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Strategies to Save

Saving for a Baby: How Much it Costs to Have a Baby and How to Start Saving

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Saving for a Baby
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The topic of money can cause stress when planning to start, or expand, a family. According to the most recent report from the U.S. Department of Agriculture, it’ll cost $233,610 to raise a child born in 2015. The big-ticket expenses detailed in the report are housing, food, child care and education, although this doesn’t include the cost of college.But before you get sticker shock and decide not to have a family, read on. Early financial planning can help you manage the costs of raising a child.

How much does it cost to have a baby?

How much does it all cost is the million-dollar question for expecting parents. The answer can vary due to your circumstances.

“Getting ready to have a baby has really taught me that anything and everything can happen,” said Stanton Burns, a CFP and owner of Oakview Wealth Solutions in St. Charles, Mo. Stanton is expecting his first child and said the biggest cost at the beginning is medical bills, especially if there are complications.

Young families who are experiencing other major life events such as getting married or buying a home can find medical bills particularly cumbersome.

“Nobody shared with me the cost of having a baby from pre-pregnancy to afterbirth. That was all very surprising to me for baby No. 1,” said Angela Furubotten-LaRosee, a CFP and founder of Avea Financial Planning. To avoid any surprises, Furubotten-LaRosee, based in Richland, Wash., recommends asking questions and staying informed throughout pregnancy and delivery.

Here’s a breakdown of common costs you should be aware of when saving for a baby. Insurance may help you cover some of these expenses.

The cost of childbirth

Before-birth costs: There are prenatal appointments, ultrasounds and other health-related expenditures for the mother and child that may come up as they’re needed. In vitro fertilization (IVF) and other fertility treatments may be necessary as well. The average cost of IVF is $12,400 per cycle, according to the American Society for Reproductive Medicine. Beyond health care, there are items such as cribs, car seats and bottles you may need to buy.

Birthing costs: The cost of birthing a child may range from $2,000 to more than $20,000 depending on where you’re giving birth, the type of birth site (birthing center, hospital or somewhere else) and if there are complications during delivery. A 2015 study by the International Federation of Health Plans found the U.S. average for normal deliveries to be $10,808. Healthy pregnancies with normal deliveries generally cost the least amount of money. Cesarean sections with complications can cost more. Some of the cost may be covered by insurance.

Afterbirth costs: After the birth, follow-up appointments, immunizations, formula, diapers and child care costs are ones to factor into your budget. These costs will also vary depending on the health of the mother and baby.

The cost of adoption

Adoptions can cost relatively lower if you adopt from foster care. Expenses may be reimbursed through federal and state adoption assistance services in this scenario. If you opt for a private adoption agency, the cost could range from $20,000 to $45,000. This may include fees for counseling, child care during the transition, legal fees and other expenses for preparation and placement.

The cost of child care

Child care is an expense you should plan for very early, even before delivery, because of the logistics and costs. “Some places have a waiting list [of six months to a year], which is something you need to get ahead of if you plan to send your children to day care,” Burns said. According to the annual Care.com Cost of Care survey, “the average weekly cost for an infant child is $211 for a day care center, $195 for a family care center and $580 for a nanny.”

Start looking for options early to compare costs and secure your child a spot at a place you trust. To help with expenses, you may be able to claim the child and dependent care credit. The tax credit ranged from 20% to 35% of eligible care expenses. You may also be able to take advantage of a dependent care flexible savings account (DCFSA) option, which is an account with tax perks offered by some employers. A tax professional can help you devise a tax plan that’s most beneficial given your household size and income.

Understand how much your insurance will cover

The medical expenses listed above for you and the child may be offset by insurance depending on your health care plan. Reviewing your coverage should be at the top of your priority list.

Know the type of plan you have. Understand what’s covered (prenatal and postnatal) and know how your copays, deductibles and coinsurance work. Your provider may be able to give you a rough estimate of how much birth will cost given your health, delivery plan and medications.

Make appointments with the right doctors. Double-check that the providers you plan to use are covered by your insurance plan. Some plans only cover a specific group of doctors. Other plans allow you to see doctors out of network, but it costs you more.

