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How We Blew Our Baby Budget, And How You Can Avoid Our Mistakes

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Last June 30th our son Carter was born. He weighed in at 8 pounds even and was 21 inches in length. Since then he has grown rapidly, to the point where is now somewhere around 20 lbs, and his height is in the 95th percentile. He's got two parents who are either near or over 6 feet tall, so we have a feeling he's going to be tall as well. In the past couple of months he's started crawling and standing on his own, and we're sure the walking part is just days away.

Have a child at the house has been an amazing event in our lives, and we both feel very blessed that our little boy has been healthy thus far. But while life with Carter has been a lot of fun, it hasn't all been rainbows and unicorns. There have been new expenses cropping up all the time, along with the reduced income as my wife quit her job to stay home with our son. We've found that certain areas were more expensive than we expected, while others weren't as bad as we thought.

Today I thought I'd do a quick look at some areas that we found that we spent more than we had expected, as well as talking about how you can avoid having your own expenses get too far out of control.

Baby Expenses That Were Higher Than We Expected

When we found out that we were expecting, I started researching how much we could expect to spend on our new baby.  Here are some of the expenses we expected, that ended up being higher than we thought.

  • Furniture and accessories for the baby:   Over the past year this is probably one of our highest spending categories for the baby.  I originally thought that we could get away with spending a minimal amount on baby furniture, but in the end we ended up paying for things like a crib, changing table, dressers and bookshelves, a rocking chair, baby chairs, Johnny Jump-Up and more. On top of that a lot of that furniture came with accessories, like sheets, pads, rail guards, safety bumpers and a thousand other little gadgets.   All in all we've probably spent somewhere in the range of $1500-2000 or more on these things (probably more).  How can you get away with not spending as much? Buy your furniture used, or get it from a secondhand store.  It'll be just about as good.  Don't buy all the accessories for every piece of furniture that you  buy because it's just not necessary. Don't fall prey to the appeals that many companies use that make you think that if you don't buy their gadget or product that your child won't be safe or happy.  They will be fine.
  • Clothes for the baby: When we had our baby showers we got a ton of baby clothing that ranged anywhere from 0-3 months, all the way up to 18-24 months.    Because we had received so much clothing I underestimated just how much more clothing we would need.  Part of the problem is that the child grows so fast that they grow out of clothes before they've even had a chance to wear them.  The other thing I underestimated was my wife's need to buy all sorts of “cute baby clothes” for our son.  She would see something she thought was cute and then buy it.  I can't tell you how many pieces of clothing he never even wore because he just grew so fast. We did have a budget meeting about that one to cut this category down a bit.  How can you get away with not spending as much? Try to buy your baby's clothes at a secondhand store. Most of the clothes there are very lightly used anyway, much of it is brand new with tags still attached. Also try to ask for a wide variety of age range clothes at the baby shower. A lot of people want to buy cute clothes for newborns, when in fact that baby will only be that size for a very short time. 
  • Toys:  We got quite a few toys for the baby via the baby showers, but once again both mommy and daddy went a little crazy on the toy front.  First child and all.  We have had to cut back on how much we're spending here because we spent way too much.  Funny thing is, our son actually prefers playing with things we already had – like paper, and candy wrappers and the dog. Go figure. How can you get away with not spending as much? Simple, just don't buy as many toys for your kids, especially when they're younger.  They won't be able to appreciate them anyway, they're more for you as an adult!  If you do buy toys, find gently used ones at secondhand stores or thrift stores.   Buy fewer toys, and rotate them. As the child tires of one toy, rotate in the  other one. Fewer toys, but more fun!
  • Increased medical costs:  We're the prototypical first time parents, always getting worried about every little noise Carter made, every little wheeze or sneeze.  We've taken him in to the doctor many times in the last  year.  Some of those times it was a good thing because he had ear infections or other infections.  Other times it was just a little runny nose.  When you're going so often, however, the co-pays add up.  Over the past year we've spent more than we budgeted for on medical care.  It's too bad, I could have added more to my flexible spending account! How can you get away with not spending as much? This is one area that you may not want to skimp on. Things we could possibly have done better to save a little money are some of those visits to the doctor when even the smallest little thing cropped up.  A little bit of a runny  nose may not be that big of a deal.  On the other hand, if we hadn't been careful we could have missed those ear infections that our son had, which could have lead to big problems. One of my wife's cousins had a baby last year as well, and had a burst ear-drum due to an ear infection.    Moral of the story, be careful about your kid's health care, but use your judgement in taking them in.
  • Babyproofing costs:  Another area where we probably spent more than we needed to was in babyproofing the house.  My wife is big on making sure our son is safe, and while I agree with that sentiment, I'm not as extreme when it comes to padding every surface, locking down every shelf, putting gates around every corner and putting child-proof knobs on every door.  How can you get away with not spending as much? I think that there is a line when safety becomes overkill.  For example, do you need to pad the corners of a table that is higher than the child can reach? No.  Do you need to lock cabinets higher than the child can reach?  No.   The key here is to provide for your child's safety, while still allowing for common sense.   You can't protect your child against everything, and they have to learn the consequences of their actions at some point right?  Cover the most apparent dangers where you can, but don't go overboard.

