Children Cost More Than Ever: How to Plan Ahead


Children Cost More Than Ever: How to Plan Ahead


They say that having a baby changes everything, and “everything” includes how you make, spend, and view money. The Wall Street Journal estimates that a child born in 2013 will cost more than $245,000 by their 18th birthday. This means that your kindergartner will cost you nearly $20,000 more than the average home, which is approximately $226,000 in 2019. The good news is that there are ways to plan for their future, as well as your own, starting now – even if you are on a limited income.

Here are a few things to consider:


When you think of saving for your child’s future, their education is probably the first thing that comes to mind. There is a good reason for this, and Dave Ramsey notes that student debt is more than $1.3 billion in the US. If you don’t want your child’s education to add to this statistic, you will need to begin saving as soon as you can. While you can certainly put money into a general savings account, there are many options when it comes to saving for their education. The two most common are:

  • Education savings account. A Coverdell Education Savings Account (ESA) is not a college savings program. Instead, it is a savings structure that allows parents and grandparents to contribute up to $2,000 per year to a minor’s private school education expenses. Although ESA contributions are not tax-deductible, they earn interest, and any money left over may be used toward college.
  • 529 plan. A 529 plan is a type of investment sponsored by each individual state. Most states offer tax advantages, including tax-deferred growth and tax-free withdrawals. One of the biggest benefits of a 529 is that limits are typically high, often as much as $400,000. Vanguard further explains that many 529 plans have multiple portfolios from which to choose, meaning you can control how much financial risk you are willing to take.

Before deciding on the type of savings you plan to establish, determine if your money is best spent toward college or on a private primary education. Often, public school is just as good – or better – than private. If you have to choose, it is often best to save your money for college and send the kids to public school.

Unexpected expenses

After education, many parents begin to worry about what would happen if they were to die while their children were young. As much as this is a scary thought, if it happens and you are not prepared, your entire family can suffer financially. Funerals often cost over $10,000, so it’s a good idea to invest in final expense insurance to reduce the financial – and emotional – impact on your loved ones if you die unexpectedly. If you couple your final expense insurance with a pre-planned funeral, you will also save your family many of the tough choices that go along with planning one.

Health issues are another often unplanned expense. A severe injury or critical illness can reduce your ability to provide for your family. In addition to final expense insurance, parents – especially those with young children, a mortgage, and recurrent monthly bills – may benefit from supplemental insurance. Unlike health insurance, supplemental insurance usually pays a cash benefit to help you cover things like everyday living expenses, childcare, and groceries. Many policies also cover your deductible and the cost of experimental treatments.

Food and housing

Food and housing are two costs that you probably expected when you began raising a family. What you might not realize, however, is that feeding even a small family can cost upwards of $289 per week. This is not necessarily an expense that you can plan for in advance, but you should at least be aware of the impact this can have on your budget, particularly if it’s already tight.

Your housing costs will likewise increase as your family continues to grow. If you have yet to purchase a home, chances are this is a milestone you will soon cross. This also requires financial planning, which starts years before you make the decision to buy. First, you must ensure that your debt-to-income ratio is balanced, that your credit score is high enough to receive the most favorable interest rate, and that you have enough money to put down on your new house. Many loans are available with a down payment of just three percent, but if you want to avoid the expense of private mortgage insurance, you will need to put down at least 20 percent of your home’s purchase price, plus the cost of closing. Credit Karma offers several tips on how to save for a home, including working a part-time job and saving small amounts of money over long periods.

Saving for yourself

In all of the planning for your children’s future, you cannot forget to save for yourself. Many financial experts will actually suggest putting money away for your retirement before you save your children’s education. This makes sense since your child can always take out student loans when the time comes, but there will come a point when you are no longer able to provide for yourself.

One of the best ways to save for retirement is to have money automatically deducted from your paycheck and contributed to your company’s 401(k) retirement plan, if available. Depending on your company, your contributions might be matched, and the amount you contribute is tax-deferred, meaning your yearly taxes are calculated after your 401(k) contributions have been deducted. So, how much do you need to retire? That depends on your lifestyle and the age you quit working. A good rule of thumb is to strive to have 10 times your current salary in the bank by the time you turn 67. This means if your salary is $100,000, you should have a minimum of $1 million set aside for retirement.

Saving money for yourself and your children is a lifelong commitment and one that should start well before you start your family. It is a labor of love, but one that will pay off in financial security. It doesn’t matter if you start small – what’s important is that you start. Remember, every little bit matters.

Image via Pixabay

Written by Jackie Waters]]>

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