How to Determine the Cost of a Child

Determine what your housing cost is at the moment. This all depends on your situation. If you are in a place where the mortgage is comfortable and you won't have to upsize, then really the cost of housing a kid is nil since you're already paying for the place anyway. But if you have a kid and need an extra bedroom, that usually costs upwards of $50,000 to $100,000 depending on which market you are in. On a monthly mortgage payment, that is between $300 and $600 per month on current interest rates. Total that at an average of $5400 per year multiplied times 18 years to receive a grand total of $97,200.

Think about how much kids eat. You'll probably save some money by buying in bulk for the whole family, but a kid eating $10 per day alone is not unheard of. That is $3,650 per year or $65,700 over the course of 18 years.

Factor in transportation of your child. This doesn't mean a car, but all of the extra trips you make to go to activities. While this obviously depends in how active your child is, and the location of your house, it's fair to say that on average you'll drive an extra 15 miles per day for your child. That's 5,475 miles per year. Divide that by 25 miles per gallon of gas and then multiply that by an average of $4 per gallon and you come up with a figure of about $920 in gas money. Multiply that by 18 and you come up with $16,500 over the course of their childhood. (Just wait until they drive.)

Consider clothing for your child. When they're younger you can get away with discount stores. When they're older, they'll have to have the latest thing. Factoring in a consideration of $150 per month is not unreasonable when you think about seasonal wear or how fast they grow. That's $1,800 per year or $32,400 over the course of their childhood.

Make sure to include health care costs over that time. If you have insurance, this will be mostly deductibles and co-pays. When they are younger, they will frequent the doctor a lot more. Just don't forget about braces down the line. Averaging about $1000 per year or $18,000 over the course of their childhood is not unreasonable. (Think about even the family dog is a few hundred dollars a year at the vet.)

Remember to include day care or other fees for extra-curricular activities. These sort of cross over in the middle school years. If they average 4 hours per day of child care, that's 20 hours on a 5 day week. Multiply that times a year, that is 1040 hours. A working wage for child care is about $15 per hour. Multiply this by 12, that is an astronomical $187,200. (As they get older the child care dissipates in lieu of being able to watch themselves or playing a school instrument, sport or even working their own part time job.

Leave yourself room for the miscellaneous expenses. No matter how much you plan, they will always occur. A good rule of thumb is about $100 per month or $1,200 per year. This amounts to about $21,600 just to be safe.

Work inflation into the equation. Inflation is tough to calculate as the economy can have several years of stability where home prices are rising, fuel costs are low and people are generally in a good place. Then suddenly, that can change rapidly and a large amount of inflation occurs quickly. If the average cost of living raises between 1 to 3 percent per year. It's safe to add about 24 percent to the total.

Combine all of these numbers, and you will receive a figure of $548,250 (with the inflation adjustment.) Note that this doesn't include college. And of course, you do get some tax breaks for having a family. But if this number has entirely scared you, don't fret. Smart financial planning can help you save and grow your own wealth a little at a time. (Remember if you own your own home, it historically doubles in value every 10 years.) Divide the big number by 18 and it costs about $30,000 per year to raise a kid. Interestingly, if you find cheaper child care, or remove it all together you can save up to $10,000 per year, making the average cost to raise a kid per year $20,000