So those are a few areas where we spent more than we had intended, and how you can attempt to avoid the same mistakes.

What areas did you overspend with for your children?  What expenses do you think can be avoided?  Tell us about your baby expenses and where you overspent in the comments.

Financial Perks Contractors Can’t Take for Granted

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In the world of employees with stable jobs and benefits, there is a lot that can be taken for granted. The self-employed, home business owners, contractors and freelances, though, can't take many of these benefits for granted. Indeed, before leaving their jobs, they often neglect to think about the value of the benefits they receive from work. A story last year on CNN Money claimed that many workers actually cost their employers 25% to 30% — or even 40% — on top of their base salaries.

Those who do not work as employees with benefits, though, don't see the benefits that many workers take for granted. Before you decide that you would be better off on your own, consider the following financial perks that contractors can't take for granted:

  • Cost of facilities: Your employer pays for your workstation and the supplies in it. Power, water, phone and other utilities are also paid for the company. In many cases, you can even get reimbursed for mileage that you drive on behalf of the company. Once you strike out on your own, whether you are telecommuting or doing some other kind of work, all of those expenses are entirely yours.
  • Taxes: Many workers, as they look at the money withheld from their paychecks for taxes, don't realize that some taxes are partly covered by their employers. Indeed, there are payroll taxes that your employer is covering, including half of your Social Security tax. Once you are on your own, you pay the employer side as well as the employee side, meaning that your taxes could go up — even if you don't make any more money.
  • Health insurance: You might gripe about the rising cost of health insurance premiums at work. However, many employers pay a portion of the premiums. When I quit my job to go back to school, I considered COBRA. Then I realized that I would be covering the entire cost of the premiums. I was shocked to realize how much my employer had been paying. Now self-employed, I pay my entire health insurance costs — not contributions from someone else. I did find a reduced price, though, by getting a group plan through an aggregating site.
  • Retirement plan: When you work for someone else as an employee with benefits, you get help with a retirement plan. Your employer offers different options, and you can have money automatically withdrawn from your paycheck to make saving for the future a little easier. As a contractor, though, you are on your own. No employer matches. You have to look at your options, usually different types of IRAs, to determine what works best for you. You have to remember to make contributions, or set up an automatic debit (and don't spend the money before it can be taken out).
  • Worker's compensation: If you are injured on the job while working for someone else, your employer picks up the tab for worker's compensation insurance that helps cover your costs. If you are a freelancer, you have to be prepared to cover the costs with your own health insurance, or with the help of disability insurance.

And, of course, one can't forget paid vacation days and other perks. It's true that there are many perks associated with working for yourself. But, before you can weigh the pros of working for  yourself, you also need to consider the costs that can come with working on your own.

What Constitutes A Worthwhile Expenditure?

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My husband is finishing up his Ph.D. this month. His defense is scheduled, and everything should be wrapped up by the beginning of May. This means, of course, that he will be looking for a job. He has already applied for a few jobs, and has been looking for openings, but many potential employers (mostly universities) want to see that he already has the Ph.D. Even though reports are that the job market is improving, things are still tough out there. Which is why we're looking for advantages. One of these advantages is going to conferences.

Projects my husband has been involved in have been accepted for presentation and exhibition at various conferences, although he doesn't always present it himself. Conferences add something to your CV, and they offer chances to network. One of these conferences is taking place in less than two months, in Madison, Wisconsin. My husband isn't sure he wants to go, since it will cost about $600. He's already been accepted to present, but he's thinking that if he doesn't go, he can use that money to buy an iPad. Here's how our conversation on the subject went:

Him: “I want to buy a nice laptop and iPad more than going to that stuff.” (His current laptop actually belongs to the school and he has to give it back at the end of the month. He can't use mine for personal reasons because it has already been deducted as a business expense.)

Me: “We've already budgeted in a laptop for you. We've been saving up for it.”

Him: “It would be nice to have an iPad. I doubt I'll get a job by going to the conference.”

Me: “Well, a presentation at ISSRM looks better on your resume than an iPad.”

Him: “True.”

Me: “If we're going to spend $600 on something, I'd rather have it be something that could potentially advance your career, rather than something we're pretty sure won't.”

Does Your Spending Help You Reach Your Goals?

