How much should my partner and I put aside if we want to have a kid? We live in the USA. What saving or investment vehicle should we use?
How much should my partner and I put aside if we want to have a kid? We live in the USA. What saving or investment vehicle should we use?
Biggest expense by far tied to a young child is going to be daycare, if you go that route.
Figure what the costs are in your area and look at your budget with an additional $1500-2000/month allocated to daycare.
Also, starting a 529 for them is a “nice to have” assuming the rest of your financials are in order.
In the US here and we just had a baby a few months ago.
After insurance, our out of pocket cost for hospital bills was around $6000, not including any oop expenses for obgyn visits and medications and such before the baby came. This was for a medically “unremarkable” birth–no complications, no nicu, etc.
We spent probably 2-3k on baby supplies and furniture before the baby came. The rest was given as gifts from friends and family. Stuff like cribs, clothes, diapers, a baby tub, car seat, stroller, etc. Most things can be found second hand, so there’s some savings to be had. The one thing I wouldn’t go second hand is on the infant car seat (yes you need a different car seat for when they are teeny tiny vs when they’re a little older). They expire after a few years due to safety regulations. That said, all car seats are held to the same safety standards. A $500 car seat isn’t safer than a $100 car seat — more bells and whistles maybe, but not safer.
Ongoing costs have been diapers, clothes, and basic care items like Vaseline, baby shampoo, wipes. Probably $100-150/month.
The next looming cost will be daycare. This is highly location dependant. In our relatively lcol area, we’re looking at $900-$2000/mo depending on which facility we like best.
And this is early early stuff. As they get older, I expect the expenses to increase.
It’s a lot…
Are you going to shower them in toys and clothing or get hand me downs from friends? Do travel sports or stay close to home? Pay for their college or not?
It’s like asking how long a piece of string is. Kids are expensive, but you can either buy a Camry or a Bentley.
It isn’t just about just savings. No one can possibly save enough to cover the full cost of a kid for years. The key is your income. Can you afford the monthly cost of a kid on your income? Do you have enough emergency funds and savings to cover unexpected things?
And, to be clear, it isn’t simply adding how much a month a baby will add to your current expenses. You need to look at where you are spending now and how your expenses will change when your lifestyle changes. For instance, maybe you currently go out to dinner once a week and participate in some expensive hobby like golf. I bet the weekly dinners drop to monthly or less, and golf is no longer a weekly expense and only once a month. The money saved because you just can’t do as much of that kind of activity would easily cover the cost of diapers or formula each month. Same with the kind of vacations and travel expenses. So you need to take a realistic view of your current budget and then anticipate what your expenses would be when you have a baby to care for 24/7. Compare that to your monthly income and also account for any loss of income the first few months on maternity/paternity leave.
Excepting a medical situation, the biggest ongoing expense is childcare. You pay for daycare until Kindergarten, but then it’s before/aftercare and summer camp.
Medical depends on your insurance (US). I spend about $400 OOP a year between myself and kid, more last year due to dental issues. My employer gives us $650 a year in our HSA so that wasn’t too costly.
I suppose I still get to look forward to college but career wise I hope to be able to cash flow that. Right now he has ambitions of being a YouTuber so who knows what that will look like.
No set amount of savings are required to have a kid. You might want to have at least enough to cover your insurance deductible and make sure your budget can handle expenses such as diapers, child care (or one or both parents working less), clothes, formula/food, etc.
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Figure out how much you’ll have to pay insurance for dr. Visits. Your wife will hit the “max out of pocket” price of her insurance plan, so you could save for that
Daycare costs about 20k per year per kid. Until kindergarten. Unless you get help from grandparents or use cheaper unlicensed childcare such as a neighbor or strangers from Facebook marketplace
this is more a new expense, not something people really save up for. Budget around this
I’m having a baby in June. Since we found out we were pregnant we’ve been putting $300/month into a HYSA, and continuing to put money in our HSA (estimating about $5-6k for medical costs). The HYSA money will be used to buy things we need that we don’t get from our shower.
Once the baby is born we are estimating $1,500 a month:
$500 for their 529. My state gives a tax credit for contributions so we want to get the max for that.
$700 for daycare, this is on top of maxing out my child care FSA which is another $416 a month pre tax. Our daycare is ~1,300 month
$300 for monthly costs like diapers, wipes, clothes, etc. I’m worried this might not be enough but we’ll adjust as needed. This money goes into a sinking fund (HYSA) so if we spend less it builds up to cover months where we might spend more.