Know how a high-deductible health plan (HDHP) impacts your wallet. High-deductible plans are ones that offer lower premiums. The trade-off is that you have to pay more before insurance kicks in. “If you end up racking up [medical] expenses, you may be paying a lot more out of pocket than you could have with a traditional plan that has a higher premium and lower deductible,” Burns said.

Burns recommends considering your insurance options before having a baby to see which type of plan will benefit you the most. Look at traditional plans to see if there are potential savings. If you have a HDHP, putting money away for medical bills is something you should also prioritize for out-of-pocket expenses. You can use a health savings account (HSA) to save for medical bills. We’ll talk about the HSA below.

What if you don’t have insurance? You may be able to qualify for health care through the marketplace at HealthCare.gov. Families who earn between 100% and 400% of the federal poverty level may qualify for subsidized costs. You can find out if you qualify here. Families who meet low-income limits may also be eligible for Medicaid and the Children’s Health Insurance Program.

Review your savings options

There are several accounts you can consider when saving for a baby. You’ll want to save up for prenatal costs, delivery expenses and other baby needs as they grow. Some of these saving methods even have tax benefits.

Put away cash in an HSA if you have an HDHP. HSA accounts are only for high-deductible insurance plan holders. HSAs are triple tax-exempt, according to Burns. “You can put money into this account tax-free, it can grow tax-deferred and you can take money out of it without paying taxes either,” Burns said.

Your account must be used for qualifying medical related expenses such as prescriptions, medical care and dental care. You can carry over a balance in your HSA from year to year. Funds can be used for you, your spouse and dependents. The maximum you can deposit into an HSA for 2018 is $3,450 for individuals and $6,900 for families. Learn more about HSA accounts here.

Save in a medical flexible spending account (FSA). FSAs are accounts typically established by your employer to help pay for medical costs. Money contributed to the account by you or your employer is not taxed. Money from the account is meant to reimburse you for eligible medical expenses. The 2018 contribution limit for the FSA is $2,650 per year. Unlike the HSA, there’s a use-it-or-lose-it policy for the year unless your plan has a grace period or carryover provision. Learn more about the medical FSA here.

Use a DCFSA. The DCFSA is another account offered by some employers where you can put in pretax dollars to cover eligible child care expenses for children younger than 13. Eligible expenses may include before- and after-school care, baby-sitting and nanny expenses, day care and summer camp. If you are married and filing a separate return, you may be able to contribute up to $2,500 per year in this account. The contribution limit is $5,000 per household.

Open up a high-yield savings account. For other savings, a simple high-yield savings account could be the right place to put money away. A regular high-yield savings account doesn’t have the same tax perks, but you can get a higher return on your cash.

“The interest rates of most brick-and-mortar banks that you’ll have in your town aren’t that great. [An interest rate of] less than half a percent is what I’ve seen, but there are some online savings account options that offer higher,” Burns said.

Here are some of the best savings accounts to consider while you’re saving for a baby:

Institution
APY
Minimum Deposit Amount
High Yield Savings from Synchrony Bank
Synchrony Bank

2.25%

$0

LEARN MORE Secured

on Synchrony Bank’s secure website

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We'll receive a referral fee if you click here. This does not impact our rankings or recommendations
Online Savings Account from Barclays
Barclays

2.20%

$0

LEARN MORE Secured

on Barclays’s secure website

Advertiser Disclosure.

We'll receive a referral fee if you click here. This does not impact our rankings or recommendations
Online Savings Account from Ally Bank
Ally Bank

2.20%

$0

LEARN MORE Secured

on Ally Bank’s secure website

Advertiser Disclosure.

We'll receive a referral fee if you click here. This does not impact our rankings or recommendations

You can check out some of the other best online savings accounts here. Account APYs on some of the highest yield savings accounts range from 2.25% to 6.17%.

Make a family leave plan with your employer

Coming up with a family leave plan is another factor to consider when weighing your financial options. You need to know how long your job will allow you to be on leave and how much you’ll get paid.

“[Some employers] say they’ll give you family leave of, let’s say, three months, but they’re only going to pay you for the first three weeks,” Burns said. Having a spouse go unpaid after having a baby can cause financial strain. Adjust your budget beforehand and bump up your savings to make up for any loss in income you may experience.

