Five Reasons Why Having A Child Isn’t As Expensive As You Might Think

KidsIn the last week, I’ve received four emails from nearly-panicked people who have recently discovered they’re pregnant, crunched the numbers, and thought “MY GOD WE CAN’T AFFORD THIS CHILD!!!” and fell quickly into panic mode.

Don’t.

There are a lot of reasons why having a child isn’t the financial bomb that it’s made out to be. Trust me – I was in deep financial straits when our first child arrived and we’re now in much better financial shape than we were before.

Here are five big reasons why you shouldn’t panic when the plus sign comes up on the pregnancy test.

Adaptable budgeting Most people can’t believe that they can squeeze water from a rock when it comes to their budget, but you find when you’re responsible for a child, you find ways to make do that you would have never realized before. It simply adapts – it’s hard to explain until you start going through it.

Changes in spending and priorities Do you spend money eating out and going out on the town? That spending is going to drop drastically, as will your other entertainment costs. You’re going to be spending a lot of evenings at home now, and evenings at home are almost always cheaper than evenings out on the town. Your shopping trips will also get more efficient, as you won’t have time to muse slowly through the aisles grabbing consumables – instead, you’ll have a list and try to do it as efficiently as you can. This also saves some serious money – we actually spend less on groceries now with a family of four than we did when it was just the two of us.

Another dependent on the ol’ tax return A child counts as another dependent on your taxes, which means that it’s an automatic $3,200 deduction on your taxes (and likely more in future years). If you’re in the 28% tax bracket, that means your income tax bill just went down by almost $900.

The child tax credit In addition, through 2010, you also get a $1,000 tax credit for each child if you make below $110,000 a year. A credit is not a deduction – it’s literally subtracted from the total amount of tax you owe. This means that between the factor of the child being a dependent and this credit, you’ll likely save almost $2,000 on your income taxes.

Child care tax credit To me, this was icing on the cake. The child and dependent care tax credit states that you can receive up to 35% of the money you pay for child care as a tax credit, up to $3,000 of expenses for the first child (or $6,000 for the second and subsequent children). Thus, let’s say you’re going to be forking over $1,000 a month for child care. That’s $12,000 over a year, but of that $12,000, you’ll be able to claim $3,000 of it as a tax credit, directly reducing your taxes by $840 if you’re in the 28% bracket. Tack that onto the additional savings above, and caring for a child isn’t as expensive as you might have thought.

When you first find out that you’re pregnant, let it be a happy time, and don’t worry too much about the money – it’s not as bad as many doomsayers might lead you to initially think.

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