Budgeting for Parenthood: Prepare Financially for a Growing Family 

by | Mar 14, 2024 | Finance

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Parenthood brings some of the most joyous and meaningful experiences alongside new responsibilities and moments that leave you either scratching your head or laughing in disbelief. When you welcome a new baby (or babies!) into the world, your world shifts and your priorities change. Where you once spent your time and money on spontaneous hangouts and hobbies, your money now goes toward helping your child grow and succeed. 

Hopeful parents or parents-to-be know that having a child comes with new expenses – but just how much? The amount depends on several factors including if this is your first child or not, and where you live, varying within the United States.  

To help you better anticipate the financial aspects associated with raising a child, we’ve put together this blog with average costs of key expenses and tips for budgeting. Keep reading to help prepare financially for your growing family! 

The Cost to Raise a Child 

How much does it cost to raise a child? CBS reports that as of September 2023, the “bare bones” figure comes in at $237,482 from birth to age 18. That sum just covers essential living expenses such as food, medical care, and clothing – not enrichment activities – and factors in tax credits that parents receive. The article also cites that nationwide, parents spend about one out of every five dollars on raising their children. 

Luckily, parents don’t need to have the whole cost set aside at once, but there are some upfront costs to consider before you bring baby home. 

The initial hurdle includes medical expenses associated with prenatal care and the birth itself, which can vary widely depending on factors like insurance coverage, your deductible, and more. If you’re hoping to have a baby in the future, check out our health insurance deep dive blog to better understand your options so you can select a plan that will meet your needs. 

Once your bundle of joy arrives, there’s the nursery setup to consider, from the crib and changing table to the myriad of baby supplies like a car seat, stroller, bottles, and diapers. Budget for these items early: for example, Healthline reports that the typical cost of diapers for a baby’s first year of life is $936!  

Image of a nursery with a white crib, baby toys and stuffed animals, and blue wall paint, to illustrate the concept of budgeting for parenthood.

Resources for New Baby Costs

Fortunately, there are plenty of resources available to help you address some of the initial costs of having a new baby. Here are four to explore:

1) Redeem Freebies

Check out what sort of freebies you can get from various retailers and baby and child product manufacturers. Many will send free samples of diapers, formula, personal care products, and more. Some of them you’ll need to pay for shipping or set up a registry and have a certain number of purchases to qualify, but this can be a way to get a lot of supplies for a great value. (Pro tip: Create a new email address dedicated for these signups so the incoming messages can be contained in their own zone and not clutter your main email account!)

2) WIC

WIC, standing for Supplemental Nutrition Program for Women, Infants, and Children, is a program from the United States Department of Agriculture to provide nutrition assistance for those pregnant, postpartum, and for children up to age five. Each state administers WIC on their own, but you can check out the WIC income eligibility from the USDA website. If you’re eligible, research the WIC program in your state and sign up!

3) Baby Shower and Diaper Party 

We all know the phrase, “it takes a village to raise a child” – so lean on your village! Having a baby shower can be incredibly helpful to gather many of the new baby care items you need. Don’t feel shy. People want to support new parents! Make a registry with the items you need. You never know which distant friend, family member, or coworker will want to contribute to support a new parent. Another tip: some of the baby registry services will allow you to buy registry items at a slight discount after a period of time. Go ahead and put that expensive item on the registry – if no one buys it for you, you may be able to buy it yourself for a little less! 

Another variation: a diaper party! This regional tradition involves giving the new dad a chance to be the guest of honor and get the buddies together. This party has a specific focus on gifting diapers and diaper themed games. This can be an easy way to help make one of the recurring new baby expenses much more manageable. 

Ask a friend or family member to help organize the baby shower and/or diaper party. It doesn’t have to be the big shindig you see on social media (but that’s cool if you want that!). Gather with your loved ones to celebrate this new addition to your family and let them help. 

4) Buy Nothing Groups

Last, connect with your local community through Buy Nothing groups, which are centered around regifting unneeded items to help others save money. Often, they are on Facebook. Search “buy nothing” and it should pull up options in your region. Join and share that you’re expecting and in need of any no-longer-needed baby items. It’s likely that people in your community may be happy to declutter by gifting items their children have outgrown. 

