The Costs of Raising Baby: Child Care

Today’s post is the sixth in our ‘Cost of Raising Baby’ series. In previous weeks, we’ve discussed formula, diapers, clothing, medical care and miscellaneous expenses. This week we will discuss perhaps the largest expense you will have during that first year: infant child care.

Before getting into the numbers, I have a disclaimer to make. My wife and I opted for the stay-at-home mom route, so we actually have no child care costs. But I know that in doing that, we are the exception rather than the rule. A large majority of today’s households are two-income households, with both spouses working. A lot of times this is due to necessity, and sometimes both parents just really enjoy their careers and want to keep working. Whatever the case may be, if you are expecting a child or considering having one in the future, you should consider the cost of infant child care. (On a side note, stay tuned for a future post next week on how to get by on one income)

There are basically two forms of child care available: day-care and nannies.

Sending your child to day-care
Day-care is by far the more popular (and less expensive) option. You drop your child off on your way to work, and then pick your child up on your way home after work. Now, there are different choices within day-care. There are many chain day-care facilities (ex. GrowingKids), church daycare facilities, and in-home day-care facilities. There are advantages and disadvantages to each. Chain and church facilities tend to cost more than in-home facilities, but they generally have more staff and offer more activities (activities are not so important for infants, but more important as your child gets older) than in-home facilities. However, they also have more children, so your child may not have the personal attention that they might have at an in-home facility may provide. It is important here not to let cost alone decide which option you choose. Your child is one of the most important things in the world, and you need to be sure that whoever is caring for your child is going to do a good job. It is important to conduct interviews with the staff and tour the facility to make sure your child will be cared for appropriately.

The average cost of a chain or church day-care facility for an infant in their first year generally runs around $125 a week (around $500 a month). You can generally find in-home day-care for less, but you have to spend more time interviewing. Obviously this “average” is not going to apply to everyone. In New York, for example, you can expect to spend $1,500 a month or more on day-care.

Hiring a nanny
A less popular option (and more expensive) is to hire a nanny to come to your home and watch your child while you are away at work. With this option, you can be assured that your child will have one-on-one attention while you are away. You don’t have to worry about your child being left alone at a daycare while the staff is scrambling to take care of a bunch of other children. However, you have to be very careful about who you hire as a nanny. You need to make sure to conduct thorough interviews, complete with background and reference checks. Again as I mentioned earlier, your child is one of the most important things in your life. You don’t want to leave your child with just anyone.

Many nannies are hired on an hourly basis, though you can also do this on a daily or weekly basis. You can expect this to cost significantly more than a daycare, though, ranging anywhere from $200 to $500 a week.

Strategies to reduce the cost
First and foremost, don’t let the price of care alone determine where you send your child. I can’t stress this enough, make sure you do the legwork to make sure the facility is providing quality care for your child.

One thing to note is that child care costs are tax deductible up to $5,000 a year. Assuming you pay the average $500 a month for daycare, you will reach this full amount. The result is tax savings of $750, $1,250, and $1,400 (respectively if you are in the 15%, 25%, or 28% tax brackets). So, the net cost of childcare would be $5,250 (15% bracket), $4,750 (25% bracket), and $4,600 (28% bracket).

Another strategy that a lot of people I know use is to have their retired parents watch their children. Obviously this depends on a lot of variables. You need to live close to your parents or in-laws, they have to be retired and have the time to watch them, they have to be physically able to watch them, and they have to be interested in watching them. I know this is not for everyone, but it can save a lot of money.

Bottom Line
Child care is expensive and, at an average cost of $6,000 a year will most likely be your largest expense. But make sure you take the time and do the research before allowing just anyone or any facility to watch your child.

The Costs of Raising Baby: Miscellaneous

This is the fifth post in our Cost of Raising Baby series. We previously discussed formula, diapers, clothes, and medical care. Today’s post will cover a lot of miscellaneous things that don’t really merit a complete post of their own. There are just so many things you need to have in order to have and care for a baby. Granted, you might not truly need all of these things, but they certainly are nice to have.

The Must-Have’s

There are certain things that you just have to have. This includes things like a carseat to bring baby home, a bed for baby to sleep, a stroller to take baby places, a bathtub, a changing table, a high chair, various hygiene items (soap, butt paste, lotion, etc.), some toys, and of course bottles and diapers. I’m going to also include baby pictures here, though this can be debated. I think most parents would consider this a must-have, at least for basic picture packages.

