Becoming a parent is a life-changing moment. But parenthood often comes with financial challenges. From baby gear to health care, the costs of raising a child can quickly add up and drain your bank account.
First-time parents can feel overwhelmed by these expenses, but with careful planning and smart financial strategies, it’s possible to minimize the financial burden. Here are savings tips that will help you prepare.
The cost of raising a child
The cost of raising a child has been steadily increasing over the years. According to a Bankrate study, the average cost to raise a child from birth to age 17 in the U.S. is an estimated $313,939, which breaks down to roughly $18,000 per year. This figure includes expenses such as housing, food, child care, education and health care.
Understanding these costs can help you budget more effectively and prepare for the future. The key is to create a financial plan that addresses immediate needs while anticipating future expenses.
“It’s important to start preparing ahead of time to minimize stress,” says Rachel Caballero, community development and public relations manager at TruWest Credit Union. “Reassessing your budget to identify spending leaks like beauty services that can be done at home, and unused services or subscriptions, can allow for more savings to prepare for your new arrival.”
How to save money on baby basics
The arrival of a newborn often comes with a long list of essential purchases like diapers, clothes and baby gear. These costs can quickly become overwhelming, but there are ways to save money without sacrificing quality.
Buy secondhand items
Many baby products, such as cribs, strollers and high chairs can be found gently used at a fraction of the cost. Look for high-quality secondhand items through online marketplaces, thrift shops or parent groups.
“Expecting parents spend way too much money on baby clothes,” says Christine Landis, founder of Peacock Parent Inc. “Babies barely wear clothes. They’re sleeping and swaddled 80 percent of the time, and only need basic onesies and socks. Don’t buy shoes for babies. Sure, it will look cute for one photo, but I would rather spend that $30 toward a newborn care specialist or sleep trainer.”
Borrow from friends and family
If you have friends or family members with young children, ask if they have any baby gear they no longer need. Many parents are happy to lend or give away items their children have outgrown.
Consider generic brands
Diapers, wipes and baby formula are available in generic or store-brand versions, which are often just as good as name-brand products but cost significantly less.
Create a registry and stick to the essentials
When creating a baby registry, focus on the items you truly need. Avoid unnecessary gadgets and luxury items, and prioritize necessities.
Tips for saving money on child care
Child care is one of the biggest expenses for new parents. However, there are strategies that can help you save on child- care costs.
Look into a Dependent Care Flexible Spending Account (FSA)
Many employers offer a dependent care FSA, which allows you to set aside pre-tax dollars to cover eligible child- care expenses. This can result in significant tax savings.
Consider a nanny share
A nanny share involves two or more families splitting the cost of a single nanny. This arrangement can be more affordable than hiring a nanny exclusively for your family and can offer more personalized care than traditional day care.
Use family support
If you have family members nearby, ask if they can help with child care, even if it’s only part-time. This can significantly reduce the cost of formal child care.
“If full-time child care isn’t something you can afford, get creative in how you and your family cover child care,” says Annie Cole, money coach and founder at Money Essentials for Women. “For example, family members could commit to specific evenings. Consider joining a parent group and swap child- care duties. You and your partner could ask for a flex schedule at work to open up days or partial days for child care. Also, speak with your employer about potential child- care benefits.”
How to save money on your child’s health care
Health- care costs can add up quickly, especially during a child’s early years when regular doctor visits, vaccinations and unforeseen illnesses are common. Here’s how to reduce these expenses.
Choose the right health- insurance plan
Review your health- insurance options carefully before your baby arrives. Make sure your plan offers comprehensive coverage for prenatal, delivery and pediatric care. Compare deductibles, copays and out-of-pocket maximums to make sure you’re choosing the most cost-effective option.
Explore government nutrition-assistance programs
Many states offer programs such as the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), that help offset the cost of food for low- and middle-income families. Research programs in your area to see if you qualify.
Utilize free or low-cost health- care services
Many local health departments and clinics offer free or low-cost services such as vaccinations and wellness checkups for children. Take advantage of these services to save on routine care.
Use in-network providers
Choose health- care providers within your insurance network to minimize out-of-pocket costs. Also, consider finding a pediatrician who offers flexible payment plans or accepts Medicaid if needed.
Create a Health Savings Account (HSA)
If you have a high-deductible health plan, you can open a health savings account. Contributions to an HSA are tax-free and can be used to pay for qualified medical expenses for your child.
Tax moves that will save new parents a bundle
Becoming a parent gives you access to several tax breaks that can help you save money. Here are a few tax moves to consider.
Claim the child tax credit
The child tax credit allows parents to claim up to $2,000 per qualifying child on their federal tax return. Be sure to claim this credit to reduce your tax liability.
Take advantage of the earned income tax credit
If you have a lower or moderate income, you may be eligible for the earned income tax credit, which can provide a substantial tax refund.
Use a dependent care credit
In addition to dependent care FSAs, you may also qualify for a tax credit if you pay for child- care services while you work. This credit can be worth up to 35% of your eligible child- care expenses, depending on your income.
“Your child- care cost and possibly other child-related expenses might help you with your tax return,” says Dawn-Marie Joseph, founder of Estate Planning & Preservation. “The IRS website has a wealth of information and it’s pretty user friendly. Ask your tax professional about what credits you can receive.”
Money mistakes new parents should avoid
Managing finances as a new parent can be tricky, and many make common mistakes that can hurt their financial future. Here are a few pitfalls to avoid:
Failing to budget
Not creating a budget can lead to overspending and financial stress, especially when you start adding in all of the extra costs associated with having and raising a child. Make sure to track your income and expenses to ensure you’re living within your means and saving for future needs.
“You should track your expenses in a budgeting application or at least in a spreadsheet,” says Doug Carey, CFA, president and owner of WealthTrace.” That way you can continue to effectively budget for your new child.”
Not prioritizing retirement savings
While it’s natural to want to focus on your child’s financial needs, it’s important not to neglect your own retirement savings. Make sure you’re contributing to your 401(k) or IRA consistently while you save for your child’s future.
“While your expenses will increase when you bring your new baby home, it doesn’t mean you should forget about contributing to your retirement savings and emergency funds,” says Joseph. “If you have to reduce those contributions for a short period of time, then do it, but get yourself back on track as soon as possible.”
Neglecting emergency savings
Having an emergency savings fund is important, especially when you have a family. Aim to save at least three to six months’ worth of living expenses in an easily accessible account to cover unexpected costs, such as medical emergencies or job loss.
“This is so important before the baby arrives,” says parenting expert and child- care author Tammy Gold. “Assess all current costs and predict future expenses so that you can see where to adjust your budget. Meet with a financial planner or even a bank representative to get some saving strategies.”
Bottom line
Becoming a parent is a rewarding experience, but it comes with significant financial responsibilities. By taking time to plan ahead and make smart financial decisions, you can handle the costs of raising a child without overwhelming your budget. With the right strategies, you can make sure your family’s financial future is secure.
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