The arrival of a new baby can be both exciting and financially overwhelming. A tiny new baby can mean big changes and major expenses for new parents. How much money can you expect to spend on your little one in the first year? What financial tools should you consider creating? Here we'll show you how to financially prepare for your family's newest addition before he or she arrives.
- One of the largest expenses for new parents can be the delivery—the cost of which depends on the location and health insurance policy.
- One-time costs often include travel, home needs, and nursing/feeding.
- Other things to consider include the cost of child care and savings plans.
- It's important to have an emergency fund if one parent decides to stay home.
In this scenario, we look at the first baby. That means starting from scratch in many areas such as furniture, strollers, and cribs. There is, of course, also the one-time medical expense of delivering a baby in the United States. As we'll see, this expense is by far the hardest to pin down in any meaningful way.
According to the most recent data from Castlight Health, the average cost for routine maternity care was $8,775, but this is highly variable by your location. A routine vaginal delivery ran an average of $6,075 in Kansas City and a whopping $15,420 in Sacramento. A cesarean delivery in Pittsburgh holds the low average at $6,891 and Sacramento is once again at the high end with an average cost of $27,067. Of course, these prices aren't taking your insurance policy into account. Review your policy to find out what your out-of-pocket costs are for prenatal care, hospital stay, tests, and postpartum care.
Unfortunately, it's nearly impossible to make an accurate prediction about how much you'll pay without reviewing your health coverage. Difficult births with long hospital stays can run over $100,000 and still be covered by insurance, whereas a straightforward birth with a short stay may cost only $5,000—but the new mom could end up paying the entire bill. Numbers from a variety of sources suggest that the average copay for a mother with insurance is somewhere around 19%, so taking the average, no-nonsense delivery of $6,075, that is just over $1,200 on average. That said, it can't be emphasized enough that your insurance policy and your location matter more than any national average.
Your insurance policy and location are important factors when determining how much the delivery of a baby will cost.
The one-time purchases for baby are as variable as the medical costs above, but for different reasons. This category can go up exponentially depending on the wants of the parent. For example:
- Travel Needs: To get out and about you will most likely want to purchase a stroller, an infant car seat (required by law), a baby carrier, and a diaper bag. If you plan on being out a lot, a portable playpen and/or bassinet may make sense. Like many of the things on this list, there is a wide range of costs. Buying an adapter, snuggle bags, and another option for some brands of strollers can be a $1,000 price tag without taking in the cost of the stroller itself. On the other end of that range, a seat and stroller combo can still be purchased new for under $150, and used equipment or hand-me-downs can fill in for all the others. It is worth noting that, at the very least, it is worth buying a new infant car seat. There is no foolproof way to ensure a used one hasn't been compromised in a previous accident or through hard use.
- Home Needs: To keep your little prince or princess occupied you may want to consider a portable swing, bouncy seat, play mat, and/or jump seat. You may also want to have a crib and/or bassinet, crib mattress, basic bedding with blankets, changing table, small dresser, rocking chair, monitor, and a diaper pail. Again, this is an area where personal preference dictates cost. Unlike car seats, everything is for use at home, meaning that you can buy it used or even acquire it through one of the many share and swap groups you'll find online. If you go all brand new, a crib will run anywhere from $180 to over $3,000.
- Nursing and Feeding: Feeding costs for your new infant do, of course, vary like everything else based on your particular situation. A mother who is able to stay at home and has no issues breastfeeding around the clock will see very minimal costs for months before a high chair and dishes are required. In that situation, some things like a breastfeeding pillow, burp cloths, or even a cape are more than enough. If mom will be storing breast milk for use, then items like bottles, nipples, cleaning equipment, and a single or dual breast pump come into play and the budget goes from near zero to the $200 to $400 range. If breastfeeding isn't possible, then formula feeding will add somewhere between $900 and $3,000 depending on the type used over the first 12 months.
On top of these one-time costs, there is the potential loss of income if you and/or your partner take unpaid leave. Under the Family Medical Leave Act (FMLA), your employer may grant you up 12 work-weeks of unpaid leave for your baby's arrival. Here again, nothing is set in stone as small businesses do not fall under the FMLA. So check to see what type of leave you may qualify for with your employer. If you take unpaid leave, calculate your regular expenses during that period—mortgage, utilities, insurance, groceries, etc.—and determine how you will meet those costs.
Once your baby arrives, the regular expenses to care for your little one kick in. Factor the following costs into your budget:
- Child Care: If both you and your spouse will work after your baby's arrival, your single biggest budget item will be child care. Your child care costs vary by where you live, the age of your child, how much care you require, and what type of care you use. The Care Index pegs in-center child care costs at just under $10,000 per year. Within this average, however, there are people in South Carolina paying around $400 a month and others in Washington D.C. paying more than $1,500 a month. The average cost of a nanny or other in-home care is around $28,350 a year, but again that can be higher or lower based on location and so on. Keep in mind, though, some costs might be offset by various tax credits, such as the child and dependent care credit. Be sure to confirm if you are eligible.
- Necessities: Food, such as Gerber formula, clothing, and diapers make up most of the necessities in the ongoing costs.
