|
|
|
|
| The Basics | Raising your quarter-million dollar baby
|
Children are priceless, but raising them is probably the most expensive thing you'll ever do. Here are some strategies and tips that may help.
By MSN Money staff
Every newborn child is a bundle of joy. But you better have a bundle of cash on hand if you want to raise one.
For 2004, the newest data available, the U.S. Department of Agriculture estimates that families making $70,200 a year or more will spend a whopping $269,520 to raise a child from birth through age 17. Higher-income families in urban areas in the West spend the most, $284,460.
Though not as steep, the figures for lower-income families are just as unsettling: $184,320 for families earning $41,700 to $70,200 and $134,370 for families making less than that. That breaks down to nearly $15,000 a year from birth to age 2 for families in the $65,800 -plus income bracket. As your child ages, he or she gets even more expensive, topping out at $15,810 from ages 15 to 17. This is no back-of-the-envelope guesstimate. The survey involves visits to, and interviews with, about 5,000 households, four times a year.
Nor is there much in the way of cost-effectiveness for larger families. With an older child of 16, the USDA study says, a family with a second child under 2 lays out $20,740 for the both of them each year, with the numbers growing progressively as the children get older. With three children -- the two older ones being 16 and 13 -- a third child aged 2 years or less rings up an annual bill of $24,160.
| How much will your family spend?* | | Total | Housing | Food | Trans. | Clothes | Health | Care/school | Misc. | | Income | | | | | | | | | | Up to $41,700 | | | | | | | | | 0 to 2 | $7,040 | $2,680 | $980 | $820 | $350 | $530 | $1,020 | $660 | | 3 to 5 | 7,210 | 2,650 | 1,090 | 800 | 340 | 500 | 1,150 | 680 | | 6 to 8 | 7,250 | 2,560 | 1,400 | 930 | 380 | 580 | 680 | 720 | | 9 to 11 | 7,220 | 2,310 | 1,680 | 1,010 | 420 | 630 | 410 | 760 | | 12 to 14 | 8,070 | 2,580 | 1,770 | 1,130 | 710 | 640 | 290 | 950 | | 15 to 17 | 8,000 | 2,080 | 1,910 | 1,530 | 630 | 680 | 480 | 690 | | Total | $134,370 | $44,580 | $26,490 | $18,660 | $8,490 | $10,680 | $12,090 | $13,380 | | Income | | | | | | | | | | $41,700 to $70,200 | | | | | | | | | 0 to 2 | $9,840 | $3,630 | $1,170 | $1,230 | $410 | $690 | $1,680 | $1,030 | | 3 to 5 | 10,120 | 3,600 | 1,350 | 1,200 | 400 | 660 | 1,860 | 1,050 | | 6 to 8 | 10,030 | 3,510 | 1,720 | 1,330 | 440 | 750 | 1,190 | 1,090 | | 9 to 11 | 9,910 | 3,260 | 2,030 | 1,410 | 490 | 820 | 780 | 1,120 | | 12 to 14 | 10,640 | 3,520 | 2,050 | 1,540 | 830 | 820 | 570 | 1,310 | | 15 to 17 | 10,900 | 3,030 | 2,270 | 1,950 | 740 | 870 | 980 | 1,060 | | Total | $184,320 | $61,650 | $31,770 | $25,980 | $9,930 | $13,830 | $21,180 | $19,980 | | Income | | | | | | | | | | Over $70,200 | | | | | | | | | | 0 to 2 | $14,620 | $5,770 | $1,550 | $1,720 | $540 | $790 | $2,530 | $1,720 | | 3 to 5 | 14,960 | 5,730 | 1,760 | 1,690 | 530 | 760 | 2,750 | 1,740 | | 6 to 8 | 14,710 | 5,640 | 2,120 | 1,820 | 580 | 870 | 1,900 | 1,780 | | 9 to 11 | 14,470 | 5,400 | 2,460 | 1,900 | 630 | 940 | 1,320 | 1,820 | | 12 to 14 | 15,270 | 5,660 | 2,580 | 2,030 | 1,040 | 940 | 1,010 | 2,010 | | 15 to 17 | 15,810 | 5,160 | 2,720 | 2,460 | 950 | 990 | 1,780 | 1,750 | | Total | $269,520 | $100,080 | $39,570 | $34,860 | $12,810 | $15,870 | $33,870 | $32,460 |
|
*Estimates of expenditures by husband-wife family on the younger child in a two-child family. To estimate expenses for an only child, multiply the total expense by 1.24.
