If you’ve made the commitment to start or grow your family, chances are you know the excitement, stress, joy, and fear that come along with the decision. These feelings are closely followed by an array of questions regarding your finances and how to raise a child in general, that never seem to disappear.
From the moment your child enters your life, they will be a constant thought, worry, source of love and pride, and time commitment as you strive to provide them with the best life possible. When most people think about having children, they don’t think about the long-term costs that come with them, and many are surprised to find it will cost $233,610 for a middle-income family to raise a child born in 2015 through the age of 17. That’s over a quarter of a million dollars that we’re spending on these bundles of joy!
There are standard financial modifications that need to be made when we first bring a child home, but there are often many overlooked expenses along the way. Afterall, it gets challenging to picture life 18 years into the future when we’re trying to survive on limited sleep with a newborn.
If you’re looking to plan in advance and stash away cash for what’s to come, here are some budget categories for consideration within each stage of your child’s life. Enjoy the time more and worry less:
Ages birth – 3
Before having your child, there’s the natural budgeting that most new parents need to do.
Increased Grocery Budget: Like it or not, diapers are a part of your life for about the next 2-3 years, and even if you choose to go the cloth route, the costs will still pile up. Add in wipes and formula, and you could easily spend an extra $300 / month in this area.
Baby Gear: You’ll find yourself browsing strollers, cribs, car seats, bouncers, and more before baby arrives. You don’t need it all, at least not right away, but you will want a few essentials. If you’re smart, doing your research, opting to go second-hand or gently used for some items, and setting aside funds ahead of time, you can save quite a bit here. If possible, find Facebook forums for local parents in your neighborhood, which often have people who are selling gently used items and clothing in bulk at a significant discount.
Increased Health Insurance: Ensure you read the fine print on your benefits or insurance policy and understand what it will cost to add a little one to your coverage. Will your premiums increase? What kind of co-pays will you have for office visits going forward? Are you willing to reduce or adjust coverage to save on premiums? Keep in mind PPOs tend to be pricier than HMOs.
Life Insurance (for both parents): Life insurance provides your family with financial protection in case the unexpected should occur. The proceeds of a life insurance policy can be used to help replace income that is lost so that your partner can still afford daily living expenses like the mortgage and childcare. When determining how much coverage you need, factor in your current income level and spending needs, savings, and debts that would need to be paid off. Term insurance policies are an affordable way to get coverage. An important consideration here is that just because you have coverage through your employer, it doesn’t mean you have enough or are protected in case you lose your job.
Disability Insurance: Your ability to earn an income is one of your greatest assets, and now that you have a family, they’re counting on that income just as much as you are. Disability insurance protects you in case you become sick or injured (disabled) and unable to work for a short or extended period of time. These policies pay out a percentage of your income for a fixed time period. You may have group coverage available for purchase or provided by your employer, or you’ll need to obtain a private policy.
Childcare: There are a variety of childcare options ranging from one parent staying at home, opting for an in-home daycare, hiring a nanny, or looking into a daycare center. All come with their own pros and cons and have significantly varying price tags. Discussing what may or may not work for your family and researching costs in your local area before baby arrives will help you to review your budget (again with an added bump for grocery and healthcare costs) and adjust as necessary. Note: Your employer may offer a tax-advantaged savings plan to assist with childcare, so make sure you ask.
Transportation: You may consider yourself covered if you’ve got something on four wheels. However, babies come with a lot of stuff, and you may find yourself needing more space and a bigger car sooner than later.
Ages 4 – 12
Once you’re out of toddlerhood and the kids are into school, it’s easy to think there may be some wiggle room in your budget. However, those funds are often reallocated towards other items that are forgotten about:
Clothing: Clothing is something your children will always need and is something they will continuously be growing out of. Try to determine your clothes shopping strategy and set a precedent early – especially as children begin to grow and develop opinions of their own. Whether you’ll buy new, used, shop online, leverage hand me downs, or focus on a hand full of staples each year, having a clothing budget and expectations in place will help you to keep things in line.
