You’ve probably heard the phrase “kids ain’t cheap,” but to be precise, raising a child through age 17 will cost you an estimated $233,610, according to government data.
That number might have you second-guessing whether you’re ready to have kids (at least, on paper), and you wouldn’t be alone: A recent Policygenius survey found that 42 percent of parents felt they weren’t financially prepared to have a child, and 32 percent said they’re most stressed about paying down existing debt.
Create a financial plan for raising a child
No doubt, raising a child is a large financial endeavor, but it’s also a long-term financial goal spread out over nearly two decades that can be managed through careful planning. If sticker shock has you reconsidering having a child, consider the following items you’ll need to plan for, and take it one step at time—it can help you prepare for the costs of raising a child.
Draft a pre-baby budget that includes medical expenses
Costs for child-proofing your home, baby monitors, strollers, nursing devices, and cribs should be researched and accounted for, but you also want to know your out-of-pocket medical costs for things like check-ups and the baby’s delivery, too. As an example, the average cost for routine maternity care is $8,775, according to Castlight Health, but this can vary by thousands, too, depending on where you live. Carefully review your health coverage to understand what’s covered (the average no-nonsense delivery costs $6,075, and the average copay is 19%, which is just over $1,200, per Investopedia).
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Draft a post-delivery budget
The costs of diapers, child care, and food can add up. Plus, you’ll have to figure out how much daycare you might need to pay for, as it’s very expensive. The monthly average for childcare costs for infants and toddlers is close to $1,000, according to The Balance. This budget should include diligent accounting of your income, as well, especially if one parent is working fewer hours. To familiarize yourself with expected baby expenses, try using a baby budget calculator.
Review your insurance
If you don’t have life insurance already, now is the time: If you’re young, term life insurance is an inexpensive option—often under $30 per month if you’re under 30. And now that a child is relying on you or your spouse’s earning potential, you’ll want to consider disability insurance, which can often be purchased directly through your employer. Also, having a baby can qualifies you for special enrollment, which will allow you to adjust your health insurance benefits—Healthcare.gov has a good breakdown of your health insurance options.
Write a will
As a young parent on a tight budget, you might feel comfortable kicking estate planning down the road, but you still need a will to appoint a guardian for your child. This is important: In the event you and your spouse die together with no guardian specified in a will, your child’s guardian will be chosen by the state.
Max out your emergency fund
Before you start bookmarking baby name ideas, take a look at your current budget and your emergency fund. Do you have six months of expenses stashed away? Keep in mind that your six-month financial needs are different post-child, and adjust accordingly.
Accelerate high-rate debt payment
If your emergency fund is flush, focus on paying down high-rate debt like credit cards or personal loans. Think of it this way: If your debt stresses you out now, imagine how it might weigh on you when you’re caring for a child. That said, paying down lesser, non-toxic debt at the expense of paying into your retirement fund isn’t always wise. You might want to consult a financial advisor to figure out the right balance between debt payments and saving for retirement (this Nerdwallet post lays out some important considerations, too).
Increase your retirement savings
If your emergency fund is healthy and you’ve tamed your debt, move on to increasing your retirement savings. Securing your financial future will ensure that your child doesn’t end up paying for your expenses at retirement age. As the old personal finance adage reminds us, “you can take out loans for education, but you can’t get a loan to pay for your retirement.” Start an IRA, or max out your 401(k), especially if your employer offers matching contributions. Even increasing your retirement savings amount by 1% can put you on better financial footing for the future.
Consider a 529 plan
A 529 plan is a tax-advantaged savings plan designed to help pay for post-secondary education. Earnings grow tax-free and withdrawals used for education are exempt from federal taxes, and often state or local taxes, too. Many states offer residents a full or partial tax credit or deduction for contributions to their state’s plan, as well.
Creating a financial plan will help you uncover unexpected costs, and give you an idea of what you might need to cut back on for other household expenses not related to having a child (like discretionary spending on travel or dining). Budgeting for a quarter-million dollar financial goal isn’t easy, but doing so will give you confidence in knowing that you’ve accounted for the financial future of your family.
This story was originally published in 2019 and was updated on December 7, 2020.
