The arrival of a new baby can be 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.
In this scenario, we are looking 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.
Medical Bills ($1,200 and Up)
According to 2016 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. Cesarean delivery was an average of $11,525, with Pittsburgh holding the low average at $6,891 and Sacramento 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 how much you have to pay out of pocket for prenatal care, hospital stay, tests and postpartum care. (For advice on cutting your medical costs, read 20 Ways To Save On Medical Bills.)
Unfortunately, your total is nearly impossible to accurately predict without reviewing your health coverage. Difficult births with long hospitals stays can run over $100,000 and still be covered by insurance, whereas as a straightforward birth with a minimal stay may cost only $5,000 but the new mom could end up paying all of it. Numbers from a variety of sources suggest that the average co-pay 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.
Baby Stuff ($1,000 and Up)
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/mother's bag. If you plan on being out a lot, a portable play pen and/or bassinet may make sense. Like many of the things on this list, there is a wide range in 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 and blankets, changing table, small dresser, rocking chair, monitor and 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 round 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 and possibly a cape are more than enough. If mom will be storing breast milk for use, then items like bottles, nipples, cleaning equipment and 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 (i.e. mortgage, utilities, insurance, groceries, etc.) and determine how you will meet those costs.
Once your baby has arrived, 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 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. Research from a variety of sources including the Economic Policy Institute and 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 almost $1,500 a month. The average cost of a nanny or other in-home care is around $28,000 a year, but again that can be higher or lower based on location and so on. (If you are eligible, some costs might be offset by various tax credits, such as the child and dependent care credit.)
- 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 too 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). Disposables can be had 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 3-4 "well 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. (For further reading, check out Buying Private Health Insurance.)
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 costs of child care, the costs 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 said 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 a realistic feel for it while ideally building a bit of 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 2018-19 ranges between $10,230 (public four-year in state) and $35,800 (private four-year). Start saving now through one of several college education investment tools, such as a 529 plan, Coverdell Education Savings Account or UGMA/UTMA account. (Use our Saving For A Child's Education calculator to determine how much you should save on a monthly basis.)
- 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 $59,000 would spend just under $10,000 a year on that child from birth to two years old. That number goes up with income as families with pre-tax income in excess of $107,000 average just under $20,000 a year for the first two years. 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.
Bottom Line: Planning Goes a Long Way
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 is any indicator, it will be well worth it.