The Nice-To-Have’s

There are other things that are certainly nice to have, but are not necessarily things you absolutely have to have. I would include things like a swing (though this comes very close to a must-have), a bouncer, a pack ‘n play, etc. Also in the nice-to-have category would be upgrades to any of the must-have items. Sure, it’s nice to have a quality car seat, stroller, crib, etc., but you can get by with a basic model for all of those.

Strategies For Spending Less

Obviously one easy way of spending less is to have family and friends buy as many of these things as possible as gifts at your baby shower (if this is your first child). However, if you have to cover all this on your own, one of the best pieces of advice for reducing the cost of most of these items (both the must-have’s and nice-to-have’s) is to buy things used. We’ve found some really nice things at garage sales and second-hand shops. Had I thought about it earlier, I would have used craigslist as well. There are a lot of people that either only have one child or that space out the time between children enough that they get rid of their baby items. And since baby items aren’t really used for that long, you can get things in really good shape for a fraction of the cost of new items.

When you do buy things new, make sure you take advantage of sales and discounts. For example, we were looking for a lightweight yet quality stroller. We found the one we wanted, and then waited until we found a massive sale at an online retailer before buying.

Baby Pictures
I included this as a must-have above, at least for basic picture packages. On a personal note, this is something that can end up costing a lot of money if you’re not careful. Picture studios are masters at convincing you that you need a lot more pictures and poses than are really necessary. We fell for it with our newborn pictures and still have a ton of them left. We’ve gotten better every time and purchased fewer and fewer. Even so, when you get newborn, 3-month, 6-month, 9-month, and 12-month pictures it can really add up (I think we’ve spent around $750 so far on pictures, which looking back was too much).

Nursery Furniture
This is another thing where you can easily overspend if you’re not careful. We looked through the collections at Babies R Us, and they have furniture packages for up to $3,000. Granted they’re really nice, and your child can use it until they move out of the house. But if you’re on a tight budget, it’s not a good move.

Again, look for used furniture if possible. Also look at the big-box stores like Wal-Mart and Target. They have simple cribs and changing tables that will get the job done without breaking the bank.

Personally, furniture was one of the few items we “splurged” on. We bought a set at Babies R Us (though certainly nowhere near the $3,000 sets) that our little boy will have until he moves out. Even so, we waited for a big sale and opened a credit card account for an even further discount. Note: we had already saved the money for this and paid the credit card off the very next month.

The Bottom Line
Your best bet for saving money is to buy used. You can still get high quality items for a fraction of the cost. However, on items you need to buy new (like a carseat) start looking far enough in advance to find the best deals.

The Costs of Raising Baby: Medical Care

Today’s post is the fourth in the ‘Cost of Raising Baby’ series. So far, we’ve covered formula, diapers, and clothes. This post will cover the costs of medical care, from the moment you find out you’re pregnant to your child’s first birthday. We’ve actually spent more on medical care than anything else.

Insurance

What you end up paying for medical care is going to depend almost entirely on your health insurance plan (if you have insurance). I’ve heard some people talk about how their delivery cost $250, and I’ve heard some other people talk about how their delivery cost $5,000. I’m not sure what the “average” insurance is like, but it’s probably somewhere between those two figures.

We have health insurance through my employer. There is a $300 deductible per person, after which insurance pays 75% of the medical bill. There is also an out-of-pocket maximum of $2,300 per person. So, say I break my arm and the doctor bill comes to $800. My out of pocket cost is the $300 deductible, plus another $125 (25% of the remaining $500) for a total of $425. If the bill was a lot higher, say $5,000, my out of pocket cost is $2,300 (the maximum amount). I’m assuming that many health insurance plans are similar to this structure.

Our Medical Costs

The total of all our medical costs relating to the pregnancy, childbirth, and first year expenses has come to right around $3,500. Basically all of this represents pregnancy and delivery. With this being our first child, I had no idea what to expect. There are quite a few rounds of bloodwork and doctor visits throughout pregnancy that really add up. Then there were the prescription pre-natal vitamins. However, none of those came anywhere close to the bill for delivery. As expected, that was the largest expense. (For comparison, the total bill would have been around $23,000 without insurance.)

One positive is that since he was born, the out of pocket expenses have been very minimal. Insurance covers 100% of his well-visits and immunizations, which would cost an additional $2,800 without insurance. I’ve heard of other insurance carriers not covering these, which is a scary thought.

