The Smart Way to Budget for Your Family

by Cheryl Lock

Back in BK (Before Kid) time, you were an expert budgeter. You were on top of where every dollar went, set ambitious financial goals and felt good when you treated yourself to the occasional dinner and drinks with friends, because you knew you had room for it in your budget.

But things are different when your family depends on you. It can be harder to keep track of what exactly you’re spending on when there are more variables. And you’re probably facing more expenses than before … despite the same level of income.

According to the most recent data released by the U.S. Department of Agriculture, the average middle-income family spent $17,520 in 2010 on expenses relating to children between the ages of zero and two. Yikes.

“In general, for a middle-income family, child-rearing expenses increased 37% from 2000 to 2010,” said Mark Lino, Ph.D., economist with the USDA. Double yikes.

And a lot of the budgeting problems actually happen within higher- and middle-income households: “If the average middle-income household spent what lower-income households spent on their children, based on this data they’d save $3,700 per year per child, which, at 4% interest, would yield over $150,000 by the child’s 25th birthday,” says Tere Stouffer, author of “Everything Budgeting Book.”

Making Your Budget

Your optimal budget shouldn’t change all that much once you have kids. Your main expenses should stay relatively the same, including rent or mortgage payments, utilities, transportation, savings, debt repayment and health care.

After accounting for those fixed, unchanging costs, you should have about 22% of your budget left over, and it’s that chunk that has the most wiggle room. That’s also where you’ll cut costs in your own spending to fit your child’s expenses.

See the graphic above to see what a healthy mom budget might look like.

*Debt Repayment: If you’re using less than 10% of your budget for debt payments, put whatever is left over toward retirement savings or college savings for your kid.

*Health care: If you’re not paying a whole 10% toward healthcare, put whatever is left over toward maxing out your retirement; put anything left over from that toward college savings for your kid.

Although this might paint a stark picture for some people, your child can (and should) start helping out with his own expenses once he hits a certain age.