A child is priceless—but raising one can break the bank. Children born in the U.S. today will cost their parents more than $338,000, on average, by the time they graduate from a public college. That's according to BabyCenter.com, based on College Board and Agriculture Dept. data. Send your precious offspring to a private university, and you can expect to shell out an additional $70,300 for tuition.
Think education is your only big tab? Think again. Just keeping a roof over junior's head will cost nearly $105,000 through age 18. Food will eat up $41,400, and health care will set you back $17,400 over 18 years.
Plan and Save for Family Goals
Most parents are woefully unprepared for these huge expenditures. That's why Stuart Ritter, a certified financial planner at mutual fund giant T. Rowe Price (TROW), teaches a financial planning class for prospective parents in his spare time. He starts each session by asking would-be moms and dads to focus on their biggest priorities. "Do you want to stay home to care for your family? Do you need a bigger home? Those are the issues you need to [focus] the most attention on," Ritter says.
Experts say the best way to plan for many of the biggest expenditures, be it college, vacations, child care, summer camp, or a Bar Mitzvah, is to set aside individual reserves of cash for each goal. "Most Americans don't do that," says Dan Yu, a certified financial planner and director at Eisner, an accounting and advisory firm based in New York City. "They just throw it on a credit card and worry about it later."
Yu and other advisers recommend creating a game plan and time frame for achieving each goal. Once your goals are set, use automatic funds transfers to make saving easier. A good conduit is an automatic investment program that transfers money out of your bank account on a recurring basis. "If you have to physically write a check, there's always a chance that you'll keep putting it off to next month," says Michael Gold, a certified financial planner at Wachovia Securities (WB).
Tips for the Big Ones
We asked financial planners and advisers for additional strategies and tips on planning and saving for some of the biggest costs of child rearing.
College: Since this is your biggest potential expenditure, start saving as soon as possible, ideally within the first year of your child's birth. Your best bet is probably a what's known as a 529 college savings plan because the money accrues tax-deferred—and some states let you put away as much as $300,000. And, depending on where you live, you might get a tax deduction for the cash you sock away. Savingforcollege.com is an excellent resource for information on 529 plans.
And don't beat yourself up if you aren't able to fully fund the college bill for your children, says Brion Collins, a certified financial planner at Integrated Financial Solutions in Delafield, Wis. He should know—he has seven kids. "Every little bit helps in the planning process," Collins says.
To get a sense of how much your alma mater will cost by the time your child goes to college, check out T. Rowe Price's College Investment Calculator, which lets you pinpoint costs at most colleges by name and state.
Housing: Aside from college, one of the biggest costs associated with raising children is providing shelter, which amounts to more than $100,000 per child over an 18-year span. The bulk of those costs go toward a mortgage, property taxes, maintenance, repairs, utilities, and furnishings.
Buying less house than you can afford is one smart way to keep costs in check. And it helps to live in an area with low taxes, though that's not always the most practical option. You can save money by handling some home maintenance yourself—but only tasks you're capable of doing well. Otherwise, you could end up paying someone else to fix your mistakes, wasting time and money in the process. If it's beyond your expertise, consider bartering with someone who has the necessary skills.