Financial freedom: budgeting for baby

budgetforbaby-01 When you don't make a ton of money and live on a fairly tight budget, the news of a baby on the way, while thrilling and joyful, can also cause a lot of stress and worry. How will we pay for it all? Aren't babies so expensive? We'll never manage. I've had all those feelings (times one billion!), wasted WAY too much time on those dumb "baby cost calculators" and ultimately it's stolen a lot of joy from what can and should be a very joyful season. So if you're there too, or if you too live on a budget and wonder how on earth you'll ever be financially ready to have a baby, I want to encourage you! I don't think it has to be as overwhelming and expensive as Pinterest makes it seem. I might be pretty naive (probably) but Matt and I are finally at a place where we feel mostly calm about how we are going to include a baby into our world, financially speaking.

Here are six things we're doing to financially prepare for the baby joining our family in September:

  1. Planning + saving for our out-of-pocket medical expenses // Per my parents' insurance policy, which I'm still on, our out-of-pocket expenses shouldn't be more than $5,500. We're responsible for 100% of costs up to $2,500. Once we hit that, then we pay 30% of bills (insurance pays the remaining 70%) up to an additional maximum of $3,000. So, total, we shouldn't pay more than $5,500 to have this baby. We're totally committed to doing it debt-free, so we do not want to be paying off a hospital bill for months after the baby is born. That is just a personal choice we have made given our priorities and commitment to living debt-free. So that means we are hustling to get at least $5,500 in our savings account as quickly as possible. Especially since we are responsible for ALL bills up to $2,500--that's going to happen quickly and although we haven't received a bill yet, we have had two appointments, including one ultrasound, so I'm sure those bills will start rolling in. Thankfully, we have $1400 in our savings account right now, which should cover the first couple bills.
  2. Viewing our "emergency fund" as our "baby fund" // This is more of a psychology thing, I think, but it's been really helpful. Dave Ramsey suggests in this article to pause whatever baby step you're on when you find out you have a baby on the way, and funnel all your efforts into saving, saving, saving until mom + baby are home safe from the hospital. At first, when we were calculating everything, I was super discouraged because on paper, it looked like we were going to drain our emergency fund to have the baby. And it was discouraging because it felt like all our months of hard work to save up an emergency fund would be over because we'd have to use it all to pay for the medical cost of the baby, which in my mind, doesn't really qualify as an emergency since we have 9 months to prepare. But now we are looking at our savings goals as a "baby savings" instead of an "emergency savings." Our goal is still to save $10,000 this year, but we know now that it's likely that over half of that number will go straight to paying to have the baby. But now that feels okay, because it's what we're planning on. The remaining $5,000 of our goal will be kept in our savings account as our emergency fund. It's no longer realistic for us to think we'll have a fully funded, 6-month emergency fund by the end of this year--it's just not possible with our salaries and the cost of having the baby. But, $5,000 does cover 2 months, which is a great start. Here's how I calculated that amount:
    • Add up all your bills for a typical month. I did NOT include things like our spending money, money for date night, our budgeted Christmas saving, or any extras. If one or both of us loses our job, we are going into super strict spending freeze mode, and things like dates and spending money and budgeting for Christmas simply get cut out, and we do without. So add up your expenses that are non-negotiable, like rent or mortgage, groceries (but no eating out), utilities, required minimum debt payments, pet food, and gas. Our monthly expenses for these things is $2,249. So $5,000 covers two months of bills for us, which buys us some time.
    • Multiply that number by 3. Boom, there's your goal for a 3-month emergency fund. That means you can have no income for 3 whole months and still pay your bills, drive to job interviews, and eat. The likelihood of us not having any income for 3 months is low, because one or both of us would go find something to pay us an income in that time frame. For us, 3 months of expenses is $6,747.
    • Multiply that number by 6 and you've got a fully-funded, 6-month emergency fund. This means no income for 6 whole months, and you're still going to eat, pay your rent and keep your lights on. I view the 6-month emergency fund as a TRUE emergency plan--if one or both of us were to get seriously hurt and couldn't work for 6 months, or something like that. We do have life insurance, but not disability insurance, so a 6-month emergency fund is definitely our goal in case something terrible were to happen and we weren't able to make an income for that time frame. For us, a fully funded 6-month emergency fund is right around $13,500. Our goal is to have this complete by mid-2016, which isn't too bad for 3 years of marriage, paying off a student loan, buying a house and having a baby. We are hopeful!
  3. Not buying baby things // We haven't bought a single thing for the baby yet. Granted, I'm only 11 weeks and we don't know the gender yet, so I think a lot of the baby-stuff-buying happens once you know if you have a little lady or a little gent on the way, but we're still planning to not spend much on baby stuff. We are trying to keep it simple, and since it's our first baby (and first grandchild on my side!) we know we'll be gifted a ton of stuff. Which brings me to my next point...
  4. Register for everything // We are using BabyList to create our baby registry, and it's amazing. It's a universal wish list that lets you register for items from anywhere. Etsy, Amazon, Target, any store under the sun. You can even register for gift cards, babysitting help, meal help, and I put a maternity photo session and a newborn photo session on there as well. We did a honeymoon registry in lieu of a traditional registry for our wedding, and I'm a big proponent of spending money on experiences instead of stuff. So, to be honest, creating a baby registry has been a little hard for me, because I feel a little weird asking people to buy us everything we need for this baby. But my mom and friends assure me that it's what you do, and people love to gift you exactly what you want, so I'm swallowing my silly anxiety over it and putting everything we want on there. In the event that we don't receive something we really need (like a carseat, stroller or crib), we'll use some of the money we're saving in that baby fund to purchase it. But I also put a caveat on this, because I know from my own experience, registering can get crazy. You find yourself adding all kinds of adorable but probably unnecessary things to the registry. Sit down, make a list of what is TRULY important (this and this are great registry round-ups for moms who like the simple life) and then add those things.
  5. Opt out of unnecessary tests // We haven't totally decided yet, but we're leaning towards opting out of the genetic testing that can be done to determine birth defects and possible things like Down Syndrome. The first reason is that we are going to love and treasure this baby regardless of what they look like or what their abilities are, so the results of such tests aren't going to change our attitudes one bit, expect maybe to cause us to stress out and steal some joy from the remainder of the pregnancy. And secondly, those tests aren't covered by insurance (not mine, anyway) and can cost hundreds of dollars. So we're likely going to skip them.
  6. Budget for everything // Our grocery budget has changed since finding out I'm pregnant, because my food tastes and appetite has changed. February was a crazy month and we went off the rails a little because I was so nauseous, had food aversions and was just trying to keep up. We ate out a ton and totally blew our grocery budget. Thankfully, that has evened out, but I'm still way hungrier than usual. So we made a realistic plan for March and upped our grocery budget a bit to account for that. We also accounted for a tiny bit of maternity clothing shopping, because my clothes were just not fitting. I'm planning to buy several things second-hand and am buying mostly basics, like sports bras, bras and plain leggings, to last me awhile.

