The joy of raising children may be priceless, but the dollars and cents it will take to do it are hard numbers to swallow for many parents. According to the most recent annual report from the USDA the average cost of raising a child in the United States for a middle-income family is more than $245,000, and that number doesn’t include college tuition or inflation. In fact, based on the USDA’s projected inflation rate of 2.4 percent per year, the adjusted average cost will likely come out to more than $304,000 per child annually.
However, some experts caution parents against looking at that big price tag. “It’s about taking it one year at a time so you don’t get overwhelmed when you hear $245,000 over 18 years,” says Cathy Derus, CPA, of Brightwater Financial in Naperville, Ill., who is also a mother of a 2-year-old and a newborn. “Every little bit helps, be it saving money for retirement or a college education. Just don’t compare yourself to others—it’s so irrelevant. That’s why it’s called personal finance. Because it’s personal.”
Here are some hints to help plan the next several years of parenthood while managing the cost of raising a child from birth to 18.
Prior to having a child
Before having a baby, financial experts suggest considering pre-planning to help lessen potential costs.
Prior to the birth of the child, it maybe be necessary to evaluate your employment situation and determine whether or not your current earnings are enough to support another family member, suggests Derus, whose family moved from St. Louis, Mo., to the Chicago suburbs so her husband could increase his salary and improve his benefits.
If your employer doesn’t cover maternity leave, or if you’re self-employed, you may want to consider short-term disability insurance a year or two prior to becoming pregnant, recommends Brad Sherman, a wealth manager and financial planner who runs his own firm, Sherman Wealth Management, in Gaithersburg, Md.
Sherman, a father himself, says it’s also important to evaluate your financial priorities and decide how you want to handle a child’s college education and your retirement.
“You can borrow for college, but you cannot borrow your way through retirement,” Sherman says.
It’s just as important to keep spending and debt under control, no matter how many material goods you’d like for your child. Instead, Sherman says, set a budget and stick with it to help you keep your spending in line.
The most expensive cost of raising a child is housing. According to the USDA’s report, housing makes up 30 percent of total child-rearing expenditures for the younger child of a two-child family in the middle-income group.
Still, Michael Brady, a financial planner and president of Generosity Wealth Management in Boulder, Colo., says the cost of housing can be a bit misleading because the USDA report, which is based on 2013 facts and figures, doesn’t account for the return on investment of buying a house. “You pay your principal and interest, and then you sell your house and [hopefully] get the appreciation,” Brady says. “In this equation, you don’t get any credit for that because the principal and interest payments of buying a house are charged against the cost of a child.”
Additionally, housing expenses are now determined by using the average cost of an additional bedroom as opposed to a per capita approach. For example, Brady says, sometimes a home doesn’t need another bedroom for an additional child if there are enough rooms in the current living situation or an alternative space such as a storage room can be converted into a bedroom.
Childcare and education
While housing might be the biggest expenditure in child rearing, it certainly isn’t the only substantial one.
The next most expensive costs in raising a child are childcare and education (18 percent of the total childcare expenditures, according to the USDA). The USDA estimates childcare and education will cost parents between $2,200 and $5,500 annually, depending on the family’s income level.
Additionally, for all segments of the population, be it for lower-, middle-, or higher-income families, the most expensive period of time for a child is from birth to 2 years old.
For example, Derus says the cost of putting her daughter into childcare now is less expensive ($315 per week) than when her daughter was an infant ($350 per week).
“Until they go to school, childcare is more expensive, and that makes sense,” says Brady. He recommends trying to find alternative care via family members or sharing care with a support network of friends or new parents in your neighborhood.
Another option is to budget for these costs. Derus explains that she has tried to offset her childcare costs with a flexible savings account (FSA) that includes pretax dollars.
Food, clothing, and healthcare
Food, clothing, and healthcare costs together make up an additional 30 percent of child-rearing expenditures, according to the USDA. “You’ll see as the child gets older, the cost of food gets more expensive,” he adds, pointing to a jump across all economic demographic where food costs rise for families with children between the ages of 12 and 14. “Teenage boys can eat a lot. I remember—I was one once.”
That’s why many families on a limited budget often shop at wholesale vendors and clip coupons, he says, instead of going to restaurants.
Everyone needs the basics, Brady says, but stretching the budget by using hand-me-down clothing or shopping at discount stores can help. It’s also important to plan ahead, whether it’s for rising food costs or insurance, which he says should include life insurance for all parents.
The USDA found that transportation costs make up another 14 percent of child-rearing costs. When it comes to transportation, making sure you have a good, dependable car is important.
Additionally, consider alternative transportation methods, Brady says, including carpooling, taking public transportation, or having only one car.
Regardless of how much it costs to raise a child, Brady says what parents may find most helpful is to stick to what he calls “Budgeting 101.” He notes, “Most problems happen when people spend outside of their means.”
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