When thinking about your future, there are many factors and life choices you will have to plan and save for—whether that’s purchasing your first home or growing your retirement nest egg. And while no one wants to financially evaluate having a child the same way they would the purchase of a car, it’s incredibly important that you plan ahead before growing your family.

It should come as no surprise that having and raising children comes with a hefty price tag. In 2017 the U.S. Department of Agriculture (USDA) estimated that the average cost of raising just one child from birth up to age 17 is about $233,610. When you consider inflation and the rising cost of schooling, healthcare, and other basic needs, that figure is projected to be around $284,570 for a middle-income, married-couple family of two children. Yes, you read that correctly…

$284,750

While you take a moment to take a deep breath, let’s discuss how these tiny human beings could cost this much. This average includes everything you may spend on a child, such as:

• Housing
• Food
• Transportation
• Healthcare
• Childcare
• Clothing
• Personal care items
• Entertainment

When we review the percentages, parents are spending between 9% and 22% of their total income on childcare. Let’s take a more-in-depth look into these numbers.

The top cost: Housing

Housing takes the cake for the biggest expense, accounting for 29% of a child’s price tag. Factors such as mortgage or rent payments, property tax, home repairs, insurance, utilities, and any other expenses all contribute to the total cost. 

Do keep in mind that housing expenses will widely vary depending on the region that you live in. According to the USDA, expenses were highest in the urban Northeast and lowest in more rural areas. The following table can help you get a better idea of how much raising a child costs across the country:

The cost of necessities: Food and childcare

Food and childcare make up the next largest part of the budget, with the USDA estimating that these costs total an average of $37,378 per child.

Food expenses come in around 18% of the total from birth through age 17. The USDA has broken down these expenses into four different cost level plans while representing a nutritious diet. For lower-income families and those looking to moderately stretch their budgets, there’s the minimal-spending “thrifty plan.” This is followed by the “low-cost plan,” the “moderate-cost plan,” and, lastly, the “liberal plan.”

The growing cost of childcare is also taking a very significant portion of families’ budgets. According to the USDA, this expense accounts for 16% of the cost of raising a kid. The cost of childcare depends on where you live—however, a recent Cost of Care survey shows that 72% of parents spend 10% or more of their household income on childcare. One in three families (32%) reported spending 20% or more of their household income on childcare in the year prior.

Of course, childcare is not an easy job, so providers charge families high prices. According to Care.com’s research, weekly childcare costs for one infant child have significantly increased over the past six years. And with the world sitting in such an uncertain state, 52% of parents expect the COVID-19 pandemic to drive up the prices even further. 

When deciding on a form of childcare for your family, there are a few ways to be economical about the decision. For example, if you have more than two children, you may prefer a nanny over daycare as nannies don’t often charge double in the same way daycare centers tend to. However, daycare centers may be more inclined to give you a discount if you have more than one child enrolled in their services. 

Another option is to provide childcare on your terms. Should you choose to work from home and care for your children, either part-time or full-time, you may be able to decrease the amount you spend on childcare by 20 to 30%. 

The good news: The benefit of economies of scale

The breakdown of the remaining expenses is as follows:

Before you begin to panic about this stress-inducing number, there is some good news when it comes to the cost of parenthood in America. Child-raising expenses are subject to economies of scale and will decline with each additional child you may have. 

For example, data shows that for a married-couple family with one child, their childcare expenses averaged to be 27% more than expenses in a two-child family. For families with three or more children, expenses dropped to about 24% less on each child than those in a two-child family. 

Known as the “cheaper by the dozen” effect, each additional child costs less because of the following factors:

• Children can share a bedroom.
• Families can buy food in larger, more economical quantities.
• Clothing and toys can be handed down.
• Older children can often babysit younger ones.

The bad news: College isn’t included 

There’s something crucial to remember when you’re crunching the numbers for your growing family—that $284,570 average doesn’t take into account one of the biggest expenses a parent will face—the cost of a college education. 

College Board has reported that the average annual cost of an in-state, public, four-year college education will cost a student $21,950. This figure jumps to $36,420 for out-of-state students and continues to grow to a whopping $46,950 for students attending a private four-year college.

This means that for many people, the easiest and most convenient way to put money aside for college is through a 529 college savings plan. Any money you deposit will grow free from federal income tax and any withdrawals you may make as long you use them for qualified education expenses.

By saving early and utilizing a 529 plan or other investment vehicles, you’ll help keep both your children and yourself from accumulating a large amount of debt. 

