On CBS, Karl discussed with Sharon Ko how much it really costs to raise a child. The number may shock you. Karl gives some practical tips on how to pay for those important expenses.
Sharon Ko: This morning, let’s talk budgeting for a baby. There’s the joy of parenthood, but having a child can quickly turn into a financial nightmare. Here’s some tips to get you money-smart for a kid.
Karl, as I was reading this article, I almost dropped my phone. I couldn’t believe $233,000 on average for a middle-income family to raise one child, birth-
Karl Eggerss: So you don’t want to have six kids, is that what you’re saying?
Sharon Ko: I’m going to stick to my Chihuahua.
Karl Eggerss: Okay.
Sharon Ko: From birth to 18.
Karl Eggerss: Right.
Sharon Ko: So can you break down the cost for us? How does that number even get that high?
Karl Eggerss: Yeah, it’s an astronomical number. We probably have a smaller population than most people who heard that stat.
I think if you think about having to have a bigger house, a lot of folks that end up having a baby, that’s where they kind of moved from an apartment to a house. So that’s a cost. More food, especially teenagers. I have two teenagers, a lot more food. Clothing, extracurricular activities. And we’re not even talking about college. Most state universities are at least $100,000 for a four-year degree. And those are things that I think parents need to start thinking about before they’re parents.
If you really are intent on having a family, don’t wait until the child’s born before you start saving. You can start saving for that child well in advance of even having a baby, and there’s a lot of creative ways to do that.
I also think having a comprehensive plan, and there’s a lot of apps and software out there nowadays, more than ever, to help you with a budget. And oftentimes, after people look at a month’s worth of expenses or three months, you start to see and go, “I didn’t realize we were eating out that much. I don’t necessarily need that latte every single morning.” And you can begin prioritizing. You can maybe skip… Well, some people can’t skip their coffee, but you may skip the expensive coffee so that you may be able to take a trip with your family. And really, it’s about controlling where those dollars are going. There’s only so much coming in. It’s about saving and about budgeting.
Sharon Ko: What about couples who already have children? Are there any tax credits?
Karl Eggerss: There are. The tax credits gotten much more favorable a couple of years ago when we had the new tax plan that rolled out. And so people used to be fairly limited on income to get child tax credits, the income’s much higher now, which means more people have the child tax credit available to them that maybe didn’t think they did previously. So make sure if you do your own taxes that you do check that because you may be leaving some money on the table if you don’t claim those credits. And remember, the difference between a tax deduction and a tax credit is pretty big. A tax credit is dollar for dollar. So if you get a $2,000 tax credit, that’s literally $2,000 you get back at the end of the year. A deduction depends on what tax bracket you’re in. If you get a $2,000 deduction, they are only dollars you’re really getting back or what income tax bracket you’re in based on that 2,000. So if you’re in a 10% bracket, you’re going to get $200 back. So a credit is much more valuable than a deduction.
Sharon Ko: Do you think thinking about life insurance is too early? I mean, is it or is it never too early to think about that?
Karl Eggerss: I don’t think it’s ever too early. I think you have to assess the situation. If you have a one income household, obviously if that primary income, something were to happen to that person, that’s why they need to have insurance on that person because that income is gone. It magnifies when you have kids. The younger you are, the more healthy you are, the more insurance and the cheaper it’s going to be. So absolutely plan for that. And insurance has gotten a lot cheaper over the years and you can go online to do it. A lot of folks have too much insurance because they’re sold insurance. Be very careful about where and how you get your insurance because it’s pretty easy to figure out what you need and it’s pretty easy to get nowadays as well. It’s a very competitive world, which is great for our viewers.
Sharon Ko: Thanks so much Karl Eggerss for those great tips.