College Funding: Decide early on how much you want and are able to help your children with when it comes to their future education. Saving for (and maxing out) your retirement accounts should already be a part of your budget before moving on towards college savings for children. If you want to start saving for higher education, but it isn’t in your budget, ask family and friends to make contributions to college funds in lieu of birthday and holiday gifts. This eases up the stress on your budget without neglecting an essential piece of a family financial plan.
Increased Groceries (again): While you won’t be buying diapers, those funds will now be transferred towards feeding a growing human that may or may not come with food allergies and some strong preferences. Milk, snacks, and an extra mouth to feed will keep your grocery budget up in the years to come.
Sports, Dance, Music Lessons and more: While you want your children to grow up into well-rounded individuals, signing them up for activities like dance, soccer, guitar lessons and more can easily break your budget. Determine how much you have to invest in these areas and set goals around what you want your child to accomplish or get out of each activity to ensure you’re maximizing what you’re spending.
Added Travel Costs: Once your child is past two, you’re looking at paying for extra airline seats, beds in a hotel, theme park tickets and more. Plan accordingly for vacations and travel and adjust your budget (or goals) as needed.
Preschool: Until your little one can go to a public kindergarten, you’re likely going to pay for some form of preschool, which can range from a couple hundred dollars a month to the same annual tuition as your local in-state college.
Birthday Party Gifts: Chances are you want your children to have friends. Along with those friends comes invites to birthday parties and with those invites (unless stated otherwise) comes the expectations for gifts. Work to adjust your monthly savings for gifts now and don’t plan to adjust down until your kids are working and capable of buying their own gifts for friends.
Summer Camps & Field Trips: Even once your child is in school, their teachers are going to need a vacation from time-to-time. If you’re in a dual working household, you’ll need to find (and pay for) care for your children during those brief stints and also cover any trips and outings the school or camps provide.
Allowances: As your children get older and start wanting and asking for things, you’ll likely want to delegate chores and perhaps reward them financially for getting things done or for getting good grades. Do research and set a reasonable allowance for your household based on your income (not merely what other parents are doing).
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As you head into the adolescent years, the money that you once needed to budget for big-ticket baby gear items is now being allocated towards big-ticket electronics and education expenses.
Electronics: Not only are most 13-year-olds walking around with an iPhone these days (which adds an extra line and cost to your cell phone bill), but their schools are also expecting them to do most of their work on computers or iPads, an expense that many families forget to plan in advance for. Be sure to distinguish between wants and necessities when it comes to acquiring electronics for your children.
Education: Depending on the area you live in, private versus public school may be a very real debate based upon the quality of education provided. Ensure you run the numbers and are not sacrificing in saving for your own future (retirement) by putting your children through private schooling.
School Supplies and Activities: Once junior high and high school start, you’ll likely find yourself faced with fees for gym clothes, agenda books, lockers, yearbooks, field trips, dances, clothing and transportation for the aforementioned dances, sporting events and more.
Car Insurance: If you expect your teenager to get their learner’s permit, also expect your auto insurance premiums to take a significant jump.
It’s hard to create one comprehensive list of costs to anticipate when it comes to having children, as each child will have a unique upbringing and experience tailored to your goals and desires for them as a parent.
The critical thing to consider throughout the years is your and your family’s personal financial goals and values. What is important to you and what are you hoping to accomplish? Are memories more important than possessions? Is flexibility and time together more important than big vacations? Is having one parent home more important than maxing out retirement savings? The answers to these questions and how much or how little you spend in the areas above will be a reflection of your values and will set the stage for money lessons and conversations with your children in the years ahead.
The best thing you can do is plan now and reevaluate often. Paying attention to what’s coming up in the years ahead instead of in just the next few months will help you to create a balanced budget and financial plan that accounts for enjoying yourselves both today and in the future.
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Mary Beth Storjohann, CFP® and Founder of Workable Wealth, is an author, financial planner and accountability working to help clients in their 20s-40s across the country make smart, educated choices with their money. Her recent accolades include the “Top 40 Under 40” by Investment News, “10 young Advisors to Watch” by Financial Advisor Magazine, and “10 of the Best Personal Finance Experts on Twitter.” She frequently appears on NBC as a financial expert and her expertise has been featured in The Wall Street Journal, CNBC, Forbes and more.