Starting a family is exciting, but it comes with dollar signs…a lot of them. Your budget completely changes because there are more people to feed, clothe, and shelter.
The fact is that children aren’t cheap.
They can outgrow a pair of shoes in no time. Suddenly, their pants are too short. One day they will barely eat what’s on their plate and the next day you can’t keep food in the kitchen because they’re hungry all the time.
All of this takes a heavy toll on the wallet.
If you have debt, the financial aspect of starting a family can seem even more overwhelming. The good news is that it isn’t a death sentence if you have debt and kids. If you budget the right way, you can make all of the puzzle pieces fit together snugly in your world.
Debt and Kids
Many people get married and already have debt. By the time the kids show up, there tends to be more debt. This is usually the point in which couples realize they need to get a handle on their debt. They start worrying about the needs of their children and their children’s futures. Once a baby is born, there are only 16 years until he or she is ready for a first car.
It is also ideal to have college funds set up for the kids to minimize their need for student loans when they grow up.
One of the most crippling debts that new parents face are student loans. Sometimes, both parents have two sets of loans that can exceed $50,000 or more. This can almost make the debt situation seem impossible. A person can become so overwhelmed that they don’t tackle the debt at all. Denial starts to set in, and that can cause an even greater issue.
Managing Debt and Family Needs
You can take care of your family and pay off your debt. It all starts with a family budget so you can determine what you can and can’t afford to do. Yes, paying off debt will take longer than it would if you didn’t have children, but the point is that you can pay it down and do so faster than you would if you were just making minimum payments.
When making your budget, consider household needs first. This means you need to factor in your monthly bills.
After you’ve written down your monthly bills, check and see how you can reduce them. Can you cut down the on the cable plan further? Can you reduce electrical usage? Can you reduce the amount of water the family uses each month? Can something be done about the grocery bill?
These are all fantastic questions to ask so you can determine the answers. You will be surprised just how much you can cut expenses. For example, a little more effort researching the best grocery deals each week and using coupons could save hundreds of dollars a month.
Next, you want to consider the needs of your child or children. If you have a baby, formula and diapers are two things you’ll have to spend money on. Consider that your child will be growing out of his or her clothes every few months for the first two years of life. Around the age of three, their growth slows down.
You also need to consider any medical needs that require out-of-pocket payments.
After you have determined your child’s needs, it’s time to determine the needs of you and your spouse. This part should be easier because you can make sacrifices. For instance, reduce the trips to the clothing store. You can also figure out how to utilize what you have.
Tackling the Debt
Once you have a budget and know how much money you can save so you can apply it to debt, it’s time to determine your debt strategy.
An effective strategy is making the minimum payments on low-interest debts while sinking more money into the high-interest debt. Paying high-interest debt off first reduces the overall amount that is paid because the debt is paid off sooner.
If it will help you a great deal, you can refinance your debt at a lower interest rate. For example, creditworthy borrowers who refinance their student loan debt can slash their rates in half or more. After refinancing, you can then pay more than your minimum payment to eliminate the debt as quickly as possible.
When you eliminate the debt, you are freeing up more of your income for the needs of your growing child. Kids get more expensive as they grow. Think of how your debt can be reduced as they grow so that you have the money needed to handle the long school supply lists, field trip expenses, first cars, copays, book orders, designer clothes, and the essentials for that first college dorm room.
When it’s all said and done, you’ll be glad you made those early sacrifices so that crippling debt doesn’t hold you or your children back.
As a math teacher by day and personal blogger by night, Jacob is constantly looking at and analyzing numbers. He shares some of his best tips and tricks @DollarDiligence.