The cost of raising a child is high, especially in today’s inflationary environment. Budgeting for this expenditure can be a daunting prospect, but doing so is crucial to maintaining your financial security throughout the process.
“Your first step is fighting that initial urge to start buying cute baby clothes and get that budget together,” says Cecilia Williams, chief operating officer and chief compliance officer at Halbert Hargrove.
Here’s what to know about budgeting for a new baby.
What Costs to Build Into Your Baby Budget
A new baby can be expensive at the outset. Many of these costs — such as new clothes, food and diapers — are ones you’d expect. But you’ll also need to factor in child care, education savings and other purchases into your baby budget.
“Be sure to factor in all expenses that come with having a baby. That may take a little research and planning on your part to determine what you’ll really need. Some studies say baby-specific expenses can total $20,000 to $50,000 in that first year,” says Tanya Peterson, vice president for Brand at the digital personal finance company Achieve in San Mateo, California.
In 2017, the U.S. Department of Agriculture published a report that projected parents would spend $233,610 to raise a child born in 2015 from birth to age 17. In 2022, the Brookings Institute published a commentary that estimated the cost to raise a child born in 2021 as close to $310,605 — thanks to inflation.
Here is a list of four common costs associated with having a child:
— Health care
— Food, diapers and clothing
— Child care services
— Education and college savings
Read on for more information on each expense.
Health Care
Before you welcome a new child into your home, be sure to consider the health care costs involved — for you and the child.
Nowadays, new parents can end up paying thousands of dollars in health care costs, including doctor visits and other service charges throughout the birth parent’s pregnancy.
“For example, if you have a high-deductible health plan, you’ll likely be responsible for paying in full for many health care services until you reach the stated deductible and your insurance coverage kicks in. Research what’s fully covered and what’s not,” Williams says.
And when the baby comes, you’ll need to budget for additional health care premiums when you add them to your insurance plan.
[Related:How Much to Put Into a Health Savings Account]
Food, Diapers and Clothing
An extra mouth to feed can wreak havoc on your grocery budget, so be sure to research the costs of the food or formula you’ll need to buy and factor them into your new plan.
Plus, don’t forget that you’ll be stocking up on diapers, clothes, and new toys and accessories that will likely increase your overall discretionary spending.
Child Care Services
“After maternity and paternity leave ends, you’ll need to have a plan on who will take care of baby. Do you or your partner plan to continue working? If so, you’ll need to start budgeting for outside care. Whether that’s an in-home caretaker or daycare, both will impact your budget,” Williams says.
Alternatively, if you plan to have a stay-at-home parent take care of the new baby, you’ll need to consider how the lost income will affect your cash flow.
[Related:How to Be Master of Your Cash Flow]
Education and College Savings
“As the mom of a recent debt-free college grad, I feel a 529 account should be on the must-have list for every parent-to-be. It feels good to have started early and to have enabled my son to start off his adult life without the weight of student loan debt,” says Patricia Roberts, chief operating officer of Gift of College.
While it might seem early to start planning for your new baby’s education, getting started as soon as possible is the best way to ensure you can save more.
“Establishing the account before your child’s arrival gives you one less thing to think about in the early, and sometimes sleepless, days of parenthood and has the added benefit of giving your friends, family members and even your employer an opportunity to contribute as a unique gift for your baby shower, your child’s birth or for other celebrations early on,” Roberts says.
[Related:The Baby Bond Bill: $1,000 for Every Baby Is Just the Start]
Other Baby Costs You Might Have to Budget For
Other costs in your baby’s budget might include adoption or surrogacy fees, depending on the route you’re taking to parenthood.
You also might be considering taking a babymoon before your new child arrives and taking advantage of a last child-free vacation, which you should save for as part of your overall costs.
Finally, be sure you have a good idea of how much money you’ll have coming in when the baby arrives as well. Does your employer offer paid parental leave? If not, you’ll need to adjust your income plan to account for any time you’ll take off before and after the birth, Peterson says.
Tips for Financially Preparing for a Baby
Understanding the costs involved with a new baby is just one piece of the puzzle when it comes to getting financially prepared for this life change.
Follow these steps to ensure your new child doesn’t break the bank:
— Pay down debt ahead of time. It can be tough enough to take on new baby expenses if you aren’t in debt, but if you do have other payments hanging over you, prioritize paying them down to free up room in your budget. “The key here is making sure you focus on eliminating any bad debt like high-interest credit cards — and ensuring you have a proper emergency fund before starting to save for baby expenses,” Williams says.
— Start saving as early as possible. The sooner you can start saving for new baby costs, the better. As soon as you know you’re expecting, find room in your budget to set aside funds for the little one.
— Overestimate your spending. No matter how much you expect to spend on baby clothes, food, health care and other costs, odds are unexpected expenses will come up. When building your baby budget, add some padding to your estimates to account for this.
— Stick to your budget. It can be easy to get swept up in baby fever and collect all the cute clothes, toys and furniture you see. But it’s critical to stick to the budget you originally set.
More from U.S. News
How to Create and Maintain a Family Budget
5 Signs You’re Financially Ready to Have a Baby
7 Ways to Prepare for an Unpaid Maternity Leave
How to Budget for a New Baby originally appeared on usnews.com
