What I Wish I Knew About Money Before Parenthood

Many new parents experience a moment when the cost of daycare, a stroller, or even an occasional babysitter makes them wonder how families manage it all. And the expenses continue as children grow, from sports fees and day camps to new clothes and a grocery bill that can change almost overnight.

In the U.S., the average cost of raising a child from birth through age 18 is more than $300,000, not including college tuition. While every family's experience is different, understanding the potential costs can help you build a budget and feel more prepared. 

Plan for childcare early

Childcare, transportation, and food are among the highest costs of raising a child, with childcare often taking the largest share.

The overall costs are much more substantial in the first five years of your child’s life, largely because of the need for childcare. In fact, a LendingTree survey reveals the expenses associated with small children (under the age of five) account for 21.9 percent of a family’s income on average.

If you’re preparing for a child or recently became a parent, these options may help you manage childcare costs:

• Dependent Care Flexible Spending Accounts. With these workplace-based savings accounts, you can set aside pre-tax dollars to use for childcare. You then submit qualified expenses, which include daycare, pre-school, after-school care, day camps and more, to your Dependent Care FSA for reimbursement. However, pre-planning is critical because the funds don’t roll over from year to year.

• Nanny shares or childcare trades. Consider connecting with other families to share the cost of a babysitter or nanny. Families may also be able to trade childcare by taking turns providing care on certain days. This is where the saying it takes a village can really pay off, both in childcare dollars saved and emotional support during those early years.

• Child and dependent care tax credits. The child and dependent care tax credit enables families to reduce their income tax obligation by claiming qualified childcare expenses on their tax return. Your child must be 13 and younger, and live with you more than half the year. The amount of credit you receive is based on your income and the percentage of expenses you incur finding care so that you can work.

Make steady progress with college savings

While the daily expenses of raising kids dominate the present, many families know that the cost of college looms in the not-so-far-off future. Tuition costs an average of $11,371 for public in-state colleges, $44,961 for private colleges, and $25,415 for public out-of-state colleges this year.

The amounts may feel overwhelming, but you don't have to reach your college savings goals all at once. Consider setting up a 529 plan for your child when they’re born, or even before (you can name yourself as the beneficiary, and then change it to your child’s after their birth). These state-sponsored plans offer tax advantages when the money is used for qualified educational expenses. Make monthly contributions beginning as early as you can, knowing that even small amounts can make a difference years down the road.

Consider short-term expenses and long-term goals

The costs of child-rearing vary by family size, each child’s interests, and even where you live. And they also shift over time, with each season of your child’s life ushering in new priorities. In the early years, your dollars go to childcare and baby gear. Then those expenses give way to new ones, such as sports equipment, music lessons, or summer camps.

As you track your expenses, consider which ones are temporary and which may continue for several years. For example, your childcare expenses will decrease significantly once your child starts school. At this point, you could consider shifting some of the money you were spending on daycare toward your child’s college savings account or putting it aside for summer camps.

The point: The timeline is long, and you don’t have to save or pay for everything all at once. As your expenses evolve, your budget and savings plan should too.

Teach your kids along the way

As your children grow, involve them in age-appropriate conversations about budgeting, spending, and saving. Bring your kids into the process in age-appropriate ways so they can learn to make smart money decisions.

As your children enter their teen years, you can introduce a checking account and take advantage of digital banking tools to discuss expense tracking, budgets, direct deposit from first jobs and more.

A flexible plan can help your family prepare for changing expenses and future goals. Explore Northwest Bank's savings accounts and digital banking tools to help you manage your money along the way.