I did a simple google search of “how much does it cost to raise a child” and then my eyes glazed over. According to Investopedia, it could be as much as $277k in 2022 (from birth to age 18). That turns out to be about $15k a year. But I always hate numbers like these because they often don’t reflect reality or take into account your financial future.
I’ll never forget speaking to a couple a few years back who were financially devastated because they had leveraged everything they had to send their child to a university they couldn’t afford. It was ruinous for them. They were way behind in terms of having any savings for themselves, plus they were nearing the end of their working careers. They had to make some very hard choices about their own aspirations given the financial strain.
This is an extreme and scary example of how the ongoing costs of raising kids can impact our finances if we don’t plan for them. I always recall the wise advice: You can’t take care of others unless you take care of yourself. When you fall on hard times financially and otherwise, it directly impacts your child or children. We never want to unintentionally saddle our kids with financial worries, to the extent we can. That’s why it’s important for us as caretakers to also make sure we are looking after our own financial health.
So how do we begin to wrap our minds around what raising a child could cost and how to plan for it? And more importantly, how do we also protect ourselves?
First, we come up with the realistic, ongoing costs of having a child based on where you live, what age your kids are, what their interests are … consider multiple factors in coming up with numbers that are right for you. After we outline those costs, I want to shift our focus to how raising a child affects our own financial future.
Further Reading: LGBTQ Family Planning
What are some of the explicit costs of raising a child?
Food, Clothing, and Supplies: This will vary depending on the child’s age. Do you tend to cook a lot as a family or eat out a lot? Does your family do a lot of art projects or do you love sports and the outdoors? Do you care if your kid wears the latest trends or are you happy with hand-me-downs? I would recommend basing these costs on what makes the most sense for your family and finances. If you don’t have time to meal prep or look for second-hand clothes, or your family loves to go to the movies instead of hiking outdoors, then don’t budget like you’ll do cheaper, “cost-cutting” things! Just factor in the costs properly so the reality of how you’re living is reflected in your finances.
Childcare/Tuition: Depending on where you live and how old your child is, this could range from very little to a lot. It’s also helpful to look at how the costs may change over a few years. In the early years of having a child, nursery school, a nanny, and babysitting, or some combination of all of the above, can add up to a significant (and shocking) amount of money that you need to factor into your monthly spending. While this expense could go away completely once they reach school age, it may not if you decide to enroll your child in a private school. Planning out your potential expenses will help you see if you have the cash flow to pay for them or if you need to adjust in some way.
What are some other costs we don’t often think about?
Does having a child (or the age of your child) mean you may need to change your living situation? Do you need to eventually move to have more space? Would this add more cost (e.g. a car, commuting) to your life?
Does having a child mean something different about how much you can work and earn money? Tallying the costs of raising a child and making sure they fit into your monthly budget is helpful. But one of the most important things parents can do for their future selves (and coincidentally their children) is to be aware of how ongoing costs impact their own financial situation. If you start the process by grounding yourself in how much you need to put away for your future self, you can make more informed decisions in the present. Let me explain: If you find out that you need to save $20k a year to safeguard your future (link other blog article), you can better assess what you may need to sacrifice otherwise to pay for taking care of your child. Or you may realize that you have enough income to bear the brunt of all the costs of care and still save $20k toward your future plans. Starting with what you need first may seem counterintuitive as a parent or guardian, but it will help you build confidence in the choices you are making for your household.
By the way, there’s also nothing wrong with not saving money for a period of time as long as you have a game plan to refocus on yourself. Let’s imagine in your child’s early years, you spend a lot more on childcare so you or you and your partner can continue working full-time. At the same time, you know that once the child goes to school, you can really ramp up your savings and be back on track.
Building an awareness of the costs of raising a child is important, but you also need to pair that with what you need for yourself. Thinking this way may seem selfish, but it helps build a more secure future, which directly impacts your kids!
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Jim is a financial advisor and owner of Thinking Big Financial, Inc. Thinking Big Financial is a fee-only registered investment advisor offering financial planning and investment management services. Specializing in working with the LGBTQ Community.
Please read my legal disclaimer here.