How To Soften The Blow

Insurance limits and deductibles work on a calendar year basis. Since our pregnancy started in July, delivery was in April of the following year. So our out of pocket expense was higher than if the entire pregnancy and delivery were in the same calendar year. We not only met our deductible and some additional costs at 25% of the bill for 2010, but we also met our deductible and out of pocket max of the full $2,300 for my wife in 2011 (due to the cost of delivery). Granted you can’t really control when you conceive, but, if you could, it would definately save money to conceive in the early part of the year and deliver that same year. (There are also tax advantages starting the year of birth, such as the additional exemption and child tax credit.)

One thing we were able to take advantage of was the flexible spending plan from my employer. This plan (also known as a Flex Spending Account, or FSA) allows you to set aside a certain amount of money from your paycheck on a pre-tax basis to pay for medical expenses you incur that year. The annual enrollment period for this in the fall, so we knew by then that we were pregnant and would be delivering the following year. I knew we would incur significant medical expenses with having a baby, so I elected to contribute $2,000 of my 2011 pay to my FSA. This worked out wonderfully.

My biweekly paychecks were reduced by around $77 ($2,000 / 26 paychecks), but when the hospital bill arrived in April I received the full $2,000 in funds from my FSA to go towards the bill. So one perk is that the full $2,000 was available to cover my bill in April, but I had the entire year before my payroll deductions came to the $2,000. Effectively, I was able to spread out the hospital bill over the full year rather than paying it all out of pocket at once. As a note, you can contribute up to $5,000 annually to an FSA.

Additionally, because FSA contributions are taken out on a pre-tax basis, my taxable income was $2,000 lower. If you are in the 15% tax bracket this is a $300 savings, and a $500 savings if you are in the 25% tax bracket.

Regarding immunizations once your child arrives, if your insurance provider does not cover these be sure to check with your local health department. Typically, they will provide immunizations at a very affordable price.

A final strategy is to plan in advance. My wife and I knew that we wanted to start our family, and that we wanted her to stay at home with the baby. So, before we started trying to conceive we worked hard (both her and I) to save up enough money to cover all the expenses we would run into with having a baby. I am so glad we did, because it makes things so much easier to deal with. Even if you don’t start saving that early, you still have 9 months after you find out you’re pregnant. You can save a lot of money in 9 months if you really work hard at it.

Your Stories
How much did your childbirth cost and what were some strategies you used to help cover the cost? Share your story in the comments section below.

The Costs of Raising Baby: Clothes

Today’s post is the third in the ‘Cost of Raising Baby’ series. Previously we discussed infant formula and disposable diapers. This week we’re going to look at the cost of clothing during a baby’s first year.

To start off, lets go over some assumptions. There are a lot of variables in the cost of baby clothes, more so than either formula or diapers. For this analysis we’re going to assume your baby goes through the typical clothing size progression: newborn, 0-3 months, 3-6 months, 6-9 months, and 12 months. Depending on how fast your little one grows you may even need to buy 18 month clothes. So, we’re looking at five or six different clothing sizes during the first year.

How Many Outfits Do I Need?
Since babies grow so fast, it really does not make sense to have a closet full of newborn clothes, or really any one size. Typically your baby will only be in one size for two or three months. When you think about it, that’s only 60 to 90 days. If you have 15 outfits, that works out to wearing each one 4 to 6 times. Now I will say that as a newborn, our son had reflux (spit-up) issues and went through multiple outfits in a day. So I’m not saying to only have 15 outfits, just to keep in mind that the more outfits you have the fewer times each individual outfit will be worn.

How Much Do Baby Clothes Cost?
There is a lot of variability here, depending on where you shop. It’s been our experience that you can find nice, cute, new outfits on sale for between $10 and $15 (sometimes less on clearance). This includes both pants and shirt. However, you can easily spend $20 on a single pair of pants or a single shirt at some places.

Let’s run some numbers:
If you buy 10 outfits in five sizes at $10 an outfit, that’s $500 on baby clothes thy first year. Buy that same number of outfits at $20 each, and your total jumps to $1,000. Ouch, that’s quite a bit of money for clothes they will only wear a few times each.

Cost-Saving Strategies
The first strategy to reduce your baby clothes expense is to be mindful of how many outfits your little one really has. If you already have a closet full of clothes, does it really make sense to buy another? It may be “really cute” but if your baby is only going to wear it once, it probably isn’t worth buying.

