10 Ways Your Budget Changes When You Start a Family

Mom helping daughter ride a bike
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When you begin to have children, you will likely need to change the way you manage your money. Most people plan for things like formula, diapers, and daycare, but there are other financial areas where you need to make changes—including budgeting, life insurance, and savings. Proper planning can help you avoid accumulating new baby debt. Here are 10 ways your budget will change once you have kids.

Childcare Costs

The cost of daycare is expensive, and if you plan to continue working after you have a child, you will need to plan for childcare costs. If you are planning on having one parent stay at home, you will need to adjust your budget to make up for the lack of income. On average, monthly full-time childcare costs for infants and toddlers is close to $1,000.

Healthcare Costs

Many healthcare plans will cover well-baby visits under the Affordable Care Act; however, babies are prone to childhood illnesses, and it is important to budget additional money for unexpected trips to the doctor’s office and medication. If your children have allergies, you may end up paying more for formula, or need additional services or therapies if there are complications. Building up a cushion can make managing these expenses easier.

Insurance Changes

Oftentimes the most affordable option is to add your child to your health insurance policy. You have 30 days from the day your child was born to do this and have everything from the birth covered. For your first one or two children, it generally means that the increase in monthly premium will reduce the amount of your take-home pay. You can estimate your new paycheck using an online calculator so that you can adjust your budget accordingly.

Saving for College

Once you have a child, you should begin setting aside money to cover college costs. Getting out of debt may take priority over this for a short time, but saving for college through a 529 plan or similar tool can help your child get off on a solid start without accumulating a lot of debt. The earlier you begin saving, the better.

Life Insurance Needs

Once you start a family, it is important to have life insurance. Both parents should have a life insurance policy in place to help cover expenses if one of you were to die. Even if you are not working, you should have a life insurance policy to help defray the additional costs of childcare. You can also get a policy large enough to cover the costs of college.

Changes in Your Taxes

There are tax benefits to having a child. You can claim an additional person on your taxes and may be able to claim a portion of the childcare expenses and use the Child Tax Credit. When you have a child, you may want to change the withholding amount on your check. Use the IRS withholding calculator to determine if you should change the amount you are currently having withheld or speak to your accountant.

Adjusting Your Flexible Spending Account

If your job offers a flexible spending account, you should take advantage of it. You can have additional money withheld to cover the cost of daycare expenses. You and your spouse can each do this at work, and it will make some of the expenses come out pretax and lower your taxable income. Additionally, you can increase the amount in your health flexible spending account to cover additional medical expenses.

Housing Changes

With more children comes the need for more space. Take the time now to plan for the additional costs involved with having a child and determine just how much you can afford to spend on a new house. Once your children are school age, you may want to move to make sure they are in a good school district, which often means moving to a more expensive area.

Ongoing Lifestyle Changes

There may be additional costs and lifestyle changes that you will need to account for. Things like taking a vacation or how much time you spend on hobbies will change. Some expenses also become more expensive because you have an additional person—for example, buying an extra plane ticket when you go on vacation or additional food when you go out to eat. These changes may be minimal at first, but it is important to plan for them.

Changes to Your Budget

Your budget may change quite a bit as you plan for additional monthly costs like baby food, formula, and diapers. Other categories may need to increase as well, such as clothing or entertainment costs. As your children get older, you may opt to enroll them in classes and sports and you will need to budget for that. Taking the time to start planning for those things now will make it easier to adjust as your children get older.