But, that’s not exactly what this article is going to be about. Instead, we are going to talk about some of the things YOU need to do BEFORE that bundle of joy arrives to get your finances in order.
When you are just responsible for yourself (or maybe the two of you as a couple), there is more latitude regarding what you can choose to do when you have money and when you don’t.
With no little ones to care for, if you are short of cash, you can eat ramen for a few days, or just stay home, rather than going out. But an infant can’t eat ramen. And doing without things like diapers is a fate better not tested.
The more children you have, the greater the overall cost – and the chances that you will be short on cash – leading to more serious the consequences.
So while the number “9” (as in months) is foremost in your mind as you wait for your little one to arrive, here are nine steps to get your financial house in order while you are waiting. Every step you take NOW to will relieve your financial pressure and save a child from having to eat ramen until they are in college.
9 Steps to Delivering a Healthy Financial Future
Step 1: Review the last year of checks and credit card statements. Divide all expenses into categories. Consider using a tool like Microsoft Money or Quicken. Both tools will let you balance your bank and credit card statements in the tool and will help you assign categories, after a bit of learning.
Step 2: Identify where you spend cash. Consider shifting your use of cash to a debit card. It will make tracking much easier. This particular item is a big issue for some people. If you are concerned that your spouse or partner may see what you are spending money on, it’s time to sit down and have a talk.
Step 3: Create an initial budget. Once you have analyzed (entered) the last 12 months of data into the program you choose, run a report for the categories you’re using to give you an initial budget. Review this report for categories which seem high and discuss ways to reduce spending in those categories. Don’t think about the budget as restrictive. It is simply a spending and saving plan.
Step 4: At least 10% of the budget should be put into savings. If that doesn’t comfortably fit into your budget, get uncomfortable! This is critical!! Initially these savings should go into an emergency fund – a fund to be used for all the surprises that life throws your way.
Step 5: Either cut up, or freeze all of your credit cards. The idea of actually freezing cards in a block of ice is that you have time to review the money you don’t have, but are about to spend, while the ice melts. It is important to stop using credit cards entirely right now so you stop building up additional debt. For emergencies, use some the money set aside during the last step.
Step 6: Compare your budget with what you actually spent on a monthly basis and either refine the budget or change your habits until what you want to do and what you actually do are in line. If you have a spouse or partner, do this as a couple! A good budget is not something that one person can create and both people must live by.
Step 7: Identify the furniture you’ll need and other one-time expenses that will be required for the new child (medical bills for delivery, crib, changing table, car seat, etc.) Consider getting a crib and changing table second hand. Things like a car seat are best purchased new, since safety standards may change from year to year. Don’t hesitate to ask family and friends for specific items, or to go in together for an item. Do NOT put these items on a credit card.
Step 8: Estimate the ongoing expense for the new addition. Include everything you can think of (food, diapers, pediatrician etc.) Add these to your budget and start living on the new budget well ahead of the delivery. (Take a look at those child costs estimators again: here, here, or here)
Step 9: Implement a debt snowball. Rank all your credit cards in descending order from most expensive (interest rate and annual fee) to least. Divide your total monthly payments by 10 and add that much to the most expensive card each month. When the balance is paid off, add the total payment for that card to the next most expensive card. When all cards are paid off, move on the next most expense debt, such as car or student loans. When you are out of debt, add the total you’ve been using to pay down debt onto your 10% savings so that when you go to buy your next car you can pay cash. Read more about the Debt Snowball here.
The most critical part of these steps is to come up with a plan and then DO what you’ve agreed to do. Best intentions are of little value when you’re trying to make ramen into baby food.
These nine months will go by in a heartbeat. Most of all, enjoy your new baby through all the happy and challenging time because, before you know it, they will be having babies of their own. With a bit of luck and some healthy financial habits, you’ll be financially set by then and free to enjoy grandchildren (who are easier and less expensive, anyway).
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This information is intended for informational and educational purposes only and not as legal advice. If you have concerns about your credit report, harassment, identity theft, illegal collections activity, garnishments, or property liens, you should consult an attorney who specializes in consumer rights and defense.