3 Steps To Completely Offsetting the Cost of a Child (Plus a Bonus Step!)

There’s been a lot of talk recently about the USDA report showing that it costs the average parent $245,360 to raise a child in the United States. You can find the full report here, and you can find a couple of articles talking about it here and here.
That’s a big, scary-sounding number. And the truth is that it can be really hard to find room in the budget to handle the cost of a child, especially your first time around. It was hard for my wife and I, and I know it’s hard for many others too. It’s a big adjustment.
But the other truth is that $245,360 sounds a lot bigger and scarier than it actually is. In fact, by doing just a few things differently than the average person, you can not only completely offset the cost of a child, you can actually come out ahead.
Here are 3 steps to making it happen, with a 4th one thrown in just for good measure.
1. Buy less house
According to the United States Census data, there were 429,000 single-family homes sold in 2013. Here are some important stats about those homes:
- The average price was $324,500
- 94% of them had 3 or more bedrooms (51% had 4+ bedrooms)
- The average size was 2,662 square feet
Just for comparison’s sake on the square footage, I currently live in a 3 bedroom, 2 bath single-family home with my wife and 2 little boys. We have PLENTY of room. Our house is 1,056 square feet.
So how much money could you save by simply buying a smaller house than average? Here are the assumptions I made to run the numbers:
- You put 20% down on a 30 year mortgage with a 4.25% interest rate
- You buy a house that is 2/3 the average size (1,775 square feet, still almost double the size of my current home)
- The cost is also 2/3 of the average, coming to $216,333
When you run the numbers and adjust for inflation*, the smaller house would save you $132,591 over the life of the mortgage.
After the first step, we’re more than halfway to offsetting the cost of a child.
2. Buy less car
Here are some stats about car purchases in the United States:
- The average new car price is $32,086 (source)
- The average auto loan is $27,430 (source)
- The average auto loan monthly payment is $471 (source)
- The average auto loan term is 65 months (source)
- The average length of time that an owner keeps his or her car is 6 years (source)
So let’s compare that average person to someone who does things a little bit differently:
Person A (average)
- Buys a $32,000 new car and puts $5,000 down at purchase
- Gets a $27,000, 5-year loan at 3% interest, for a monthly payment of $485.15
- Keeps the car for 6 years before repeating the same purchase again
Person B (different)
- Buys a $16,000 used car and puts $3,000 down at purchase.
- Gets a $13,000, 3-year loan at 3% interest, for a monthly payment of $378.06.
- Keeps the car for 10 years before repeating the same purchase again.
After 30 years of this – the same length of time as the mortgage – Person B will have spent $86,514 LESS than Person A (adjusted for inflation). If you wanted to, you could even buy an older, cheaper car in cash and save even more money.
So, after buying less house and less car than the average person, here’s where we stand:
Savings on house: $132,591
Savings on car: $86,514
Total savings: $219,106
3. Buy cheaper investments
When it comes to investing, no single factor is more important to your returns than the amount you pay for your investments. A lower cost is the best way to predict better returns.
And to make it even more appealing, the lower costs will save you money! But how much?
In 2013 the average cost of a mutual fund that invests in stocks was 0.75% per year. That may not sound like much, but compared to options that only cost 0.05% per year it’s a pretty big markup.
So let’s make a few more assumptions and run a comparison between the two:
- You invest $5,500 per year (the 2014 maximum contribution for an IRA)
- Your annual return is 8%
- As in all of the calculations here, inflation is assumed to be 2.4%
Over a 30-year time period, which is typical for someone who is saving for retirement, investing in the lower-cost mutual fund will save you an inflation-adjusted $48,349. And that doesn’t even factor in the possibility of higher returns!
So where do we stand now? Let’s take a look:
Savings on house: $132,591
Savings on car: $86,514
Savings on investments: $48,349
Total savings: $267,455
We did it! We’ve now saved ourselves about $22,000 more than the cost of a child, and it only took 3 steps! But just for good measure we’ll thrown in one more big money-saving opportunity.
