Budgeting for baby

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As the saying goes, "Parents are people who carry pictures in their wallets — where their money used to be." The U.S. Department of Agriculture estimates that the cost of raising a child born in 2015 through age 17 averages $310,000 for a typical middle-income family — and that doesn't include the cost of college tuition.Footnote 1 As you consider your growing family's fiscal needs, take a look at key areas to address before and after your new child comes home.

Health care

Your first baby-planning step is to choose the benefits you need from your health care plan. A managed care plan, such as a health maintenance organization, can reduce out-of-pocket expenses over a traditional plan, which often requires you to pay at least 20% of care costs. The savings can be significant for families with children. For medical expenses not covered by your health insurance, find out if your firm offers a medical reimbursement account (MRA) or a health savings account (HSA). Your contributions can pay for items such as orthodontic care, insurance deductibles, and eyeglasses.

Child care

Fortunately, there are certain tax breaks especially for parents. The Child Tax Credit provides a credit of up to $2,000 per child in 2023 for children under age 17 at the end of the calendar year. Note that, unlike a tax deduction, a tax credit reduces your tax bill dollar for dollar. That means that a married couple with three children could potentially deduct up to $6,000 from their 2023 tax bill. Income restrictions and other rules apply, so check with your tax advisor for details.
An even better deal, if available, could be an employer-sponsored dependent care account, where you contribute an annual amount in pretax dollars to be used for qualifying dependent care expenses. But keep in mind that you must decide before the beginning of each year how much you will contribute, and you lose what you don't spend.


Your child's arrival should also prompt you to protect against potential loss of income by obtaining or increasing disability and life insurance. With disability coverage, try to replace about 60% of your income. With life insurance, assume you will need coverage equal to 5 to 10 times your family's annual income. Employer-sponsored coverage is often the least expensive, so check to see if your or your spouse's employer offers it.

Legacy planning

It is important now to draw up a will designating a guardian for your child should you and your spouse die together. If you or your spouse dies without a will (intestate), a judge decides who will be appointed your child's guardian. As a result, it could be someone you hadn't wanted in this role. Finally, your will should provide for guardianship that applies to both your current and future children.
This table represents typical costs for a baby's first three years for a middle-income household
Typical Expense estimate: Year by YearFootnote 2
Items Cost estimate
Crib with mattress $300-$500
Bedding and accessories $100-$300
Clothes $400-$800
Diapers (disposable) $500-$1,000
Maternity/nursing clothes $600-$1,200
Baby food/formula $1,250-$1,750
Nursery misc., high chair, toys $300-$500
Stroller, car seat, baby carrier $300-$400
Miscellaneous items $400-$500
Other Cost estimate
12-week maternity leave (six weeks unpaid)Footnote 3 $5,800
Day care (40 weeks) $6,000-$12,000
Term life insurance premiumsFootnote 4 $300-$600
Disability insuranceFootnote 5 $1,000-$2,000
Drawing up a will $300-$600
Estimated Total: $17,500-$28,000
Items Cost estimate
Clothes $500-$900
Diapers (disposable) $600-$1,200
Food $1,500-$2,000
Toys $400-$600
Miscellaneous items $500-$600
Other Cost estimate
Day care (50 weeks) $8,000-$16,000
Insurance premiums $1,300-$2,600
Estimated Total: $12,700-$23,900
Items Cost estimate
Bed $400-$600
Clothes $500-$900
Food $1,500-$2,000
Toys $400-$600
Miscellaneous items $500-$600
Other Cost estimate
Day care (50 weeks) $8,500-$17,000
Insurance premiums $1,300-$2,600
Estimated Total: $13,200-$24,000

Footnote 1 Source: The Brookings Institution, It's Getting More Expensive to Raise Children, August 30, 2022.

Footnote 2 Except for insurance, values assume 3% annual inflation.

Footnote 3 Assumes $50,000 annual income for mother taking leave.

Footnote 4 Assumes $500,000 face value, 30-year level term. Rates vary by gender, state of residence, insurer and health assessment factors.

Footnote 5 Assumes 60% income replacement for an individual earning $50,000 per year who can no longer work in his or her customary occupation. Rates vary by gender, state of residence, insurer, occupation, and health assessment factors.

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