How to Financially Prepare for Children

Portrait of a beautiful African American Pregnant Woman

While expanding your family can be a rewarding decision, the cost of having children can also be expensive. On average, raising a child costs $233,610 from birth until age 17, according to the Bureau of Labor Statistics. Knowing the costs involved and preparing your finances can help ensure you're ready to welcome a new member of your family.

Know the Costs of Pregnancy or Adoption

Even before you budget for raising a child, consider the expenses of bringing that new life into your world.

The costs of traditional pregnancy may surprise you: Prenatal care and pregnancy expenses can add up quickly, and the birth itself can cost an average of $4,600 out of pocket, even with employer-sponsored insurance.

Price range for pregnancy: Between $9,000 and $250,000. If you utilize in vitro fertilization (IVF) or other fertility treatments for your pregnancy goals, you can assume an additional $8,000 to $30,000

If you plan to adopt your new family member, you may be responsible for the pregnancy costs along with additional, adoption-specific fees, like home inspections. Private adoption agencies in the U.S. can be pricey, and international adoption rates can be similarly expensive. On the other hand, an independent adoption or adopting from foster care could cost significantly less.

Price range for adopting: $0 to $50,000

Adoption may be part of your price tag, even when working with a surrogate. Depending on your state, parents may have to adopt from their surrogate; non-biological partners in same-sex unions may also need to adopt to establish official parentage in the eyes of the law. For surrogacy, factor potential adoption and attorney costs into your budget, as well as fertility medications, IVF and medical expenses for carrying and delivering. Your lawyer will create a contract covering the surrogate's compensation, including how you'll provide for any complications.

Price range for surrogacy: $100,000 to $300,000

Understand What Your Health Insurance Does and Doesn't Cover

No matter how you start your family, you need to review your health insurance early and thoroughly to understand what it covers—and what will have to come straight out of your pocket. Here's what to look for:

  • Your deductible: You must spend your deductible before maternity care coverage kicks in.
  • Expected coverage: Check what coverage your plan offers for prenatal vitamins, lab tests and the birth itself.
  • Unexpected coverage: About 8% of pregnancies don't go exactly as planned. Be sure you review how your provider handles expenses like NICU visits and potential visits to out-of-network doctors.
  • Partner's plan: Your partner's plan may have benefits better suited for your family's needs, especially for when you add your new dependent to your insurance. There may even be additional perks, like college tuition benefits, included in your plans.
  • Surrogacy, adoption and IVF coverage: Certain insurance plans extend to surrogacy or fertility treatments, though the coverage may be limited.
  • Flexible spending accounts or health savings accounts (FSAs and HSAs): An FSA or HSA can help you put money toward health care while reducing your taxable income. Make sure you check the details and maximize these options if your employer offers them.
  • Critical illness insurance: Some diagnoses could incur high added costs; you may want to secure accident or critical injury insurance in advance to help you cover the unexpected.
  • Exclusion period: Some plans won't cover maternity costs until you've been with your provider for a certain period.

Review Your Maternity and Paternity Leave

Depending on your employer, length of employment and other factors, you and your partner may be eligible for leave from work according to federal and state provisions. However, there's a good chance it won't be paid time off.

Be sure to review your maternity or paternity leave coverage with your employer and state well in advance. Then, strategize how much time you intend to take off work, depending on your family and budget.

Keep in mind that the time you need to spend away from work for a new child can be unpredictable. Pregnancy complications like extended bedrest can disrupt even the best-laid plans. It may be a good idea to save up paid time off, like sick days and vacation time, to cover any unintended interruptions to your or your partner's paycheck. You can also consider short-term disability insurance, either independently or from your employer, to help cover potential rough patches.

Adjust Your Budget to Include a Child

The earlier you start to budget for a new family member, the better. But how do you effectively approach a budget? There are several budget strategies, like zero-based budgeting and the 50/30/20 rule. Try out different techniques and stick to the one that works best for you. You should track all your expenses, from monthly bills to miscellaneous money habits, and start making room to include a child:

  • Pay down debt. Birth and child-rearing are expensive enough; make it a priority to ditch any debts you have (particularly high-interest debts).
  • Pad your emergency fund. The golden rule is to have enough set aside to cover three to six months of living expenses. Consider keeping your savings somewhere safe and add to your stash over time with automatic deposits from your checking account.
  • Cut down on expenses. If you can switch your gym membership to free home workouts or pack a lunch instead of eating out, now's the time. Every dollar you put away or put toward your financial goals will help you prepare for the financial needs of having children. You can even enhance your saving superpowers with a side gig (bonus points if you can keep up your side hustle from home after the baby arrives).

How Much Money Should You Have Saved for Children?

Now that you know how to get a budget going, it's time to put everything together and figure out how much you'll need to be genuinely financially prepared. On average, raising a child costs almost $13,000 each year.

Your exact expenditures will depend on choices like school, childcare and lifestyle. When you crunch the numbers for your budget, try to look ahead to such costs so you can feel confident about your long- and short-term financial plans.

Think about the money you need for pregnancy, adoption or surrogacy, and then determine other important costs for after the baby arrives. You can start putting aside college savings for your child with tax-advantaged 529 plans.

In the process, don't forget about contributing to your retirement savings regularly. Even if you have to reduce your contributions temporarily, setting as much aside as possible now means your child won't have to shoulder the cost of caring for you later.

If you need to take on debt to bring your child into your world, aim to take on the right kind of debt. Keep your credit in tip-top shape to help you qualify for the best loan rates if you end up needing to borrow money—or, if your credit isn't currently ideal, take steps to improve it now. For fertility treatments, LGBTQ couples and surrogacy, check out possible grants to help with the costs; there may be financial aid for adoption available to you, too.

The Bottom Line

No matter how a child arrives in your family, you'll have financial responsibility for them for many years to come. It can feel a little overwhelming, but the right preparation can help keep you on track financially throughout your child's life.