The USDA released its latest Cost of Raising a Child report in August and found raising a child born in 2013 will cost $245,340 from birth to age 18, on average. You could buy a house for that much money — or a Ferrari. While the numbers might seem daunting, budgeting for a child isn't hard when you're armed with the knowledge of what to expect, a plan for how to prepare, and a cash-back credit card like Capital One's Quicksilver that helps you earn back 1.5% of the money you spend. Here's a breakdown of what it takes (financially) to raise a kid.
Major Budget Categories for Raising Kids
The budget you need to raise a kid will vary based on a number of factors. For example, parents in the rural South are projected to spend well below the average ($193,590), while families in the urban Northeast can expect to pay the most ($282,480). But what's even more shocking than the price tag on taking care of a kid is that 42 percent of parents don't bother to budget for this major life expense, according to a survey by Care.com.
According to the USDA's report, spending on a child can be broken into five major budget categories:
Housing and Transportation ($107,970)
The largest budget category by far is housing and transportation. Fortunately, you're probably already paying for rent and gas, which makes planning for these expenses a little easier. Keep in mind, though, that a child often brings the need for a larger house and car — usually at a higher cost.
Childcare and Education ($44,400)
Before your child is school-age, you'll have to decide whether there'll be a stay-at-home parent or if childcare needs to be arranged. In either case, your family's income will be drastically affected. In fact, the National Association of Child Care Resource & Referral Agencies (NACCRRA) reports that child care during the early years can run between $300 and $1,564 a month.
And once it's time to send Junior off to school, you might spend more than originally planned. Colin Drake, a personal finance expert and life coach, explains that parents who send their kids to private school can plan to spend anywhere from $10,000 to $50,000 a year. Even if you opt to send your kid to public school, you can anticipate spending hundreds of dollars each school year for things like back-to-school supplies, extracurricular sports, and AP classes, all thanks to budget cuts.
Additionally, whether you choose public or private education, there's a chance your child will need additional tutoring ($45 to $60 per session on average), test preparation courses that can set you back a cool $2,000, as well as textbooks and other supplementary training related to school.
Parents can expect to spend close to $40,000 feeding just one child. For the overarching "food" category, the USDA considers all food and nonalcoholic beverages purchased at stores, including purchases using Supplemental Nutrition Assistance Program benefits, as well as eating out at restaurants and buying school meals. That means everything from family dinners to birthday cakes to post-game snacks for the soccer team.
Clothing/Misc. Expenses ($33,780)
Dressing a kid for 18 years really adds up. One minute you're buying diapers, the next you're shopping for prom. But what about those other "miscellaneous" expenses?
"With more children getting cell phones at a younger age and using laptops for homework early on, these might be expenses you take on sooner rather than later," says Sheri Atwood, founder of SupportPay, a payment platform that helps separated parents manage and collaborate on shared child expenses.
Atwood also notes that sports and extra-curricular activities are a gray area that can cost more than expected. "Kids have packed schedules these days," she explains. "Costs to participate in soccer, piano lessons, and gymnastics all in one year can add up fast."
Matt Becker, founder of Mom and Dad Money, adds that parents should also plan for higher insurance costs once they start a family. "Life insurance becomes much more critical with children to care for, as does disability insurance. While it can put a strain on monthly budgets, the protection is usually well worth it.
Finally, in addition to regular visits to the pediatrician and dentist, Atwood advised parents to prepare for expenses associated with common extras such as braces, eyeglasses or contact lenses, and allergy medicines. Mental health services also fall under this category — many parents find it's valuable to invest in therapy sessions as their child reaches the teen years.
How to Maximize Your Money
Although the numbers associated with raising a child are huge, you don't need to feel overwhelmed by them. After all, if everybody waited until their finances were in perfect order before having children, there wouldn't be very many people in this world.
Here's how to make the leap into parenthood more manageable for your budget.
1. Get rid of financial drains.
Now is the time to get your financial house in order and eliminate drains on your budget. Eliminating all your debt before the baby arrives is probably not realistic, but you can address the "bad" debt in your life to decrease the strain on your budget.
If you feel like student loan debt will haunt you forever, or your mortgage payments are leaving you living paycheck to paycheck, consider refinancing your loans to reduce the interest rate and monthly payment.
You should also take this time to build "good" debt, which you can leverage to save money in the long run. Good debt builds your credit, ultimately earning you better interest rates and helping you get approved for loans and mortgages. A credit card is probably the simplest way to manage this sort of debt, and it's a great opportunity to earn money back on things you have to buy anyway. For instance, if you charged the cost of raising a child to a rewards card like Capital One's Quicksilver, which earns 1.5% cash back annually, you'd actually earn $3,680 to put toward their expenses!
2. Beef up emergency savings.
As you begin to cut monthly costs, start adding that money to an emergency fund. It's recommended you save at least three to six months of expenses in case you run into a financial rough patch.
To help with the transition, Becker advises expectant parents to estimate what their budget will look like once the baby arrives, and then start living on that budget a few months ahead of time. "Meanwhile, take the expenses you don't have yet (like diapers and wipes) and put that money into a savings account. You will get some practice living within a smaller budget and you will build a buffer that can make up for any difficulties adjusting."
3. Be strategic about spending.
It's natural for new parents to want to splurge when shopping for a baby, but you'll quickly learn that the less you spend on items like clothes and toys, the better.
Go ahead and spring for the top-of-the-line car seat and stroller; you'll get years of use out of them as well as depend on the products' safety. The adorable onesie that won't fit in 10 days? Look to discount retailers and secondhand stores for items that won't last long.
Regardless of how much you spend, the smartest thing you can do is earn money back on purchases by using a rewards credit card. It does take discipline to shop with a credit card and pay the entire bill on time each month, but this strategy guarantees automatic savings on everything you buy — and with a card like Capital One's Quicksilver, it's never been simpler to earn money on every purchase. Bring on the bulk baby wipes.
Capital One's Quicksilver card offers 1.5% cash back on all purchases with no cap. Plus, there's no annual fee. You can literally get paid to shop: a winning #KaCHING moment in the life of any new parent.
Illustrations by Chris Gash.
Casey Bond is a seasoned personal finance writer and currently serves as the Content Director and voice of GOBankingRates.com.