We see an awful lot of success stories of young couples who have buckled down, saved a good chunk of coin, and retired early. Some while raising children! They’re everywhere nowadays, it seems. Understanding the true cost of raising children is key for any young couple seeking the good ol’ red, white, and blue American Dream.
Some of these couples have made the choice not to have kids, or just have one, which can make the journey easier. But the choice whether or not to have kids isn’t as big of a factor as sensationalist news stories would have you believe.
Even if you have two or more kids, it IS still possible to retire early. There are the big things to account for: childcare costs (daycare, nannies, sitters), basic needs (food, shelter, clothing), activities (sports, drama club, camp), college tuition, and just maybe, weddings.
It’s all about how you approach the concept of raising kids that will decide how much of an impact they’ll have on your early retirement goals. Those sensationalized “news” articles are intended to scare you with ridiculous statistics about the cost of raising kids in America. Scare you into buying something from one of their advertisers to allay the pain. Brother…
Let’s pick apart the numbers
The total cost cited in the Huffington Post article linked above is a staggering $233,610. And that doesn’t even include the cost of college! WT, right?!? If you’re like me and have two kids, you’re all the sudden facing a tab of $467,220. And now I’m all the sudden feeling a bit queasy… This is my Rolaids Moment comin’ on…
Let’s start to feel better by examining the costs a bit deeper. First under the microscope is our good friend Housing. According to the U.S. Department of Agriculture, which compiles this figure on an annual basis, housing comprises 30% of the total cost.
But what if you’re not easily swayed by those pesky Jones’s next door, who’ve added on another 3,000 square feet to their 3,000 square foot home? What if you choose to make a modest 1,500 square foot starter home work, like 90% of Americans did up until the 80s?
In that case, we can reduce our $467,220 tab down to $327,054. That’s better. Rolaids are starting to kick in. Yep, we keep our two minions sharing a bedroom at age four. They’ll be sharing a bedroom up until age 10.
At around 11 or 12 we’ll put one of them in the finished basement, where I’ll have installed heated floors, and another egress window. Crazy how you can make a small house work, right?
Let’s now subtract the new Child Tax Credit
The new tax bill that recently passed isn’t without controversy. For the purpose of this post, let’s focus on just one facet of interest – the Child Tax Credit. It had been $1,000 per child. It’s now $1,600*. Not too shabby!
If we were to take that credit and invest it over the allowed 17 year period, how much money do you suppose you’ll have saved on your taxes during that stretch? Assuming a 7% inflation adjusted annual return, the yield is $98,688.70. I left in the 70 cents for effect. Pretty neat, huh?
Our new tally is $228,366. We can breathe a little easier now.
*Note: Since posting this, I learned the credit was actually DOUBLED to $2,000 per child in the final bill. And bonus, the income ceiling was doubled as well, so 99% of us can expect the credit in full.
Go make some babies, young people! But wait, before you go procreate, let’s see what else is lurking behind the numbers.
But what about child care? Daycares and nannies are so expensive!
We ran into this ourselves. I won’t be ready to retire until after the kids have started public school, but at least Mrs. Cubert’s work schedule allowed us to minimize child care hours to about 30 per week. The US Ag Department figures that child care will cost you $37,378 per child. Again, with two, that’s a pretty big figure of $74,756.
Thanks to the tax code, we should be able to reduce that figure down a bit. There’s the Dependent Care Credit, which allows you to claim up to 35% of the cost of child-care, up to a maximum of $3,000 for a single child under 13, or $6,000 for two or more children under 13.
There’s typically a five year window from birth to kindergarten, where most of the child care cost burden is felt. Assuming you’re like us and paying for 30 or more hours per week, you could save up to $2,100 per year. And knowing how stellar you are about making your hard earned dollars work for you, the invested returns of those savings would knock off an additional $12,076.
And by the way, there’s also the Earned Income Tax Credit, which for lower income families (couples earning less than $50K per year) allows access to even more credit – up to about $6,300 per year.
We chipped away a little here: $216,290.
A couple more biggies
Food and Transportation account for roughly equal parts of 33% of the $233,610 original “supposed” total cost to raise one kid. That’s a staggering $154,182 over those wonderful 18 years with two precious, adorable kids. (I love ’em, I really do!) But what is that figure telling us about how we choose to live?
