Learn how much adding to your family will really cost -- and if you can afford it.
Raising a child is no cheap endeavor. You're constantly budgeting for diapers, clothes, baby gear, college savings, food, childcare, enrichment classes. We don't have to tell you how long this list is, and it doesn't even include the "oh my, I have to buy" super-cute and (and sometimes silly) stuff that lures you to the cash register. According to the USDA's most recent annual report, Expenditures on Children by Families, it will cost a middle-income family with a child born in 2010 about $226,920 to raise that child over 17 years. And that's not taking inflation into account.
If you're considering having a second -- or third -- child, you may be wondering whether your family can afford it. In her book The Real Cost of Living, author and financial expert Carmen Wong Ulrich addresses the two different kinds of costs to consider when you're thinking about expanding your family: personal and financial. On the personal front, the considerations are completely subjective (exhaustion, more wrinkles, lack of alone time, the list goes on!).
Leslie Moye, of Chapel Hill, NC, has two children, ages 7 and 3, and is expecting her third. "My husband and I just didn't feel done with two," she said. We even have a boy and a girl, but neither of us could escape that nagging feeling that we were missing someone. It may just be because we both came from three, but that's how we felt. Financially, we would be in a better place if I weren't pregnant, but we felt like we would do whatever it takes to make it work."
Seriously, isn't there an app for this yet? If only there were a formula we could use to just figure it all out. The reality is that there are just too many variables (lifestyle, current expenses, years between kids, etc.) for this to work. But don't be dismayed: our research can still help you figure out where you stand from a financial perspective. Ulrich said, "What's most important is to be a well informed and prepared parent so that when the next [child] comes, you are actually ready for the financial hit you're going to take." With that in mind, the single most valuable action you can take before having another child is doing your homework and educating yourself about the costs associated with expanding your family. Ulrich provided us with a number of important factors that are well worth your consideration.
If you're both working parents, managing your workloads with a second or third child may be a daunting prospect. Consider your options for striking a work-life balance that makes sense for your entire family.
- What will maternity/paternity leave cost you?: What are the financial implications of the following:
- > taking time off beyond what you'll be paid for?
- > reducing your schedule once you return to work?
- > reducing your schedule once you return to work?
- > leaving your job altogether?
- > hiring a nanny or babysitter to help with your other child/children so you can have a maternity-leave bonding experience with your new baby?
The strongest determining factor with regard to increased childcare costs is what the age difference between children will be. Claudia Spinelli, of Glendale, CA, is the mother of two children who are about four years apart. She says, "Our daughter was still in preschool when I was pregnant with our son. We knew she would have about a year left of preschool when it would be time for me to return to work and send our son to daycare. So that doubling up of childcare costs did make me nervous."
If your children are close in age, you can expect to see discounts when it comes to caregiving, after the second child, and, according to Ulrich, definitely after the third. Unless your kids are all five years apart and attending public school, the expense of having multiple kids in childcare will have a huge impact on your bottom line. She says, "Hiring a nanny may make a lot sense for three, but it may be more of a toss up with two kids."
- How close in age will the children be?
- What are our current childcare costs and will they change in the near future?
- Whether it's next year or five years from now, will we enroll the older child(ren) in a public or private school?
- Is a nanny or daycare more economical? Do you need someone who can help with drop-offs and pick-ups and child care? (See our guide to deciding between daycare, nanny and an au pair)
- How much more will a babysitter charge for an extra child -- so you can get out for a few date nights? (Use ourBabysitter Pay Rates Calculator to get a feel for the going rate.)
Your family's grocery bill will certainly increase, but again, the ages of your children will play a huge role in determining just how much it will change. Ulrich says, "With each child, it's very safe to expect to see at least a 20 percent increase in your grocery budget." Depending on your spending habits (and willingness to change them), though, sometimes that 20 percent can be cut down to virtually nothing. Using coupons and planning out your meals for the week can be an incredibly effective way to save a substantial amount of money every month.
- Will your older child(ren) still be in diapers when the baby arrives?
- How much food are you throwing out these days? (You might already be preparing enough food at every meal for another child.)
- Are you currently a coupon user? You don't have to be an over-the-top couponer to see big savings and there are a number of easy ways to have coupons sent straight to you. Ulrich suggests setting up a dedicated email address just for shopping for your family.
- If you eat a lot of takeout, can you cook more at home? This can prove to
be a big money saver (not to mention healthier, in most cases). Consider using part of your weekend to prepare meals for the upcoming week.
This is another area where it can literally pay to do your homework. Like your grocery bill, you can expect to see your medical insurance costs go up, but not exponentially, and generally less with each child after your first. According to Ulrich, with a second child you may see an increase of anywhere from 10 to 30 percent, but by the third child, the increase will often be minimal in comparison. At that point, the co-payments for the last-minute, "is-it-an-ear infection?" appointments are the main culprits that will slowly attack your wallet.
If you have more than one insurance plan to consider, it's critical that you buckle down, notebook in hand, and really educate yourself when it comes to medical coverage. And while it's the most talked-about, medical insurance is not the only one to research. Be sure to look into what changes may occur within your life insurance and disability benefits as well.
- Have you called or gone to the website of your current insurance carrier or checked with HR to make sure you know all insurance options available?
- If you are not insured through an employer and you purchase private insurance, have you checked out the competition lately? Some plans offer a flat family rate.
- Have you looked into your state's offerings for children's coverage? Some states offer reasonably priced plans for children.
When it comes to your house or apartment, consider how much space you have and how it relates to your lifestyle.
- Will the new baby have an appropriate amount of space?
- Does a room in your home need to be prepared for another child? Consider all associated costs in terms of construction and decorating.
- Do you need to consider a move?
Gear and Clothes
If your first child's stroller, crib, and clothes are still in good condition, you may have minimal expenses in this area during the first year, especially if you started out with mostly neutral designs and duds. Even so, you will probably need to pick up a few new items, such as a car seat (your first one might be past its expiration date), and you might not be able to resist some of the new items that weren't around when your last child was born.
- Does our current vehicle accommodate all necesary car seats?
- Has the first car seat expired? (If so, you have to replace it.)
- What kind of condition are the crib and stroller in?
- What new gear is out there that I'd love to try? And is it necessary?
- What can I borrow from friends?
Saving for the Future
Perhaps you've figured out most of what you need to consider for the first few years. What about college? According to Ulrich, it's not realistic for most American families to be able to cover full college tuition for one child, much less multiple children. Setting up a college fund for each child is key, but be sure to also keep up with your own retirement savings.
- Could the grandparents contribute to our childrens' 529 plans for birthdays and holidays or as a way to transfer assets early? (Learn more about tax-free ways grandparents can give money)
- Can vacations, house renovations, car upgrades be put on hold for the time being?
- How much do we need to add to our emergency fund? (In The Real Cost of Living, Ulrich suggests having a safety net of six to eight months' of living expenses saved up.)
- Am I taking advantage of the retirement benefits my workplace offers, such as maximizing the 401(k) matching contributions of my employer (if not, try)?
- With all of these considerations (savings included) what would our new monthly budget be?
Got all that? Some of your new-baby-related expenses will be one-time events, while others will become new "regulars" in your budget. Once you assess how much this means on an annual basis, you'll have a much better feel for where you and your family stand.
Ultimately, you and your partner should do what's right for your family, regardless of expenses or circumstances. "Having a process [to follow] as opposed to a formula is what it's about. It's about your life, not the average person's life," says Ulrich.
And if you're still itching to plug in some numbers for a preliminary figure, try the USDA Cost of Raising a Child Calculator to get a feel for how much it costs to raise a child in your region.