Everyone knows that raising kids is expensive. Right? But my typical measurement of “how many trips to Starbucks does it cost?” doesn’t even scratch the surface when we’re talking about raising an actual human being. To get a more accurate representation of the real costs, let’s spend a few minutes learning what you can plan to spend — and how to save — on your latest bundle of joy.

Let’s See Some Numbers First (i.e., Sticker Shock)

I have some friends who are DINKs (dual income no kids). Each time one couple thought about the financial responsibilities of raising a child, they bought a hotel instead. I’m not encouraging you not to have kids. Still, according to a recent article, from birth to age 18, the average parent will spend over $300,000 to cover everything required to raise their child, excluding higher education costs. That’s a huge finacial — and honestly, life — commitment that needs to be planned for.

Be prepared for an evolving list of expenses, meaning there’s never a “less expensive” age for kids. During the early years, everyday necessities like diapers (often $850/year), formula (about $125/month), and child care (let’s just not even tell you how much this is).

As children grow and enter school, costs tend to shift toward extracurricular activities, such as sports and music lessons, which can easily add $2,000+/year, along with family vacations that often run $5,000 to $8,000/trip. Shall I get you a paper bag for your hyperventilation?

Fortunately, as a parent‑to‑be, there are steps you can take now to plan, build savings, and better manage your finances before your bundle of joy arrives.

Be Spending Savvy Before You Bring Baby Home

Start by practicing savvy spending habits. Step one: Set and stick to a budget. Step two: Have an emergency fund. After that, make sure you are making smart financial choices and not trying to keep up with the Kardashians and their $100,000 birthday parties. For many, there’s a temptation to have the best of the best (especially if it’s your first baby), and the options can be overwhelming. Parenting expert Susan Newman, Ph.D., recommends, “Before you give in to the impulse or desire to keep up with ‘the Joneses,’ know that most people don’t notice what stroller or baby carrier you use,” shares Dr. Newman. “Following your peers in this area will only add more stress to an already stressful period.”

• Do:
  • Clothes
  • Books and toys
  • Strollers
  • Baby gear like swings and bassinets
• Don’t:
  • Car seats
  • Cribs and mattresses
  • Breast pump parts
  • Bottle nipples

Build a Budget that Grows with Your Family

What’s a good budget for your family? Anyone in marketing knows that the answer is always, “It depends.”  Keep in mind that obviously, your budget should change once children enter the picture, as it should anytime you have a life change. You’re also going to want to adapt your budget as your child grows.

So, we don’t have a great answer for you, but we do have a starting place so you can build a budget. Take stock of where you are right now. Then, do your best to factor in the things you know you’re going to need to buy (diapers, wipes, formula, etc.). You’ll also want to try to get an idea of what your larger expenses will be, like childcare, and build them into your budget.

As your child grows and his or her needs change, you should revisit your family’s spending plan around once a month. “I always like to think of budgeting — especially the more people you have in your family —  as a living document that you want to touch base on and look at regularly,” suggests Ashley Feinstein Gerstley, a money coach, author, and founder of The Fiscal Femme.

Eventually, you’ll want to discuss the family budget with your kiddos. Teaching them about money will have a longer-lasting impact than the pink hair dye they used in the third grade.

Save Early and Save Often for their Education

If you’re a planner, you might also be thinking, “How much does it cost to send a child to college?” In Montana, in-state tuition is about $9,000/year. Private schools are more expensive, and out-of-state tuition is often over $30,000/year. That’s before housing, books, supplies, and coffee, of course.

One of the most effective vehicles for college saving is the 529 plan, a tax-advantaged investment that is used to save for — then pay for — college, grad school, and other forms of continuing education. In the past, one hesitation some parents have had about opening a 529 plan is the question of what happens to the funds if their child does not go to college, or if they get a scholarship and there’s no need for those funds. However, 2024 brought increased flexibility. I don’t really do math, so I trust my financial advisor to help me make these kinds of decisions, and I encourage you to do the same.

Talking About Things No One Likes Talking About

When you welcome a child, you want to make sure he or she has health insurance coverage. You’ll also want to take steps so your child is cared for if something happens to you.

For medical coverage, you’ll want to get the ball rolling on that before your child is born. If you and your spouse both work and have health insurance offered through your employer, do a side-by-side comparison of what it would cost for a family plan, and what the benefits are. Additionally, if you do have a high-deductible health plan, a health savings account (HSA) can be a great way to put money away pre-tax to use on medical expenses or other baby essentials, like an infant thermometer and other items that can be paid for using these funds.

Also, while it’s difficult to think about, you’ll also have to consider how your child will be taken care of if something happens to you. Term life insurance is the best (and most affordable) option for most families. Ideally, you’ll get a policy that covers 10 times your annual income plus $100,000/child for college. Before you even ask, yes, you need life insurance on both parents, even if one is not currently earning an income. Why? Because if you had to replace those services, hiring someone would come with a hefty price tag.

Final Thoughts