When a new baby arrives, it’s easy to become so caught up in diapers, nap schedules and sleepless nights that taking time out to consider the expenses your family will face as that child gets older can seem like a relatively low priority.
It’s not: According to the U.S. Department of Agriculture, nearly 20 percent of money spent raising a child in America ultimately goes toward childcare and education. And the best way to ensure you are in the strongest possible position to help your children take advantage of every opportunity available to them — not to mention keep your own personal financial and retirement goals on track — is to begin planning as early as possible, whether it’s for daycare in a few months or college in 18 years.
Here are a few tips on how to navigate these sometimes hidden costs of parenting.
Daycare and Preschool
Cost: $5,000-$17,000, per year per child
For many working families, daycare is a necessity — you need to make sure your children are safe and cared for while you are out at work. But even families in which one parent doesn’t work may choose to send their child to some early childhood programs for both socialization and education. Whatever your situation, the cost of quality childcare during the pre-primary years takes many parents by surprise.
Tip: Start saving as soon as possible to lessen the monthly burden on your budget. Though there is a modest federal tax credit available for daycare costs — 35 percent of qualifying expenses paid out in a year ranging from $3,000 for one child or dependent up to $6,000 for two or more children or dependents — there aren’t many other options to pay for such care, especially early on. Once your child starts school, you may be eligible for other benefits to help offset these costs. Ask if your company offers a dependent-care flexible spending account (FSA), which would allow you to pay for up to $5,000 of care with pre-tax money. Be aware: If you go the FSA route you cannot then also claim those expenses for the federal tax credit. Speak with a financial advisor to help determine which choice is best for you.
Cost: $8,000-$40,000 per year
The decision to send a child to private school may reflect family history, personal values or a belief in the quality of education provided. Whatever the reason, it’s not an inexpensive choice. And, while K-12 tuition tax credits vary state by state, there is no federal equivalent.
Tip: If you choose to send your child to private school, it may also make sense to move somewhere with lower property taxes, since you’ll have to pay them even if your child doesn’t attend public school. Once you’ve selected a school, ask whether there are any financial aid or private scholarship opportunities, which can help offset the price of tuition.
If your adjusted gross income is less than $110,000 ($220,000 if married filing jointly), you may be eligible to cover some of these expenses via a Coverdell Education Savings Account. While there are no tax deductions for contributions, you can contribute up to $2,000 per year, and the money grows tax-free. To make the most of the benefit, you’d want to let the money grow as long as possible by setting aside money for a young child’s high school education, for example.
Cost: $1,600-$6,000 for day camp; $2,000-$16,000 for sleepaway, per summer
Whether your child attends public or private school, the summers are going to be wide open. Summer camp is one way to both fill those months and provide your child a memorable experience.
Tip: You can use FSA dependent care pre-tax dollars to pay for day camp – but not sleepaway – if both parents are working. Just like private schools, some camps offer financial aid and scholarships, so ask whether there are any available. Also, lock in a spot early, since many camps will offer an early-bird discount for those who register and pay before the regular enrollment season.
Cost: Varies widely depending on activity
Many parents want to encourage their children’s interests and expose them to a wide variety of activities. However, the cost of lessons, clubs and sports can add up quickly.
Tip: Try out new activities before you commit. See whether there are lower-cost lessons available via your community center or schools before going the private route.
The cost of supplies for extracurriculars can be a hidden expense. Rent instruments or buy used equipment at first to gauge how enduring your child’s interest will be rather than splurging on pricey new gear at the outset.
Cost: $17,000-$48,000 per year
Higher education is the largest expense many parents will face — and the price tag only continues to climb. The upside is it’s also the one you have the most time to plan for — and the one your child can chip in towards as well.
Tip: Start funding a 529 plan now. The sooner you begin saving money for college, the longer it will have to grow tax-free. While there are no federal deductions for 529 contributions, some states do offer a tax benefit. Ask family and friends to contribute to the 529 plan in lieu of birthday or graduation gifts.
More than moneyRemember, as you plan ahead to meet these expenses, you aren’t simply sorting out a family household budget — you are providing an education in good money habits to your children and an example of what is possible when you save for the future. Those are lessons that they can carry with them and apply throughout their school years, and further into their own family and fiscal futures.