Why you should start saving for kids before you become a parent

When it comes to finally sitting down and setting and sticking to a budget, there are a lot of factors to consider, from how much you need for student loan repayment to whether or not you can afford the vacation of your dreams — and possibly, how much to put away for your future children. That’s right: Even if you don’t have kids now and are not even sure when you’ll take that step, if you’re fairly certain you want to be a parent at some point, it may be worth it to start saving up now. Here’s why:

The cost of raising kids is high — and on the rise.

According to the United States Department of Agriculture’s (USDA) most recent Expenditures on Children and Family report, the average cost of raising a child from birth through age 17 is $233,610 for a middle income family — a 3 percent increase from the prior report. Considering that hefty sum (which doesn’t include college costs), “it’s never too early to start saving,” said Alexa von Tobel, founder of LearnVest and Inspired Capital and author of the forthcoming Financially Forward. “I advise people to include saving for children as part of their overall financial plan, just as you would save for retirement.”

And while you may have a plan in mind for when you’ll have kids, it’s possible you could end up becoming a parent sooner than expected — so the more time you have to prepare financially, the better. “People often don’t give themselves enough time to save for children,” von Tobel said. “I always give the example of when I looked over at my firstborn Toby one day when she was a toddler and she was eating an entire carton of organic blueberries and thought, ‘Kids literally eat money.’ You have to plan and budget for children.”

Being prepared can help prevent unmanageable stress

While you don’t need the full $233,610 saved up by the day your kid is born, beginning to build those savings once you’re already in the midst of a major life change is bound to cause undue stress — especially when combined with everything else on your plate. “I find that many people in their 30s and 40s are completely overwhelmed with their financial responsibilities, from mortgages to children,” von Tobel said. “On top of that, there is a swift decline in the rate of their income growth — so many are experiencing more responsibilities with fewer or equal dollars to go around. ...One way to think about this is the added financial burden of going from a ‘DINK’ household (dual-income, no kids) to having children. You are suddenly juggling...college saving plans alongside your own retirement. It can be challenging, but that is where I believe financial planning can be an effective tool.”

If you’re not sure where to start, Tony Steuer, author of the financial preparedness book Get Ready!, recommended starting by considering how many kids you think you might have, and then thinking about factors like education (“Are you planning to send your child to private schools or public schools?”) and healthcare (do you have comprehensive insurance that would cover your dependents?) to get an idea of how much you want to save. You can also use the USDA’s Cost of Raising a Child Calculator to get an estimate.

If you follow the 50/30/20 rule for your budgeting (50 percent for necessities, 30 percent for wants, and 20 percent for savings), von Tobel noted that saving for potential future children would fall within the “savings” category.

You may need more than the average cost estimate

Of course, the $233,610 figure is an average — that number is less for low-income families and families in rural areas, and higher for high-income families and families in many urban areas, according to the USDA. But even beyond the potential increase based on your income and where you live, you may run into other significant costs — starting with before you actually become a parent. “Science has given us more ways to start families on our own terms than ever before,” von Tobel said. “As of 2015, more than seven million women in the U.S. have used infertility services like in vitro fertilization (IVF). …[These are] expensive and often unexpected expense[s].” Indeed, according to Self, a basic IVF cycle can cost around $12,000 — and that cost may not be covered by your medical insurance.

Once your children are born, you may need or want more money for medical expenses, travel or extracurricular activities. “Consider that athletics and camps can be very expensive,” Steuer said. “You’ll want to think about what you might be willing to pay for and what the costs are in your area. For example, a travel soccer club can run between $2,500 and $5,000 a season. We pay about $1,500 a year for our son to take Kung Fu classes.” While these may not be necessary expenses, starting a savings fund earlier may give you the flexibility to opt in to such activities.

It’s possible to set aside pre-tax dollars

If you are confident you’ll have kids in the future and would like to pay for at least some of their higher education, it’s possible to set aside pre-tax dollars for that express purpose with a 529 plan. “Because it’s an investment account, money you deposit will grow at about seven percent a year over the years you’ll be saving,” von Tobel said. “That means if you deposit just $200 a month when your child is 5 years old; by the time she heads to college, your money will have more than doubled and she’ll have about $500 a month to pick up everything he or she needs.” That money can be withdrawn and used for qualified higher education expenses, including tuition, room and board, books and computers.

If you withdraw the funds for other uses, you’ll have to pay taxes on the money in addition to a 10 percent penalty on the interest earnings (with some exceptions, such as death or disability, or if your child receives a scholarship) — so think carefully about the likelihood that you’ll use those savings for higher education before going this route. If you want to play it safer, Steuer recommended setting up an investment brokerage account instead, while making sure to keep money you may need in the next couple years liquid. “Even if you are fairly certain that kids are in your future, life has a habit of getting in the way of plan,” he said.

Saving money makes money

Setting money aside for your kids now means that when it’s time to access it, you’ll have more — all thanks to compound interest, which essentially means your interest earns interest. “It’s never too early to start planning due to the compounding of money,” Steuer said. “The longer your savings has to grow, the more it will grow.”

And if you ultimately don’t end up having kids, that money certainly won’t go to waste. In that case, “you’ll have extra money saved up other purposes, such as early retirement,” Steuer said. “Or if you are fortunate enough to have saved sufficiently for retirement, you can enjoy traveling, donating to charity or whatever else you enjoy in life.”

That said, Steuer noted that, while it’s beneficial to start saving for your future children now, it’s also important to “consider it in the context of [your] overall financial plan.” He added, “in other words, [do] not go overboard on saving for college at the detriment of saving for retirement.”