The second strategy is to never pay full price. Most people already know it’s best to buy when things are on sale or marked down. In fact, some of the best deals are when you buy a season ahead. At the end of winter you can find great deals on winter clothes. So, plan ahead and buy winter clothes in the spring. Just keep in mind that your baby will be in a larger size by then, so buy accordingly.

Now, another strategy is simply not to buy new clothes. After all, if your baby is only going to wear an outfit 4 to 6 times, is it worth it to spend $10 – $20 on an outfit? I’ve heard a lot of people talk about consignment shops and used clothing stores, and I’m sure you can probably find good deals there. Personally, we haven’t really found one with prices much lower than that of clearance-priced new clothes. But every city is different, and your city has a great used clothing store. It’s definitely worth looking into.

Finally, there are yard/garage sales. Personally, I think these are a parent’s best friend. Most outfits are practically new and being sold at great prices. We went to one last year late in the afternoon (when it was about time for the sale to end) that had boxes of nice baby clothes. They had a “fill a bag” sale where you could fill a plastic grocery bag with baby clothes for $1 a bag. We took advantage and bought a couple bags of clothes.

Bottom Line
I understand that parent want their kids to have nice things to wear. But “nice” does not have to mean “new.” There a lot if other alternatives out there to buying all new clothes, especially if the clothes are just for wearing around the house. Now, if you’re having pictures taken and want a nice new outfit, then by all means go get a nice outfit. With the money saved from buying the everyday clothes used, you can easily afford a nice outfit for pictures or your family’s Christmas party, etc.

What are some cost-saving strategies you use? Share them in the comments section below…

The Costs of Raising Baby: Diapers

Today’s post is the second in ‘The Costs of Raising Baby’ series. Last week, we discussed how much infant formula costs, and the difference between pre-made and powder formula. Today we will discuss the cost of disposable diapers during a baby’s first year, and what you can do to help ease the financial burden. Changing diapers is certainly one of the less glamorous aspects of parenting, but unfortunately there is no way around it. And after a while it becomes second nature.

How Many Diapers Does a Baby Use?

The first piece of information needed to determine the cost of diapers is to figure out exactly how many diapers you will change that first year. There is a wide range of figures here, depending on your individual usage habits. Some parents simply change their baby’s diaper more often then others. But, using a common diaper guide gives us an average range of between 3,000 and 3,500 diapers.

How Much Do Diapers Cost?

There is even more variability in the cost of diapers than there is in the number of diapers used. For this analysis, I focused on the major national brands (Pampers and Huggies) as well as on store brands (Target: Up&Up, Wal-Mart: Parent’s Choice, and Sam’s Club: Simply Right) and a less expensive national brand (Luvs). There are other brands out there, some more expensive than the major brands and some less expensive than the store brands. But I think most people stick to the brands in this analysis. Before getting to the results, lets look at the different pricing variables.

Smaller diaper sizes cost less per diaper than larger sizes. This is fairly obvious and makes logical sense. These diapers use less raw materials and are cheaper to produce than larger sized diapers. This is why, for the same price, you’ll see that smaller sized packages of diapers contain a larger number of diapers. Looking at the jumbo boxes, you can get 210 size 1 diapers (Pampers) for the same price as 140 size 6 diapers. Diaper size is typically based on a baby’s weight, so the larger your baby the faster they will move into the larger, more expensive diapers. One money-saving technique is to keep your baby in the smaller size for as long as possible. Now, you have to use common sense with this. If it looks like the diaper is too tight and your baby is obviously uncomfortable, then it’s time to move to the next size. Also, if you notice that leaks are occuring more frequently, that can be a clue that it’s time to move up to the next size.

Name brand diapers cost more than store brand diapers. Again, this is something we would expect. We received a large supply of diapers at our baby shower of various brands (name brand, store brand, etc.). We used them all (with the exception of a few packs of size 1’s that our baby grew out of before we could use) and really didn’t have issues with any of them. While there is a definate difference between the name brands and store brands (you can tell the name brands are higher quality), they both worked ok. Generally, there is at least a 10 cent price difference per diaper between the name brands and store brands. At between 3,000 and 3,500 diapers, that adds up to an extra $300 to $350 to use the name brand diapers. Our technique was to use a hybrid approach. For everyday usage at home, we use a less expensive diaper. However, we also keep some name brand diapers on hand to use overnight and when we know we’ll be out of the house for an extended period of time. This way you still save money on your everyday usage, but you avoid any potential leaks or blowouts when you know the diaper will be put to the test.

