A Financial Counselor Answers Your Questions About Saving and Budgeting

Every parent wants the best for their baby, starting with picking the right stroller or car seat before they arrive, to helping them prepare for their first job. In some cases, you may be setting aside money for the things they want and need in order to be safe and happy now—in others, you may be saving funds on their behalf, to put towards future costs like education. We asked Babylist parents to submit all their questions about budgeting and financial planning for their little one, and they covered a lot of ground. Many parents wanted to know how to even get started. Should you be putting money in a savings account for baby, or is there a better way to approach helping them grow a nest egg from day one? How do you budget for all the costs that a baby comes with, including childcare, food and all the items you need to care for a baby? And how do you budget for a second (or third!) child, anyway?

Lauren Stewart, an accredited financial counselor, answers all these questions and more below.

Savings and Planning

What are the most important items to do to set up my child financially early on? When can I first put my child on the financial map?

The desire to set our children up financially from an early age is something many parents consider. Why wouldn’t you want to give your child a boost? Luckily, there are many ways to give them that financial head start in life.

Setting up a savings account for your child is a fantastic first step to begin building a financial nest egg for their child. This could also open up some financial benefits later on for your child because they’ll have an established banking history. Some benefits may include access to lower financing rates or increased savings yields. If you’re looking further into the future, you can even open up a custodial Individual Retirement Account (IRA) for your child at any age to start saving for when they may retire. However, this money most likely won’t be accessible without paying a penalty, so consider saving some money where it is readily available to withdraw also.

When you’re ready for your child to start accessing money on their own, consider opening a checking account for them. Some banking institutions may have age limits for a minor to have a checking account. Some banks have incredible parental controls for checking accounts for minors like limits on daily spending and cash withdrawals.

In most cases, individuals begin their credit journey at the age of 18, but it can start earlier for your child if you’d like. The easiest way to start your child’s credit history is by adding them as an authorized user to your credit card account. The age you can do this varies by credit card company. Your child will start building a positive credit history as you make payments. How cool is that!? Because your child has full access to the credit limit, it’s wise to have some serious discussions about financial discipline and expectations before taking this step.

What are different ways to save for the future? What types of accounts work best? Looking for a savings plan for my child, fun times, emergencies and retirement. I want to be prepared and don’t know where to look.

There are a variety of savings options that can meet whatever your personal financial goals are for your family. Whether it’s saving for a child’s future or retirement for yourself, here are some things to consider and different financial products your bank may have to help meet your goals.

• For your child: A traditional savings account is great, but the average interest you earn on a savings account in the US is 0.23 percent APY. That means if you have $1,000 in the account for an entire year, you’ll earn $2.30. Instead, look for a high-yield savings account (HYSA) or money marketing account (MMA) to generate more interest earned on your savings. HYSAs are more common at online only banks but can be worth housing your savings to get that extra cash.
• For fun times and emergencies: Ideally, money for emergencies is easily accessible, so you may want to avoid investing money you may want for emergencies. In fact, you can use the same three options above for these two situations. HYSAs generally have the same withdrawal limits as traditional savings accounts, and MMAs can be in the form of checking or savings accounts for easy access to your money.
• For retirement: Anyone can open an IRA. In 2023, you can contribute up to $6,500 into IRAs to earn interest and withdraw at retirement age. You can even open a custodial IRA for your child and start contributing for their retirement. Before you open an IRA for your child, make sure to read about 529 plans and how they can be converted to a Roth IRA in the future.

For certain accounts like 529 plans and IRAs, ask if your bank or credit union has a financial advisor you can meet with to discuss investment options.

How do I prioritize where money goes? I have lots of financial needs, including paying down mortgage,car, investments, 529, 401k, IRA, cash, etc. It’s difficult to figure out if it’s more important to save for my baby’s future or mine.

Before you can prioritize where money goes, create a spending plan that includes all your income, expenses and debt payments to determine what your financial surplus is each month or year. Next, you can create SMART goals. SMART goals are accountability-based goals that are specific, measurable, achievable, relevant and time-bound. Here is an example of a “regular goal” and a SMART goal:

• Save money to give my child a car when they turn 16
• Save $1,000 per year in a HYSA to give my child in 15 years when they are 16 to buy a new car

Once you’ve established what your financial goals are and understand your budget, you can prioritize them. You determine which factor is more important over another. For example, if time is most important and you hope to retire before your child attends college, you might consider saving for your retirement more aggressively than building a college fund.

