Budgeting for New Parents: How Scary Can It Be?

When you're a new parent, it can be difficult to adjust to a sudden increase in expenses, and frankly, it can be quite a shock.

The amount of money spent on diapers, formula, clothing, and car seats can add up very quickly, not to mention the costs of childcare, health care, and insurance.

But calm down... there's no reason to feel overwhelmed by all the financial decisions. Yes, it's a lot to handle, and you'll probably want to have a little help. That's why I've come up with some tips below.

Budgeting for new parents is a whole different ball game compared to budgeting when it's just you and your partner, or when you were still single.

As a parent, you'll suddenly have to pay for a multitude of things, some you may have never even known existed or never thought you'd need.

There are also a lot of financial myths that come with parenting, which can be quite stressful for new parents. But because they're so prevalent, we can’t blame new parents if they believe these misconceptions.

I'll share more about those later, but first, here are some budgeting tips for new parents that have personally worked for me.

1. Set your family's financial goals

One of the habits that stood out to me in Stephen Covey's The 7 Habits of Highly Effective People, one of my favourite books, is "to begin with the end in mind." You first need to know what you want so you can work and plan towards it.

Not having a proper goal or a direction in mind when doing something meant you're just taking chances and hoping it'll work out the way you want it to.

As a new parent though, you cannot afford to take financial chances, because if something goes wrong, your entire family will be impacted. Your child, who is fully dependent on you, will suffer and might be put at risk, especially if there's a medical emergency.

So before anything else, set a clear financial goal for your family: how much would you want to be earning and by when?

When I first started my investment journey in 2010, my financial goal was “I would like to achieve a passive income of $60,000 by 2020.” Perhaps you can begin by jotting down your financial goal, too, and remember to make your goal SMART (simple, measurable, achievable, relevant, and time-bound).

2. Adjust your expenses

At first glance, budgeting as new parents can be daunting. When you transitioned from just "you" to a "we" with your partner, you could at least take comfort in knowing that he/she has his/her own source of income. Should your finances be unsound, you know that they'll be fine still.

However, having a child changes this entirely because now you have another human being who is financially dependent on you at least for the next 18 to 20 years. Should you mismanage your finances, your partner will have to carry the entire team, provided their source of income is enough and uninterrupted.

So to avoid this, make sure you adjust your expenses accordingly even before your child comes. Know your wants over your needs.

For example:

3. Prepare for rainy days

What would you do if you knew something bad was going to happen tomorrow? Would you go to work? Buy a new car? Buy a house? Of course not! If you know something bad is coming, you'll start preparing to minimise the damage as much as possible.

Sadly though, we DON'T know when bad things will happen and because of that, most people just take it that their life will be smooth sailing and don't bother to take precautions.

One bad thing can befall you at any time, so being prepared is key. Insurance is a great way to prepare for potential losses.

You may have auto, home, health, and life insurance to protect your family and yourself. You should also have an emergency fund to prepare for any unforeseen but important expenses. If you have enough money saved up, at least you won't have to worry about paying the bills for a few months and focus on the more important things.

4. Don't spend too much on your child

This is an unpopular opinion, but remember the financial myths I mentioned earlier? This is one of them and probably the biggest.

Parents, especially new ones, always have this idea that they should be putting lots of money into their children for them to have the finest things and the best experiences.

See also: Give Your Child the Best Long-Term Investment

Now don't get me wrong. As a parent myself, I also want the best for my children and they deserve it. However, the most expensive doesn't always mean it's the best or if it's even necessary.

For example, you can bond with your child just as much by bringing them to the Singapore Zoo rather than bringing them to the Australia Zoo. The act of bringing them for a fun day out watching animals brings you closer to them wherever you are.

Of course, you can still bring them for an overseas holiday from time to time. But know that not all "best" things for your child need to be expensive options.

5. Don't just save, invest

Just saving money is probably the number one mistake many parents make.

I've seen completely well-meaning parents having a solid savings plan for their child's future, and that's a good first step. However, saving money alone is not enough because everything is becoming more expensive now. By the time your child is grown up and ready to use the money, it probably won't even be enough anymore.

That's why, instead of just saving, you need to set aside money that you can use to invest in different products instead.

Things like stocks, ETFs, and REITs are relatively easy to manage, and with the right knowledge, you can compound your money many times fold and even collect passive income in the form of dividends.

This will also save you time from working hard to earn more because by investing, your money is already working for you in the background while you're busy with other things.

Investing money is no longer an option. It's now a MUST.

See also: Should You Teach Your Child to Invest?

It can be nerve-wracking being new parents. There is an influx of information and “advice” from almost everyone and it can almost seem like your world is turned upside down.

But you can minimise the chaos by at least making sure that your finances are in order. And you can quickly sort things out just by sitting down with your partner for a couple of hours. This way, budgeting for new parents become quite easy.

Learn more tips on how new parents like you can create passive income for your family. I’m inviting you to our free investing bootcamp. Just click here to secure your slot.

~ Pauline Teo