Save for education costs

Education costs may not be at the top of your mind when you’re waiting for the water to break, but the earlier you plan, the less financial burden you’ll encounter when it’s time for your children to go off to school. “Every dollar saved is one less dollar borrowed,” Furubotten-LaRosee said.

Savings may not cover the entire cost of tuition or college, but at least it’s something. “You could save in a traditional brokerage account. Because it’s long term, you have 18 years to invest in some blend of stocks and bonds that you’re comfortable with,” Furubotten-LaRosee said.

Here are a few accounts to consider:

Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts: The UGMA and UTMA are both custodial accounts you can use to invest money for your child. Accounts may be made up of mutual funds, stocks and bonds. UTMA accounts can also be used for real estate. You can generally contribute up to $15,000 per year per child without worrying about the gift tax. Couples can contribute up to $30,000 per year per child. The child typically gets access to the funds when they’re between 18 and 21, depending on the state where the account is opened. The money doesn’t have to be used just for school.

529 plan: A 529 plan lets you prepay tuition or set up an investment account with tax benefits for education expenses. Depending on your state, the contributions you make into the savings account may be tax deductible. The withdrawals may also be tax-free as long as the money is used for eligible education expenses. Eligible education expenses include tuition, computers and equipment, room and board, and fees. Up to $10,000 per year from a 529 plan may also be used to pay for tuition at a public, private or religious elementary or secondary school.

Each state has different programs, so you should educate yourself on the type of program offered and its tax perks, Furubotten-LaRosee said. Unlike the UGMA and UTMA account, there are penalties if your child doesn’t use the money for school. The child may pay state and federal taxes on the money, plus a tax penalty of 10%.

There’s a lot to think about when saving for a baby. Adding another person to the family is a lifestyle change. Take a look at your spending and budgeting habits to make room for upcoming expenses for the child, and review the options above to make a smooth transition.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Taylor Gordon
Taylor Gordon |

Taylor Gordon is a writer at MagnifyMoney. You can email Taylor here

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Strategies to Save

Where People Save the Most: Super Saving Metros

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Give credit to the residents of Dubuque, Iowa. They saved their pennies last year, according to a recent study by MagnifyMoney.

Dubuque earned the highest Saving Score in MagnifyMoney’s Super Saving Metros report, which looks at the savings habits of residents living in the biggest metropolitan areas across the United States.

Relying on data from the IRS and U.S. Census Bureau, MagnifyMoney created a Saving Score for nearly 400 U.S. metropolitan areas. This score reveals:

  • Which areas boasted the greatest percentage of adults who earned money from interest-bearing vehicles, such as savings accounts and certificates of deposit (CDs)
  • How much interest on average these residents claimed on their 2017 tax returns
  • What percent of their annual income came from interest

We’ve changed our study a bit this year. Instead of looking at cities with populations larger than 25,000, as we have in the past, this year we are looking at savings within entire metropolitan statistical areas. These areas often include several cities and provide a more accurate look at the savings habits of residents within a larger area.

One of our key findings? As a nation, the U.S. doesn’t have a lot of savers. Nationally, 28.3% of U.S. residents who filed income tax returns in 2017 earned interest income on their savings. This interest income averaged $554, equal to 0.76% of filers’ total income for the year.

Not all metro areas are created equal when it comes to savers, though. In Naples, Fla., for instance, filers reported an average of $3,224 of interest income on their taxes last year. But in Pittsfield, Mass., that average was a far lower $481.

There are also significant differences among metropolitan areas in how many residents earn enough interest from their savings to report to the IRS. Filers who earn more than $10 of interest on savings accounts, CDs, money market accounts, high-yield checking accounts or certain types of taxable bonds have to report their interest income. MagnifyMoney found that in Peoria, Ill., 48% of filers reported interest income on their returns. But in Los Angeles, just 30% did.