When grandpa used to complain about walking to school through 2 foot snowdrifts, uphill, both ways, that’s not far off from the truth. We eventually got a busing service established, courtesy of property tax dollars. But still, how the FUCK do you wind up paying over $75K to get your kids from point A to point B?
Part of the problem is where we choose to live and the activities we choose to burden our kids with. We’ve made the conscious choice to live in a neighborhood with good enough schools that are within walking or biking distance. Select activities will be available to our kids, but will require pedal power to reach. Mom and Dad are not a taxi service.
If you ask around the office, you’ll hear about co-workers who live out in the boonies having to drive their boys to hockey practice and cross-state tournaments, ALL.THE.TIME. Sounds like a fun life. Not.
I’m going to go out on a limb and reduce the transportation costs by a full $75,000. Thanks, bikes and feet! I left a few hundred bucks in the mix to account for car seats and the marginal fuel of carrying an extra hundred pounds of human cargo.
New figure: $141,290.
As for food? The other $79K of the “biggies”?
Food can realistically be a bigger expense. You’ve got to feed them well. But there are some money-saving tips that not only will help your bottom line, they’ll help your kids grow up to be healthier, and fitter too.
We spend about $800 a month on food. This is before accounting for rewards money from our AMEX Blue Everyday and Citi Costco Visa cards — Two wallet-worthy credit cards that are quite generous with grocery points. After taking rewards redemption into account, our true monthly spend is about $690. Annually, that’s $8,280.
Assuming the kids eat about 50% of that total, we’re in for 16 years at a total of $66,240 in foodage. The USDA isn’t that far off from the Cubert household, though with some credit card tactics and a few other stealth moves* we’ve clipped off about $13,000 from the total.
*1.) No snacking – what the hell ever got into parents with the “snacking everywhere and the minivan” thing??? and 2.) 80% vegetarian household. Save big on the cost of meat.
Comin’ on down now to: $128,290.
This is a bit of a head-turner. 6% of the total cost goes to clothing thy children. $14,016 over 18 years. $800 per child per year. Wowie. I’d bet most of that is the cost of new shoes, as junior continues to shoot up like a weed.
Fortunately, many of us have parents and in-laws who are more than happy to help clothe their grandchildren during the first four or five years of utter cuteness.
We’ve been blessed with generous grandparents. For every other clothing need, we try to use consignment shops, or get hand-me-downs from good friends and neighbors.
As the kids grow up and move along into grade school, we’ll definitely concede to the need for fashionable duds. But that can still happen without frequent trips to the mall. I’m thinking eBay might have some sweet deals for kids (like it does for the old man!)
With this in mind, I’ll go out on another limb, and cut this $28,032 line item in half. Wish us luck once the girl reaches 14. 🙂
Tally: $114,274. Remember, for TWO kids.
Having kids and raises
I’m going to take one more haircut before we go further and wrap this up. Studies have shown that combined, working couples make roughly 2% more when they have kids. Sadly, Dad’s pay goes up, while Mom’s pay goes down. That needs to be fixed. The net of it is 2%, and we’ll use every penny of that money for this next part…
For now, we’ll assume our hypothetical power couple brings home $150,000 total, per year. A 2% raise is a decent bump of $3,000. After taxes, you just might put those dollars into a 529 account. If you do, your kids will be thankful for the $67,998 you set aside for their college education.
About those opportunity costs
Lastly, if you’re a reader who happens to be a parent, you might agree with this notion. When you have kids, you simply don’t do as much as you used to. The fun money can’t be spent for at least three to five years, maybe more.
Kids require a lot of attention and effort on our parts. You can’t just jet off to Paris for two weeks like you used to. Further, you’re less likely to join in on spontaneous happy hours and dining events on the town with your child-free friends.
In our case, travel spending got cut in half, from $6,000 to $3,000. Our weekly “dining out” allowance similarly got cut in half, from $200 (insane) to $100. Annually, we now save $8,200 simply because we’re either too exhausted, or we simply enjoy spending time with our family at home. Novel.
I’d expect as the kids get a little older we’ll travel more, and dining out will surely cost more as appetites grow substantially with age. With that in mind, I’ll take a small cut of that $8,200 – say, $3,000, multiple it by 18 years, and subtract that from our final total. Here’s where we land:
$60,274 for two kids. Over 18 years. Or, $30,137 per kid. A far cry from $233,610, no?