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Apr112017

4 Ways to Manage the Cost of Raising a Baby

Kids are expensive, and estimating how much you’ll spend on your first bundle of joy is tricky. There are diapers, clothing, furniture, food and toys to think of, as well as costs that may not spring immediately to mind, like life insurance and college savings.

But whether you’re expecting a child now or planning for one down the road, knowing the expenses involved can help you prepare. And a new study finds would-be parents might be shocked by the potential cost of raising a baby during its first year.

According to a new NerdWallet analysis, baby’s first year could set some families back as much as $21,000 — more than four times the amount most would-be parents estimate, based on data from a related Harris poll.

NerdWallet analyzed expenses associated with a baby’s first year for two hypothetical households in which both parents work — one with a $40,000 annual income and one with a $200,000 annual income — to illustrate how families with different resources might navigate the cost of raising a child. We then compared both households’ total first-year expenses with American expectations, as determined by an online Harris poll.

Here are four financial action items for parents-to-be.

1. Get real about the potential cost …

More than half of respondents (54%) currently expecting a child or planning to have one within the next three years believe the average U.S. baby’s first-year costs total $5,000 or less. But even if parents decline life insurance coverage for themselves and wait to start a college fund, they’re likely to spend far more, according to the analysis.

Be realistic about how much you might have to spend in your first year of parenthood. An online baby calculator can help you estimate expenses.

2. … Especially the biggest cost: child care

Unless a friend or family member is willing to care for your infant when you return to work — if you do — prepare to pay handsomely for child care. According to the analysis, full-time, center-based care is the biggest expense of the first year, at about $8,059. If that surprises you, you’re not alone. Just 37% of would-be parents predicted it would be among the costliest factors.

When you’re able, set aside money for high-dollar and ongoing costs such as child care, and make them a line in your monthly budget. The cost of diapers will seem small in comparison.

3. Prioritize emergency savings

People of all income levels struggle to set aside money in preparation for a new baby. Among parents and would-be parents making less than $50,000 per year, 38% said they had nothing saved, or didn’t plan on saving, prior to baby’s arrival; 21% of those making $100,000 or more said the same.

To ensure you’re ready for unexpected costs of all kinds, start an emergency fund. Not opening or contributing more to one was one of the top financial regrets of all parents surveyed. Once that’s established and you have the clothes and other must-haves for baby, consider college savings and life insurance for all guardians.

4. Gauge how much your loved ones can help

Sixty-one percent of people currently expecting a baby or planning to have one in the next three years say they think friends and family will pay more than 20% of baby’s first-year costs.

If you’re unsure what help to expect from your loved ones, ask — tactfully, of course. And you can start by registering for practical items from your baby checklist. Nursery furniture and accessories, diapers and clothing in a range of sizes will help you manage costs far more than stuffed animals.

 

 

 

 

 

The article 4 Ways to Manage the Cost of Raising a Baby originally appeared on NerdWallet

 

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