Another large difference is the size of the diaper package you buy. The most expensive thing you can do is to regularly purchase the smallest, cheapest package of diapers. It may seem like the least expensive option (after all, it does have the lowest sticker price), but the per diaper cost is actually much higher. The per-diaper price variance between buying a jumbo box of diapers compared to the smallest package is just as high as the difference between buying name brand and store brand diapers (at least 10 cents per diaper higher). You may be worried about buying a big box, and then not using them. However, unless your baby is right on the line between sizes you really shouldn’t even worry about that. There is a degree of weight overlap between the sizes as well, which further mitigates that concern.

The Bottom Line

Ok, we know there is a lot of price variability with diapers, so we will work with price ranges here.

  • If you use 3,000 diapers and buy large boxes of store-brand diapers, you’re looking at a first-year cost of $475. (For 3,500 diapers it would be $555)
  • If you use 3,000 diapers and buy large boxes of name-brand diapers, you’re looking at a first-year cost of $750. (For 3,500 diapers it would be $875)
  • And if you use 3,000 diapers and buy small packages of name-brand diapers, you’re looking at a first-year cost of $1,100. (For 3,500 diapers it would be $1,300).

This gives us a range between $475 and $1,300 depending on usage, brand, and package size. Buying store brand and buying large packages can be big money savers and help you meet your monthly budget.

Notes
– If you are interested in saving even more money there is the cloth diapering option. This wasn’t something we seriously considered, but I know other people swear by it. Trent at The Simple Dollar has a good post about this if you’re interested.
– For your first child, make sure to ask for diapers at your baby shower. We had a drawing where everyone that brought a package of diapers was entered into a drawing for a prize. We ended up receiving somewhere around 1,800 diapers as a result, which greatly reduced the number of diapers we had to buy. Since ours is the only baby shower I’ve been to, I don’t know how the 1,800 diapers compares with most baby showers.

The Costs of Raising Baby: Formula

Today I’m starting a series about the costs of raising a baby. Any new parent soon discovers that their little bundle of joy has a large price tag associated with it, especially in their first year of life. This series will detail what some of those costs are and some options to lessen the financial impact.

For our first installment we’ll discuss the cost of infant formula…

Good Intentions
Before our little one was born, my wife and I had already decided that we wanted to go the stay-at-home-mom route. We knew that living on one income would mean some sacrifices on our part, but we felt like it was worth it. With that in mind, Amanda had every intention of breast-feeding. We read the literature about it, attended a class on it at the hospital, and bought a breast pump and related accessories. The upfront costs were around $300, but the ongoing costs were going to be minimal. The only problem was when Tyler got here, the breast milk didn’t.

For others, using formula may be necessary due to busy work schedules. With so many moms in the workforce I know breast feeding can be difficult.

Baby Formula
Since Tyler still needed to eat, we opted for the pre-made jugs of Similac Advance. I’m sure other brands are similar; that’s just what we used. Tyler is now 11 months old and approaching the point where we can pull the plug on formula altogether. But I’ve realized that all this formula has been a significant piece of our monthly budget. While I’m glad that here shortly that expense will drop off, I decided to analyze the cost of the ready-made liquid formula with the cost of powder formula.

Using standard infant feeding guides I found that in their first year, a baby will consume between roughly 8,000 and 11,000 ounces of formula (source). On average, an ounce of pre-made formula costs $0.20, and an ounce worth of powder formula costs $0.15 (including the cost of nursery water). Here is the first year total cost:

– Pre-made: Between $1,600 and $2,200.
– Powder: Between $1,200 and $1,600

So using pre-made formula costs on average $475 more than powder, or around $40 a month. For a tight budget that is a significant savings. If/when we decide on another child we will have to give powder formula more consideration.

Notes
– I know there are other brands of formula that may cost less. We used Similac, but there is also Enfamil and various store brands out there as well.
– I should point out that the pre-made jugs, while costing more, are super easy and convenient. Especially in the first few weeks after Tyler was born, that convenience was well worth the extra cost.
– If you have any cost saving options that worked for you, be sure to write it in the comment section below. Other readers would be glad to see.