January 16, 2009

Figuring our Baby Budget in Advance

My wife and I are planning on having kids "soon". So in preparation for that I want to determine the rough budget for our first baby.

Using a Baby Cost Calculator

If you want a quick, ballpark figure then using a premade calculator is the simplest way to go. Thankfully folks have already made calculators that let you estimate the cost of a baby. The BabyCenter website has a Baby Cost Calculator. The calculator is easy to use and customize the expenses you expect for your situation and choices. I plugged in our choices in and the calculator estimated our baby first year expenses would be $3,800.


Adding everything up

To get a better estimate of your own costs it makes sense to estimate add up all the costs that you expect to have for your own situation. Everyones expenses for categories like medical, childcare, babysitting, diapers, etc. will vary greatly from one couple to another. Below I'm going to look at each category of spending and estimate our expected costs for my wife and myself.

Cost of Childbirth

Childbirth total costs would probably run $5,000 to $10,000 ballpark. Since we have insurance this will be covered by our medical insurance plan. We have a high deductible with a Health Savings Account. So much of the cost will be paid out of our HSA. However we fully fund our HSA up to the maximum so we will have more than enough money in the account. Our maximum cost for the year is $4,200 which is pre-tax so this equates to about $2,800 out of pocket. This is money we've already got dedicated in our current budget so there will be no net budget change.

Medical visits and expenses

There will be required visits to the doctor for the baby and other medical expenses such as immunizations. Like childbirth these medical costs will be covered by our insurance. I'm pretty sure we'll cap our deductible with childbirth so any other expenses for the year after that will be covered 100% by our insurance. No net changes.

Furniture, Clothes and Stuff

Here is a page with a list of baby gear. Its a lengthy list of various furniture and accessory items deemed necessary for a baby. The prices vary a lot and they give wide ranges for each item. I figured the totals for the gear ranges from $1,781 to $7,895.

Diapers and Food

Disposable diapers run roughly 13¢ to 20¢ each for the first year. If I assume that we'd change diapers 5-10 times a day then thats about 1,800 to 3,600 diapers a year. This comes out to something around $450 a year on average for disposable diapers. We might also with cloth diapers and cloth diapers could cost us anywhere from $500 to $1,000 a year depending on how we do it. We plan on breast feeding so that should mean very little cost for formula. However for whatever reason we may need to buy formula instead. So its a potential we could spend another $100 to $150 a month or a possible $600 to $900 for formula for the first 6 months. In the second 6 months we'd start to introduce baby food into the diet. I figure that cost would be another $600 to $900 for baby food for the second six months. Overall our costs for diapers and food will run us somewhere between $1,050 to $2,800 total for the year.

Extra Travel

We'll probably want to take a trip to visit relatives and show off our new baby. This kind of travel will be in replacement or combined with our normal annual vacations. So there should be no substantial additional out of pocket costs related to travel.

Daycare

My wife works from home and plans to be a stay at home mother. We will not need daycare in general therefore there should be no additional costs.

Babysitting

I figure we'll want to go out for a nice dinner on occasion and not have to deal with a possibly noisy baby in a nice restaurant. A night out would likely last 2-5 hours and end up costing $20-50 roughly for babysitting. If we do this weekly or monthly then the cost for babysitting would range from $250 to $2,500 a year. This might also be paid for in part with our entertainment budget.

College Savings

We plan to start 529 savings accounts for our kids and putting $2,000 a year away per child. So this will run is $2,000 per year.

Other, Miscellaneous

I'm probably missing some expenses. I think you could add another $0 to $1,000 to cover other things I haven't considered.

Add it up

Total costs would range from $5,081 to $16,195.

Thats a pretty wide range and mostly due to the possibility of spending higher amounts on the one time expenses. I expect our spending will be closer to the lower end since we're fairly frugal. However I should budget for more than minimum.


Potential Savings

While its true that a baby will cost us a lot there are savings in some areas.

Gifts

We'll probably get some gifts from family and friends. I would have no idea how much or what we might get. I'd guesstimate we could get gifts in cash or items worth anywhere in the $100 to $1,000 range.

Reduced spending Due to changes in our Habits

With a baby we'll be less likely to eat out and spend money on entertainment. But its hard to say how much this will change. We might spend less on eating out but then spend more by paying for a babysitter or more expensive meals at home. Honestly I don't know enough at this point to know how much we'd save if anything in this area. Since I don't have enough data I'm going to leave this category out of my figures for now.

Tax Savings

I should be under the limit to qualify for the child tax credit. That will take $1,000 off our tax bill. With another mouth to feed we'll have another dependent to claim so this will give us an additional $3,400 deduction. Our marginal IRS bracket is 25% so that $3,400 deduction will net us another $850 savings. Our federal tax savings will be $1,850. We'll also get approximately $350 in savings on our state taxes. Net tax savings would be $2,200 per year.


Bottom line Cost - Savings

Overall we're looking at a cost somewhere around $3,800 to $16,200. This will be partially offset by tax savings of about $2,200. Potential gifts could cut another $100 to $1,000 of our costs. So our total out of pocket expense for a new baby in the first year will be anywhere from $1,500 to $14,000. Its most likely this figure will fall somewhere around $3,000 to $5,000.


Keep in mind that this is just a rough budget and I'm sure the final amount we spend will vary some. However I wanted to do this in order to get at least a ballpark estimate of what it will cost for our first baby's first year. If you go and have a child without taking a look at all the potential costs then you could deplete your savings rather quickly. Its important to consider and plan ahead for the costs involved with raising a child.

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