The $1,000 Challenge, Part 4: Cutting Child-Raising Costs Is Child's Play (with Some Help from Uncle Sam)

Daughter paints Daddy's face
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The bean counters at the Department of Agriculture regularly take some time off from counting beans to tote up the costs of raising a child. The most recent price tag: $301,970 to get a kid to age 18 (adjusted for inflation from 2010 onward).

And that doesn't even include some crucial expenses of the teenage years, such as iPods, car fenders, and tattoo removal.

We've been looking at ways to cut your family's costs in the previous installments of "The $1,000 Challenge," based on my book of the same name. When I performed this 10-week experiment on my own family budget, I cut an average of $100 a month from each of our 10 biggest spending categories. This week, obviously, we're considering child care.

That $300,000 total to raise a kid puts children near the top of the list of luxury goods, if you define a luxury good as "something hardly anyone can afford." That's the case for lots of recession-wracked families. As of 2009, according to the National Center for Health Statistics, the U.S. birthrate dropped from the record high of 4.3 million babies in 2007 to 4.1 million -- the lowest in a century. Not having kids, though, is a fairly drastic way to cut your expenses.

Once the kids are here, of course, parents do find the money, as Mrs. Funny Money and I discovered with our boy, Li'l Money. (I call him that 'cuz that's all he leaves us.)

Tiny Tots, Big Savings

When you have an infant, your first stop should be a wholesale buying club such as Costco. The savings on formula (if you use it) and disposable diapers (if you go that route) will more than pay for the annual membership. Just don't get carried away when you see that awesome $1,200 stainless-steel backyard grilling system in the store.

Another option to consider is Amazon Mom, which allows you to subscribe to regular deliveries of baby stuff at a discount. You save 5 percent with up to four deliveries a month, 15 percent with five or more. Plus, you get free shipping, and you can combine the Amazon Mom plan with Amazon Prime discounts as well. You may even be able to apply additional discounts, such as special offers from parenting magazines.

You can find a rundown on the whole strategy at BabyCheapskate.com. That site -- and other baby discount sites -- are great sources for deals.

With food and clothes, it's a matter of how frugal you can or want to get. You can make your own strained peas from farmer's market produce, or crochet a cute little sun suit, or you can clip coupons like crazy for Gerber's baby food and scour thrift shops and eBay for bargain clothes. It's all depends on what your time, temperament and budget will allow.

Big Expenses? Uncle Sam Has Your Back

And then there are the unexpected expenses of raising kids, and the lifestyle changes that go with them. That's where I found most of our savings.

With us, it was the fact that Li'l Money has been diagnosed as a late talker: a bright, engaging child with a mind that, for whatever reason, processes language less like a computer and more like a Cuisinart. His speech development will catch up eventually -- but only with a lot of help.

Late talking is a little like dyslexia for the ears, but he has made astounding progress with language, thanks to lots of effort, patience, and unreimbursed speech therapy. In our case, that includes out-of-state specialists and consultants, private speech and reading therapy, plus a $190-an-hour special education attorney to keep our local school system from making the common -- but extremely harmful -- mistake of pushing a late talker into autism programs.

None of it comes cheap, and none of it is covered by insurance. But there is one place I found a break: taxes. Setting up a flexible spending account to cover $4,000 a year worth of our medical expenses reduced my taxable income and my tax bill. Money is deducted pretax from each paycheck and added to the special account. I then file health care claims against the account, and I'm reimbursed.

At our tax rate, that knocks an even $1,200 off our projected debt to Uncle Sam for the year, according to the handy-dandy IRS withholding calculator. The break applies to the Michigan state income tax, too, and cut $174 off our state tax bill, for a total of $114.50 in monthly savings.

Use It or Lose It? Not Always

The good news is that most companies with decent benefits offer a flexible spending health care account. The bad news is that, as of last year, each worker can shelter only $2,500 a year. (Previously, the maximum amount was chosen by your employer. Now, it's set by Washington.) This hits families like mine that shell out a lot for health care, but the fact is, most people using flex accounts set aside quite a bit less.

If you're using a flex account, remember the one big caveat: You need to spend the money during the year you save it, or you may lose it.

Used to be, the only exception to the use-it-or-lose-it rule was if your company gave its employees the optional two-and-a-half month grace period after the year was over. But in November, the Treasury Department made a change. From now on, employers will also be able to allow their FSA-using employees to carry over up to $500 funds into the next year. But your company has to actively make the choice to offer either of those options. (One or the other, but not both.)

Even with the looser rules, you should base your withholding on your actual medical spending, which is another good reason to track it and maintain a budget.

If medical expenses aren't your issue, child care costs may be. Consider a dependent care FSA, which works almost exactly like a health care FSA, but for things like day care, summer camp, or even babysitting. The tax break involved will be more than worth the trouble.

The Benefits: Priceless

Meanwhile, we muddle through. My wife became particularly adept at interpreting Li'l Money's requests, explaining, "He says it's time for the playground," when I asked, "Why does he want to put socks on the pumpkin?"

Although he sometimes still uses just two or three words when other kids use two or three sentences, Li'l Money gets his message across. After working late one night and missing the chance to tuck him in, I sat with my coffee the next morning as he trundled out of bed. He shuffled over in his pajamas and threw his arms around me.

"Luv," he declared as he put his head on my shoulder.

I don't get it. If he's the one with few words, how come I'm the one left speechless?

Here's my running total of monthly savings for the series so far:
  • Week 1 - Miscellaneous Spending: $132.89
  • Week 2 - Utilities and Phones: $139.39
  • Week 3 - Transportation Costs: $41.61
  • Week 4 - Kid Costs: $114.50
  • Total Monthly Savings: $428.39

Read them in any order you want -- just get in there and start saving! Check out the series introduction to get the big picture on finding big savings in your family budget. You can check here on DailyFinance.com, follow me on Twitter, or go like The $1,000 Challenge Facebook page to get a heads up whenever a new installment comes online. A note about late talkers: Late talkers are often are misdiagnosed as autistic, and they can demonstrate some autistic-looking behaviors. But for these children, autism programs can actually make the situation much worse. If you suspect late talking is an issue for your child, contact the Late Talkers Foundation at (615) 866-9457(615) 866-9457, as well as the Natural Late Talkers support group, and consult an experienced speech pathologist. It's also helpful to read "The Einstein Syndrome: Bright Children Who Talk Late" and "Late-Talking Children," both by the economist Thomas Sowell.

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