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 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, 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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Of course, for those who do not earn $1,000 per month, this is a pretty useless exercise. Something for that proverbial 1%, I guess. Actually, pretty useless for anyone at/below the US median income for a family of 4.

My mind boggles at the basic assumption such articles make about their readership - that they should have that level of discretionary spending.

January 29 2014 at 9:29 AM Report abuse rate up rate down Reply
1 reply to pfjw's comment
Brian O'Connor

The median household income in the U.S. is $50,000, so many, many people make more than $1,000 a month, pfjw. In fact, $12,000 a year would be the poverty level. But no matter your income, you still need to save, and these tips can help. Even if you only trim $40 a month out of your budget, that's more important to someone on a reduced income.

Thanks for reading!

January 30 2014 at 5:11 PM Report abuse +1 rate up rate down Reply

Parents need to learn the word NO and let kids know that they need to work for something they want and that includes a car and college.

January 29 2014 at 3:54 AM Report abuse rate up rate down Reply

Here is a way of making kids less costly these days. Stop spoiling them to death with IPhones and junk at early ages. Stop spending millions on non sense. When these kids should be out playing. Most now are inside stuck in front of a TV, PC, Game Console, or IPad. Now don't get me wrong Video stimulation is okay for a little while. I like games myself. But there are other things to do in the world besides that. Sitting inside somewhere texting constantly or 6 year olds having expensive cell phones is ridiculous. I see kids and even adults every where I go now looking like little monkeys peeling a peanut playing with their phones texting. It is really pathetic looking. A bunch of techno zombies is what I call them now.

January 29 2014 at 12:44 AM Report abuse rate up rate down Reply
Hi Everyone!

I thought I couldn't afford kids, turned out I could after all. Did a lot of what he writes about and more. Just remember, (and I have 3 grown kids), keep the clunker car maintained and all 3 will learn to drive it, take care of it and take it to college. BIG, big savings. By the way, if you can, instill the 'no loans for college' mantra. Somehow it worked and not one of them had to take out loans.
And, I'm not broke and neither will they be when college is done-one more year. I've averaged a VERY modest annual income, kept the house for 25 years, keep cars for 10 at least. 2nd hand clothes, walks for exercise. It all helps, not to say it wasn't touch and go for a few years. Lots of oatmeal and beans, but we're okay. Oh yes, and one of my kids is fully autistic. I raised all 3 kids alone after divorce. They were 2, 4 and 6 at the time. Now they are 21, 23 and 25. Not an inexpensive experience, but have managed still. And had a HECK of a lot of fun raising them. Yes, big responsibility, but SO well worth it. Keep your fingers crossed that we can keep steady. My best to you all, hang in there.

January 28 2014 at 2:30 PM Report abuse +2 rate up rate down Reply
1 reply to Hi Everyone!'s comment
Brian O'Connor

That's a testament to the power of being sensibly frugal, and getting your priorities straight. I think the biggest value in all this is the important life lessons your example will set for you kids. They'll start life out with the right role model when it comes to money -- priceless!

Thanks for reading!

January 30 2014 at 5:13 PM Report abuse rate up rate down Reply

Here's a thought. Don't have kids!!!! If you can't afford them, don't have them!!

January 28 2014 at 2:10 PM Report abuse rate up rate down Reply