So, there you have it! Overall our budget hasn't changed too much from month to month. We've just gotten even more focused on saving because now we KNOW we have several thousand dollars that will HAVE to get paid within the next 7 months, so there's really no negotiating that our saving NEEDS to happen. And I won't lie, there was definitely a ton of hand-wringing and tears in the first few weeks as we tried to figure out how we were going to afford Baby K. It felt impossible, and overwhelming, and I was wondering how on earth God thought this was a good time. And then I felt guilty for feeling overwhelmed, like somehow that made me a bad mom. Hormones are crazy. But the more we focused on giving thanks for this miracle, and the more we worked it all out on paper with as realistic numbers as we can get, the more the puzzle pieces fitted together. Yes, I can't go splurge on adorable gender-neutral onesies or nursery decor, which I so want to do. I have to be even more strict with the budget, because we truly have NO room for unbudgeted spending any more. But I also truly believe that a lot of times we (myself included) make the whole having-a-baby thing seem a lot more overwhelming, complicated and expensive than it needs to be. Sure, this baby won't have Pottery Barn and Land of Nod everything. They probably won't have 100% organic cotton onesies. I'm going to be sporting secondhand maternity jeans. But in the grand scheme of things, those things don't matter so much to me. They aren't even going to remember what kind of crib they slept in or the thread count of the onesies they spit up all over. What's truly incredible is that God wants us to be parents, right now, in our current circumstances. And that's truly awesome.