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Apr 9, 2024

How to Budget for Kids Without Sacrificing Your Lifestyle

By Marygold & Co. Team

Nowadays, it seems that there is more and more conversation on social media about the cost of having kids. There are strong opinions across the board.  (Shocking, I know.)

Like most of the decisions we make as adults, there is a cost component to deciding to start a family. However, unlike other decisions, I do not believe cost should be the primary factor in this decision-making process. If you have a strong desire to have children, you are probably going to do that.  If you really are not excited by the idea, there is nothing wrong with making the decision to not have kids.

As a Father of three, I am biased.  I love my family and I absolutely love being a Dad.  It is also the hardest job I’ve ever had.  I make mistakes every day, and everyday I resolve to do better the next day!  The one thing that is certain is that I make mistakes every day.   If you don’t believe me just ask my kids!

How Do We Manage The Expense Of Having Children?

But I digress.  Kids cost money.  The financial aspects of parenthood are both direct (diapers, food, medical care, education particularly college tuition) and indirect (will I negatively impact my career if I have children?).  But like most things in life, the cost of having children can be managed according to your lifestyle.

The starting point for most big financial decisions is to ensure that we understand what we are spending our money on today.  If the answer is not intuitive, you should spend a little time working through that. Whether you create a formal budget or a basic, back-of-the-napkin review, it is important to be honest with yourself on exactly how you spend your income each month.  Are you a saver or a spender?  Does it seem that some of your income seems to disappear each month? There are plenty of budgeting tools that make it easy to track this on your phone, so we no longer have the excuse that it is hard.

Until we know where we stand today, how can we determine our path forward?

Some of our beliefs may just be assumptions.  Some folks believe that having children requires getting a bigger home to raise them in.  That might be ideal, be not required.  Some of the happiest people I’ve ever known were big families living in small homes or apartments.  My parents raised a family of five children in a very small home in New York City. It can be done,  and it may even result in a closer, tighter-knit family.

Other beliefs are facts. College tuition is out of control! And it is not just private, for-profit schools that are expensive.  According to BestColleges.com, the cost of tuition and fees at public four-year institutions rose by 70% between 2000 and 2021.  Consumer Price Index data for the period from 1990 to 2020 shows that the cost of college tuition and fees has increased at a rate that is more than double the rate of inflation, 5.5% per year as opposed to 2.4% per year.   The mitigating factor on the cost of college is that you have 18 years to prepare for that expense. The best advice I can give is to start as early as possible!  With each of my kids I opened 529 Plan accounts to start saving for college at or before they were born.  With 529 Plans, you can establish the account with your name as owner AND beneficiary and then change the beneficiary to your child when they are born.  Having a long runway helps if you get started early!

Child Expense Tax Credit

Did you know that some of the cost of raising children is tax deductible?  One of the most significant tax benefits available to young families is the Child and Dependent Care Credit, otherwise known as the Child Tax Credit.  The credit is calculated based on your income and a percentage of expenses that you incur for the care of your children, to enable you to go to work, look for work, or attend school.   In 2021, the American Rescue Plan Act made the credit substantially more generous: up to $4,000 for one qualifying person (your child), and up to $8,000 for two or more.  It is also now potentially refundable, so you might not have to owe taxes to claim the credit.

These expense deductions can include the cost of preschool and daycare (if both parents are working this is a big one!), after school programs and summer day camps.  Qualifying adoption expenses may also be eligible for a tax credit.

Some of the most significant deductions can include certain medical expenses, like doctor’s visits, prescription medications, and medical procedures.  These expenses may qualify for itemized deductions if they exceed a certain percentage of the parent’s adjusted gross income (AGI).  Parents can also include the premiums that they pay for health insurance for their kids as deductible medical expenses.

There is so much that happens when you have your first child!  Like the saying goes, “life comes at you fast.”  If you are thinking about it, or already know what you want to do, please take a little time and do a bit of research.  Its important for all new parents to understand which expenses are tax deductible, and keep records throughout the year to maximize their tax savings and get the most out of the child expense tax credit! Particularly in the first few years.  While the cost of raising children can sometimes be daunting it is important to remember that we have options that can help.  See the IRS website for more details.

Cost vs. Lifestyle

Ask yourself the question, is it the cost of children that worries you most, or the fear that you will be required to change your lifestyle?  For me, I was simply terrified at the thought of bringing a new life into the world!  Certainly, there are lifestyle changes when kids come along. Having your first child is always a significant event that brings stress with it.  I suspect that for a lot of people it is some of the everyday issues that take some getting used to.  Yes, you may have to get a babysitter if you want to go out somewhere nice with your partner.  But I found that I had worried about a lot of things that didn’t turn out to be problems. My wife and I love to travel, so we just continued traveling when our kids came along.  In fact, my wife and I started flying with our kids when they were only a few months old.

There are many social media influencers that show us we can have children and maintain the lifestyle we had before becoming parents.  Travel, sure. Active lifestyle, no problem. Things may change a bit but that does not mean the change is bad. Perhaps these changes actually enhance the lifestyle you had before, instead of having a negative impact.  There is a cost to most things we do in life, but that doesn’t stop us from moving forward.  Our lifestyle should be made up of amazing experiences.  Certainly, those experiences will change and evolve over time. We all learn and grow.  I am not the person I was 10 years ago, or 20 years ago. But I know that my lifestyle has continued to improve with the passage of time.  Our experiences help us to define who we are.  And that is true whether we have kids.   If you are worried that having a child could negatively impact your lifestyle that may just mean you are not quite ready for parenthood.

It is important to do a bit of research and have a good understanding of the pros and cons of any big decision.  When thinking about starting a family, it also makes sense to do some research to separate assumptions from facts, but ultimately it comes down to what is in your heart, not what is in your wallet. For more information about the realistic cost of having kids, you can check out this handy free guide designed to help parents prepare for the costs of their growing families.  Children change our lives in the most amazing ways!  How can you put a price on that?

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Disclosures

This content is intended solely for providing information and should not be interpreted as financial, legal, or tax counsel. It is strongly advised that you seek guidance from your personal financial, legal, and tax consultants before participating in any financial transaction. Please be aware that the information, including hypothetical financial forecasts, might not account for taxes, fees, or other variables that could significantly influence potential results. This material is not to be regarded as an offer or suggestion to purchase or sell securities. While we believe that the information and sources are accurate, Marygold & Co. cannot assure the accuracy or comprehensiveness of the information and sources provided here, and we are not obligated to update this information. For further details about Marygold & Co., please visit our website.

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