Next, you will decide what types of accounts or financial products will work best and begin achieving those goals. This is another time a financial advisor can step in to help you decide where your money will work the most for you and your family.

Can you explain the difference between a UGMA vs. UTMA?

Uniform Gifts to Minors (UGMA) and Uniform Transfer to Minors (UTMA) accounts are another type of custodial account that parents can open for their children. One popular reason to open such an account is to save for college expenses. What makes these accounts different from 529 plans, trusts and other ESAs is the assets in them belong to the child that is the beneficiary. Additionally, the assets can be gifted and transferred by parents but are irrevocable. Depending on the state you reside in and account type, the age of majority, or when your child will have access to all of the assets, can be anywhere from 18 to 25. The plus side of an UGMA/UTMAs is they are relatively easy to set up compared to establishing a trust. Some drawbacks to these accounts, especially if saving for college, are possible taxation on earnings/gifts, no tax advantage when contributing, greater impact on financial aid eligibility because it is reported as the child’s asset and your child can do anything with the assets once they’ve reached that age of majority.

Family Budget

How much should I budget for each year for my baby?

Believe it or not, there’s quite a bit of research out there on how much it costs on average to raise a child. On average, you can anticipate spending anywhere from $10,000 to $15,000 per year on your child. That estimate does not include childcare or education, so be sure to look at what options cost in your area and add that. To get a more specific budget for your child, here are three big needs to consider:

• Feeding: Will you be breastfeeding or bottle feeding your child? If breastfeeding, you’ll save on food from the grocery store but still may want to consider other items like storage bags, bottles and a pump. If you choose to formula feed at all, you can calculate use the cost of your preferred formula to calculate how many cans you’ll need to keep your baby fed. Additionally, as your baby gets older, you’ll introduce solid foods at some point. The USDA Food Plans reports monthly what various grocery budgets are for individuals, including young children. According to their January 2023 report, children that are age one can contribute approximately $175 per month toward a moderate-cost food plan.
• Diapers/wipes: Whether you’re using disposable diapers or cloth diapers, babies go through a lot of diapers! But just how many diapers do they need? Based on how quickly babies generally grow, you can determine how many of each size you want to stockpile before your baby is even born. Diapers and wipes are great items to add to your registry so they can impact your monthly budget less once they arrive. Better yet, you can exchange unopened boxes for a different size most of the time so you don’t have to worry about getting too many of a certain size.
• Clothes: With all the research on baby growth, it’s difficult to know how quickly your baby will grow and how new clothes will fit into your budget. Some basic budgeting can help determine how much to set aside each month. For example, assume your baby will be in size 0-3 clothes for an entire three months and you’re comfortable having 15 outfits. If each outfit in your preferred brand costs $20, that’s $300 total and approximately $100 each month you can set aside to buy new clothes as your child grows or in anticipation of a change in size. Before you put “$100” on your budget sheet, consider all the amounts and types of clothes you might want to have for your baby.

Single mom of 3 under 5; I struggle with budgeting groceries, clearing debt, and setting aside money for extracurricular expenses (my five-year-old has expressed interest in soccer). Any advice?

Build a family spending plan, and work in extracurricular activities. Income - expenses = surplus or deficit. Surplus can be used to fund activities or save more. Deficit means you need to focus on cutting costs and paying down debts if applicable. Visit with a financial counselor or use a budget planning app to create a spending plan and re-evaluate each month to see what’s working. A good spending plan should relieve stress, not create more.

How to Budget for a Second Child (or Additional Children)

We have a toddler, who we just enrolled in a daycare/preschool. We really want another baby to complete our family. How in the world can we budget for another child in daycare? This expense is already making things a little tight. I hate the idea that finances would prevent me from experiencing pregnancy and another addition to our family. Any advice, tips, tricks we may not have considered?

Childcare is one of the most, if not the most, expensive child expenses. There are several options and the expense can vary greatly depending what you choose. First, break down how much you park for childcare per hour so you know what the number to best is when researching other options. Get a quote for infant care to include. Be sure to consider the total time your child is being cared for, not just how many hours you work. For example, if you work 40 hours a week, but your children spend 45-50 hours a week at their childcare center, what you spend per hour will be lower.

