutely use your debit card for everything else, just make sure you’re keeping track of those things. But there are three very good reasons to use cash whenever possible:
- It’s already accounted for in your budget.
- Having physical cash on hand lets you easily see how much you have left. It’s easier to keep track of.
- When the cash is gone, you’ll know you that you’ve hit your budget and that it’s time to stop. You literally have no cash.
Make a spreadsheet and start forecasting
Once you have your bill calendar made and you have your budget figured out, it’s time to make a spreadsheet. I like to use Google drive for this since I can access it anywhere, but if you like excel, then go for it. Either way, here’s a sample of how ours is set up:
And with formulas:
Though there are only 6 weeks’ worth of finances built out in this example, you can build out your spreadsheet as far into the future as you want. Since you have a bill calendar, you should be able to calculate what your recurring bills total would be for each two week period. Assuming your income won’t fluctuate too much, this is a great way to do some forecasting.
One thing that’s important to note is that you will have different amounts in your recurring bills section. Some pay periods will be a feast and some will be a famine. You can’t always count on paying the same bills out of the same paychecks all the time. For my wife and I, there have been a few times where our rent, a car payment, and student loans all came out of the same pay period when they are usually split between two different payperiods.
What’s interesting in this spreadsheet is that you can see how seemingly small changes now will have an impact later down the road. For example, just under $500 is carried over to the next week during the first two pay periods. But let’s say that third pay period is a whopper and you have multiple big bills coming out at once. You would have to dip in to your savings to see you through.
But, if you weren’t looking ahead, you may have been tempted to go over budget during one or both of those first two pay periods. And then, instead of dipping into savings just a little bit to tide you over, you may have had to dip into savings for several hundred dollars to tide you over.
Either way, once you have your budget where you think you want it, and you have your spreadsheet built, start playing with it. There are A LOT of variables at play here, so you may have to do a little tinkering to figure out what’s doable and what will get you close to your savings goal.
Start making small cuts
The whole idea behind forecasting is that it allows you to see how small changes now can have a big impact over a long period of time. So I’d prefer to make a bunch of small cuts to my expenses.
What small things can be cut out entirely? For my wife and I, gym memberships, subscription boxes like Birchbox and Cairn, and were small things that were easy to give up. It seemed like they were pretty cheap by themselves, but all total, it added up to around $100 a month.
Look for these “little things” you’re spending your money on that are nice-to-haves and not need-to-haves.
What can be scaled back? We used to pay over $250 a month for cable and internet. We had HD cable and two DVR boxes. But here’s the thing: we were only watching live TV in the mornings when we were getting ready for work. Almost everything else we streamed. We scaled back our cable service to just internet and local TV stations and saved nearly $150 per month.
What else can be scaled back? What if you got your haircuts every 6 weeks instead of every 4? Are there any bills or loans you’re overpaying on? Pick the loan with the highest interest rate and overpay on just that one while making minimum monthly payments on the rest.
You have a full picture of your finances, you’ve set your budgets, and you’ve decided what small expenses can be eliminated and what can be scaled back. Now the idea is to let all of the small changes you’ve made snowball into each other. It may seem like slow going at first, but by the time your kid is born, you should be sitting on a decent pile of cash. Even if you have no money in your savings account right now, you can still end up with quite a bit of money at the end of all of this.