Having children is one of life’s greatest joys. And, also, one of life’s greatest expenses.
According to the U.S. Department of Agriculture (USDA), the average total cost to raise a child born in 2015 is $233,610 through age 17. But don’t let the numbers scare you away from the immeasurable pleasures of parenthood. Financially prepare for having a baby and the journey ahead with these tips.
1. Budget for Baby
Whether you’re already expecting or planning to have a baby soon, consider the following costs and budget accordingly.
- Review your health insurance coverage. Find out the costs of prenatal and maternity medical care, so you can prepare for the co-payments, coinsurance, and/or deductibles you may incur. If you’re in a high-deductible plan, it may be more cost efficient to switch to a low-deductible plan to cover the delivery costs. Also, find out the cost of adding a child to your health plan.
- Babies need a lot of specialized supplies, including a crib, changing table, car seat, rocker, and more. Budget for each item. Include recurring monthly baby essentials, such as diapers, formula, baby food, and clothing, as well.
- Research child-care expenses. You can choose from daycares, in-home care providers, and nanny services. Each vary in cost and come with their own pros and cons.
- Calculate the costs of maternity and paternity leave. Review your company’s maternity leave policy and determine how your salary will be affected while you’re out. If one of you plan to stay home with the baby for an extended period, count the costs of a reduction in income.
Bonus tip: Review your company’s short-term disability plan. It may provide for a portion of your salary while you’re out on maternity leave, for a set period. If it does, and you don’t already have the coverage, add it if you can afford to. The short-term disability pay can come in handy.
2. Start Saving
Now that you’ve totaled your baby expenses, don’t fret, start saving to cover the costs. Open a special savings account dedicated to your impending baby expenses. You can set up automatic transfers from your checking to the savings through Online Banking. Or direct a portion of your pay check to the savings each month through direct deposit. If you’re already expecting, save by registering for every item, large and small, on your baby supply list. You may save big if a big-ticket item, like a crib, is covered.
Bonus tip: Have your baby shower host send an invitation to out-of-town friends and family who still may want to get an item on your registry. Every gift is an added savings.
3. Spend Less
Curve your spending to accommodate for baby’s added expenses. Review your budget and analyze purchases, through your online banking, to identify areas where you can spend less. You can reduce your dining out and entertainment spending. The USDA offers several tips for eating on a budget. Also, consider refinancing your car or home loan to a lower-interest rate loan to save money. And put off unnecessary, big purchases like a flat-screen TV or luxury vacation.
4. Save in Baby’s Name
Once your precious bundle has arrived, open a savings account in his or her name. A custodial account, also known as a Uniform Transfers to Minors Act, allows you to save, without limits, for their education or any expense that benefits your son or daughter. Also, speak to a financial advisor about opening a college savings account to get ahead of the future costs.
For an estimate of the annual cost of raising a child, use the USDA’s Cost of Raising a Child Calculator.