Children are one of life’s best blessings; truthfully, they are also one of the biggest financial undertakings. Numerous studies estimate the cost of raising a child from birth until the age of 18 at $250,000 or more—and that doesn’t even include college expenses if higher education is in your plan!
When my wife and I decided to prepare for having children, one of the first things we did was research how much it costs. And then we bumped into that $250,000+ price tag. Talk about sticker shock! Fortunately, one of my wife’s friends and her husband had tracked the cost of having their first child through the first year of life. It was enlightening to see what it costs based on actual, tangible data from someone we know. In a way, it was much less scary to think about it in one-year increments rather than trying to wrap our heads around the total cost. The remainder of this article discusses strategies to plan for the financial aspects of having a child.
The best thing you can do is build a budget; it helps break down the wall of intimidation and is good mental preparation for the future reality of paying for a child. Start by thinking through the major expenses you can foresee having before and after a child is born. Below is a list of suggestions—not everything will apply in every situation, but these are probably some of the more common expenses.
- Delivery expenses – Giving birth in a hospital (or even at home) is not free! Review your insurance coverage and call your insurance provider and/or the facility where you or your spouse plan to deliver if you have further questions. Many health insurance plans have cost estimators available on their website for many different procedures—including delivery of a child. This can be a helpful input to planning because it may be one of the most expensive one-time transactions involved in having a child. As a frame of reference, our hospital bill for the delivery of our first child was $1,200. This did not involve any complications or an extended stay in the hospital—we were blessed with a healthy baby boy and a healthy mother. Obviously, if there are complications involved, this cost could escalate quickly. To reiterate, research is key on this one as costs vary widely according to geographic area of the country, type of health insurance coverage, hospital costs, delivery method, etc.
- Insurance expenses – After the child is born, they need to be added to your or your spouse’s health insurance policy. The cost of adding a child depends on the type of policy (HMO, PPO, HDHP, etc.)—each one comes at a different price point. A word to the wise: if you and your partner are covered under two different policies, review and conclude which one is the best option for adding a child. And price shouldn’t be the only determination! You should also consider quality of care, which providers are in network or out of network, and so on.
- Maternity and/or paternity leave – If either or both partners decide to take leave from work after the baby is born, there is a chance some of the leave may be unpaid or paid at a reduced rate. As an example, Mrs. Sow a Dime took leave for 15 weeks after the birth of our first son. She used all her paid vacation up front and then went into a period of unpaid leave for about 4 weeks. If you decide to take a shorter leave and can cover all of that with paid vacation, that’s great! If not, you’ll need to be prepared for how long one (or both) partners will go unpaid. The best way to be prepared is to shore up your cash reserves ahead of time to cover any period of unpaid leave.
- Furniture – It may seem like a stretch to consider the cost of furniture, but it’s amazing how quickly you can burn through big money furnishing a baby’s nursery. The good news is there is a wide range of price points. In fact, in some cases, you may be able to get free furniture if you have a friend or family member who can give you hand-me-down furniture. Occasionally, you can also find cheap, or even free, nursery furniture on Craigslist or similar sites. Some people add furniture to the baby registry and are gifted furniture at a shower, party, or otherwise.
- Food – This is another area where there’s a wide range in terms of cost. It will mostly depend on whether the parent chooses to feed the new baby with formula or breast milk. In general, formula feeding a baby is more expensive than other methods because it requires you to buy the formula, bottles, etc. Even basic formula is rather expensive, and if your child has any dietary or health concerns, you may have to purchase more expensive formula. Once you move on from the milk-only diet, baby food is the next step. This involves its own costs; some parents choose to buy baby food while others choose to make it from the raw ingredients—again, each scenario comes with its own costs.
- Diapers and Wipes – Similar to food, this item comes with a range of costs. Some folks prefer to use brand name, store bought diapers (expensive!) while others prefer cloth diapers or similar (messy but generally less expensive!). Nonetheless, this one should be a consideration when developing your baby budget as it catches some folks off-guard as to how expensive it becomes. And wipes should be considered when building your budget as well; while they’re not as expensive as diapers, the costs add up quickly. And trust me—you’ll go through thousands of wipes in the first year!
- Child Care – The kind of child care you plan to pursue is an important consideration—not only for financial reasons—because it can affect the future development of your little one for better or for worse. But there is a wide variety of options for child care, such as: a parent or other family member can care for the child, a home-based day care, a center-based day care, etc. Each of these certainly has its pros and cons and costs. Most importantly, do your homework, research the options, and determine the best fit for your family and your child. What works best for one family may not be the best option for another.
- Toys / Other Accessories – This area is perhaps where it’s easiest to go overboard with spending. These days, there is no shortage of toys, gadgets, or gizmos to assist you in raising your child. And trust me—sometimes the temptation is strong to buy a gadget that makes caring for your child a little easier. As an example, when our first son was born, he did not sleep well at night as he had some digestive/reflux issues. After some long and mostly sleepless nights, we bought a $50 Rock ‘n Play that slightly elevated his head above his feet and prevented most of the reflux issues at night. While it was a bit expensive, it was worth every penny to help him (and us) sleep better at night! The tough part about this one is that some of these items you plan to buy while others are more impulsive purchases. When budget-building, be aware there will be areas where you have unplanned spending, so it may be best to go ahead and bake an estimate in your budget for unplanned items.
- Education savings – This item is one that many folks bypass for a variety of reasons—whether it’s not affordable, too far in the future to consider, or others. But it is one that can change the course of your child’s life for the better and prevent you from being overburdened later in life when you and your spouse are looking to retire. There’s a fantastic financial vehicle for building an education savings in the U.S. known as the 529 Plan. This plan allows you to contribute money to an account; the growth on those investments is tax-free, and withdrawals for qualified education expenses are tax-free as well. In fact, in some cases you may even get a tax break for contributing to these types of accounts. One of the biggest benefits is you can begin saving a little bit at a time early on to avoid large expenses when your child is ready to go to college or trade school.
Another consideration is how many children you plan to have and how far apart you might want them. My wife and I got married when we were 30, so we knew we were getting a bit later start on having kids. As such, we planned to have them close together. While there are certain economies of scale that come with having kids close in age—like the ability to share furniture, clothes, toys, etc.—it also comes with other considerations like the affordability of having two kids in daycare at one time, duplicate strollers, car seats, etc. And at the other end of the spectrum, there are certain pros and cons to having children further apart, such as: the ability to space out big or recurring expenses, the ability to use hand-me-down items rather than buying multiples at once, etc.
To bring this article full circle, the best advice I can offer is to plan, plan, plan. Even if it’s not in your nature, it would be a challenge to raise a child without some sort of advanced planning. Building a budget is also advisable, even if it’s only a series of estimates. If nothing else, it helps you think through what it takes to raise a child.
If you’re unsure where to start and have no friends or family who can provide feedback or advice, there is no shortage of other resources! Many national, state, and/or local organizations exist to help parents safely and responsibly raise healthy children. A quick search of the internet will likely return many results and resources to help guide you through this process.