Save For Your New Family

Develop a Spending Plan

Money tends to fly out the window when you have a baby (diapers, whoosh! tiny cute clothes, whoosh!). No wonder more than half of all adults wing it rather than tracking how much cash is entering and leaving their bank accounts, according to the nonprofit National Foundation for Credit Counseling. If you've been putting off taking a close look at your finances, here's a tip to ease you into things: "Ditch the word budget," suggests Patricia Seaman, spokeswoman for the National Endowment for Financial Education (NEFE), a nonprofit organization in Denver. "It's like diet, which makes you feel restricted." You'll have a more positive approach to tightening the reins if you instead call it a spending plan, and an easier time trimming if you follow the achievable steps spelled out here.

1. Get a feel for your monthly expenses. An online calculator, like Mint.com, can help you organize your financial info. Determine your fixed expenses (such as your mortgage or rent, car payments, college loans, and child care) and flexible expenses (costs that vary monthly, such as doc visits and movie tickets).

2. Track every purchase. The egg-and-cheese sandwich you bought en route to work. The Kindle Daily Deal you couldn't resist. There are loads of ways to blow your cash nonchalantly, and those micro purchases add up. Log every time money leaves your hands for a month, using an impulse-buy tracker like the PocketMoney app to make it easier.

3. Get a reality check. Gather your expenses, divide them into categories (gas, utilities, etc.), and compare them with the amounts in Step 1. Behold the gap. "Most people think they're spending money on necessities and don't realize how much is going to iTunes or soccer gear," says Jameel Webb-Davis, a money organizer in Medford, Massachusetts.

4. Do the math. Now that you know the real deal, deduct your total expenses from your take-home income. If you're in the black, gold star! But you're not through yet. Focus on setting aside six months' worth of expenses in an emergency fund. Baby steps! Arrange an auto-deposit of, say, $100 a month, to your rainy-day account and bump it up over time.

5. Cut back painlessly. If you're running a deficit or barely breaking even, use an online calculator to figure out how much you must reduce your spending to start saving. Then decide how much you can snip from each flexible expense. Just as small purchases add up, barely noticeable cutbacks can help you build a nice cushion.

Save for College

Open a 529 savings account. These state-sponsored tuition plans earn interest tax-free (the amount varies based on how funds are invested). Although 529 plans are backed by the state government, they don't require your child to attend an in-state school and you're free to invest in any state's plan (be sure to compare tax advantages carefully). You can use the money for tuition, computers, books, and other educational expenses and even transfer money to other family members. (Visit CollegeSavings.org for more information.)

Decide how much to save. If you set aside $10 a week from the day your child is born until she's 17 and put it in a 529 plan that seeks stock-market returns, you could have nearly $14,000. If you can part with $25 a week, you could have $34,000. Able to do $100 a week? You could save nearly $300,000, almost enough to pay cash for the University of Fancy Schmancy. Pick whatever amount feels manageable now and commit to gradually increasing it.

Keep at it! "Once you've decided what percentage of your paycheck you can put away, make it a regular part of your savings routine by having the money automatically withdrawn from your bank account," advises Lisa J.B. Peterson, president of Lantern Financial in Boston. But never let saving for college trump your retirement saving. Peterson says, "Your child can take out loans for college, but you can't take out loans for retirement."

Commit 50 percent of every windfall to your kiddo's fund. Whether it's your tax refund or a winning lottery ticket, earmark at least half for your 529 college savings plan. Then use the next 30 percent to pay down debt or bills, make a home repair, or tackle another necessary expense, advises Chris Kimball, a financial planner with Prudential Financial's Northwest Financial Associates, in Lakewood, Washington. Blow the final 20 percent guiltlessly on dinner at a nice restaurant, a vacation, or another indulgence.

Host a yard sale for college. Sell your child's gently used or unopened gifts, toys, and clothes once a year in a yard sale or through an eBay store, and add whatever you earn to your family's tuition fund. The Petersiks raked in $425 at their garage sale last summer!

Shamelessly ask for help. Let grandparents and other relatives know you've opened a 529 plan. If they're considering a cash gift for the baby, ask them to make their check payable to the plan so the money can grow tax-free. Note: In some states this may disqualify you from getting a tax deduction; visit collegesavings.org/plancomparisonstate.aspx to find a contact for your state who can answer questions. "My folks make holiday and birthday deposits to my kids' 529 accounts," mom Anne Macomber says. "Fifty dollars twice a year, over 18 years, can add up to more than $2,500!"

Copyright © 2013 Meredith Corporation.

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