BONUS: Find a cheaper cell phone plan
A recent study by Cowen and Company found the average cell phone bill to be a little more than $140 per month. That’s a lot of money!
The good news is that there are a ton of cheaper options available today. Personally, I use Republic Wireless and only pay $10 per month. And there are plenty more low-cost cell phone options if you do a little looking around.
So how much can it save you? Here are the assumptions I made:
- That $140 average bill includes 2 people
- 2 people switching to Republic Wireless or something similar might pay $50 per month total
- The person with the $140 average bill never has to buy a phone because of free upgrades
- The person using Republic Wireless has to pay $300 for two new phones every 2 years
Even with the cost of buying new phones every 2 years, the person using Republic Wireless would save $27,900 dollars over the same 30-year period we’ve been looking at all along.
Final tally
So after all of that, here’s how we make out just from making a few choices to be a little different from average
Savings on house: $132,591
Savings on car: $86,514
Savings on investments: $48,349
Savings on phone: $27,900
Total savings: $295,355
Cost of raising a child: $245,360
Total savings over cost of child: $49,995
What’s the real point here?
Obviously, these exact examples won’t fit your specific circumstances. There are a lot of averages and assumptions here, and your situation will be different.
But the point is this: while children do cost a lot of money, so do a lot of the other decisions we make. And many of those other decisions have some great alternatives and by deviating just a little bit from the norm you can save yourself enough money to completely offset the cost of a child.
And keep in mind that these numbers don’t even include the possibility of things like:
- cutting cable
- negotiating your internet bill
- buying smarter insurance
- finding ways to earn a little more money
$245,360 is the average cost of a child. But you aren’t average. You are you. And if having a family is important to you, there are ways to make it more affordable.
What do you think?
*An inflation rate of 2.4% is used in all calculations in order to be consistent with the USDA report.

Wow I can’t believe the average size home was over 2,600 square feet. That’s a lot of unneeded space!
I was pretty surprised too. I certainly don’t have a problem with anyone wanting that much space, but if you’re looking for somewhere to save money that can be a huge win.
I hope that people who are daunted by that cost of raising a child figure will find this post! Every situation is so individual, like you pointed out, there’s no reason to feel locked in to spending anywhere near that amount, and like you outlined even if you spend a lot on your children there are ways to compensate in other areas. I think that people just see the headline and don’t even realize that most of that cost of raising a child figure is due to the (hypothetical) increase in house size/cost.
Yep, it’s the same reason I have problems with national averages when it comes to just about any financial topic. Averages never describe what you need to do, and there are almost always some pretty simple ways to be different from that average.
Awesome post. It really does come down to priorities. We were able to afford a townhouse that is around 2400 sq ft and it is a LOT of space so it’s hard to imagine that the average home is 2600 sq ft. That means there are a lot of families living in houses that are most likely too big for them.
Another big savings I would add (that we plan to do soon) is to move to a lower cost of living area if possible. Take your money farther by downsizing to an area that is not as expensive.
Your definitely right that finding somewhere with a lower cost of living can help. For some people I think that can be tough though, either because of their job or because of friends and family. Also, we just recently moved from Boston (high-cost) to Pensacola (low-cost) and the truth is that there isn’t a huge difference in our daily expenses. Homes are MUCH more affordable here, but our daily costs are fairly similar. I think a large part of that is because we don’t have a ton of discretionary spending these days, but I haven’t really dug into it.
I think as long as you are willing to tighten your budget and living within or below your means, then raising a child will not be as large of an expense. Health insurance has a lot to do with it as well.
Health insurance can definitely be a big expense, especially if you’re on your own for finding it. Every situation is different, but what I hope people see is that there are often choices that can be made that decrease the financial burden of raising a family.
Great post. Always felt you can get ahead of the Joneses by not keeping up with them but seeing a net gain against the cost of raising a child is pretty amazing. Will be looking into Republic Wireless too. Thanks, Matt.
“you can get ahead of the Joneses by not keeping up with them”. I love that line! Is that a Mike Ritter original?
Also, yes, definitely check out Republic Wireless. I’m a huge fan.
Far as I know, I can lay claim to the Joneses line.