Screenshot of the Facebook app searching for Buy Nothing groups with three results for Cortdlandt Manor, NY, White Plains, NY and Union Square/Washington Square Park
Source: Facebook

The Cost of Childcare

The next significant line item is the cost of childcare. Even for the most attentive parent, there will be times when you will need to attend to other obligations, and having a childcare plan in place is helpful.  

The same CBS article we mentioned above cites that the average childcare cost is $11,752 a year. In some areas it’s much higher, like $21,000 a year in Massachusetts.  

Navigating your childcare options involves carefully considering both financial and personal factors. Daycare centers offer structured environments with socialization opportunities but come with a price tag that can vary based on location, hours, and specific services provided. Nanny services provide personalized care but tend to be more expensive. You may be able to build a patchwork network of family care and babysitters. When weighing these options, it’s essential to conduct a thorough cost-benefit analysis. 

For many families, the decision to have one working parent return to work full-time, part-time, or become a stay-at-home parent hinges on the costs and benefits associated with childcare. This involves comparing the potential income from working full-time or part-time against the cost of childcare. In some cases, transitioning to part-time work or staying at home may prove to be the more advantageous option when childcare costs outweigh earnings. Keep in mind that being out of the workforce means reduced contributions to Social Security, reduced access to employer benefits such as 401(k)s and insurance. Plus, it can be harder to stay up to date on skills and technology you may need if you re-enter the workforce later. Make sure to factor in tax credits, such as the Credit for Child and Dependent Care which can help offset the cost of childcare. The IRS website has a tool linked on that page to help you assess your eligibility.  

However, it’s also important to factor in non-monetary considerations, such as your career aspirations, personal fulfillment, and family dynamics. It’s not always just about the money! Ultimately, the optimal childcare arrangement is one that aligns with both your financial reality and the well-being of both you and your child or children. 

Image of a family with two parents and two young children looking out across an open field. There is an icon of a document and calculator to represent the cost to raise a child.

Budgeting for Future Costs 

If you didn’t have a budget before (or it’s been a while since you set it up), bringing a new child into the family is a great time to run those numbers. You’ll likely adjust the immediate expenses like childcare, increased grocery costs, and healthcare premiums because those are relevant in the present. In addition, evaluate if you can budget for future expenses. 

You’ll also likely want to increase the amount in your emergency fund. Experts recommend having three to six months’ worth of expenses set aside. With a new member of the family, your monthly expenses will increase, so be sure to address those updated costs in your emergency fund.  

Another consideration for your updated budget is life insurance. You may choose to take out a policy for the first time or increase your coverage. Research those options and plug your new insurance costs back into the budget as well. 

Next, you’ll want to budget for purchases that are a bit further out in the future. If you plan to travel with your kid or kids, travel costs will increase with more airfare, dining out, and activities, so you’ll want to allocate room in the budget for that. (Or, squeeze in a trip while you can fly with a lap infant for free!). Some things may involve longer-term saving, such as orthodontia expenses or college education down the line. Set up a Jar in Milli for those specific expenses to tuck the money away for a dedicated purpose!  

Getting into the habit of budgeting and saving for child-related expenses early on can help make them more feasible and strengthen your family’s financial situation! 

Conclusion

Welcoming a new family member is a special time. Preparing for it financially can allow you to focus on the adventures and joys of parenthood. Saving up for the early expenses, budgeting for the increased every day and recurring expenses, and calculating the cost of your childcare arrangement are helpful steps to take in advance. 
 
Looking for a helpful way to track your spending and a great place to save for upcoming family expenses? You need Milli! Spend with our Milli Visa ® Debit Card to track your spending by category and take advantage of Milli’s competitive Annual Percentage Yield on our Savings Accounts and Jars to earn interest on savings and let it grow. Sign up for Milli today!   

Keep reading on the Milli blog:

8 Money Myths: Busting Financial Misconceptions
Loud Budgeting: Bringing Transparency to Everyday Money
Financial Planning for Your Children and Family’s Future