Sobering? No doubt. Misleading? Absolutely. On the down side, the study doesn't take into account certain expenses incurred by some families, such as heavy medical bills or pricey private schools. It's a composite average and, by definition, that means your numbers either will be a little (or a lot) higher or lower. Even worse, since the survey ends at age 17, it doesn't take into account the millions of college students who are supported in part or in full by their parents. That's another $20,000 to $150,000 for a four-year education, depending on the school.
It also doesn't consider lost income that occurs when one parent decides to stop working or take off several years to raise their children during the early years -- or take a lesser-paying job with more predictable hours. That's money out of your pocket.
However, that's not to say the numbers should prompt a nationwide rash of celibacy vows. The study breaks down overall expenditures into various categories and subsections. (The information is used by various state agencies and court systems to determine child support guidelines and foster care payments, among other things.)
Within those individual expense categories lies some good news, as there are strategies and tips that may allow parents to trim those expenses.
We'll go through each of the major categories, give the total cost for families from the low to high ends and then offer cost-cutting ideas and some tax tips from our tax expert, Jeff Schnepper.
Housing
Cost through age 17: $44,580 to $100,080
This is the biggest single expense of raising children, comprising anywhere from 33% to 37% of the overall annual expense.
What you can do
You could ignore one of the basic assumptions used by the USDA in calculating additional housing costs. You could decide not to move up into a larger home. The table assumes that for each child you have, you're going to add 100 to 150 square feet of living space to your home. By definition, that means you're either going to renovate your existing house or buy a new one. Go against the flow and figure out how to use the space you've got.
For many families, that solution won't get it done. Try this: If you've had your mortgage for a while and plan to stay in your home, keep track of mortgage rates and consider refinancing when the rate is more than a percentage point below your current mortgage. It can save hundreds to thousands of dollars on the loan. You can get an idea about current rates and offers by starting here..
Challenge your property tax bill if you think it's too high. Estimates hold that as many as half of American homeowners pay more in property taxes than they have to.
Additionally, make your home as energy efficient as you can. That means everything from replacing old and inefficient furnaces and water heaters to bolstering insulation.
Finally, give some thought to moving to a less-expensive place to live. Not only does that mean a smaller house across town, but it could be a completely different part of the country. What with median home prices in some areas topping $400,000, look into parts of the country where housing prices (and property taxes) may be a bit more manageable.
Tax tips
Make as much as possible of your housing costs tax deductible. Interest and real-estate taxes are deductible. Use your home equity to finance other expenditures. The interest on debt of up to $100,000 secured by the equity in your house is tax deductible. It doesn't matter what you use the money for.
Consider a home office. Now, you can qualify for a home office even if you only do managerial duties or simple record-keeping there. Prior to 1999, it had to be where you actually performed the activities of your job.
If you have a home office, you can deduct the percentage you use for business of all your housing costs. These include interest, taxes, insurance, utilities, landscaping, depreciation and the cost of any furniture or equipment you use in your home office.
Food
Cost through age 17: $26,490 to $39,470.
This accounts for 15% to 20% of the overall expense.
What you can do
Set strict limits on the more-discretionary forms of food spending. For instance, tell your children they can spend no more than $5 a week on fast food. That alone may save a couple hundred of dollars a year.
Use the Web to shop for bargains.
There are -- literally -- thousands of shopping-related Web sites and many of them now allow you to compare costs among similar items. Here's a simple trick that really works: When you're searching for a specific item, go to one of the search engines and type in that item and the word "discount." You'll be amazed at what you'll find.
Consider joining a warehouse club such as Costco, BJs or Sam's Club. While they're not suited to everyday shopping, they let you stock up on certain items in quantity, often at substantial savings. Look to these places for things such as soda, canned and dried goods and other sorts of non-perishables. If you lack adequate storage space, divide your bulk goodies among neighbors and friends.
Wholesale food services, which sell meat, noodles, fish and other groceries in bulk, will deliver them to your door. Not only can you plan meals well in advance, but also shoppers can save close to 50% off conventional grocery store prices, although you still have to go to the store to buy fruits, vegetables and other items.
You'll find other tips on supermarket savings here.
|
|
|
|