Aside from the delivery and other medical stuff that comes up, theres really no set amount. My wife and I raise three kids on our collective… 70k ish annually and we’re barely scraping by, but we make the most of it for our kids. Some people could do better or worse with the same or less than us. It all depends on how you use what money you have, ultimately.
Rely on local free cycle groups for kids toys and clothes. You’ll save a lot of money right there.
Questions to ask yourself:
1) how much money are you putting away monthly right now? Before kids me and my wife would put away ~1000/month. After it’s closer to 500. We still haven’t gotten into putting our baby into regular events which will cost more.
2) childcare. This is the biggest question. Who’s watching the baby after its born? Will you have family come and help? Are they reliable? Me and my wife have been incredibly lucky that both our parents are alive and in good health AND want to watch our baby. Otherwise it would be close to 1500/month to put him in a decent daycare.
On #2 I was sure our parents would bail after a few months. It’s hard taking care of a kid. So I had some money on the side in case that happened.
Big cost of a kid is ongoing.
First there’s the birthing, like your insurance deductible. Then your insurance goes up. A kid adds about $200/month on that. Kids, esp. the first go to the dr. all the time. Like every year at least. First one, when it’s a baby, like quarterly. Exepect to keep exceeding that deductible.
Then you either have daycare or a lost income. This is probably the biggest. Figure $5/hour at least for each hour you’re both working. Unless you can get a grandparent or something.
Then it is better housing, bigger in a better school district.
Then you have activities and what not.
Then you have college, which is about the same as daycare.
A 529 will help you pay for college, and has some tax benefit. That’s only a small part of the picture. When it gets beyond $35k though, there starts to be a risk if you don’t use it, you’ll lose a portion and any advantage.
Really what you want is be able to spend $12k/year extra for the daycare, the insurance or the housing.
Savings, in a brokerage or bonds would be handy for the thinner times and the housing expense along with getting used to living with less, or caching that a little. If you can live on one income, you’re doing ok. Having $216,000 to cover $12k x 18 years wouldn’t be a bad idea, but not necessary if you can cover the $1000/month ongoing.
There’s little stuff, like clothes, diapers, toys, formula, food, kit, things like a car seat and a safe car to put it in. That stuff takes care of itself for the most part. You don’t go out as much, don’t travel, don’t drink, your hobbies etc kind of go by the wayside as your entertainment is now the kid.
There is something to be said to fully funding your retirement before you can’t afford to anymore, but then having it grow while you’re paying all that other stuff.
If you can hack the daycare system, then kids are really not that expensive. ESPECIALLY early on when they literally don’t eat food. Cost of diapers is pretty overblown on Reddit too. Frankly I have two kids and they have not majorly impacted my monthly budget yet, and they’re 4 and 6.
By hack daycare I mean find a “babysitter.” There’s an entire massive network of cash only babysitters all around you. They live in secret, they use word of mouth and they operate in particular social networks. It’s like a dang mafia. But they’re out there, and you can work to find them.
We have a babysitter that we pay $25/day for. She watches 5 other kids. She’s a part of our family now. You might think “but I want professionals watching my kids. This doesn’t sound safe”. I got news for ya, the people at the most expensive daycare in your town are not better and your kids are not safer.
Health premiums: if you’re already married and paying for an employee + spouse health plan, then moving up to family coverage is really not a huge leap usually. The big cost change is when you go from single coverage to any other tier.
Don’t be stupid and have 10 babies when you can’t afford to feed yourself. BUT, don’t listen to the BS about kids costing hundreds of thousands of $. If you needed $250k to safely have a child, there would be no almost human beings.
Build up a small baby emergency fund, above your medical deductible, in case of a real emergency (wife can’t work, baby has an issue and you’re traveling to a different hospital, etc). After baby makes it home healthy, you are golden.
And clothing is almost a non issue unless you’re very, very poor. We shop at consignment places for our kids. I’m talking shirts for $2 that haven’t been worn. It ain’t a big deal.
The average cost to raise a kid was $234,000 in 2015
https://www.usda.gov/media/blog/2017/01/13/cost-raising-child
Make sure you have enough cash flow for daycare, increased medical premiums, and enough cash savings to cover medical bills for the delivery and check ups after.
I might get downvoted for this but I’d say enough to cover the delivery and everything after that can be purchased later.
