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Sunday, August 4, 2013
WASHINGTON — From the cradle to college, there are a lot of financial issues that people need help with when it comes to their children or grandchildren. Here is my answer to a question about raising and educating children from a recent online discussion:
Q: My husband and I are 30, both steadily employed, and we bought our first home last year. Our incomes are a combined $150,000 a year. We have $15,000 in an emergency/life happens fund, another $37,000 in savings, and about $100,000 total in various 401(k) (retirement plan) and TSP (federal Thrift Savings Plan) accounts. I have about $11,000 in student loan debt, but it’s only at 1.625 percent interest, and we pay an extra $200 in principal toward our mortgage each month (30-year fixed at 3.75 percent). We’re normally able to save about $1,000 a month, more or less. We’d like to start a family now. In the Washington, D.C., area, what’s a good amount to save for a baby fund? What kinds of expenses should be included in our calculations?
I can think of the obvious ones, like medical costs and loss of income during maternity leave, but are we supposed to be factoring expenses like day care in there?
A: You are doing one of the best things for your baby by managing your money well. But I’d like to throw this in before addressing the baby expenses.
I have a pet peeve when people put the word “only” in front of the percentage rate on the debt they owe. Although the interest rate on the education debt is low, it’s still debt. Take $11,000 out of the emergency fund since you’ve got another pot of savings and pay off the student loan debt. Knock it out before you have the baby, freeing up that money in your monthly budget to go toward the increased expenses you will have.
If you both plan to continue working full time, put child care costs at the top of the list of new expenses. The percentage of family income spent on child care has stayed constant — about 7 percent — between 1986 (the first time data were collected) and 2011, according to a Census Bureau report on child care arrangements.
Families with an employed mother and children younger than 15 paid an average of $143 per week for child care in 2011.
Not including college costs, a middle-income family will spend $234,900 to raise a child born in 2011 to the age of 17, according to the Department of Agriculture. The USDA’s Center for Nutrition Policy and Promotion has a calculator on the cost of raising a child at www.cnpp.usda.gov/calculatorintro.htm.
In addition to child care costs, there is of course food, clothing, diapers and baby items such as a crib, stroller and the toys you will want to buy. But be careful about overspending on baby items. Talk to other parents who are past their baby years to find out what they spent and what you don’t have to buy. For tips on budgeting for your baby, check out babycenter.com, a pregnancy and parenting website. It has a calculator for first-year expenses (babycenter.com/baby-cost-calculator). Talking to their users, the site found moms said they spent about $10,000 the first year. The site also has a financial guide for new parents.
Michelle Singletary is a personal finance columnist for The Washington Post. Her column runs Sunday.
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