When deciding whether an expenditure is worthwhile, I like to consider whether or not it will help our family reach a goal. It's true that one of our goals is to have a tablet computer with a low-end data plan so that we can access the Internet from anywhere, comparing prices while shopping, or looking for restaurants while traveling. However, this goal has a lower priority than helping my husband get a job.

At the conference, he will have the chance to meet other people and network. This could, potentially, help him find a job. On top of that, the date of the presentation shows that he was doing something after finishing his degree. In a world where you are practically unemployable if you have been out of school and jobless for more than six months, an international conference presentation can buy you a little time. In my mind, the chance that something will help my husband's career is more important than a fun gadget. After our conversation, my husband admitted that my argument had merit. So he's going to Wisconsin.

When you are making similar decisions, it's important to weigh the pros and cons. Consider what is more likely to help you in the long term. Consider your financial priorities and goals, and choose to use your money in a way that helps you move forward on the path to financial freedom.

What process do you go through when trying to make spending decisions?  Tell us about it in the comments!

How To Financially Prepare For A Disaster

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There is no way to be completely prepared for a disaster. However, you can do your best to prepare yourself financially for an emergency that could cause you problems. If you haven't thought about it in the past, think about it now. Recent events, from large scale natural disasters (such as the earthquake in Japan) to man made problems (like last year's oil spill in the Gulf of Mexico) can impact your income, as well as prevent you from accessing your money. You need to be ready for these situations.

Build Up an Emergency Fund

An emergency fund is there for…emergencies. You should build one up so that you are prepared. Your emergency fund can help you pay for repairs not covered by insurance, and it can also help you offset other costs that might be related to a natural disaster. Another reason an emergency fund is important is that your income might be interrupted by a disaster. What happens if you can't get to work? Or if the disaster results in you being laid off altogether? If some sort of catastrophe knocked out the Internet in my locale, I'd experience a severe drop in income. An emergency fund can help you avoid complete financial disaster in such circumstances. Take some time to get your finances in order, and start an emergency fund.

Keep Emergency Cash at Home

As nice as an emergency fund is, you should realize that power outages and interruptions in the banking system can limit access to your money. An earthquake once made it impossible for me to get my money via ATM for two days. Realize, too, that a lack of power or downed phone lines can mean that using a credit card might be out. Have a stash of cash at home, kept in a safe place. Don't use it for every day expenses; instead, save it for when you really need it. Consider three days' worth of cash to complement your 72-hour kit.

Know Important Numbers, And Protect Your Financial Documents

In addition to making sure that you have access to liquid funds, you need to consider your financial documents, and your financial accounts. Keep a list of financial account numbers and contact information for insurance policies, retirement plans, bank accounts, loans and credit cards. This list should be kept someplace safe and secure, along with hard copies of documents, such as insurance policies, loan papers, car and home titles, passports and birth/marriage certificates. A waterproof fire safe is one of the best options for these papers. You can even keep some of your emergency cash stash in the safe. That way, your most important information is safe guarded.

What If You Have to Leave?

Your next concern should be whether or not you have to leave. Your emergency stash of cash should be easy to get to, so that you can take it with you. Account numbers and other information should also be taken with you, just in case you need to get in touch with representatives of different companies. Have a 72-hour kit prepared for each member of your family (or create a family kit), and keep it somewhere accessible. These are things you need to grab and take with you in addition to cash and financial account information. You also need identification (if you have a passport, bring it along) and insurance cards.

Make sure everything you need is in a central location so that you can just grab it and go.

Do you have any other tips for financially preparing for a disaster?

Do You Know What’s Important? Spending And Priorities

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One of the most challenging aspects of personal finance is identifying what is important — and then keeping your spending in line with what you value. Because personal finances are, well, personal, each person has their own ideas of what is most important. They key is to decide what is important to you and then create a spending plan that reflects your priorities.

What's Important to You? Identifying Your Values

Different people value different things. Before you can create a financial plan that reflects your personal values, you need to reflect on what you value. If you value more time with your family, you might choose a career path that allows you to be at home more, or you might move closer to your work so that time isn't spent on the commute. If helping others is important to you, chances are that you donate money to charitable causes or volunteer your time. Those who enjoy travel might spend money on vacations or frequent mini-trips. Others prefer to stay home, and spend money on making their homes as comfortable as possible.

Deciding what is most important to you is not a matter of “right” or “wrong”. It's more of an issue of what you prefer. Write down the things that are most important to you, and then rank them. Be quite honest. If saving up for a family vacation is more important than giving money to the food bank, rank your list in such a manner. I don't care if I leave a pile of cash for my son to spend after I'm gone, so my financial priorities focus on a modest and adequate retirement fund, with a bigger budget for fun now (including family fun).

