Having kids is a rewarding and fulfilling experience — but nobody will tell you that it’s cheap!
Raising kids costs around a quarter of a million dollars, on average, once all is said and done.
But let’s not get ahead of ourselves. If you’re planning to be a parent soon, it’s time to start thinking about making a baby budget — customizing your budget to welcome a new child.
A baby budget should typically cover the first year or so of your child’s life and the few months leading up to the birth.
This comprehensive guide will show parents-to-be what they need to know about making a baby budget from scratch.
How Much Should You Budget for a New Baby?
If you have a baby on the way or you’re actively trying, now is a good time to prepare your finances.
There are two broad categories to consider here:
- One-time costs, like birthing costs, baby gear for the nursery, etc.
- Ongoing costs, like diapers, childcare, etc.
According to USDA data, the cost to raise a child to the age of 18 is estimated to be around $233,610. This data is taken from a 2015 survey, which is the latest official data available.
In our cost of raising a child guide, we calculated the inflation-adjusted figure to be closer to $288,000. That breaks down to roughly $16,000 per year — although expenses will be unevenly distributed throughout the child’s life.
For new parents, focusing on the one-time initial costs is wise. Financial planning for new parents can be overwhelming — but focusing on roughly the first year of new expenses is a way to be proactive without getting too overwhelmed by the multitude of expenses to come in the future.
So instead of focusing on that jaw-dropping figure of $288,000, it’s best to turn your attention to your child’s first year of life. Let’s dive in.
One-time expenses include hospital stays for the birth, baby gear, etc.
The birth of your child is a major one-time cost that should be planned for ahead of time.
In the US, the average vaginal birth costs $12,235, while the average C-section costs $17,004.
Fortunately, most families will have some sort of insurance coverage that can reduce these costs. A study by the Health Care Cost Institute found that average out-of-pocket expenses for childbirth ranged from around $1,000 to $2,400, depending on the state and healthcare coverage.
The amount you can expect to pay for medical care depends on your medical insurance coverage. To get an estimate, check your benefits and deductible information, or contact your insurance provider for details.
Equipment and gear for a new child can add significant costs to first-year expenses. However, many families will receive at least some of these items as gifts. It’s helpful to create a baby shower registry to ensure you get some of the items you need.
While costs vary significantly depending on quality and location, here are some rough estimates of costs for necessary items:
- Car seat - $50 to $500
- Basic stroller - $100 to $1,300
- Play-yard - $50 to $300
- Baby backpack - $130 to $300
- Front carrier - $50 to $200
- Sling/wrap carrier - $25 to $200
- Diaper bag - $25 to $150
Toys & activities
- Swing - $60 to $300
- Bouncy seat - $50 to $300
- Activity center - $50 to $150
- Play mat - $30 to $120
- Miscellaneous toys - $20 to $200+
- Crib - $150 to $1,000
- Changing table - $50 to $500
- Rocker - $100 to $800
- Bassinet or cradle - $50 to $300
- Hamper - $20 to $60
- Bedding/blankets - $50 to $150
- Dresser - $50 to $300
- Crib mattress - $50 to $500
- Baby monitor - $40 to $400
- Breast pump - $50 to $500
- Feeding equipment - $30 to $100
- Nursing bras - $20 to $100
- Nursing pillow - $30 to $50
- Childproofing supplies - $50 to $100
- Safety gates - $20 to $200
- Diaper pail - $20 to $100
- Miscellaneous - $20 to $200+
This list isn’t exhaustive, but it’s a good starting point for basic baby gear.
As you can see, costs vary significantly — making it difficult to predict how much you may need to spend. Plus, you may get many of these items as gifts.
Looking at the list above, we can see approximate totals somewhere between $1,440 and $9,380. That’s quite a range, but remember that there is a wide range of available products within each category.
For mid-range items, we can choose a rough estimate somewhere in the middle of this range. Approximately $4,000-$6,500 is a safe estimate for initial costs — assuming you don’t get any of these items as gifts.
Want a more accurate estimate? Use this baby cost calculator to estimate your first-year costs.
Ongoing expenses include diapers, childcare, formula, etc. For the purpose of this article, we’ll focus on first-year expenses.
Diapers are essential — the main debate is whether to use disposable or reusable diapers.
- Disposable - $600 to $1,200 annually ($50 to $100 per month)
- Cloth - $400 to $500 annually + laundering costs ($33 to $42 per month)
If you choose to use a diaper cleaning service, expect to spend close to what you’d spend for disposable diapers.
Because babies grow so rapidly, we chose to place clothing in the “ongoing expenses” category rather than one-time expenses.
New parents can expect to spend $600 to $900 annually ($50 to $75 per month)
If you’re using formula — expect additional costs.
New parents can expect to spend around $900 to $3,000 annually on baby formula (that’s $75 to $250 per month).
