Reducing Baby Expenses

Sorry for my lack of posts recently. Things have been quite busy at the FIwaF household with our first little one coming along.

A picture of our newborn

I might be biased, but this is the cutest baby I’ve ever seen.

However, now I feel like I’m actually somewhat qualified to have the blog title I do, and I have a good concept for a post now.

Babies are expensive

I feel like I hear this everywhere, but I’m not sure I believe it. I believe that kids are expensive, especially once they become teenagers, but babies don’t really need much. Our goal for this year is, not counting the cost of the birth itself, to spend just a little bit more in our little one’s first year of life than we get in tax breaks from him.

The tax benefits

These come in two flavors: the child tax credit, and savings on federal and state taxes thanks to an additional dependent exemption. There is also a credit for Child and Dependent Care, but since Mrs. FIwaF will be a stay-at-home mom, this doesn’t apply to our situation.

The child tax credit is $1,000 for those below the phaseout range (which we are by a wide margin). We are in the 15% marginal tax bracket for our federal taxes, and the exemption amount in 2014 is $3,950, so the extra exemption gets us $3,950 x 0.15 = $592.50. We live in Ohio, and our state marginal bracket is 3.74%. The dependent exemption amount in Ohio for 2013 was $1,700, and I believe it will be the same for 2014. So that saves us $1,700 x 0.0374 = $63.58 on state taxes.

This gives us just north of $1,656 in tax savings, which equates to an average of $138/month we can spend on our baby without his first year costing us anything.

Direct costs

The three biggest costs associated with babies are diapers, formula, and childcare. Since the Mrs. is staying at home and will be breastfeeding, the latter two are non-issues for us.

As for diapers, cloth diapering is not only far cheaper (after some initial start-up cost), but way better for the environment as well. Something I wasn’t aware of until recently is how much oil is used to make disposables – one cup of crude oil is used to make the plastic in just one disposable diaper, not to mention the waste of tossing so many diapers in the trash. We have spent about $145 on cloth diapers that should last at least the first 6 months. We’ll need to spend another bundle to upsize when he gets bigger, but overall, the cost is far lower than that of disposables. Another benefit is that we’ll be able to use these diapers for future kids too, so it’s a huge win. We haven’t started cloth diapering just yet since he’s not even a week old yet and we got some disposable diapers from baby showers.

If any other new parents or parents-to-be are interested (or even if you have kids but hadn’t given this a thought yet), here’s some information we found helpful. The first Amazon review for this product describes pretty well how much you’ll need to get started and has some other good tips, and this YouTube video provides a helpful how-to.

So we’ve killed the 3 biggest costs for our son right there. Besides food, diapers, and someone to care for him, he doesn’t need too much else. Besides a new car seat (which you should never buy used), everything else can be gotten secondhand. We got a bassinet from my in-laws (the same one my wife slept in as a baby) that they obviously don’t need anymore. Baby clothes can always be gotten from friends or relatives whose children have grown out of them (if you’re reading this, thanks Alex!), or at worst, from a second-hand store. A crib, for when the baby gets bigger, is something you want to be careful buying used, since new safety regulations have come out fairly recently and old cribs frequently don’t meet these codes. The crib, as well as a lot of the additional “nice to have” stuff, we got from friends and relatives at baby showers, and most if not all of these we will be able to keep and use for future children.

All told, I think $138/month is quite a reasonable budget if the mother can stay at home. We’re budgeting $150/month for this first year (just more than our tax credits give us, as I stated above). January we bought the diapers, and we’ve had some start up expenses for small things in February, so we are right on track with these estimates.

Other costs

The above having been said, the baby will actually cost us quite a lot of money in indirect costs. Since my wife will be staying home with the baby, she won’t be working a paying job. However, we believe the benefits of raising your own kids, the health difference of breastfeeding vs. bottle feeding, all combined with the cost savings associated with not paying for child care and formula make this sacrifice very, very worth it.

Additionally, I’ve only discussed the baby’s first year costs. I know as our son grows older that he will cost more and more, especially when it comes to food.

To sum up

Although we hear all the time how expensive it is to have a baby, if you take steps to minimize the big costs, and don’t feel like your baby needs everything brand new, a baby can be quite cheap starting out. I hope some of the ideas above are helpful! Please feel free to let me know in the comments if you have any other ideas or tips for reducing baby expenses.

The Basics

As I mention in the newly updated about page of the blog, my wife and I are hoping to achieve financial independence by the time I am in my early to mid 40s (I am 26 now). Before getting into the specifics of our plans, I would like to discuss our basic values, as finances are concerned. These principles shape all of the decisions we make and how we view our money, so it’s important to make them clear and stick to them!

Keep priorities in order

Money is, in the grand scheme of things, not that high on the list of priorities – there are many things more important than money. My list includes such things as:

  • Maintaining a proper relationship with God
  • Behaving ethically and growing in virtue
  • Being a good husband and father
  • Caring for those in need
  • Enjoying your work

If making money or saving money interferes with anything on that list, I need to remind myself of what is really important. Money is an important tool in our world, well worth paying attention to, but it is still just a tool, and not an end in itself to be valued.

More stuff won’t make you happy

I once read a quote that has really stuck with me.

“People were created to be loved. Things were created to be used. The reason why the world is in chaos is because things are being loved and people are being used.”

I don’t know who originally said this, but it is a powerful quote indeed. As a society, we need to turn off the radio and the TV and stop listening to advertisements that convince us that we need more things. You may think you’re smarter than the ads you are bombarded with on a daily basis, but if they didn’t work, companies wouldn’t pay so much for them.

I’m sure I’ll think of more things as soon as I hit “Publish,” but that’s what the edit button is for.

Have you given thought to your priorities and guiding principles when it comes to money? What are they?