Raising a family is expensive. According to CNN, it costs over $230,000 to raise a child from birth to age 17 in the United States! Starting a family is the biggest change you can make to your life as a whole, but for your personal finances in particular.
Some say that no one is ever prepared to be a parent until it happens, but with a bit of wise financial planning, you can at least worry a bit less about money during the journey.
Laying the Foundations
New parents are not expected to get over $200,000 in a savings account before each child is born. However, if you are planning on starting a family, having your finances in order will make the experience much less stressful.
Modifying Your Budget
The $230,000 cost will average down to about $13,000 per year, every year, per child. Without any other lifestyle changes (although you absolutely will have many!), this means adding a new $1,100 cost to your monthly budget or spending plan for each child. This is on the low-end: if you want to start a college savings fund, add on another $100-$200 per child.
Very few people have $1,100 lying around unallocated in their budget, so first consider where this money will come from.
Re-allocating your budget is much easier if you have a savings cushion to fall back on, especially for emergency expenses that come up with babies. Besides your normal savings and investments, it is a great idea to have at least 1 paycheck worth of cash set aside in a separate savings account. Consider this a “Rainy Day” fund, which will help with short-term budget shortfalls.
Expenses with Age
Your budget will be evolving over time, but the nature of your expenses will change a lot as children get older. Surprisingly, the $1,100 extra fee does not change very much from birth until the end of high school, but where that money is going will move quite a bit.
Infants (Newborn – 6 Months)
Babies and very small children are expensive, as any parent will remind you. Some of these costs are consumables, like diapers ($100 a month) and formula ($0 – $300 a month), but the biggest cost is childcare. Infants need constant attention, and constant attention means full-time work.
Many childcare providers will not accept children under 6 months, which means you will need to take time off work for the first 6 months. Maternity and Paternity leave is not always given in the United States, meaning the biggest cost of infants is usually lost wages from the parents taking time off work.
Even though diapers might not be too expensive, losing wages for 6 months (or more) usually means infancy is the most expensive period for a child.
Toddlers (6 months – 3 years)
Very young children are out of diapers, but they are into clothes and solid foods. This is where children enter your grocery budget, at least as a small piece. Children at this age are also growing very fast, so you will expect to replace clothes every couple of months. Thankfully, clothes for very small children is still pretty cheap, so it likely will not be much more than your previous diaper budget.
The main cost will still be childcare. Once the infant is over 6 months, you should be able to find childcare providers who you can hire during the day. This means you should no longer be facing lost wages, but instead hiring a full-time childcare provider.
Children (3 years – 12 years)
Once children start normal school, the expense structure changes again. Childcare takes more of a backseat, since the children are in school all day. Childcare services are still normally needed for after school care, but the cost is less than full-day care.
Children in this category will have an ever-increasing grocery and clothing budget, but the biggest hit will come from housing. Growing kids need growing spaces – you may be able to get away with a crib in your own bedroom for infants, but toddlers usually need their own spaces. Some families add a bedroom (and see a rent/mortgage increase) earlier, but once the child is in school the cost can no longer be avoided.
Small children also introduce a new transportation cost – driving or transporting them to friend’s houses, social events, and school. This will also grow with age, with the youngest children spending the most time at home. Toys and other miscellaneous expenses will also start to add up, especially around the holidays.
Teenagers (13 – 17 years)
Teenagers typically have the lowest childcare costs, both because of participation in extracurricular activities, or because they can be trusted to spend slightly more unsupervised time at home alone.
Instead, all of those “Secondary costs” rise to the forefront. The biggest increases come from groceries (teenagers tend to be big eaters) and transportation. Transportation can be anything from bus tickets to helping buy a car, but either way tends to be a big cost. Rent/mortgage payments also tend to go up, as teenagers need their independence (and may resent being paired with a sibling) – this could add an additional bedroom. Other than the lost wages during infancy, teenagers will be the most expensive age.
If you have more than one child, some costs get offset.
Clothing can be handed down from one child to another, but this will usually be very low savings. Clothing is cheapest for the youngest children, but older children and teenagers are usually pickier about having their own style.
Most families pair children in bedrooms, so the second child will usually not add an extra rent cost, at least at first. This can change for teenagers, who may require their own bedrooms. This can also be a gamble, since it is easier to pair same-sex siblings (boy/boy or girl/girl) than different-sex (boy/girl).
Childcare costs can either multiply or divide for multiple children, depending on your approach. If you need to send children to a childcare facility (daycare), it will usually just add another fee for each additional child. On the other hand, if you hire a nanny or babysitter a few days a week (particularly for older children), there will usually be a flat fee, with small additions for each additional child.
The cost of raising a child will build up fast, but there are some programs in place to help offset the cost.
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is part of your income tax return designed to increase the income tax return for low-income adults and families. If you have children, the income threshold goes up, and the actual return amount gets multiplied. You can learn more from our article about Income Tax.
Supplemental Nutrition Assistance Program
The SNAP program is a grocery subsidy for low-income working families. Over 75% of SNAP participants are under 17, as the program is designed specifically to help families with children afford healthy food. You can learn more from our article about government assistance programs.
Children’s Health Insurance Program
The CHIP program is part of Medicaid, specifically to make sure every child has health insurance. If you do not have family health insurance coming from your work, you may qualify to have your children insured through the CHIP program. This can be a massive savings for families. You can learn more from our article about government assistance programs.
Raising Children and Your Budget
Ideally, your income will be steadily going up over your working life, while the cost of each child will be fairly constant. This means by the time your child is 17, childcare costs should be a much smaller percentage of your total income than the newborn.
This does not always work out, as many families start saving heavily to help with college and other education expenses. This means your budgeting during the earliest years will define your spending for the next decade (or more)! Keeping a solid budget and spending plan will be your keys for success.