Additional expenses

In just the first year of your child’s life, you could be spending around $12,980—and this number will only rise as your child grows older. 

Aside from the factors we’ve discussed above, other big-spending categories include:

• 🍼Food. As we mentioned earlier, food can account for 18% of the cost of raising children. You could spend anywhere between $99 and $183 per month to feed a 1-year-old child.

• 👶Clothing and diapers. Disposable diapers cost an average of $70 to $80 per month.

• 🧸Extras. Don’t forget out-of-pocket healthcare costs, a car seat, stroller, haircuts, toys, books, etc.   

Money milestones you should hit before children

Have a stable career

Establishing a secure work situation for yourself before growing your family is a crucial step. Whether it’s a traditional 9-5, entrepreneurship, or a combination, you’ll want to have a stable foundation and income that can support your growing family. 

If you’re planning to continue working while raising your children, try to build a career that you can continue after your children are born. It should also be a goal of yours to earn a salary that will cover childcare expenses. 

Of course, there’s more to think about when you’re signing a job agreement than just salary. Consider a career that will provide you with benefits such as maternity or paternity leave, as well as healthcare. You should also ensure your employer has a decent personal/sick leave policy so that taking a day off to care for an ill child doesn’t mean you’re out of a day’s pay.

Earn enough disposable income

$284,570 sounds like a lot—and it is. That number breaks down to $16,740 annually or $1,395 monthly for one child. Run the numbers to get a better idea of your estimated annual costs, and make sure you have enough room in your budget before the expenses come rolling in. 

By seriously evaluating your budget, you’ll better understand how much of your disposable income will need to be allocated to raising a family. If you want to get ahead of the game, you can even save up a year or more—or as much as possible—of those estimated costs.

Have an emergency fund in place

Every parent will tell you that raising children is an adventure. You can be playing on the playground in one moment, and sitting in the emergency room the next. With surprise expenses ranging from covering the copay for a broken arm to the insurance deductible for your teenager’s first fender-bender, you must be financially prepared for the unexpected when you have children.

Aim to have an emergency fund of around three to six months of expenses to protect you and your family from being overwhelmed by life’s inevitable messes.

Contribute to your retirement fund

The responsibility of saving for your retirement will likely fall solely on your shoulders. Contributing to a retirement fund before you grow your family will not only secure your future but will also relieve the potential burden of your children being financially responsible for you as you grow older.

If you’re not sure where you currently stand when it comes to your future retirement, try using our retirement calculator. You’ll be able to determine your estimated retirement age and income, along with ways to improve your outlook in just a few easy minutes.

Prepare to send your children to college

While the student loan debt crisis worsens every year, remember that there are ways to lessen the financial burden both you and your future children will face when they begin to apply. The best route is to prepare.

If you make sure to be in a position to save for your child’s education from birth, you’re setting the whole family up for success. This includes taking advantage of 529 plans and any other type of financial instrument to help prepare for education-related expenses.

What to do if you don’t hit the milestones

While it would be ideal to hit every one of these milestones before having children, these represent a best-case scenario. If you aren’t able to check these all off the list, it doesn’t mean you shouldn’t grow your family or that you’re destined for financial disaster if you do. 

Instead, let these serve as goals to be aware of and to continually work for. The more of these milestones you’re able to achieve, the less financial worries you’re likely to have. 

More ways for expecting parents to prepare

Plan ahead for parental leave

The Family and Medical Leave Act (FMLA) provides American parents with up to 12 weeks off after they welcome a child to the family—but it’s not necessarily paid. Be sure to review your employer’s policy on paid parental leave and begin saving ahead of time to replace your income while you’re out of office.

Understand and apply for child tax benefits

The IRS offers families a child tax credit of up to $2,000 for children under 17. Other child-related tax benefits include:

• The adoption tax credit
• The child and dependent care tax credit
• Employer-provided adoption assistance 
• Dependent care benefits 

Key Takeaways 

While the decision of whether or not to have a child is commonly not a purely financial decision, it’s crucial to consider your financial situation and be aware of the costs of raising children. 

No one wants to think of their children as just an expense, and saving up toward a $284,570 expense can be daunting. However, at an average annual cost of almost $17,000, not planning and saving ahead of time will significantly hurt your finances when it’s time to raise a family. Knowing these numbers will allow parents to better control their costs while strategizing ahead of time. 

Savology’s comprehensive financial plans can help set you up for a secure financial future, whether you’re hoping to save for retirement, manage your investments, open a 529 plan for your child, or a combination of the above.