two-roadsThe administrative aspect of your new baby’s finances might not seem like a big deal, but as a personal finance blogger, it was actually something I paid close attention to. You see, when it comes to baby budgets, you essentially have three choices:

  • Merge your child's expenses with your existing budget, making no distinction between your own expenses and your child’s.
  • Separate your baby’s expenses completely and track them on their own.
  • Create a hybrid system that tracks certain components of your baby spending and integrates others.

Depending on how closely you track your money now, you might be wondering this decision is worth bothering with. It turns out there are some key benefits to tracking your baby’s budget separately:

  • You can compare your own baby spending to averages and other benchmarks at a glance and diagnose potential problems.
  • You can get a fast look at how your new baby affects your budget, and make adjustments accordingly (like cutting other expenses or finding ways to make more income).
  • You can prepare for your next baby with more confidence by knowing how much you spend on your kids, rather than using national averages or guesses.
  • You can tell whether added expenses are really baby-related or due to natural spending “bloat” in your existing budget categories, and make the necessary changes to control your spending.

While many of these goals can still be accomplished with an integrated budget, it’s not nearly as black-and-white as when you keep things separate. So how exactly did we go about setting up our system?

First, we considered some of our existing budget categories that could have significant overlap between our own expenses and things we were buying for our new baby. These included:

  • Furniture
  • Food
  • Home supplies
  • Investment contributions
  • Car expenses
  • Entertainment and Travel
  • Health expenses
  • Insurance premiums
  • Toiletry items

Because of my ongoing blogging, we began our son’s life by tracking everything separately. This enabled us to effectively report on how much we were spending, but also reap the benefits I talked about earlier.

Within our budget, we needed to use baby-exclusive categories that broke out spending specific to our son as much as possible. We set up category splits such as:

  • Food and Food:Baby
  • Investments and College Investments
  • Furniture and Nursery Furniture

This allowed us a great deal of control over assigning our expenses to the correct category, and let us produce reports of exactly how much we were spending on our son down to dollars and cents.

Of course, doing this took more effort and time than would otherwise be spent managing out money, so after our son turned one, we converted to a more hybrid system that balances our need for detail with our need for time.

We now integrate a lot of the overlapping items into our overall budget, which also means we’ve had to adjust those budgets up accordingly. The only specific baby needs we track separately these days are:

  • Baby supplies (diapers, wipes, creams, toiletries, etc.)
  • Toys and games
  • Baby clothes, shoes, and other gear
  • Furniture or appliances specifically for the baby (for example, we bought a humidifier a few months ago to help him with a cold during the dry season)
  • Contributions to his investment account

That gives us a good-enough picture of our baby spending for what we need today, but I’m really happy we tracked things in more detail during the first year. It’s given us a huge head start in planning exactly how much extra money we’ll need every month for our next baby.

Your turn: If you have kids, what’s your system like? Do you bother tracking things separately or not? How has either approach helped or hurt your money management? I appreciate any details you can share in the comments!

Photo by Dominique Sanchez