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Oct 31, 2017

Budgeting for Millennial Couples with Kids: A Simple Guide

By Jean Folger
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Every parent knows that raising a kid costs a lot of money. Parents can expect to spend about $233,610 on each child from day one through their 18th birthday – not including college costs – according to a recent report from the USDA. On average, parents spend just shy of $13,000 a year per child – about $36 a day – on housing, childcare and education, food, transportation, clothing, healthcare and other costs.

Of course, parents don’t tend to think of their children in terms of money, and most would agree that $233,610 is a small price to pay for the joy, hope, humor and meaning that children can bring to their lives. Still, as with any other large expense – whether it’s a student loan, mortgage or medical cost – it pays to be prepared. To help you get started, here are some budgeting tips for Millennial couples with kids.

Step 1. Create a budget

If you’re a Millennial, you and your partner may already be in financial hot water. After all, your generation faces huge student loan debt, lower employment levels and smaller incomes – a situation made worse by the lack of affordable housing. Bringing kids into the mix can strain your finances even further. (Totally worth it, of course!). Fortunately, a budget can help you get on track.

Decide if you’d rather create a yearly or monthly budget. The basics are the same either way: Estimate how much money your household has coming in, and subtract how much money is going out. If you have money left over, decide how to spend, save and invest it wisely. If you come up short, however, you’ll have to find a way to boost your income (by working more hours, picking up a second job or asking for that long-overdue raise) or cut your expenses.

It’s fairly simple to create a budget the old-fashioned way using pen and paper or an Excel spreadsheet. You can also embrace technology and use a budgeting site or app  this makes budgeting a lot faster and more fun, too). The Stash app for example, could be a great way to start your budgeting plan. Stash offers “Smart-Save”, a free personalized saving tool for Stash users to help them save the right amount of money at the right time.

Keep in mind, making the budget is just the first step. You also have to stick to the budget, which can be especially hard if you’re used to spending money without a second thought.

Step 2. Set a plan to spend money wisely

If you need to cut back on spending, start by taking a close look at where your money goes each month to figure out if you’re paying for things you don’t need or that you no longer use – things like cable TV (you can watch a lot of your favorite shows online nowadays) and magazine subscriptions, whether they’re the printed or online version. If you don’t need it or use it, get rid of it.

Next, find out if you can score a better deal for the ongoing expenses you still have. Call each provider and ask for a discount – and make sure you’re already on the cheapest plan. Sometimes, a company will give you the “new customer” rate if you just ask for it – even if you’ve been a customer for years. All this takes time, of course, but if you can save $10 or $20 a month on a few services, it may well worth the effort.

Once you trim your expenses, work on spending wisely – every day. Think about the consequences of every discretionary purchase you make: You may want that really nice pair of shoes, but is it worth cutting into your food budget for? Also, keep in mind it’s super easy to buy stuff for your kids they don’t need or won’t ever use, such as cute clothes and toys and shoes for newborn babies (they don’t need shoes – they can’t walk). If you think before you spend, you’ll probably find you have a lot more money at the end of the month that you can save and invest – and that will come in handy in the future.

Step 3. Check you are staying within the budget guidelines

When setting your budget, it helps to know how much you should be spending on certain expenses. Here are some guidelines:

  • Housing. This will probably be your single largest expenses – whether you rent or own. In general, spend no more than 30% of your gross income on rent (no more than 28% is better), and no more than 28% if you have a mortgage.
  • Total Monthly Debt. Keep your combined housing costs and debt payments below 43% of your income (36% is better if you can swing it). 43% is the highest debt-to-income ratio (DTI) you can have and still get a qualified mortgage.
  • Student Loans (yours). Spend between 10% and 20% of your income on student loan payments. Be sure you’re taking advantage of any student loan repayment benefits your employer offers.
  • Car Expenses. Spend between 10% and 20% of your income on auto expenses, including car payments, gas, insurance and maintenance. If you or your partner use Uber, Lyft and public transportation instead of a car, you may end up spending less.
  • Retirement. As the saying goes, “Pay yourself first.” Aim to set aside 10% to 15% of your income for retirement each month, starting in your 20s (the sooner the better, because of the power of compounding). Save more if you can without affecting your quality of life. An IRA is an easy way to get started. To start investing in an IRA you don’t need large sums of cash. You can start investing in an IRA account with as little as $15.
  • College (for the kids). A 529 college-savings plan lets your earnings grow tax-free as long as they’re used for qualified education expenses. How much you save each month depends on how old your child is now and what type of school you envision them attending (public, private, in-state, out-of-state, etc.). A good starting point is $100 a month if you can swing it.

Step 4. Make sure you’re claiming applicable tax credits

Uncle Sam offers several tax deductions that can help parents save money at tax time. Whether you do your own taxes or hire a preparer, make sure you claim any deductions you’re entitled to, such as:

  • The Dependent Exemption. You are allowed one exemption for each person you can claim as a dependent, including your children. For 2017, it’s $4,050 per person.
  • Child Tax Credit. This provides up to $1,000 for every child under 17 in your care if you meet income requirements.
  • Child and Dependent Care Credit. Working parents who pay for child care may be eligible for a child care credit of up to $3,000 for one child or $6,000 for two or more.
  • Earned Income Tax Credit (EITC). This credit helps low-income and moderate-income working families by lowering the amount of tax owed and refunding the difference if the credit is more than that amount. Twenty-six states and the District of Columbia also offer earned income tax credits.

Step 5. Get your budgeting plan started

Budgeting takes works, and a lot of willpower, but if you make the effort, you and your family will be better off financially – now and in the future. Don’t be afraid to bring the kids into the conversation; even little ones get the connection between earning, spending and saving. Your financial goals will be easier to reach if everyone in the family is working together.

Once you’ve committed, getting started is easy. Stash is one app for all your investment and saving needs. Just connect your bank account. You can create a unique, risk-appropriate and diversified portfolio to get you towards bigger goals, like your child’s college education or a down payment on a home. Want to open an IRA? You can do that on Stash too.

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Written by

Jean Folger


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