Here are some other childcare options to consider that might work better for your budget if you plan to have another child:

• Part-time care: Full-time childcare is probably ideal for most situations with two working parents, but part-time childcare may be more affordable. If one parent works from home or has a shift outside the regular 9-5, this might work for your family! Reduced hours at a childcare center or with a nanny generally means a lower childcare bill each week or month. Before a work-from-home parent takes on childcare too, make sure your employer allows it. You don’t want to risk losing that valuable income when you’re trying to save money.
• In-home nanny: Depending on how many children you have, an in-home nanny may be more affordable than paying childcare tuition for each child. This option might also mean your child could get more attention from the caregiver than is available in a childcare center setting. You might even find someone who can help with household chores while kids are napping if you’re lucky. If you’re interested in introducing your family to another culture, research options for hosting an au pair in your home.
• Nanny share: Do you live in a neighborhood with multiple children near the same age? Does talk among the parents consistently mention the cost of childcare? You should consider teaming up with other parents for a nanny-share! This generally is multiple families employing a single nanny to care for children in one or rotating homes.
• State benefits: Your income level might make you eligible for some state benefits to help pay for childcare. These types of benefits can help offset the full cost of childcare or completely pay for it in some cases.

What are some hidden costs and savings one should consider when thinking about adding another child to their family? Are the costs actually double?

If only it were free to have more children after being that first baby into the world. Having another baby doesn’t necessarily mean child costs will double though!

Some savings you can experience are reusing clothes for your next child, especially if they’re in good condition. Also, if you breastfeed the new baby, you’ll have time between food costs increasing for your family. Even if you choose another type of feeding, you can likely reuse bottles from previous children to avoid purchasing all new ones. There are other items that can be used again such as toys, blankets, books and maybe even furniture.

Despite the savings you might not have considered, there will still be some additional expenses. One example is if one child is still using the crib, you’ll at least need to get a second crib for the new baby or a larger bed for the older child. Depending on your insurance plan, adding a new family member may increase your premiums in addition to needing to pay for those frequent early childhood doctor appointments. Another item you may need to buy new is a car seat. Believe it or not, there is an expiration date for car seats set by the manufacturer, so before you reuse one you already have, make sure it’s still safe to use.

With any new baby, you’ll more than likely get new items. The best way to curb those costs is to remember that just because something is new to you doesn’t mean it has to be brand new. Check out groups on social media and your own social circle for secondhand items that cost less than buying new.

How do I save for quintuplets?

• Side gigs for extra cash
• Decrease expenses temporarily, streaming services, travel if possible, anything that’s not a necessity
• Apply for WIC
• Utilize secondhand/free options for items
• Buy in bulk when possible
• Make and share a registry with must-haves

Childcare Costs

With ever increasing childcare costs, when is it worthwhile to have one parent stay home?

With the rising cost of childcare, it’s reasonable to consider having one parent stay home with your child(ren) rather than continuing to be a two-income household. In a survey done by Stanford University in February 2022, almost 40 percent of women reported they had started working reduced hours or stopped working altogether. It’s absolutely becoming more common for parents to choose to stay at home with their children, and here are some ways to tell if it’s time for your family to consider this.

One telltale sign that one parent should probably start staying home with younger family members is if the cost of childcare exceeds the income of one parent. Some experts will say if the cost of childcare is above 7-15 percent of the overall household income then that’s cause for a parent to provide childcare for their family. Depending on where you live, that may be doable or seem like a dream to afford.

Another perspective will have families consider their cash flow. Even if most of a second income is used to afford childcare, will losing it create a larger financial gap to afford other necessities? Children need their parents, and they also need food, heat, shelter and other crucial things your income is providing them. Rather than sacrificing the important income, look for ways to increase your income or decrease other expenses, even childcare if possible. This could be the motivation you need to finally ask for that raise at work or apply for jobs that pay more.

On average, how much should a family spend on childcare per month?

Even though various experts cap childcare expenses between 7-15 percent of your household’s income, more recent research has found that actual childcare costs are as high as 30 percent. That’s a huge chunk of any monthly budget! In dollars, the national average cost of childcare is between $10,400 and $10,800 per child annually. However, there are several factors other than the financial aspect when determining if the amount you pay for childcare is “worth it.”

• Are meals provided for your child(ren)? This can lower your overall monthly grocery expenses and give back time for preparing food for them to take each day.
• Is the childcare center’s program educational? Your toddler might be ahead of the curve when they begin school thanks to childcare at an early age.
• How much time is the family spending together? If the location of the childcare has an impact on time together, it might also be contributing to higher transportation costs.
• Is your child happy? Despite the phases children go through with separation, be conscientious of whether your child’s well-being appears positive when they are dropped off or picked up each day.

That’s only a sample of other factors to determine whether the amount a family should spend on childcare is worth it. If you determine that the cost is not worth it, the answer may be to find another childcare center before you opt to become a stay-at-home parent.