Sep 25, 2019

Family Budget Planning when Adding Children

Nick Zagacki, CPABy Nick Zagacki, CPA

MoneyLife100Having a baby is an exciting time in a couple’s life, however it can cause anxiety when you start to consider the cost of raising a child. Kids cost a lot. According to the U.S. Department of Agriculture, a single child over the course of 17 years costs $233,610. A figure like that can be overwhelming, but there are many ways to ensure your family is financially secure. To start, it is always a good idea to understand your monthly income and expenses. Check out “How to Effectively Budget Your Money” for an overview and a downloadable budget tracker.

To help you prepare for some of the new expenses that come with a child, below is a summary of common budget items families should consider.


Picture of education rising above costYour child’s education is likely the most important budget consideration. There are three general phases in this regard: daycare, kindergarten through high school, and college.

  • Day Care
    Day care can cost as little as a $300 or as much as $2,000 per month. Figure out your budget and find a day care that is a good fit for you and your child. Some employers offer a program called Flexible Spending Account (FSA). FSAs withhold a certain amount of money from each paycheck, tax free, that can be used for childcare. It’s worth checking out since this can save a substantial amount of money.
  • Kindergarten to High School
    Public or private? This will have a significant impact on the amount budgeted for schooling for 12 years, and could even impact where you will live. According to PrivateSchoolReview.com, the average private school tuition in Pennsylvania is $8,015 for elementary schools and $15,468 for high schools. On the other hand, the price of public school is typically incorporated in the property taxes one pays on their house, and Pennsylvania is home to many well-rated school districts. Keep this in mind when searching for a new place to live.
  • College
    When you have a baby, it may seem like it’s too early to think about college. It’s not. As the saying goes, “Plans are nothing, planning is everything.” A 529 plan is an investment vehicle designed to encourage saving for future higher education expenses of a designated beneficiary. In other words, it will help you set aside a specific amount of money that will be used when your child starts college. For more information about 529 and other college saving options, check out “Saving for College: More Options than Just 529 Plans.”

Necessities and Luxuries

Diapers, formula, clothing, car seats, strollers, and cribs are some of the items that you need to buy for babies and young children. Necessities are the items that you will definitely need to raise a child from the baby years to the teenage years, so budget appropriately. On the other hand, luxury items are “wants” that should only be considered after the important items are accounted for. The best advice would be to not to get caught up with brand labels and the latest technology trends unless you can afford the extra expenses.

Other Considerations

A new baby will be the center of your world, but not the only aspect of your life. Be sure to account for several other important priorities as you draw up your new family budget.

  • Emergency Funds
    Life may throw you a surprise when you least expect, so the best thing you can do is to financially prepare yourself for it. Medical bills, house repairs, and unemployment are some of the biggest culprits. Setting aside money for an emergency fund will reduce stress and help you weather a storm. A common benchmark is that you should have three to six times the amount of your monthly expenses stored away in the bank.
  • Retirement
    Financial planning is key to an enjoyable and financially secure retirement. Don’t let your retirement plans fall to the wayside when you are budgeting for your children, keep your future welfare in mind. There are many ways to invest your money. If your employer offers a 401(k) and matches to a certain percentage, at a minimum you should invest to that percentage. It’s free money!
  • Taxes
    There are tax benefits available to those with children. The Child Tax Credit, Child Dependent Care Credit, and Earned Income Credit are tax-reduction options for those who meet IRS requirements. The American Opportunity Credit or the Lifetime Learning Credit are two credits available for when your child is enrolled in higher education. Talk to your CPA to determine eligibility.

Being a parent is one of the best things in life, but it also can be one of the most challenging from a financial perspective. Budgeting in a thoughtful manner will help you meet your long-term financial goals and enable you to focus on all the good stuff that comes along with parenthood. The above is not an all-inclusive list of the potential expenses that will arise, but it should provide a starting point when developing your own personal financial strategy.

Nick Zagacki, CPA, is a systems accountant with the Defense Logistics Agency in Philadelphia.

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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.