By Sarah Lybrand
Newsflash: having a kid isn’t cheap. When you decide to have a baby, you’re opening up your life—and your wallet—to a money-grubbing (albeit cute) wee beast that comes in to take over your home, consume all your free time, and feed off your resources for, well, the rest of your life. Which is why, if you’re unsure what to expect when you’re expecting, parenthood can come with quite a sticker shock.
Many factors go into calculating the cost of raising a minor up to age 17, including what state you live in (expenses can run up to 27% lower in rural areas than the urban Northeast, for example), your childbirth experience, and whether or not you’re covered by health insurance. But according to the US Department of Agriculture a middle-income family (in a salary range of $59,000 to $107,000 per year), will spend roughly $230,000 to raise a child in the United States, before college tuition. The largest portion of that goes to shelter and food at 29% and 18% respectively.
So what makes up the rest of this mountain of pocket change? Let’s break it down:
It starts adding up before you even give birth: a barrage of doctors visits and medical tests means more co-pays (though, as frequency increases, so should your insurance coverage), and ideally, you’re also taking better care of yourself. That may mean healthier or organic food choices, prenatal vitamins or yoga, or just opting for a different form of transportation as your mobility lessens—you can bet it probably comes at a higher price.
Varying widely by state, for an (insured) labor and delivery without any complications, average hospital bills can run $11,000. But, if you’re one of a million American women whose childbirth requires an extended stay (for complications such as a Cesarean section, your infant’s admittance into the NICU, etc.), that number could jump up to $200,000 or higher.
That said, few people will actually pay that much for delivery. Most insurance plans limit a family’s total out-of-pocket spending to less than $15,000 per year, and you may pay significantly less than that.
Certain start-up costs of having a baby just come with the territory: a crib, paint for the nursery, furniture, and a stroller and car seat (or, say, a few of each for different stages and uses) among other one-time investments like cloth diapers, toys and books, etc. For families with 2 or more kids, you can bet economy of scale pays off here, as parents of single children typically spend 27% more per child than their big-family brethren.
The average one-child, middle-income household can expect to spend roughly $12–$17,000 on related expenses in their baby’s first year of life (on everything from pediatrician visits, to tummy time mats, to Baby Tylenol) with about $50 per week going to diapers and/or baby food alone.
Hands down, childcare can be one of the largest factors impacting a family’s expenditures on their children. If you’re planning to work but aren’t in a position to lean on friends or family, be aware that center-based daycare in the United States for an infant or toddler can cost almost $12K per year, or just over $900 a month (older children requiring less supervision cost less, just over $8K per year, or $700 per month), varying widely by state.
Parents who opt not to hire professional full-time care, must factor in the cost of lost wages if one parent decides to stay home from work. While companies have been offering increasingly generous parental leave policies, there’s no coverage for care during the toddler years. The cost of staying home is more than simply a few year’s salary. Workers who take a year off sacrifice up to four times their annual income, after factoring in lost raises, retirement savings, and Social Security benefits.
Even as kids enter elementary school and beyond, it’s the copious extracurricular activities, school photos, team uniforms, fundraisers, and class trips that work to drain parents’ pockets. In one survey, more than a third of families said they spent over $1,000 per child per year on school and activities, while 20% of families say they spent $2,000 or more.
Not every kid goes to college, but that doesn’t mean there won’t be big expenses involved with transitioning your teenager into adulthood. No matter what trade school, gap year, internship, or career experience, living arrangement, or college/university program your child has their ambitions set on, if you want to contribute, it’s wise to start planning early.
Before you start saving for college, make sure that you’re on your own path to financial security. That means you have an established emergency fund, are on track with retirement savings, and you have no high-interest credit card debt. While your children can borrow to pay for college, you can’t borrow to pay for your retirement.
A good place to start saving is in a 529 college savings account. Money in a 529 account grows tax-free, and withdrawals are also tax-free if they’re used for qualified education expenses. More than 30 states also offer a tax deduction for 529 contributions (there is no federal deduction.) See whether your state offers one, and the contribution limits here.,
Now that you know where all your money will go after the baby arrives, here’s how to save more of it to prepare for their arrival:
Babies bring lots of unexpected costs. If you don’t make debt reduction a priority now, it could fall through the cracks later. Start by directing any extra cash to your highest-interest credit card, while paying the minimums on the rest of your cards. Once that card is paid off, direct that entire payment to the card with the next-highest interest rate.
Start bolstering your savings a bit every week or month now, if you don’t already have an emergency fund. (If you’re also paying down your credit cards, put half toward your rainy day account and half toward the debt.) Aim for at least four months of living expenses, more if one of you is planning to quit working.
Call your insurance company to review the estimated expected out-of-pocket expenses associated with pregnancy and childbirth. You may be able to reduce costs by making sure to visit an in-network doctor and using tax-advantaged money from a flexible-savings account or health savings account to cover medical expenses. . Sit down with your HR manager to find out what type, if any, of parental leave they offer.
If buying new stuff for the baby is getting overwhelming, let your friends and family throw you a big shower, and don’t be shy about putting together a list of exactly what you want and need. Many of your first few months’ of newborn supplies can be gifted this way (diapers, clothes, toys, etc) or, take up a collection for the larger items on your list.
One of the biggest misconceptions about having a kid is thinking you need to upgrade your space right away in order to make room for them. An infant can safely and easily sleep in a bassinet in the parents’ room for the first six months or longer.
While there’s no need to rush into a new lease or mortgage, you should start exploring housing options if you’ll need to make a change in the long-term. If you’re going to purchase a home, you may want to start working on your credit and saving money for a home down payment.
As they grow, teach your children the importance and value of money. That may start early, by teaching toddlers the difference between wants and needs, and the importance of delayed gratification. As they get older, you’ll establish an allowance and start teaching them budgeting basics. The most important way to teach your kids about money is by talking about it and setting a good example.
Raising children who are financially independent not only prepares them for their future, but it also ensures your own financial security. After all, subsidizing your 20-something can get way more expensive than a few years of diapers.
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