Budgeting for milestones in your child's life
Parenthood can be one of life’s most exciting journeys. This time is filled with joy, but you also may feel a bit overwhelmed by the financial concerns that come along with being a parent. Planning ahead for major milestones in your child’s life may help alleviate some financial stress.
Explore the following budgeting tips to help you prepare for each new stage of parenthood.
Welcoming your new baby
School days (kids ages 3-11)
The teen years (kids ages 12-18)
Off to college (kids ages 18 and over)
A new baby in the family means it’s time to review all your financial goals and your current budget. Your baby will alter most of your priorities...and for a good reason! A 2017 U.S. Department of Agriculture report estimates that it will cost at least $233,000 to raise your child. So, it’s time to sharpen your pencil (or recharge your iPad!) and get to work revising your budget.
Consider these tips:
Plan ahead with life insurance
You may want to consider increasing life insurance coverage now that your new baby is in the picture. This can help you financially plan for your child’s future by making sure that he or she will be taken care of, no matter what.
It may be helpful to set up a 529 college savings account. It’s hard to think about college when you’re thinking about diapers, but this is a wonderful time to begin planning for your child’s education! A 529 is a tax-advantaged savings plan that’s meant to be used for educational expenses down the road.
Reduce your expenditures
It’s time to squeeze out every penny from your budget and really focus on what is important: your baby. Here are a few easy ways to save money without feeling deprived: bring lunches to work, borrow used baby items from friends, look for discounts, cancel subscriptions and club memberships you’re not using, and invite friends over for movie and pizza nights rather than going out.
Your kids are beginning to interact more with the real world outside your home. You want to make sure you’re teaching them all the values and life skills they’ll need, while also budgeting for new expenses.
Here are a few strategies to try:
Get your kids involved in deciding what back-to-school items they need and decide on the budget together. Challenge them to come up with fun money saving ideas and split the savings with them.
Vacations and camps
Help teach your kids the real cost of things by involving them in research on vacations and camps. When on vacation, set a certain amount that the kids are allowed to spend. Giving a finite amount may help them learn the basics of budgeting.
Child tax credit
As your kids grow up, you will have new expenses to budget for. Help balance these by taking advantage of the child tax credit. This is an amount that’s subtracted from the taxes you owe for every qualifying dependent child you have under 17 years of age. The amount you may be able to claim changes each tax year based on IRS qualifications.
Your kids are growing up and preparing to leave the nest. This is an important time to make sure that they’re ready for the real world.
Tips for older kids:
An allowance for certain purchases
Set up a quarterly clothing allowance with your child. Encourage him or her to research costs and present them to you for final approval. Load the agreed-upon amount onto a debit card and don’t let your child spend more than the limit you’ve set.
Encourage your children to start earning money outside your home. This will empower them to build a strong work ethic and also to learn the value of budgeting.
Buying a car
Have your teens research the costs associated with having a car or using yours. They can find this information online. Ask your child to make a financial contribution toward his or her driving expenses. That first job will come in handy here! Make sure he or she knows the effects of an accident on your insurance policy costs.
The cost of college can be intimidating for many parents. But if you start budgeting for college expenses early, the price tag may not end up being as overwhelming as you’d expect. To meet your goals, consider combining a few different methods of saving:
529 college savings account
If you start one when your child is born, your savings will have a chance to grow over the years.
Savings account or certificate of deposit
You can set up custodial accounts for your kids under the provisions of the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). These are joint accounts and have tax advantages because amounts are taxed at the child’s rate, which is most likely less than yours. Once your children come of age as adults (18), the money legally becomes theirs, and they’re free to spend it as they choose.
As your kids grow up, the responsibility for budgeting should begin to shift from you to them. You can do several things to help ensure that this transition is smooth:
Help them create a budget
Work with your student to build a workable budget before he or she leaves for college. Your student should figure out his or her best month-by-month estimate.
Split some expenses
Agree upon which expenses you’ll pay and which expenses they’ll pay.
Keep them accountable
Load your agreed-upon amount on a debit card each month and review their budget monthly. If they don’t check in with you, consider not funding the next month of their expenses.
Encourage them to seek internships
If your college student returns home for the summer, encourage him or her to look for a job or internship to cover some upcoming expenses.
Budgeting for your kids is an important part of parenthood, and you’ll be involved to varying degrees until they become adults.
Preparing in advance for major milestones can help you approach each new stage with confidence and optimism.