With a baby on the way, it is important to spend some time going over your finances to ensure you’re not caught short. If you’re used to living on two incomes, you may find it a bit of a shock going down to just one while you or your partner takes off work to raise the new baby. Fortunately, there are some ways you can prepare your finances to make sure your needs are met and you don’t run into any problems.
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Having a baby can be a life-changing experience that can change your priorities drastically. The things you thought were important in your life before the baby arrived may no longer seem so critical. Unfortunately, this could include allowing your finances to slip from your attention, which can cause major problems for young couples. This should be a time when most couples pay particular attention to their financial situation and beginning planning for ways to help buffer against any unforeseen problems arising.
Here are some tips for preparing and planning your finances to make sure you’re covered when your baby arrives.
Create a Budget
Most people cringe when they hear the word ‘budget’, but in reality a budget is nothing more than a list of your total income and total expenses tallied up to show you whether you have a surplus or a shortfall.
You can write down a simple budget on a piece of paper or you can create a more detailed snapshot of your financial situation on a spreadsheet. You might even download one of the many budget planner templates available online to help you figure out what you might have forgotten to list down.
Consider which of your expenses could be considered fixed essential costs, variable expenses or luxuries.
You might decide that rent or mortgage and utility bills are fixed essential expenses, while things like food, fuel, cell phones, cable and Internet costs are variable expenses.
However, items like dining out, buying take-out, going to the cinema, socializing in clubs or bars, buying new clothing regularly or impulse shopping could be considered luxury spending.
If you’re about to have a new baby in the household, it’s time to figure out what’s really important in your life and what can be cut to make way for other expenses you’re about to incur.
Work On One Income
If you’ve been used to living on two incomes, dropping down to one income suddenly can be a bit of a shock financially. Before your baby arrives, try to put aside the entire amount of one person’s income each time you receive your pay. This could be used to repay credit card debt or outstanding bills or loans, or put aside into savings to help create a buffer for when your second income stops.
By getting used to only living and paying for the things you need on one income now, you’ll find it much easier to adjust financially when baby finally arrives.
When you look closely at your budget, you can begin to identify any areas of spending that you might need to cut back. You can also see exactly how much of your available income your debt repayments are eating away each month.
The point of drawing up a budget is to help you find ways to reduce your expenses without diminishing your lifestyle too much. If you’re like most people, you’ll start looking at simple things, like switching off lights more often, or trying to cook a little more frequently.
While those things can help to reduce your expenses, they won’t save you nearly as much money as figuring out how to reduce the amount you pay each month in debt repayments.
Reduce Interest Expenses
Interest costs are often the most underestimated cost in many families, yet they’re often among the highest. Before the baby is born, try to pay as much extra on top of the minimum payment due as you can afford. This will help you regain control of your finances and begin reducing that credit card debt. Take a careful look at how much you’re paying in interest on your current credit card balance or loan amounts. If you were to switch to a lower interest credit card, you’d be able to reduce your monthly credit card interest bill.
Aside from creating a buffer on the amount available on your approved credit limit, you’ll also be reducing your minimum monthly repayments further.
Reduce Insurance Costs
Far too many people try to save money by simply canceling their insurance policies. Unfortunately insurance can be a necessary expense. Rather than stop paying your insurance, look at ways to reduce the amount you pay in insurance. If your credit score is a bit on the low side, you could be paying higher premiums.
Spend a little time before baby arrives paying off any overdue bills. Make sure your credit card and loan repayments are paid on time. After a few months, your credit score will begin to improve as a result of your improved financial behavior and you may be eligible for a reduction in premiums.
Put Aside Savings
With a new baby on the way, you may want to think about establishing a savings fund for your child’s future education. The key to saving money effectively is learning how to differentiate essential spending from luxury spending.
Those small sacrifices you make today and put aside for your baby’s future can really make a big difference in years to come.
Shop around and try to find a savings account that pays a decent rate of interest on your savings. Remember, this will be a long term savings account, so look at long term savings options.
The interest you earn now on your savings might not look like a lot, but as time passes the interest will compound and increase the amount you have put aside. If you continue to add even small amounts of money to your savings on a regular basis, you’ll soon find it can really add up in the long run.
Timothy Ng is a regular writer and part of the team at Credit Card Finder, a 100% free Australian credit card comparison and application service. Visit the Credit Card Finder website for more information on personal finance tips and advice or subscribe to their RSS feed for more practical personal finance articles.