Budgeting with children
Having a child changes a lot of things, including your budget. Here’s how to budget for new parents.
Budgeting basics still apply
Keep budgeting your income with the typical 50/30/20 split-up. This means:
- 50% goes towards household bills, minimum loan payments, and other expenses such as diapers, formula, and other child care expenses.
- 30% goes towards financial wants.
- 20% goes towards savings and payments on items such as loans and credit card balances.
Before the baby comes
It’s possible that your income will change after having a child. One parent might take a leave from work, or leave work entirely. Before the due date, practice living on a lower income on one income to see how your expenses match up to the decrease in income.
What will be your ongoing expenses?
The first year of raising a baby can cost upward of $21,000. The cost of raising a child into adulthood is even more. You can use a baby calculator to estimate the amount you’ll be spending in the first year. If you are going to be using a child care center, be sure to include this in your costs.
Many costs for first-time parents are one-time costs. Such costs include the crib and the stroller. Other costs will only continue for a few years, such as child care or diapers. Sit down monthly to predict what your expenses will be for the next month.
Saving for college
Another additional expense that you will incur is saving for college. Starting a college savings account early will help in the long run. The earlier you start saving and the more you set aside, the more you will have when the time comes for your child to go to college.
Change your taxes
Once you have a child, you can claim an additional person on your taxes. You can also claim a portion of the childcare expenses and take advantage of the Child Tax Credit. To qualify for the child tax credit must pass al seven qualifications. These qualifications are:
- Your child must be under the age of 17 at the end of the tax year you are claiming the credit for.
- The child must be yours, a stepchild, or a foster child placed with you by a court or agency.
- The child cannot provide more than half of their financial support throughout the tax year.
- You must claim the child as a dependent on your tax return.
- Your child must be a U.S. citizen, U.S. national, or a U.S. resident alien.
- They must have lived with you for more than half of the tax year that you are claiming for.
- The tax credit is reduced if your modified adjusted gross income (MAGI) is above a certain amount, determined by your tax-filing status.