Diapers and dollars: Raising kids without breaking the bank
Raising children is expensive, and these tips offer ways for parents to adjust financially to new family additions while not sacrificing retirement savings.
Everyone knows that kids cost money. But just how expensive are they? A 2017 Department of Agriculture report put the price of raising a child at nearly a quarter of a million dollars, and money management pros say it’s never too early to start saving for the expense.
Summer is a great time to get started since July and August are the months with the most U.S. births, according to the National Center for Health Statistics.
Wells Fargo digital marketing consultant Allie Featherston and her husband, Patrick, have been looking for ways to save since the birth of their son, Seamus, last May.
“Right now, the costs are relatively low, but I suspect when he gets up and starts running around, eating more, and beginning school, our costs will increase, too,” said Allie Featherston. “When we graduate from the bottle to real food, from the park to the museum, and from public high school to college, it will really add up — so we’re really focused on saving.”
The Department of Agriculture report said families can expect to spend between about $12,000 and $14,000 a year for the first 17 years of a child’s life, underscoring the need to save and spend wisely. And that’s not counting the cost of college — nearly $20,000 per year for room, board, and tuition at a state college.
Whether currently pregnant, in the process of adoption, or already raising a child, here are some tips to start saving today.
Brand new items aren’t necessarily better, but they are definitely more expensive.
Lisa Bianculli Hutter, senior director of wealth planning for Wells Fargo Private Bank, said she saves money by purchasing used items at thrift stores and annual community sales at churches and other nonprofits, or by borrowing items from family members or friends whose children have outgrown them.
She recommends accepting hand-me-downs when offered and returning the favor by passing them on to others when no longer needed.
“Check your local listings for thrift stores or advertisements for gently used baby gear and clothing,” Hutter said. “You might even consider posting the items you are still needing on Facebook or joining a local parents Facebook group to do the same.”
When considering secondhand equipment, like a car seat, visit your local police department. They will teach you how to properly install it — or do it for you — and let you know if that hand-me-down seat is safe to use. Experts do advise against purchasing or accepting a used crib since it might not meet new safety standards.
“Being thrifty doesn’t mean you love your child any less,” said Hutter, a mother of two children. Four years ago, she purchased a $450 stroller secondhand for $100 and said it still looks brand new. Her youngest just outgrew it, so she was able to pass it down to a friend.
It’s natural to want to buy the best brands and take exciting vacations, but children don’t usually notice — or care — especially when they are young.
Hutter said “staycations” are another way to save. Instead of taking expensive vacations, she said, many parents enjoy staycations — trips spent at home enjoying local attractions — when their children are small since they know they likely won’t remember the big trip later anyway. This is also a great opportunity to explore the local, and often free, child-friendly activities within your own community.
Don’t be afraid to buy store brands for baby essentials either, Hutter said. “Diapers, for example, are a big expense and many store brand diapers may work just as well as the name brands, at half the price,” she said.
Think about college
Hutter said the biggest child-raising costs come from housing, food, and day care, but noted that some expenses change over time — differences that need to be taken into consideration when budgeting. Food expenses, for example, rise as the child grows while daycare costs decline the older a child gets, but the cost of extracurricular activities then come into play, she said.
Then there’s college. If saving for college is a priority, she said, there are ways to start right away — like a 529 education savings plan.
“These plans allow you to put aside money for your child’s education that has the potential to grow tax-free, and is distributed free of income tax as well, as long as it is for higher education expenses,” Hutter said. Many states also permit others, like grandparents, to contribute to those plans or set up their own plans for grandchildren. (Non-qualified withdrawals are subject to federal and state income tax and a 10 percent penalty.)
Each state has a plan hosted by a different provider, she said, and some states allow you to deduct your contribution from your gross income, which helps reduce your state income tax burden. The availability of such tax or other benefits may be conditioned on meeting certain requirements.
College savings plans offered by each state differ significantly in features and benefits. The optimal plan for each investor depends on his or her individual objectives and circumstances. In comparing plans, each investor should consider each plan’s investment options, fees, and state tax implication. “Check with your state’s plan for more information, but know this: Almost all education savings plans allow you to set up an automatic, recurring, regular deposit which can help you start a savings habit,” Hutter said. “If you start with a nominal contribution like $35 a month, you may not miss it and you can increase it over time.”
Please consider the investment objectives, risks, charges, and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest.
Think about yourself
Hutter said new parents often get so caught up in child-related expenses that they forget about their own financial future since retirement seems so far away. But waiting comes with a significant cost — potentially thousands of dollars lost for someone who starts contributing to a 401(k) in their 30s instead of in their 20s.
“Studies show that the earlier you start saving for retirement, the better,” Hutter said. “So start saving or continue saving before and after your new baby arrives.”
Erin Constantine, head of consumer deposits at Wells Fargo, says that financial preparations are often overlooked during other exciting preparations for a baby, such as decorating a nursery and buying a car seat.
“By setting a savings goal and working toward it during pregnancy — or even earlier if it’s feasible — you can prepare for the additional expenses that come with raising a child,” Constantine said. “Everyone’s financial situation is different but small changes like these can add up and help you feel more financially stable and prepared for whatever life brings.”
The Featherston family is taking those steps. They started saving right away for Seamus’ college future.
“Anything saved for college will help with future expenses,” said Allie Featherston. “As college costs rise, our hope is investing in the markets will allow us to keep pace in order to at least help to fund his college education. One thing I do know, it isn’t getting any cheaper!”
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