I got everything second hand demand extremely cheap or just asked relatives for hand me downs. Wife breast fed which kept formula cost at 0, and aside from paying doctors bills and check ups there were minimal costs.
Our child never had anything fancy and worse some worn out clothes but they’ll never remember it and I was able to have a child without waiting and saving. 10/10 would do again.
Diapers bought in bulk from Costco or target and used coupons a lot of times too. Monthly spending on baby was <100
The biggest change we had was our health insurance which absolutely was a big jump so plan for that but that was my take home income dropping not necessarily something I had to save for.
Just prepare for the expected and unexpected. At 8 weeks, I saw a sonogram with not 1, but 2 little blips and the first thing out of mouth was “I have to redo my budget…” I did and I had the time to do it.
I like a high yield savings account so that you know the backup money is there. There’s lots of baby budget spreadsheets available online. Look up the cost of the necessities in your local stores and also the cost of local childcare. Start saving that cost now so that you know you can afford it and then you’ll also have a chunk saved when the time comes.
Impossible to know for sure but im sure there are some baselines
But disabled kids are born often and the cost to care for them can range quite a bit as disabilities range quite a bit and some even require permanent lifetime care
Need? None.
Invest time in them, they will appreciate it more than any amount you spend on them.
Poor people have kids all the time.
Many poor kids break out of poverty, but the path is paved with love and involvement.
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Yes, you should set aside a set amount eqxh year for them as a long term fund. This can cover things like college, down on a home, car purchase, or whatever you decide. But it’s important to have a goal in mind. I recommend using a comparing interest calculator to understand how much you need to save as everyone has different goals.
There are a few different investment vehicles..one really popular investment mechanism is a 529 plan for college that come with a slight tax advantage.
There are uniform minor transfer accounts (UTMA). You can open one with most reputable brokers and then manage investments for your child. At most you’ll pay long term capital gains tax, 15% but there are ways to reduce this. I chose to skip the 529 plan because the rate of return barely outpaces inflation, and in some cases outperforms it..also 529 are managed by someone else and these fund managers have proven to not be the best investors. In 2008 for example, many people had kids about to enter college and their 529 plans were wiped out with the crash. Because fund manages had kept money for people near maturity in equities when they should have been primarily in cash and bonds. The slight tax advantage wasn’t worth the risk IMO, especially with the low returns. I use UTMA and usually take 10% of my bonus and place it into each of the kids accounts. Once the kids are 18 we can choose how to allocate the funds.
I’ve also added both my kids to my free credit card as authorized users. This way when they are 18 they will have 10+ years of credit history. It won’t make a huge difference, but it takes 2 minutes to set up and will ensure I don’t have to co-sign their first car/apartment.
Lastly, my 6 year old has a checking account with chase that includes a kids debit card. This is to fund her entrepreneurial ideas. She does chores each day and has the potential to earn $1/day if she makes her bed, changes her own clothes, and eats her vegetables. We are using her money this summer to open a lemonade stand as her first venture. Teaching kids how to invest is equally as important as saving for them. Especially in America where entrepreneurs are rewarded.
You want to sit down and set up a budget plan with all the things you know will change as a result such as insurance premiums, childcare, food/clothing/toys, etc ($at least $500 per month), and then create another plan where one of you becomes a stay at home fulltime parent until the child/children go to school because you may find it more beneficial and cost savings (taxes) to do this as my wife and I did.
I could list out all the benefits of her becoming a stay at home parent for 10 years over 3 children vs her working and financially costing us more due to childcare alone, but more important is the deeply routed bond our children have with my wife even now that 2 are in college and one is in high school. We could never put a price on that motherly love.
The downside was my working a lot over the years to provide for the family making my early bond not as strong, but as the children got older and into high school I changed my job and made myself much more available at a time where I am needed more later in life as the dad/protector/provider. My bond is strong with them now but in the sense of work ethic, financial management, etc. I have children who know how to really budget their hard earned money and manage their personal/work/school time extremely well. Taught my older 2 this year how to file their own taxes giving them much more power over money.
I know long winded and maybe did not seem helpful but know raising a child is much more than just a budget of money.
Start scrimping and saving ASAP, the short-term costs vary greatly based on where you live, single stay home parent or sharing, if you have extended family, but mostly if your child is well and whether you want private/public school for them, but the long-haul cost can be over $250 thou til they are 18.
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