Bringing Your Spending in Line with Your Priorities

My husband and I have always believed that giving to our church is a must, so our spending has always including tithing. However, not all of our spending has always been in line with our priorities. We enjoy eating out and trying new foods. For a while, though, we had a premium cable package — even though we don't watch that much TV. We realized that by scaling back the cable package, we could eat out more. We barely miss the premium cable channels. Of course, the value my husband places on ESPN, NFL Network and MLB Extra Innings is the reason that we still have cable at all.

Look over your spending, and see if it matches with your priorities. If you have listed early retirement as a priority, it doesn't make much sense to spend money on a new car. Instead, put more money toward your retirement fund, and buy a less expensive used car. If your biggest priority is paying down debt, look at your spending. Are you buying lunch every day or getting the latest movie when it comes to DVD? This doesn't jive with your debt pay down priorities. Be honest about your spending, and how it matches up with what you actually want out of life. Then see what adjustments can be made so that your spending matches your values.

Does your spending match your values?  What things could you cut to better meet your goals and priorities?

How Much Of My Annual Pay Should I Be Saving For Retirement?

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Over the past few weeks I've been noticing quite a few searches coming to this site with people putting together their financial strategy for the new year, and asking one important question. How much annual pay should I be saving for retirement? It seems like a lot of folks are just unsure about how much they should be saving, and they're worried that they won't have enough, especially given the current economic climate, and debts they may be trying to pay off first.

Today I thought I'd do an examination of this question, and talk about what some of the different thinking on the topic is.

How Much Should I Save For Retirement?

There are several viewpoints that people can come from when trying to figure out how much to save for retirement.  Their calculations all seem to take into account different assumptions and criteria, so it's important to look at them all, and figure out which you think would work best for your situation.

Some of the criteria that may be important when calculating how much you'll need include how long you expect to live, the costs of health care in the future, how much inflation we'll see and what type of lifestyle you're living.  Also important are your age, your current income, how much you've already saved, your employment prospects in the future and how much you're willing to sacrifice now for future security.

With that said, here are some differing viewpoints on how to determine what you should be saving for retirement.

Save A Set Percentage.  Save 10-20% For Retirement

Most retirement calculators will use people's current pre-retirement income as a frame of  reference when calculating how much the person should save for retirement.  A lot of financial planners will say that most people will need anywhere from 70-100% of their income in retirement in order to be able to live a similar lifestyle when they retire.   To do that most of them will suggest that people save anywhere from 10-20% of their income.  While I think that it can be  a decent rule of thumb to save that much, in some cases it may not be adequate – or in some it may lead to saving more than you need.

Save As Much As You Can

Another viewpoint that I've seen quite often are the folks that just say to save as much as you can.  Some months that may mean saving just a little, other months it may mean up to 1/2 or 3/4 of their income.  Basically they feel that there is no such thing as “too much savings”.    They feel that if they can just save as much as possible  every month, they'll be fine when it comes to retire.   While this may serve some folks well, it may be a bit too simplistic for a lot of people.  It may lead to saving more than you need, requiring more sacrifice than is necessary.   It could also lead to saving too little if  the “saving as much as you can” is only a little bit of money at the end of the month after all other bills and even entertainment costs are paid.

Save What You'll Need

Some people believe that saving for retirement is an extremely personal thing, and you should really put together a personalized retirement package based on your own expectations and personal situation.  For example, they'll factor in things like their current income and age, amount of money the have already saved, their employment outlook,  how long they expect to live when they retire, and what type of lifestyle they'd like to live in retirement.  They also factor in things that may be changing when they retire like downsized housing costs, reduced auto expenses, and increased travel and entertainment expenses.   In other words they take a comprehensive look at what their current situation is, what they hope to do in retirement, and then they make a plan based off of what their ideal situation would be, and how much they will need.

Retirement Planning Is Very Personal

I think that retirement planning is a very personal process, and one that all families should undertake.  When looking at the viewpoints above I think I come down closest  to the “save what you'll need” camp, where you figure out your personal situation, factor in your personal needs and desires, and then come up with a number based off of those.    Once you come up with a number – add 10% to it, better to have too much saved than too little.

While I understand that getting into the nitty gritty details is probably the best idea, I know not everyone will take the time to do that.  If you don't go through with it, at least stick to the old 10-20% rule, and start saving for your retirement as early as you can!

List Of Retirement Calculators

Here is a list of retirement calculators I found via getrichslowly.org.  The ones on this list take into account more criteria than just income, and will probably give you a better picture of what you need to save.

Have you figured out what your retirement savings number is, and how much are you saving towards that number today?  How did you determine your goal?  Do you think you'll reach  it?