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How to prepare your finances for a new baby
I divide my life into two categories: BC and AC. Before Children and After Children. Because really, life before my kids were born was completely different. How I spent my time and money and what my values were all changed. It's true, having kids changes everything! Your finances are a huge part of that. Suddenly, money becomes very important because there is a cute, adorable, ball of joy, that you love more than life, depending on YOU to take care of him/her. Don't panic though. You CAN achieve balance and peace with your finances following these steps:
If you have been worrying about finances, the first step is to take a deep breath and just take it slow. Write down what is specifically bothering you about your finances. When the problem is written down, you may find that it isn't as bad as you think it is. It also makes the problem more defined, which will make it easier to solve. Ask yourself what is the absolutely worst thing that can happen with this. If that thing happens, what would happen to you? What options would you have? Could you recover? Now, ask yourself what is the best thing that could happen. What could you do to make that happen? Finally, imagine that tomorrow you wake up and your finances are all in order. You know exactly what expenses you have and not only do you know when to pay them, but you have the money to do so. Write down how that would make you feel.
Find Your Starting Point
Before you can establish a budget, you need to know what your income and expenses are. Write down your take-home pay. If your income changes from month to month, average your paychecks from the current year. Then, take your gross income from your last two tax returns and average them together. Divide the number by twelve to get a monthly amount and then average with your average from the current year.
Determine Your Expenses
If you have unopened bills, open them up and write down everything that is owed. Keep a piece of paper with you and for one month (or more) write down everything you spend money on in exact amounts. Knowing what expenses you have can help you create a plan to take care of your new baby and to meet your financial goals.
Divvy It Up
Find a budgeting worksheet online, such as this one beneath this article. Using your take home pay, assign each finance category (food, housing, etc.) a budgeted amount. Don't forget savings and irregular expenses. Also, keep in mind that some expenses change, like gas use. If that is the case, you can plan to budget for the most it is or for the average expense. A good way to do this is to look at all of the bills for that category from the previous year, add them up, and divide by 12 to get a monthly amount. Ask friends for estimates on how much they spend on new expenses you'll have for your baby such as for diapers and formula, or look this information up online.
Add It Up
Now, using the information from step 3, put in how much you actually spent in each of the categories. Find the difference between how much you budgeted and how much you actually spent. This step will give you a good idea of how you are spending your money. If you aren't spending the money you budgeted for a category, you can reassign that amount. But, don't forget to include the new expenses you'll have when your baby arrives. Determine if you are spending more than you have available. If you are, you will either need to increase your income to cover your expenses or decrease your expenses to fit your income. Brainstorm ways to do this. Consider finding a financial counselor if you need additional help.
Pick A Method
Once you have determined how your money is going to be spent, you need to pick a method for keeping you within your budget. It doesn't matter what method you use, just pick one that works for you. You may have to try several methods to find a good fit. Some people like to use computer programs. Others have had a lot of success with an envelope system, where they get their income in cash and then divvy it up into envelopes for each budget category. With that system, when the money is gone, the spending stops!
For the first few months, you will need to evaluate how things are working. You might discover some expenses you had forgotten about and will need to adjust your budget. Keep making adjustments until things are working the way you want to, but stick with it! A budget will give you peace of mind by allowing you to know where your money is going.
Having a baby does change things, especially your finances. But if you follow the steps above, you won't need to worry about your expenses and can instead spend time snuggling with your newborn.
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