Eventually, your child will start eating baby food or sharing your solid food meals. Food costs for this period of time are usually around the same cost as formula, or sometimes less.
Childcare is a huge variable in your baby budget. This is a category that could be $0 per year or tens of thousands of dollars per year. It all depends on whether there is a parent staying home or a family member who can provide free childcare.
For an estimate of costs, we can look at nationwide averages.
- In-home care - $28,354 per year ($2,362 per month)
- Care center care - $9,589 per year ($799 per month)
First-year childcare may be less than ongoing years if one or more parents have some paid time off from work. You may also qualify for a tax credit, which could help to offset some of your childcare expenses.
Note that these costs vary significantly from state to state. You will need to research costs in your area and take into account any free childcare you may have (from a parent or family member).
How To Budget for a Baby
Once you have a rough idea of the expenses you will have in your child’s first year of life; it’s time to build a baby budget!
This will likely have two parts, broken down into one-time expenses and ongoing expenses.
For one-time expenses, simply make a list of everything you will need, along with estimated costs. Total the figure to see how much you will need to set aside.
Not all of these costs will come at once, but it’s helpful to set aside money for them ahead of time.
Next, you’ll want to make a budget for the next 12 months. If you’re already using a budget, this may simply be modifying it to squeeze in these new expenses. If you’re not currently budgeting, you’ll need to start from scratch.
For brand new budgeters, starting with a budgeting template can be helpful. You may also wish to use software, such as YNAB. These tools make it easier to set up a budget and track your spending to stay in line with your targets.
Get a handle on your current budget
First, parents should become acquainted with their current budget and spending patterns. If you don’t really know where your money goes each month, now is the time to start tracking your spending.
By getting a handle on your pre-baby budget, you can be much more prepared for the changes that are to come.
To start, monitoring your spending for 1–3 months is helpful. You can use a tool like Mint or manually track your spending. Track everything so that you have a complete picture of your finances.
Next, break categories down into needs and wants. Needs are essentials — rent, groceries, etc., while wants are optional — restaurants, entertainment, etc.
Looking at the “optional” categories, you can now make adjustments as needed to accommodate child-related expenses. For example, you may need to cut down your restaurant budget in order to make room for a diaper service.
Calculate the impact of childcare (or reduced income)
One of the biggest expense categories for parents of young children is childcare.
If you plan to pay for childcare, research how much it will cost you per month.
If one parent plans to stay home, calculate the effect of reduced household income. For example, if dad plans to stay home to provide childcare, subtract his take-home pay from your household income to find your new budgetable amount.
Estimate costs in your area
The information above provides a starting point for estimating the first-year costs of raising a child. However, actual costs vary significantly depending on the geographical area and other factors.
Now is a great time to research actual costs in your area. Call healthcare providers, contact your health insurer for an estimate for childbirth, and research how much you’ll need to pay for other costs.
Build your budget
Now you have everything you need to make a budget:
- Your current spending patterns and expenses
- The impact of reduced income and/or childcare costs
- Your estimated costs for first-year expenses
From here, you can manually build your monthly budget. It’s wise to have a “buffer,” which can be used to cover unexpected expenses or expense categories that run over budget.
Financial Tools & Resources To Consider
Raising kids isn’t cheap, but there are various resources and tools that you can use to stay on track. Here are some options to consider.
Help from friends and family: Don’t be afraid to ask for help! Family may be able to provide childcare at times, and friends and family will likely be happy to contribute gifts at a baby shower.
Health insurance: As soon as your child is born, reach out to your health insurance provider to add the child to your policy. Most insurers require that children be added within 30 days of birth. Once they are added, evaluate your benefits to see what is and isn’t covered — and make sure to fully utilize your health insurance benefits for your child’s healthcare.
Custodial investment account: As soon as possible, you should get started with investing for your child’s future. A custodial investment account is a great way to do this. You can set up the account on behalf of your child, and they will gain control of the account once they reach adulthood. EarlyBird is the simplest way to get started. The platform makes it easy for parents to set up custodial accounts and invest in the stock market — with no investing experience required.
529 plan for college savings: It’s also wise to start saving for college as early as possible. You can do this with a custodial account (see above) or with a 529 college savings plan. 529 plans offer tax benefits if the funds are used for qualifying educational expenses.
Raising a child is certainly not cheap — but if you plan ahead, welcoming a new baby into the world doesn’t need to break the bank!
Want to get a head start on your child’s financial future? As soon as your baby has a social security number, you can open an EarlyBird investing account in their name. This account lets you invest in a diversified portfolio of stocks, bonds, and more — with no investing experience required.
This page contains general information and does not contain financial advice. All investments involve risk. Any hypothetical performance shown is for illustrative purposes only. Actual investment performance may be different for many reasons, including, but not limited to, market fluctuations, time horizon, taxes, and fees. Please consult a qualified financial advisor and/or tax professional for investment guidance.