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From One Child to Two: How to Financially Plan

February 12, 2020 · 6 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

From One Child to Two: How to Financially Plan

From diapers and childcare to driving and college, the costs of raising children are immense. Cost is actually one of the main reasons more people are choosing not to have children, or to only have one. According to the USDA, the cost of raising a child up to the age of 18 is $233,610 . So, when you’re deciding whether you want to have more kids, figuring out whether or not you can afford it is usually a major factor.

But what, specifically, should you consider? You’ll need to make some estimates about the costs of raising your future child from birth through financial independence, which is (hopefully) when they graduate from college.

There are some obvious expenses, but don’t forget hidden costs such as increased property taxes and maintenance if you decide to move into a large home. Let’s go over a few of the largest expenses you’ll want to think about.

Do You Need More Space?

Housing-related costs are the largest expenses for most families. These include your rent, or mortgage, insurance, and property tax, as well as your utilities. In planning for Baby #2, ask yourself if you need more space to accommodate your growing family.

Remember, babies are small and don’t need a lot of their own space in the first year—so you may want to wait and see how it goes. It’s recommended that each person in a home have around 200 to 400 square feet of living space. If you have a family of four, ideally you would have about 2400 square feet of space, which is about the national average for home size.

Why so much space? Although children can share a room when they’re younger, they may not always get along and it’s important for them to feel that they have their own private space as they grow up.

Keep in mind, though, that a larger house also requires more heating and cooling, may have higher property taxes, and is generally more expensive to keep clean and maintain.

If staying in your current home isn’t an option, research the cost of moving to a bigger space and determine the impact it will have on your monthly spending before making any decisions.

How About Childcare?

For most dual-income families, childcare is the second largest expense after housing. Childcare costs can take up as much as 37% of a single parent’s income. In some states, the annual cost of childcare can be over $20,000 per year. The median national income for a married couple is about $87,000, and childcare can take up a large portion of that.

Shockingly, in every region of the U.S., childcare costs are about double the cost of one year’s tuition to an in-state public university. In some states, only around 5% of families can afford childcare.

Even if you or your partner are a stay-at-home parent, you may have your first child in preschool or want some childcare to maintain your sanity.
Look at data on the Economic Policy Institute to find average costs for your state, and read up on how to decide between childcare options.

Is paying for high quality childcare worth the cost? Studies say yes. As soon as children are born they begin learning and bonding with others. Putting them in the care of a trained professional can have a major impact on their development and success later in life.

Of course, keep in mind that these costs are temporary. Your kids will grow up and go to kindergarten before you know it—and, depending on the age difference between them, you may not have many years of paying for childcare for two.

What About Paying for College?

If you have two children under the age of three, the full cost (room, board, tuition, etc.) of a four-year public university education will be approximately $565,000 by the time they are in college. This assumes the costs of college grow 5% each year until they start school, which has been the trend.

This means that you need to be saving over $22,000 per year to fully pay for college by your kids’ respective freshman years, or $15,000 per year to cover all qualified expenses. Of course, you can take out loans and apply for financial aid or scholarships, but if you’re planning to pay for college, you should be aware of the magnitude of savings required.

A few ways you may want to consider when planning for college tuition payments are:

•   Starting a 529 Plan: Many families open a 529 Plan for their young child and put money into it over time to help pay for college. The money can be used tax free for qualifying education costs.

•   Applying for scholarships: There are many different scholarships students can apply for, even some through the universities themselves.

•   Filling out the FAFSA: The Free Application for Federal Student Aid determines if a student qualifies for financial aid rewards.

•   Applying for federal loans: Private education loans can come with stringent repayment requirements, so it’s smart to look into federal loans as well.

•   Income Share Agreements: With ISAs, students receive money to pay for college, and in return they agree to pay a portion of their future income back to the school. Unlike traditional loans, they pay zero interest.

It’s helpful to think about if you have room in your spending plan to save for college now or whether to wait until your children are out of daycare. For most parents, it makes sense from a cash flow perspective to wait until kindergarten to start saving for college.

What Else Do You Need to Buy?

Here’s some good news: Many families find that the costs of a second baby’s first few months are much lower than those of the first’s. After all, you probably already have most of the supplies you need.

Plus, you probably have a lot of new friends through playgroups or pre-school who may have already gone through Baby #2 phase and can give or loan you things you need.

Of course, you may need (or want) some new clothes and toys, or you may decide to redecorate your nursery all together.

If you’re a middle income family, you can expect to spend around $233,610 on your child from birth until age 18. Some of the estimated costs you can expect to have include:

•   Nursery Furniture: $130 to $4,000
•   Car Seat: $80 to $500
•   Stroller: $100 to $1,000
•   Diapers: $270 to $810 for the first year. Save money by buying and washing your own cloth diapers.
•   Formula / Food: $100 to $3500
•   Food for an older child: $2845 per kid per year
•   Medical Care: $1830 per kid per year
•   Clothing and accessories: To get as much clothing for free as you can, fill up your baby registry and ask friends and neighbors for their unneeded outfits.
•   Extracurricular Activities and Sports: $500-$1000 or more per year

To save, check out kids’ consignment shops. Some items have never been worn, and books and toys are available at steep discounts. Nextdoor and Craigslist are good resources to find baby gear at rock bottom prices or for free!

Also keep in mind the costs of labour and childbirth itself. If you need to do IVF (In Vitro Fertilization), that could cost you around $20,000, or surrogacy could cost $30,000. Not all health insurance covers all of your pregnancy and childbirth costs, so you may want to look into that as well.

The Hidden Cost of Children

In addition to the monetary expenses associated with having a second child, you will also be dedicating more of your free time, and potentially even your career. Although spending time with your children can be wonderful, you will have less time to see your friends, exercise, and even get work done.

Women spend around 2.5 hours each day on domestic and childcare responsibilities. Mothers are often pushed out of their jobs or choose to leave them in order to spend more time raising their children.

You’ll want to find out what maternity (and paternity) leave your company offers, and decide if you want to take additional, unpaid time off. Many more people are also choosing to be single parents, which means they have to put in more time and may only have a single income to draw from.

Start Planning Your Baby Budget Today

As you can see, having a second child can be costly, and it’s important to start planning and saving early. If you budget properly, you’ll save yourself a lot of stress later on, and be able to afford better education and lifestyle choices for you and your kids.

Whether you want to track your monthly expenses and stick to a budget, or you want to set up investment plans to grow your savings over time, the SoFi app is a great tool for parents. Using a SoFi Money® cash management account, you can track your spending to help better reach your short and long term goals.

With SoFi Invest®, you can buy stocks online and other assets. The Active Investing platform lets you select each stock you want to invest in, or you can use the Automated Investing platform and allow SoFi’s professional team to select groups of stocks for you to invest in. SoFi’s platform has zero fees, and you only need a small amount of money to get started using it.

If you need personalized financial advice, SoFi offers free consultation with their team of investment advisors.

Want help financially planning for your family? Set up a free appointment with a SoFi Invest® advisor to help you navigate the joys—and financial implications—of parenthood.


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