Raising your $290,000 Baby part 1

Raising your $290,000 baby
Children are priceless, but raising them is one of the most expensive things you'll ever do. Here's how much it costs, along with some strategies for lowering expenses.
By MSN Money staff
Every newborn child is a bundle of joy. But you'd better have a bundle of cash on hand if you want to raise one.
Families making more than $74,900 a year will spend a whopping $289,380 to raise a second child born in 2006 through age 17, estimates the Center for Nutrition Policy and Promotion, a division of the U.S. Department of Agriculture. Higher-income families in urban areas in the West will spend the most, $304,740.
Though not as steep, the figures for lower-income families are just as unsettling: $197,700 for families earning $44,500 to $74,900 and $143,790 for families making less than that. That breaks down to nearly $15,800 a year from birth to age 2 for families in the $74,900-plus income bracket. This is no back-of-the-envelope guesstimate. The survey involves interviews with about 5,000 households, four times a year.
Talk back: Add it up . . . how much will you spend on your children this year?
The cost per child goes down for larger families. A child with no siblings costs 24% more than one with a sibling, for example. As a percentage of household expenditures, an average couple will spend 26% on an only child, 42% on two children and 48% on three children. As the child ages, costs rise through age 5, fall slightly between ages 6 and 11, and then top out at $16,970 a year from ages 15 to 17.
How much will your family spend?*
Income/ age
Total
Housing
Food
Trans.
Clothes
Health
Care/ school
Misc.
*Estimates of expenditures on the younger child in a two-child, two-parent family. To estimate expenses for an only child, multiply the figure by 1.24. To estimate expenses for each of three children, multiply by 0.77.
Sobering? No doubt. Misleading? Yes. The study doesn't take into account certain expenses incurred by some families, such as heavy medical bills or pricey private schools. It's a composite average, and, by definition, that means your numbers will be a little (possibly a lot) higher or lower. And because the survey ends at age 17, it doesn't take into account the millions of college students who are supported in part or in full by their parents. In 2020, you'll need nearly $225,000 for a private college or $105,000 for an in-state public university. (Run the numbers with our tuition calculator.)
The study also doesn't consider lost income that occurs when one parent stops working or takes off several years to raise the children during the early years -- or takes a lesser-paying job with more-predictable hours.
Before you take a vow of celibacy, look on the bright side: There are ways to trim the expenses.
The study breaks down overall expenditures into various categories and subsections. (The information is used by state agencies and court systems to determine child-support guidelines and foster-care payments, among other things.) We'll go through each of the major categories, give the total expense for families from the low to high ends, and then offer cost-cutting ideas and some tax tips from our tax expert, Jeff Schnepper.
Housing Cost through age 17: $47,820 to $107,340
Housing is the single biggest expense of raising children, comprising 33% to 37% of the overall annual expense.
What you can do
You could ignore one of the basic assumptions used in calculating additional housing costs. You could decide not to move into a larger home. The table assumes that for each child you have, you're going to add 100 to 150 square feet of living space to your home. By definition, that means you're going to either renovate your existing house or buy a new one. Go against the flow and figure out how to use the space you've got.
For many families, that solution won't get it done. Try this: If you've had your mortgage for a while and plan to stay in your home, keep track of mortgage rates and consider refinancing when the rate is more than a percentage point below your current mortgage. It can save hundreds to thousands of dollars on the loan. You can get an idea about current rates and offers at MSN Money's Mortgage & Refinance page.
Challenge your property tax bill if you think it's too high. (See "Are you paying too much in property tax?") The National Taxpayers Union estimates that as much as 60% of taxable property in the United States is over-assessed.
Additionally, make your home as energy efficient as you can. That means everything from replacing old and inefficient furnaces and water heaters to bolstering insulation.
Finally, give some thought to moving to a less-expensive place to live. That could mean a smaller house across town -- or in a completely different part of the country. What with median home prices in some areas topping $600,000, look into parts of the country where housing prices (and property taxes) may be a bit more manageable. Realtor.org regularly releases statistics on existing-home sales by state.
Tax tips
Make as much as possible of your housing costs tax-deductible. Interest and real-estate taxes are deductible. Use your home equity to finance other expenditures. The interest on debt of up to $100,000 secured by the equity in your house is tax deductible. It doesn't matter what you use the money for.
Consider a home office. Now, you can qualify for a home office even if you do only managerial duties or simple record-keeping there. Prior to 1999, it had to be where you actually performed the activities of your job.
If you have a home office, you can deduct the percentage you use for business of all your housing costs. These include interest, taxes, insurance, utilities, landscaping, depreciation and the cost of any furniture or equipment you use in your home office. For more about claiming those deductions, see "The tax traps of working at home."
Food Cost through age 17: $27,750 to $41,490
This accounts for 14% to 19% of the overall expense (families at lower incomes spend a higher percentage on food).

What you can do
Set strict limits on the more discretionary forms of food spending. For example, tell your children they can spend no more than $7 a week on fast food. That alone may save a couple hundred of dollars a year.
Use the Web to shop for bargains.
There are -- literally -- thousands of shopping-related Web sites, and many of them now allow you to compare costs among similar items. Here's a simple trick that really works: When you're searching for a specific item, go to one of the search engines and type in that item and the word "discount." You'll be amazed at what you'll find. Or, you can go to extremes like the "Web's best shoppers" do.
Consider joining a warehouse club such as Costco, BJ's or Sam's Club. They're not suited to everyday shopping, but they let you stock up on certain items in quantity, often at substantial savings. Look to these places for items such as soda, canned and dried goods, and other sorts of nonperishables. If you lack adequate storage space, divide your bulk goodies among neighbors and friends.
Wholesale food services, which sell meat, noodles, fish and other groceries in bulk, will deliver to your door. Not only can you plan meals well in advance, but shoppers also can save close to 50% off conventional grocery store prices, although you still have to go to the store to buy fruits, vegetables and other items.
For other tips on supermarket savings, see "Take a big bite out of grocery bills."
Tax tips
If you're self-employed, you can deduct 50% of your meals and entertainment, if business related. If your children refer clients or customers to you, you can deduct the cost of taking them to a restaurant if business is discussed.
If self-employed, you also can deduct the cost of food for a business party. Make a separate shopping trip and keep records of your business guests and the business discussed.
If your children are old enough to work for you and are required to be on the business premises and available for work during lunch, then the cost of that lunch (if available to all employees) is deductible to you and tax-free to your children! Again, proper record-keeping is paramount here, as is the rule of reason.