Starting a Family? Time to Start Saving

If you’ve decided to start a family, you’re about to begin one of the most fulfilling (and challenging) endeavors of modern life. 

You’ll also have some new expenses in your family budget.

New parents will have additional expense categories to consider, from medical care to diapers, daycare, and baby food. 

If you’re proactive about these costs, they won’t be so overwhelming. And this is one aspect of raising a child that you can successfully prepare for ahead of time. 

This guide is designed for new parents or parents-to-be who have questions about the financial side of children. How much does it cost to raise a child? What can you do to prepare? And where should you keep the money you’re setting aside?

We’ll focus on what to expect financially in the early years of your child’s life — and how to prepare for upcoming expenses. 

How much does it cost to raise a child?

First, the question on everybody’s mind: How much does it cost to raise a child in the United States?

According to data from the US Department of Agriculture (USDA), the cost to raise a child to 18 is a whopping $233,610. Here’s how the numbers break down:

• 29% for housing (i.e., extra bedrooms)

• 18% for food (kids eat a lot)

• 16% for child care & education (assuming public school)

• 15% for transportation

• 9% for healthcare

• 7% for miscellaneous expenses

• 6% for clothing

This data was from 2015. Unfortunately, this is the most recent official data available from the U.S. government. 

Due to rising prices, the true cost of raising a child in 2022 is probably higher than this official number. Based on the cumulative inflation since 2015 from the Bureau of Labor Statistics, it’s likely that it would now cost around $277,832 to raise a child (as of early 2022). 

That’s about $15,435 per year. 

Importantly, this doesn’t include college tuition costs. If you also expect to pay for your child’s higher education, you can anticipate adding $35,331 annually, on average.

Of course, your expenses may vary depending on many factors. These are simply nationwide averages and provide a very rough estimate of the cost to raise a kid. 

Expenses for young children

We’ve established that the total cost of raising a child to 18 is quite high — but then again, that’s over 18 years. 

For new parents, it’s helpful to focus on the expenses you’ll face in the next few years. Here’s what to expect.

Childbirth & medical costs

Medical costs vary tremendously depending on the health insurance plan, location and type of birth. However, we can look at averages to get an idea.

A study published in “Pediatrics” found that the average out-of-pocket cost of giving birth was $3,068, including insurance deductibles, copays and coinsurance. 

However, many families pay substantially more, with one in six families paying over $5,000 according to “MedPage Today.” And for births that required admission to intensive care (NICU), costs were over $10,000 on average. 

Adoption can cost even more. Adopt Us Kids reports that, on average, attorney fees are $10,000 to $15,000, and going through an adoption agency can add significant costs — upward of $70,000. 

How to prepare

Examine your insurance plan benefits to determine your coverage, copays, and deductible amounts. Ask your health insurance provider to explain your coverage if you have questions. 

It’s also a good idea to ensure that the facility where you intend to give birth is covered under your insurance provider’s network. 

Also, keep in mind the other medical costs beyond the birthing experience. You’ll have many appointments during pregnancy and checkups for both mother and child after the birth. 

If planning to adopt, families should explore all available adoption programs in their area. Private adoption agencies tend to be the most expensive, while adoption may be more affordable through the foster care system. Finally, look into adoption grants and other financial incentives that could help cover adoption costs.

Childcare costs

Most families will require some sort of childcare, which can be a substantial cost. Around 85% of households reported spending over 10% of their income on child care in 2020, and 57% of families spent more than $10,000 on child care throughout the year. 

Nationwide, the average weekly cost for an in-home nanny was $612, while it was $340 for a child care center and $300 for a family care center. These figures are based on one-child families during 2020. 

These costs rose significantly from the previous year. 

How to prepare

The first step is to consider how much child care you’ll need if any. If you have a partner, will both of you be working? Do you have family nearby that can provide free childcare? 

Next, it’s wise to research childcare options in your area. The figures above are useful for nationwide averages but vary significantly depending on the cost of living in your area.

Plus, some areas have shortages of child care workers and may request that families book slots years in advance. 

Other early expenses

Medical costs and child care costs are the “big two” that parents should consider saving for first. However, as discussed, there are dozens of other expenses that can really add up. Here are some line items to keep in mind:

• Transportation. Will you need to buy a new vehicle? Also consider car seats, extra gas money, plane tickets (children under 2 generally fly for free), etc.

• Maternity or paternity leave. What kind of leave policy does your workplace offer? Many employers offer paid leave for new parents, but it may be at a reduced salary. And hourly workers likely won’t receive any compensation. Be sure to factor any reduction of income into your budget. 

• Housing. Will you need to move to a larger living space? Consider the cost now, as this can significantly increase your expenses. 

• Diapers. You’ll be changing diapers like it’s your full-time job. For disposable diapers, expect to spend $60 to $100 per month. A reusable diaper cleaning service will cost a similar amount, while buying and washing your reusable diapers is the most cost-effective option overall. 

• Formula. If you plan to use formula instead of breastfeeding, expect to spend $1,200 to $1,500 the first year ($100 to $125 per month).

• Food. Once your child starts eating solid food, you’ll likely see your grocery bill start ticking up.

• Clothing. According to USDA data, clothing makes up around 6% of the total cost of raising a child, and that’s around $14,000 over 18 years.

• Miscellaneous. Other costs make up about 7% of the total cost to raise a kid. It’s difficult to know exactly when these expenses will come into play, but it’s wise to set some money aside for them regardless. 

How to prepare

Whatever money you can set aside before your child arrives will be beneficial. It’ll likely be more challenging to save money once a newborn is in the picture.

You can start by cutting out unnecessary expenses, selling unwanted items or utilizing more of our money-saving tips. 

Any money you do save can be set aside in a savings account. For expenses that are more than five to ten years out (such as college), it may be wise to invest the money instead.  

Paying down high-interest debt should also be a priority at this point. Credit card debt is very costly, so if you can pay it off, you will find you have more room in your budget for upcoming expenses. 

Tally† may be able to help qualifying Americans pay off their credit card debt. Tally helps qualifying applicants consolidate their credit card debts with a lower-interest line of credit. 

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.