- Clothing: The average cost for baby clothes is about $60/month for the first year, but again this varies and is highly correlated with income. Lower-income families make do with less than half that amount while you probably already know some parents who spend $60 on a single outfit.
- Diapers: Diapers also vary in cost. The average child will use more than 2,700 diapers in the first year alone, which can add up to more than $550 (based on an average price of $0.20 per disposable diaper). You can buy disposables for as low as $0.15 with coupons or parents can pay $1.40 per diaper to import them from Japan. A cloth diaper service will cost you around $70 per month and doing the dirty work yourself at home with cloth diapers will cost you anywhere from $250 and up to get the materials needed upfront. And don't forget an average of $20/month for wipes!
- Food: If you're using formula, refer back to nursing and feeding above. Once solids start, plan on spending around $60/month. The early food costs for children is relatively small compared to what you will see from a teenager, but it can be a bit frustrating as so little of that $60 seems to end up in their mouths.
- The Doctor Part 2: Plan on three to four wellness visits for evaluations, immunizations, etc. and a few additional visits for illnesses. Check your health insurance policy for your rates, but $80 annually is reasonable for most insurance plans and jurisdictions.
If One Parent Stays at Home
If one of you becomes a stay-at-home mom or dad, there are important budget changes to consider—the most obvious is reduced family income. Despite the high cost of child care, the cost of one partner leaving an income behind to commit to full-time parenting has been shown to be much higher in terms of lost income, benefits, and investment. This is compounded by diminished earning potential if that partner decides to resume his or her career. The decision to stay home can be personal or financial—at lower income levels, even government programs cannot balance the high costs in some regions. If it is for personal reasons, however, a couple can at least try the one-income budget prior to the birth to get an idea for it while building an emergency fund with the second income at the same time.
Financial Tools to Consider
With your child's arrival, you'll want to create financial tools to help provide for your child's future. Review the following checklist to determine your priorities and begin budgeting:
- College Savings Tools: According to the College Board Report, the average cost per year for college in 2019 to 2020 ranged between $10,440 to attend a public four-year in-state school and $35,880 for a private four-year education. Start saving now through one of several college education investment tools, such as a 529 plan, Coverdell Education Savings Account, or UGMA/UTMA account. There have also been some changes to the way some accounts can be used—namely the 529 plan. The Tax Cuts and Jobs Act (TCJA) of 2017 and the Setting Every Community Up for Retirement Enhancement Act (SECURE) of 2019 have expanded the use of 529 plans to include K to 12 education, apprenticeship programs, and the ability to pay down student debt.
- Life Insurance: If you do not have life insurance, now is the time to buy it. For just a few dollars a month you can be assured that your child will have financial resources if you and/or your partner were to die unexpectedly. Talk to your employer or insurance agent for options on both life insurance and disability insurance.
- Health Insurance: Without health insurance, just one serious accident or illness could deplete your savings and put you in significant debt. Investigate your insurance options if you don't already have coverage, or budget for the increased monthly premium to add your child to your policy.
- Flexible Spending Accounts (FSAs): FSAs enable you to use pretax dollars to pay for important family budget items, like child care and healthcare expenses. Talk with your employer or financial advisor about setting up a dependent-care FSA and/or healthcare FSA.
Ways to Save Money
The 2015 USDA study on the Expenditures on Children by Families found that parents making less than $59,200 would spend just under $10,000 a year. That number goes up with income as families with pre-tax income in excess of $107,400 average just under $20,000. No matter your income, however, there are numerous ways to meet your new baby's needs without breaking the bank that we've hinted at throughout. Namely:
- Consignment/Thrift Stores: Babies grow quickly. Instead of paying full price for their clothing, check out gently used and even new items at your local consignment or thrift store. Many stores will also buy back items after your child has outgrown them for cash or store credit. Online swap groups and parent networks can also provide quality goods for cheap—and sometimes even free.
- Family/Friends for Back-Up Daycare: Instead of having to take a day off (possibly without pay) when your child is sick, make arrangements for family or friends to help out with emergency back-up daycare.
- Borrow Items From Friends: Ask friends with young children if you could borrow items—particularly big-ticket items they're not using, like a crib, high chair, or rocking chair.
- Baby Shower Gifts: Register so that party-goers can buy what you really need and avoid ending up with multiple baby rattles and photo albums.
- Downgrading Lifestyle: Having a child is going to change a lot of things, including your financial priorities. After reviewing your new budget, you may not be able to make the numbers add up. Consider closing the gap by downgrading in a few key areas. For example, think about trading in a large car for a more affordable model, shopping at less expensive stores or buying more generic items.
The Bottom Line
Children are a wonderful gift—if sometimes an expensive one. The main thing to keep in mind is that averages don't mean much when the range is as wide as it is with costs around a baby. Good health insurance can protect you from the hospital bills for the most part, but only planning and budgeting can help you handle the rest. The Finnish practice of sending mothers home with a simple starter box that can double as a baby bed shows that many of the thousands of dollars spent on our children's first years are more for our status than their well-being. You will be able to afford your baby on whatever income or situation you are in. It may take painful sacrifices and ingenuity, but if the experiences of generations of parents are any indicator, it will be well worth it.