Financial Planning for Baby: What It Costs to Raise a Child

Do you happen to have an extra $14,000 (or more) you can squeeze out of your annual budget to cover the expenses involved in raising a child? If not, you might consider starting on your financial plans for a baby, because that’s what the U.S. Department of Agriculture (USDA) estimates for the costs of child-rearing per year.

That’s according to “The Cost of Raising a Child,” the USDA’s annual report on what middle-income, married-couple families can expect in terms of the cost of raising a baby. The costs will vary, of course, depending on the family income level, the ages and number of children, and where you live.

“There are significant economies of scale with regard to children, sometimes referred to as the cheaper-by-the-dozen effect,” said Mark Lino, an economist and the author of the report. “As families increase in size, children may share a bedroom, clothing and toys can be reused, and food can be purchased in larger, more economical packages.”

The cost of raising a child includes everything from the price of food, housing, transportation, health care, and miscellaneous goods and services, plus what the government calls “child-specific expenditures” for clothing, childcare, and education.

But get this: The estimated $233,610 tab covers birth through age 17 and doesn’t include the costs of a college education. That’s when the real spending party begins.

Financial Planning for a Baby: A Punch List

How can you keep your family financially solvent and still save during these crucial child-rearing years and beyond? Here’s a quick checklist of things to keep in mind and in the bank.

1. Put a plan in place. Planning seems natural as you chart your financial life, but a baby—or two, or three—tends to rule the financial roost during those developing years. When planning for a baby financially, analyze both your fixed and flexible monthly outlays to determine where you can make significant shifts to accommodate Junior and siblings. You may want to have both pre-baby and post-baby budgets—one to cover clothing, furniture, and equipment, and the other to cover ongoing costs like diapers, food, childcare, and so on.
2. Make sure you’re insured. Even if you have good health insurance through an employer, medical costs in the maternity ward can be pricey. If you and your spouse are covered by separate health insurance plans, be sure you understand how they will provide for your baby in terms of doctors, pediatrician visits, vaccines, medications, and hospitalization. Also, you might need to start thinking about life insurance. If you’re the family breadwinner and something happens to you, what happens to your family?
3. Look for help. Start with employer benefits that might help ease the burden, such as maternity/paternity leave benefits, adoption reimbursement, workplace savings accounts, or health savings accounts. Look elsewhere, too, for college savings accounts and childcare subsidies that might be available. Meanwhile, keep on the lookout for other accounts, programs, or subsidies you might be able to tap once academic and athletic activities kick in.
4. Don’t forget your long-term goals. Retirement savings shouldn’t go away just because there’s a new face in the house. You’ll still need to keep those savings in place, even though touching them may be decades away. Stay on track and look to tax-advantaged plans to help. Even if you have to decrease your monthly savings goals for a short period, remember the power of compound savings and stay on that savings path for your golden years. TD Ameritrade has a number of accounts and tools that can help you stay focused financially during these years.
5. Write that will. When you’re young with few assets, a will isn’t always the first thing on your mind. But when you begin accumulating assets and have a family to consider, your will should rise on the priority list. What if something happens to both parents? Who will raise your child? Who is the designated beneficiary for your assets?
6. Save for baby’s college. According to the latest figures from the College Board, the average annual cost of attendance for an out-of-state public university is about $37,000, and private schools average about $11,000 more per year. Even in-state public school costs have risen dramatically—according to the College Board, the average annual cost for tuition, fees, and room and board is $21,370 for the 2018–19 school year. Multiply that by four or even five. Don’t get caught unawares when high school graduation seems to come up suddenly. As soon as you can swing it, consider starting a college savings account for your baby. One popular choice is a 529 plan, which offers benefits including tax advantages. Parents and grandparents can each open their own accounts, or grandparents can contribute to a 529 account in the child's name.