How to Budget for a Baby
The concept of opportunity cost alluded to above is extremely important in financial management; in fact, some commentators would contend that it is the single most important concept.
– Jim McMenamin
This post is not going to be a general guide to baby related expenses. Instead, this article will be just a simple warning to prospective parents not to miss what might be one of your biggest expenses, and yet ironically, the one you might totally overlook.
The average person probably estimates baby expenses in one of two ways. They either use information or advice from others, or they look at their own existing spending and attempt to add money for the baby to each category. So with the first method, you might ask a friend how much money they spent on diapers each year, or you might read an article that tells you the average amount of money spent on food or clothes for a child. With the second method, you might go through your budget line by line and add some more to your expected costs for medical care, food, water, clothes, and so forth. These are both reasonable ways of estimating, and we would encourage you to use both methods.
However, there is a hidden expense here that looms large. In fact, it is possible that this hidden expense may be larger than all the other expenses you considered combined. The expense: time.
Consider the following thought: Adults have many responsibilities and commitments. We have demanding jobs and long commutes. We have houses and cars to maintain. We have our communities to assist, and the less fortunate to help. We have friends and business partners to please. We have our skills and our health and our sanity to maintain. Most of us also have complicated personal and social relationships. Some of us may already have older children that require enormous amounts of time, energy, and initiative. Others may have elderly family members to assist or support.
Now, on top of all of that, enter the new baby — a totally helpless individual who will require constant attention when he or she is not awake. It does not take a genius to understand that your current busy schedule is on a collision course with your new demands.
Thus far, we have not said anything more than the obvious: adults are busy, and babies are a lot of work. But since we know that time is money, we also know that these new time demands will impact your budget. Therein lies a subtle financial difficulty that will manifest itself in two distinct ways.
First, the additional demands of your time may have indirect financial costs. It is not hard to imagine how this plays out. You might have so little time (or energy) to work overtime hours where you might otherwise earn extra money. You might also not have time to do certain maintenance or repair jobs, so you will need to pay others to do them. (e.g. mow the lawn, change the oil, or fix a leaky faucet) You might cook less and eat out more because you are tired or stressed out or in need of a break. Many of these scenarios are likely, and they will all increase your budget.
Unfortunately, as this post unfolds, the game plan is often to simply work harder, harder, harder. The budget will be maintained at all costs, and of course the overwhelming majority of parents are certainly not going to shortchange the child. Thus, we plod along, attempting to perform all the duties of a new parent while maintaining all the same arrangements as before.
We would suggest that this approach is neither healthy nor realistic. Notwithstanding the human capacity for hard work, this approach may not be consistent with your values, and so it may set up enormous conflicts within yourself and with others. This tension brings up the second kind of impact to your budget: shifting priorities.
To use a simple example, suppose it has been a long week. You are tired. Your work schedule has been very demanding, and you come home to a new baby that needs constant attention and keeps you up half the night. Then Saturday afternoon rolls around. The baby is finally happy for a change! You would like to play with the baby, maybe even take the child for a stroll in the park. But the grass is very high and needs mowing. It is rainy for the next few days and you will also be at work. This is possibly your only chance to mow for many days. But this may also be your only chance to go to the park with a happy baby for the week.
So what do you do? Do you just grind it out and do it yourself? Or do you pay the neighbor boy €30 so that you can do what you want for an hour or two? We hope you appreciate the subtle distinction between lack of time and shifting priorities. In the first scenario, you simply feel that you have run out of time or energy. You would like to cook dinner or mow the lawn or whatever, but you feel that you simply cannot. There are only so many hours in a day. There is only so much energy in your body. In the second scenario, however, you do feel that you are completely able to perform these tasks and save money. However, you deliberately choose not to do it in order to spend additional time with your child.
Does this mean that you are a better parent every time you choose to spend more money to have more time with your child? Certainly not. There is a beautiful Latin phrase everyone should know: est modus in rebus. Roughly translated, it means “there is a middle ground in all things”. This expression is wise advice for much of life. In our current context, obviously it is not healthy to maximize euros completely and ignore the baby, but neither is it healthy to maximize baby time and ignore your own health and employment. Both extremes are detrimental to you and the child. As in all things, there is a middle ground, and that middle will be different for different people and different situations. But in all likelihood, if you have planned your current budget to fit your life without a child, then it will need to shift somewhat to accommodate the child. In terms of your actual spending, this will happen automatically. But your budget (a planned estimate of spending) will need to be explicitly changed as well, as a budget divorced from reality is irrelevant.
Can you quantify these expenses in your budget? We doubt it. You probably ca not say, “I think I will spend another €1,000 in indirect costs because my time is limited, and another €1,500 in indirect costs because we choose to spend additional time with my child.” However, just because you cannot estimate the expenses, does not mean they are not real and probable and significant. Our advice would be to treat these expenses as a risk that your current budget is inaccurate. Suppose you saved €5,000 last year. Great. Now you are having a child and you have added up all the direct costs and you are pretty sure you will save €2,000 this year. Treat that number as suspect. Assume there is a fairly large risk that you will overspend in many categories to compensate for your lost time. Furthermore, assume you may spend additional amounts of money because your priorities have changed – you would rather spend some additional money to have additional time with your child.
In closing, we want to make sure people do not have the idea that we consider children to be “a burden” because they cost a lot of money, both directly and indirectly. We surely do not. Please consider the perspective from which the article was written. When considering your household budget, do not assume that children have only direct costs like food and medical insurance. Indirect costs will be significant – recognized or not, quantified or not. These indirect costs involve paying up for time – both because you need more time and because you want more time. That is our only point. Our own experience has been that children are more work than we ever expected, and yet far more rewarding than we ever expected! And that is a tradeoff we are glad to make.
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