Having a baby
Starting a Family is probably the biggest single life-changing event in your life. Raising a family will have an enormous impact on your financial circumstances. Once you have a child, financial planning for the future becomes even more essential.
How will you finance child care, medical bills, food, education, clothing, toys, and education savings? What will you need to spend money on and how much will each item cost? Here is some of the information you will need. The actual costs will hinge on variables such as family size, family income, and geographic location, but you can get an idea of what the extra expenses will be and tailor them for your specific situation.
Knowing what to expect will allow you to plan for the future, thereby increasing your chances that you will not fall short of your financial goals. Indeed, this is the time to review and update, if necessary, your financial plan.
What will it cost?
Here is a breakdown of the items you'll need and an estimate of their cost. The costs are categorized chronologically, according to the child's age. These estimates are for a first child. Bear in mind that second or third children will cost less than the first, since you will already have purchased many of the items you need. If you have three or more children, you will spend about 22% less on each child.
Government estimates say that a family with an income of $84,800 will spend a total of $211,830 to raise a child to age 17. If you include the cost of college--$25,000 per year or more--that cost goes up to $450,000. This estimate is not meant to scare you, but make you realize that your financial life is going to be different, and it will be very important to manage your finances better.
Birth through infancy
Here are the costs you can expect up to birth and during the first year for a first child. If this is your second or third child, you will spend much less on furniture, clothing, and toys, but health care, child care, and food will remain the same.
- Hospital Costs. An uneventful delivery costs about $6,000-$7,000, and a Cesarean section $10,000-$12,000. Depending on your health coverage, you will pay anywhere from zero to 30% of this cost.
- Baby Supplies and Equipment. Before you even bring the baby home, you will buy a lot of baby supplies and equipment. These include a crib, a changing table, a swing or other rocking device, strollers, car seats, high chairs and basic baby clothing. You can estimate $2,500-$3,000 for these items.
- Formula. A year's worth of formula concentrate costs about $1,000. If you buy the ready-to-serve type of formula, the cost is even more.
- Child Care. Child care expenses vary widely. Child care in a day care center costs much less than a live-in nanny, and prices for day care centers vary widely. For a mid-priced day care center in a reasonable cost-of-living area, you will pay $150-$200 per week for your infant's care, or about $7,500-$10,000 per year.
- Health Care. Your infant will visit the doctor about six times during his or her first year. This estimate includes well-baby check-ups as well as the inevitable colds and fevers of infancy. How much you will spend out-of-pocket for doctor visits during the first year depends on your health insurance. If you are in an HMO, you will pay only the co-payment. (If your baby needs prescription medicine, you will pay the co-payment for that too.) But if you are covered by traditional indemnity insurance, well-baby visits may not be covered at all, or only a percentage may be covered. This means (assuming a doctor's visit costs $60) you will pay $45 to $60 per visit for uncovered visits and $45 per visit for medically necessary visits. You will also need to pay for prescriptions. If you'd like, you can review this recommended child preventive care timeline (and one for adults, too).
- Toys and Clothes. You will spend about $500-$600 on toys and clothing during the first year.
Ages one through six
During these years, you will spend about $1,000-$1,200 on toys and clothes and about $700-$850 a year on food. If your child attends day care or pre-school, add in the cost of these items. Health care costs could run the gamut, depending on your health coverage. Day care could cost you $10,000-$12,000 per year, while pre-school costs vary widely.
Ages six through twelve
This is the time when, overall, the expenses of child-rearing drop, and families can save more. It is an excellent time to increase what you put away in savings.
During these years, your child care expenses will drop drastically, which could mean an extra $10,000-$12,000 annually that can go into savings or towards some other purpose. And you will not have to take your child to the doctor as often, since they will be past the childhood-disease stage. (Of course, if your child begins orthodontia during this stage, or has a special medical problem, you will have to pay more.)
You will spend more than in the previous stage on clothing, toys, and entertainment, but your kids will not be demanding the high-ticket clothing and other items of adolescence. The bill for food will be just slightly more than what it was in the previous stage.
Now that your kids are in school, you will want them to have all those extras that middle class kids have: dancing and music lessons, sports participation, and so on. All of this costs money and if you decide to send your kids to private school or to summer camp, these expenses will have to be added in.
Ages thirteen through eighteen
During this stage, you can expect your child's food, clothing, and entertainment bill to greatly exceed what it was during the previous stage. For instance, food will cost about $2,000-$2,500 per year, and clothing about $1,000-$1,500 per year-or more.
Once your teen starts driving, your auto insurance will go up. The extra cost could be anywhere from $300 to $1,000, depending on your state of residence and whether your child is a boy or girl. If you intend to buy your child a car, add this expense in.
Sweet-16 parties, bar and bat mitzvahs, orthodontia, SAT-preparation courses, music lessons, sports.these are just some of things you might be paying for during those years.
Your financial responsibilities
In addition to all the challenges that come with raising your child, there are a number of financial planning aspects that should be considered.
First, and foremost, is to start saving before the baby arrives. There are a number of items that you will need to purchase, or at least borrow, and the time to start planning for these expenses is right after you get the good news that you are having a baby. Set aside as much as you can every month in a savings account. The actual event of birth can be expensive as well as all the first time purchases you'll make. Don't forget to save some money for your maternity or paternity leave. This is usually unpaid time off work.
Budget for baby
To get started, take stock of your family's financial resources-your assets, debts, income and expenses-and put together a budget that accounts for your newest member. Be sure to include both one-time and ongoing expenses for your new family member, such as health care, daycare or school, baby furniture, items like car seats, clothes, shoes and diapers. As featured in Redbook, this budget calculator from PracticalMoneySkills can help you start working out the figures to include in your budget.
As part of your budget, you will also need to make sure that you have your emergency fund set up and properly funded. At the very least, you should have $1,000 in a savings account just for the unexpected emergencies or expenses that might occur. If you want to be really prepared, consider enough to cover 3-6 months of living expenses in case you lose your job.
Check your safety net
Just when you least expect it, something could go terribly wrong. If you don't have a good safety net in place, an accident or illness could severely deplete your family's finances. To protect your family, be sure you have:
- Insurance. Make sure your family always has appropriate health, auto, life and homeowner's or renter's insurance. Even if you have life insurance at work, consider protecting your loved ones by getting your own life insurance policy. At the very least, reassess your life insurance needs. You both may have worked before, and not really needed it, but what would the financial impact be if one of you died?
- A will. Now that you have children, make sure your will is updated to include them. If you don't already have a will, now is the time to make one.
- Appointed guardians. When you update your will, be sure to set up a guardian or guardians for your underage children should you become unable to care for them.
Consider your goals and develop a plan
Even though you're focused on your newest family member right now, don't forget that you still have financial goals-goals for your child's future, but also goals for your family as a whole and goals for yourself.
Write down all of your financial goals, both shared and individual. Do you want to buy a larger house? Take regular family vacations? Save for your child's education? Go back to school yourself someday? Write down how soon you hope to achieve each goal, and try to prioritize them as well.
Now visit our financial planning section to begin the process of developing your own personalized financial plan.