Children provide parents with some of the greatest joys in life. Unfortunately, many parents underestimate the financial costs of raising children which are on the rise like everything else these days (i.e. college tuition). Let’s find out how much we can expect to pay in child related costs over the years.
The rising cost of raising children
The USDA recently released its annual report on expenditures for raising children which is now at $234,900 ($295,560 if adjusted for inflation) over a seventeen year period for most middle income families earning between $59,410 to $102,870 per year. This translates to $13,817 annually and $1,151 on a monthly basis. For those families earning less than $59,410 per year, the price tag is about $169,080 or $9,946 annually and $830 monthly. Finally, families earning more than $102,870 can expect to spend $389,670 or $22,922 annually and $1,910 monthly. There are many factors impacting these figures which include the family’s geographical location. It comes as no surprise that the most expensive places to raise children are in the urban Northeast, West and Midwest. The cheapest places are in the urban South and rural areas.
Preparing for the rising cost
Start preparing by allocating money in your family budget to housing, clothing, health-care and miscellaneous expenses for your children. The first few months may be difficult to project, but, it is important to track your spending behavior as it will be easier to set a realistic budget going forward. The bigger ticket items such as parties and vacations may be more difficult to predict, but still use the same methodology as described above.
You may not realize it but your employee benefit plan will probably include coverage for your new child. Remember that day when you were electing benefits thinking to yourself, some of this doesn’t apply to me, I don’t have a child? Well, now it does. So be sure to update your elections immediately.
Children come with tax breaks
A portion of the money parents spend on children may be returned to them in the form of tax breaks. For instance, in 2012 the child-care tax credit is 35% of qualified expenses but limited to $3,000 or up to $6,000 for the care of two or more children under the age of 13. Parents with earnings that approach and surpass $43,000 are limited to a tax credit equivalent to 20% of qualified expenses, up to $3,000. In addition, most families with earnings of $49,078 or less last year, are likely eligible for the Earned Income Tax Credit (EITC). Let’s also not overlook the tax deduction for contributing to a 529 plan which is an account for college savings.
More Finance Questions? Browse Answers or ask child care budgeting questions online.
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