Budgeting for baby cost is a major concern for many people. This article will give a brief overview of some of the baby expenses that you’ll encounter over the first and second years of your baby. Having gone through the experience twice my wife and I have a good handle of the annual cost and monthly cost of raising your baby, diapers, clothing and food etc. Plus I’ll go over some things that you might not have thought of, for example life insurance.
Let’s start off with the obvious, clothes and diapers. Chances are you’ll be getting a ton of clothing as gifts from family and friends. I know with us we never really had to buy a lot of necessities. The first couple of years we’ve either been given clothes. You usually get a lot when baby is first born. You might want to register at your favourite store for clothes and whatever else you think you’ll need so people won’t be giving you too many multiples of what you need. But if you find you’re still in need of clothes and your on a budget there are plenty of second-hand children’s stores to go to.
The question that will probably come up is how much clothing do I need? For the first six month depending on the season and the child you’ll need a lot of receiving blankets (7 to 10) to swaddle and keep them warm. There are swaddling blankets already made that you can purchase. You’ll also need between 8 to 10 one piece outfits (sometimes referred to as onesies). My wife found that she would go through 3 to 4 outfits a day.
With diapers, we bought a package of newborns before our kids were born. After that my wife did a mixture of cloth and disposables. We purchased 20 cloth diapers and 4 plastic covers. We would also go through 1 to 2 packages of diapers a month.
One of the most important, if not the most important thing you should consider is having the proper amount of life insurance. I’m not here to lecture but the question you really need to ask yourself is, will my baby be properly cared for financially if I’m not here. I know it’s a topic we don’t like to talk about but it’s something we owe to our dependents to handle.
How much life insurance should you have is the next logical question. The rule of thumb is you take your annual income and multiply it by 10 then you add any other expenses you would want to pay off, like your mortgage or any outstanding debts. The equation would look something like the following: Assuming an annual salary of $50,000 and a mortgage we’d want to get paid off of $200,000.
$50,000 x 10 + $200,000 = $700,000
The reason you multiply by 10 is you would take the $500,000 and put it into a fairly conservative mutual fund that over time pays between 8% – 10% annual rate of return. This way your dependents could live off the interest which would be roughly what your annual salary would have been and the principle ($500,000) is not touched.
The other point that needs to be made is what type of life insurance should you get. Generally there are two types and they’re called cash value and term insurance. The most suitable for the vast majority is called term insurance. It’s by far the cheapest
I’ll be covering baby food and going into the different life insurance products in more detail in my next post so stay tuned.
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