Last month, the USDA released the 2011 estimates of expenditures on children from birth through age 17. Since baby RB40 was born in 2011, this report will help us estimate how much money the little guy will cost us. This report also confirmed a few key points for us.
– Annual expenditures on children generally increase as they age. This is what I heard from many parents and as much as I don’t like it, it’s true.
– A single child costs 25% more to raise than a two-child family. We are only having one kid so it’s interesting to see the comparison.
– Higher income people spend more money on their kid. It’s only natural.
Categories (Urban West, 0-2 years old, middle class income)
Housing – $4,670/year
Housing is the largest expense for a child because many families move to a larger home to accommodate an additional little person. Moving to a bigger house can be a huge expense and the urban West’s estimate is an additional $4,670 per year. I think this is a reasonable estimate because when families expand, they also look for better school district, an additional bedroom and bath, bigger yards, nicer kitchen, and more. For our family, we are planning to stay in our 2 bedroom condo, so I don’t think we’ll see much additional cost. If we move due to Mrs. RB40’s job change or some other circumstance, then we probably will shoot for a 3 bedroom home. So for now no additional cost, but perhaps in the future.
Food – $1,440
Food cost is cheapest when the kid is young and will increase as they need more nutrition. The first year can be expensive if your kid needs formula. We joined Costco just to have access to Kirkland brand formula and probably spent around $50/month. Now that he is 16 months old, he is drinking Organic whole milk from Safeway ($25/month) and sharing most of our food. Baby RB40 is an amazing eater. Just over this last week, he tried Philly cheesesteak from Cheesesteak Nirvana (best cheesesteak ever!), Thai yellow curry, Korean mandoo, tamales, mapo tofu, pupusas and more. He also eats a lot of fresh fruit. I think $120/month extra is pretty accurate.
Transportation – $1,780
The USDA only took the transportation expenses related to family activities into account here. I think this figure is way too high. If you weren’t doing family activities, you would be doing something else, right? I guess many families upgrade to a larger vehicle and that’s what makes the number look inflated. Our 1998 BMW Z3 broke down right before baby RB40 joined us and we replaced the car with a Mazda 5. It is bigger, but it is cheaper to own and maintain. The car is paid off so the only running expenses we have are gas, maintenance, and insurance. We also take public transportation quite a lot, so most days we don’t drive. This figure seems high to me and for us, it probably costs $200/year extra at most.
Child care & education – $2,750
OK, this is ridiculously low. We paid $1,250/month for daycare and spent nearly $15,000 over the last 12 months. Fortunately, this expense will go away soon when I leave my day job to become a stay at home dad. One of my friend sends his 2 kids to private school that costs $10,000 per year, each! For us, the next expense will be preschool in 2 years. After that, public school should take care of his education until college. Sports and extracurricular activities will cost a lot of money too, but I think we’ll concentrate on a few things at once to keep the cost reasonable.
Total expense – $13,250
I think this is actually pretty close for us. The daycare cost eclipsed everything else so we’ll see if this estimate holds true as baby RB40 ages. $13,250 seems like a lot of money and I think once the daycare cost is eliminated, our child expense should plummet for at least 5 years. I’ll keep this report around and check again in a few years to see how we do.
So does raising a kid really cost a quarter of a million dollars (urban West)? For us, the first year is eerily accurate, but I think our cost will be much lower than estimate over the next 5 years. It’s too late to return him so I guess we’ll have to deal with it. 🙂
Raising a kid is expensive, but baby RB40 brings so much joy and excitement into our lives, it is worth it for me. What I’m really afraid of is the college expense in 16 years. We are saving for his education in the 529 plan, but if the college tuition keeps rising, it will be very difficult to cover. I guess he can always work part time and get some loans. Oh well, we’ll worry about that in 15 years or so.
Have you taken a look at the report? How does your family compare to the estimates?
Update: I left my job in July 2012 and I’m being a full time stay at home dad for the time being.
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.