Having a child turns your world upside down (in the best way) and forces you to rethink nearly every aspect of your life.... including your finances. If you're a new parent, or about to become one, you might be wondering, "How much does it cost to raise a child?" Here's a look at all the ways parenthood changes your finances - and how you can prepare for what's to come.
How Much Does It (Really) Cost to Raise a Child?
According to a recent study by Lending Tree, from birth to age 18, the average parent will spend $237,482 to cover everything required for raising their child - not including college costs.
As your child ages, your expenses will evolve. For example, when they're little, you'll have things like diapers, formula and child care to pay for. As they get older and enter school, there are extracurricular-related expenses (think sports equipment, musical instruments, etc.), family vacations and other big-ticket items. Fortunately, as a parent (or a parent-to-be), there are steps you can take to save money and better manage your finances once your bundle of joy arrives.
Be Spending Savvy Before You Bring Baby Home
Going into parenthood, some expenses are going to be a given: it's no secret you'll need a crib, highchair, stroller and other one-time necessities. For many, there's a temptation to have the best of the best (especially if it's your first baby) and the options can be overwhelming. According to parenting expert Susan Newman, Ph.D., the most money can be saved by considering safe, serviceable alternatives that cost a lot less money. For example, a baby stroller can cost anywhere from $100 to nearly $1,500. "Before you give in to the impulse or desire to keep up with 'the Joneses,' know that most people don't notice what stroller or baby carrier you use," shares Dr. Newman. "Following your peers in this area will only add more stress to an already stressful period."
Newman recommends searching Facebook Marketplace for gently-used items that still have a lot left in them. (Be careful, though, with cribs purchased second hand. The Consumer Product Safety Commission has recalled millions of cribs through the years. Check the model number at CPSC.gov and don't take one more than a decade old.) And if you have a baby registry, keep it simple. "If preparing a list for a gift registry, include the practical, what even feels mundane: a diaper and/or laundry bag, wash cloths, a bath towel, a feeding pillow, breast pump, feeding dish, bottles... these items add up to a large outlay," Dr. Newman suggests.
Build a New Budget for Your Growing Family
It goes without saying that once children enter the picture, your budget is going to need to change. And here's the thing... it will continue to evolve as your child grows (more on that later). To start though, take stock of where you are right now. Then, do your best to factor in the things you know you're going to need to buy (diapers, wipes, formula, etc.). You'll also want to try and get an idea of what your larger expenses will be, like childcare, and build them into your budget.
As your child grows and his or her needs change, you should revisit your family's spending plan around once a month. "I always like to think of budgeting - especially the more people you have in your family - as a living document that you want to touch base on and look at regularly," suggests Ashley Feinstein Gerstley, a money coach, author and founder of The Fiscal Femme.
Talking about your household budget may sound like a drag. That's why Feinstein Gerstley suggests having a "money party" to make the conversations into something you actually look forward to. Ideally, you'd set aside time with your spouse to talk about your budget, but you'd do it with a nice dinner, your favorite bottle of wine, or something else you enjoy. "I have a money party playlist that I play," says Feinstein Gerstley. "And you can have your favorite beverage and get cozy or light a candle."
Examine Your Emergency Fund
Just like your budget, your emergency fund is going to need to be revisited once there's a child in the equation. The general rule of thumb for emergency funds is to have 3-6 months of living expenses set aside to help cover basic costs in the event of unforeseen circumstances. For example, a job loss or major home repair.
With a child though, those basic expenses have increased. You'll want to make sure you have enough money stashed away to cover your needs, as well as your child's. This includes diapers, wipes, formula, food, daycare and other related essentials. "Really looking at the rainy day funds can be valuable, saving up for one-time expenses, or just making sure to account for them," stresses Feinstein Gerstley.
Start Saving Early for Their Education
As new parents grappling with the question, "How much does it cost to raise a child?" you might also be thinking, "How much does it cost to send a child to college?" According to the College Board, the cost per-year to send a child to a four-year public college is an estimated $10,560 per-year. Private schools are more expensive. It costs roughly $37,650 per-year on average to send a child to a private college. If history holds, these prices will likely increase in the future.
One of the most effective vehicles for college saving is the 529 plan, a tax-advantaged investment that is used to save for - then pay for- college, grad school, and other forms of continuing education. You can even use the money to pay for K-12 private education, if necessary.
In the past, one hesitation some parents have had about opening a 529 plan is the question of what happens to the funds if their child does not go to college, or if they get a scholarship and there's no need for those funds. However, 2024 has brought increased flexibility. Now, you can roll unused funds from a 529 plan (up to $35,000) into the account beneficiary's Roth IRA, tax and penalty-free.
Cover Your Insurance Bases
When you welcome a child, you'll want to make sure he or she has health insurance coverage. You'll also want to take steps so your child is cared for in the event that something happens to you.
For medical coverage, you'll both want to get the ball rolling on that before your child is born. If you and your spouse both work and have health insurance offered through your employer, do a side-by-side comparison of what it would cost for a family plan, and what the benefits are. Additionally, if you do have a high-deductible health plan, a health savings account (HSA) can be a great way to put money away pre-tax to use on medical expenses or other baby essentials, like an infant thermometer and other items that can be paid for using these funds.
Also, while it's difficult to think about, you'll also have to consider how your child will be taken care of if something happens to you. Term life insurance is the best (and most affordable) option for most families. Ideally, you'll get a policy that covers 10 to 15 times your annual income, Feinstein Gerstley says. (And yes, you need life insurance on both parents even if one is not currently earning an income. Why? Because if you had to replace those services, hiring someone would come with a hefty price tag.)
Do Your Best to Plan, But Get Comfortable with the Unknown
Just like your sweet baby will grow and change throughout the years, so will the costs associated with caring for them - many of which can be hard to predict. "Get comfortable with the idea that you can make plans for scenario A, B and C, but the likelihood of those occurring is slim," says Dr. Newman. "In short, expect the unexpected. Prepare yourself mentally to have plans change and accept that your vision of what being a parent is will be altered on a regular basis."
With a little forward thinking, new parents can make a solid plan for the costs they expect to encounter, both in the near-term and in the future. One of the most important parental duties is to be prepared - which includes catching your child when they fall and taking care of them financially.
