There’s a lot you have to plan and save for when thinking about the future. Saving for retirement should be at the top of your list. But if you’re planning on buying a home or having a family at some point, you’ll need to start saving for those costs as soon as possible, too. It may sound crazy to a non-parent, but the average cost of raising a child in the U.S. has surpassed $200,000.
The Average Cost of Raising a Child
Did you ever stop to consider that little bundle of joy could cost so much to raise? A single child over the course of 17 years costs well into a six-figure dollar amount. A 2017 Department of Agriculture study says it will cost an average of $233,610 by the time the baby turns 18.
How could such small people cost so much? This average includes everything from housing, food and transportation to healthcare, education and childcare to clothing, personal care items and entertainment. Housing makes up the biggest expense, accounting for about a third of the total cost of raising a child. Food and child care take up the next biggest part of the budget. The USDA estimates that childcare costs an average of $37,378 per child. Parents spend between 9% and 22% of their total income on childcare.
There’s something important to note about counting costs until your child reaches 17, though. That $233,610 average doesn’t include the cost of a college education, arguably one of the biggest expenses a parent will face.
Geography Makes a Difference
The USDA average doesn’t reflect what everyone will pay. It’s an average for middle-income, married couples with two children. In reality, families throughout America include a wide range of family types and household incomes. Lower-income families are expected to spend around $174,690 on their child, while the average higher-income family spends about $372,210. Single parents usually spend less than married ones.
Here are four ways you can save on child care costs:
1.) Use pretax dollars
Take advantage of a workplace benefit. If your employer offers a Flexible Spending Account (FSA), make an additional contribution to cover a variety of expenses related to dependent care.
Eligible services include medical care, day care, babysitting and even housekeeping. You can use the dependent care FSA account to pay for delivery and other related expenses. Taking advantage of this program doesn’t reduce the costs of the services you’re paying for, but it does cut your tax bill at the end of the year. Unlike a typical FSA, a dependent care FSA can only reimburse you for money you’ve already spent. This means you may have to wait a while as the balance builds before you can take advantage of the program. Still, when coupled with programs like the Child Care Tax Credit, you can save some money come tax time.
2.) Ask for hospital freebies
Young children, especially newborns and infants, need a lot of stuff. Those costs can add up quickly. Many baby product manufacturers partner with hospitals to provide new parents with a starter kit of everything they might need. Hospitals frequently forget to give them out. Be sure to ask someone working at the hospital if there are any samples of baby goods or coupons you can take home. This strategy can work from birth through early childhood; many pediatricians also partner with baby supply brands.
3.) Think before you upsize
Growing families need growing homes. However, when it comes to timing that upsize, new families should think about their immediate needs. The hospital bills and other expenses can really take a bite out of your savings, making the months after childbirth a poor time to think about a new home. Before you start shopping for a new house, ask around about how much space newborns actually need. Can a crib in an office or guest room work for the time being? It’ll be a few years before your child will need the privacy and independence of their own room, and your other housing needs may change in the interim. Hold off on moving until you’re in a better position to do so.
4.) Don’t let guilt win
Much of the baby products industry is built on guilt. No one wants to talk about money when it comes to things that might help a baby’s development. That’s how companies can get away with charging hundreds of dollars for plastic toys. The inside secret is that babies don’t need your stuff. They need you. Children thrive in supportive, caring environments, not just those filled with the latest and greatest baby “learning” toys. Spending time with your child is the most precious gift you can give.
Tips for Saving Responsibly
No matter how you run the numbers, we can all agree that kids are expensive. To start saving for a child, assess how having one will affect your budget.
Saving up toward a $200,000 plus expense is certainly daunting. But not saving at all will hurt you and your finances when you have a child on your hands. Luckily, it’s pretty easy to open a savings account. Find one with a high interest rate for maximum returns. If having a child is further off in your future, consider opening a long-term CD account. These typically have the highest rates.
If you’re willing to take on some risk, you can open an investment account in addition to your savings accounts. A common misconception is that you’ll need thousands of dollars to start investing. But that’s simply not true and you can invest any amount of money.
The Bottom Line
Typically, the choice of whether to have a child is not a purely financial decision. But it is crucial to take into account your financial situation and the costs of raising a child. If you do want children, thinking about how you will handle future expenses will help. Do you plan to pay your child’s way through college? Will you need a baby loan to help cover some of your medical bills?Do you need to save to contribute to their wedding? You can always enlist help from a financial professional if you need. Plus, not only will a good savings plan benefit you, but your child will also have a great example of how to save.
A financial advisor can help set you up for a secure financial future, whether you’re hoping to save for retirement, manage your investments, open a 529 plan for your child or some combination of the above.
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