The Cost of Parenthood

Children are priceless but raising them can cost a bundle. If you are planning on having kids or you already have kids, it’s a smart idea to have a plan for dealing with the costs associated with child-rearing. Thinking about your future and creating financial goals can help you prepare for raising children.

Crunch the Numbers

For a family that earns under $40,000 a year, the cost of raising one child to age 18 is around $160,000. If your income is between $40,000 and $60,000, this amount goes up to $220,000. Either way, you’ll end up spending around $10,000 a year raising a child. You can calculate your own costs with our free online calculator. How do these expenses break down?

Cutting Costs

A lot of these costs are related to people “upgrading” their lifestyle when they have children. If you lived in a two bedroom apartment before having a baby, you are likely to move into a three bedroom house once you have a child. Or, if you drove an inexpensive sedan before, you may upgrade to a new mini van. You can reduce the cost of raising a child by limiting these upgrades. Is doubling the size of your house really necessary? Can children share a room for a few years? Is it important to have a brand new van instead of a used van? It’s normal to want the best things for your children, but you can still be cautious about your spending. Here are some ways you can cut back on costs:

• Housing – Keep the size of your house in perspective. Have young children share a bedroom for a few years. If buying a home in your area is very expensive, consider renting instead.
• Food – Buy bulk food at discount stores such as Costco. Also, avoid buying prepared foods that are sold at a premium. Instead of bagged salad, buy heads of lettuce that cost a third of the price.
• Transportation – Buying a car that is just a one year old can save you thousands over buying a car brand new. Remember to calculate fuel economy too. Some family vans and SUV’s can be real gas guzzlers.
• Childcare/Education – Choose public schools instead of private schools, which can cost more than $10,000 a year. If you both work, you may qualify for childcare tax credits up to $6,000 a year. Some cities also offer free childcare services or rebates for families.
• Healthcare – Always have health insurance for you and your family. Even expensive insurance is cheaper than most medical bills. Investigate programs like Healthy Families in your area that may be able to help you with medical costs.
• Clothing – Buy baby clothes from second hand shops that specialize in these expensive and relatively short-lived items. For older kids, buy clothes that are durable and won’t stain easily.

Tax benefits

Having children can save you a bundle on your taxes. Along with the childcare tax credit, you can also receive a $1,000 tax credit per child for up to three kids under 17. You’ll also receive tax savings for your home purchase and for money you invest in certain types of college savings funds. A smart financial advisor can help you work out the best tax savings for your family each year.

Be smart about money

Track your family expenses each month using a program like Quicken to ensure that you are keeping your spending under control. Avoid going in to credit card debt and try to save a little each month for your retirement and for your child’s future. Try not to spoil your children: it’s tough to avoid but it’s better for both your child and your bank account in the long run. Plus, use your frugal nature to teach your kids to manage money responsibly. In the end, you will save thousands raising a smart kid who knows how to use money wisely.