Babies and Budgeting

Babies and Budgeting 1-2-3

Congratulations on your new little one, and welcome to parenthood! With a thousand new things to think about – and a lot less sleep than usual — planning for your financial future may seem daunting. But it doesn’t take much to get started down the right road.

Baby-Proofing Your Budget

The clothes. The toys. The gear! Having a baby means a lot of new things will be coming your home. It also means a lot of your paycheck may be going out to cover first year baby costs. According to the U.S. Department of Agriculture, most parents spend about $13,000 in the first year of their baby's life. So it's a good time to be even more mindful of how and where you spend your money.

Fortunately, there are plenty of great options to paying full-price on those things you need – as well as that hand-knit baby blanket you just can't live without. For safety reasons, it's worth buying new on items like cribs, car seats and high chairs. But for clothes, books, and other kid stuff – think outside the toy box. When friends and family offer gently used hand-me-downs (and they will), say ‘yes, please.' And don't miss great sites like Thredup and Freecycle. Also, buy in phases. For instance, if your newborn will be sleeping in a bassinette, you don't need to buy a crib right away.

Another tip from parents who've been there: consider cloth diapers. The environmental benefits may have won you over already, but if you need some convincing, consider this boost to your budget: over 2 ½ years, disposables could run you about $2,500. With cloth diapers, you'll spend less than $450. Savings back to you: $2,000.

Looking for more money-saving ideas? Here's a video that may be helpful: How to buy baby items on a budget

Saving for Baby – and for You

It may be hard to imagine that coo-ing little bundle will someday be old enough for college, but if that's your goal this is the best time to starting saving for it. Especially considering the way costs are going. In the 2014-2015 school year, tuition alone at a public 4-year college was just over $9,000, according to the College Board. And costs continue to climb.

529 Is a Magic Number

529 Plans are college savings accounts designed to help you save for college, tax-free. Contribution limits are high, and your earnings grow tax-free as long as the funds are used to pay for qualified expenses as defined by the IRS, which include tuition, fees, room and board, books and technology.

Generally speaking, a 529 Plan is an investment vehicle, so getting started early can really pay off. Do your research before jumping in, using a site like and/or by talking with a financial services professional to find the 529 Plan that best suits your needs.

Many 529 Plans let you link a checking or savings account to simplify automatic contributions. Another bonus is that anyone can make a contribution. If friends or family give you monetary gifts, those funds can go straight into your 529.

Roth IRAs Give You Options

Of course, saving for your retirement is important, too – and you don't want to take your foot of the gas pedal now. If you find it's difficult to save for both college and retirement, consider a Roth IRA. Unlike 529 Plans, which can be used only to cover the costs associated with college, Roth IRAs can be used for both college expenses and retirement income.

If you end up withdrawing the principle (the amount you put in) for college expenses, the interest you've earned will continue to grow until you reach retirement age, at which time you can withdraw the earnings tax-free. There is a five-year rule with Roth IRAs, which means in order to make a qualified withdrawal, your earnings have to have been in the account for at least 5 years.

Want to know how much college will cost—and how much you'll need to save? Check out this college savings projection calculator. In addition to projecting your estimated costs, the calculator can clue you in to whether you're on track based on your current savings. If not, it'll show you how much more per month you'll need to sock away to catch up.

Congratulations on getting a jump on planning for the future. We know it's an exciting time for your family, and at BECU we're excited to help in any way we can. Ready to get your college savings started? Connect with a BECU Financial Advisor today.

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This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant. Investments are not federally insured, not subject to credit union or affiliate guarantee, and may lose value.