August is the busiest month for births– and many of these new parents will quickly have sticker shock.

How much should parents be prepared to spend on their new bundle of joy?

The price of parenting can be overwhelming. The most recent survey from the U.S. Department of Agriculture shows a middle-income family will spend more than $300,000 on a child birth to age 17 – up nearly 2% from 2012. You heard me right, that $300,000 price tag doesn’t include college! Housing is the biggest expense for parents. When you factor in everything from food to child care, all the way down to toothbrushes, it adds up quickly!

There are three important steps to start financial planning for parents.

  1. Make a baby budget: Run the numbers to see how much you’ll spend on everything from food and formula to diapers. A good place to start is by using the USDA’s Cost of Raising a child calculator, which calculates the annual cost per child based on age. I have a link to that on my website, But also consider this- while your costs rise, your expenses may drop as well. If you’re staying home- you will save money on commuting and work clothes. I hate to tell you this, but you’ll also be dramatically cutting back in how much you spend on going out.
  1. Decide Child Care: Child care costs are skyrocketing – up nearly 3% from a year ago. You’ll need to make a tough decision- does it make more sense financially for both parents to have jobs or for someone to stay home with the baby. If you are going from a two-income household to a one-income household, start acting like the changes are effective today, which could mean big cuts to your expenses.
  1. Build a Cash Cushion:  I recommend all my clients have an emergency fund of three to six months, but it’s even more important for parents, given how unpredictable life with kids can get. Start during pregnancy by saving as much as you can, and cutting debt while you have more certainty in your financial life. You can try methods as simple as putting loose change in a jar, and then transferring the money into an interest-bearing savings account. As long as you vow not to dip into it.

Even when the kids move out, parents are still facing the costs of college. How do you recommend parents save for that?

Consider a 529 Plan. You can ask family and friends to donate to the fund, instead of buying gifts when the baby is born, or on birthdays.  Many of my clients are grandparents – in retirement – and want to talk about ways to leave a legacy and pass their wealth on to the next generation and this is one way to do that. There are various 529 plans available through different states, state agencies, and educational institutions; each plan has its own rules and there are no state guarantees that the money in the account will grow.  There are a lot of options, so I recommend you see a financial professional who will help you determine what will fit your needs.

Even if we follow all of these tips, you still say we should expect the unexpected…

Be flexible! As all parents know, things are going to surprise you from time to time. Being a parent is already emotionally and physically demanding. Having a financial plan in place will help you to focus on what’s important: your kids!