Key findings

  • Dubuque pulled down the top savings spot among the 381 U.S. metropolitan areas that MagnifyMoney studied. The city had the highest Saving Score, an impressive 97.8 out of a possible 100.
  • Naples, which came in second with a Saving Score of 97, topped the country with the highest amount of average interest income per return, a strong $3,224. Naples also ranked first in highest percentage of interest income compared to total income. Filers here earned an average of 2.33% of their total annual incomes from interest on their savings.
  • Peoria had the highest percentage of filers who earned at least some interest income. About half of the federal tax returns filed here last year had some amount of interest income.
  • Iowa might have been the thriftiest state in the country in 2017. Dubuque notched the highest Saving Score in this year’s study. But the cities of Cedar Falls and Cedar Rapids also earned high scores. This isn’t a one-time fluke either. MagnifyMoney found a similar trend when looking at the numbers from earlier tax years.

What does the Saving Score measure?

It can be challenging to determine how much the residents of a particular metropolitan area are saving. For our study, we crafted a Metro Saving Score that relies on data from the IRS and U.S. Census Bureau for 381 metropolitan areas across the country.

We looked at three key factors to calculate our score:

  • The percentage of all tax returns that declared interest income
  • The percentage of residents’ total annual income that came from interest earned from savings
  • The average interest income recorded on tax returns in a metropolitan area

50 cities with the top Saving Scores


Dubuque led our list of the metro areas with the biggest savers, earning a healthy Saving Score of 97.8. But what’s so special about Dubuque?

The area isn’t especially rich: The U.S. Census Bureau reported that the median household income stood at $56,154 in 2016 in Dubuque County and $48,021 in the city of Dubuque itself. That’s below the median annual household income of the U.S. as a whole, which was $57,617 in 2016. The Census Bureau also said 16.8% of the city’s residents lived in poverty, while 29.7% of residents have earned a bachelor’s degree or higher.

Regardless of the relatively modest incomes here, 44% of tax filers in the Dubuque metro area claimed interest income on their returns. This interest income averaged $781 per return, which accounted for an average of 1.24% of these residents’ annual income.

So why the high savings rate? Maybe it’s the low unemployment rate. The Bureau of Labor Statistics said the unemployment rate in Dubuque was a low 2.2% as of August 2018. It’s easier to save when you’re employed. Also, it’s not that expensive to live in Dubuque. The Census Bureau said the median costs for owners with a mortgage is $1,102 a month, while the median cost for renters is $728 a month.

Things are a bit different in Naples, where the Census Bureau said the annual median income was $84,830 in 2016. It’s important to note that median income isn’t the same as average income. The median is the dollar amount that half of all residents in an area earn less than each year and half earn more. In Naples, half of all households reported an annual income of less than $84,830, while half reported an annual income higher than that.

What is clear, though, is that the residents of this Florida city have more money to save, which might be why Naples ranked second with a Saving Score of 97. Here, 36% of income tax returns included interest income. The interest income per return in Naples was high, too, leading our survey with a hefty $3,224.

In Fairfield County, Conn., which came in third with a Saving Score of 96.3, 36% of tax returns recorded interest income. The interest claimed here was sizable, too, with an average of $2,434 claimed per return. Again, the residents here have more money to save, with the Census Bureau reporting a median household income of $86,670 in 2016.

Santa Barbara, Calif., and Boston rounded out the top five metro areas on our list. Santa Barbara earned a Saving Score of 95.7, with 36% of tax returns here claiming interest income. This income accounted for 1.18% of annual income earned by residents here. The interest income per return in Santa Barbara was a healthy $1,074.

And in Boston, with its Saving Score of 94.2, 37% of returns claimed interest income, with an average per return of $920.

10 cities with the most savers

Dubuque again represented itself well on our list of metropolitan areas with the most savers. But it didn’t top it. The No. 1 spot went to another Midwestern city, Peoria, where 48% of tax returns listed some form of interest income.

What makes Peoria residents such good savers? It’s hard to say. The income here isn’t sky-high, with the Census Bureau stating that the median household income stood at $46,547 in 2016. At the same time, though, it’s not expensive to live in Peoria, freeing up residents to save. The Census Bureau said it cost $1,200 a month for owners with a mortgage, while the median value of a home was $127,200. Those who rented didn’t pay too much, either, with the Census Bureau reporting a median gross rent of $746 a month.

Then there is Dubuque. Again, the income here wasn’t high, but housing isn’t overly expensive, perhaps making it easier for residents to save. The Census Bureau reported that owners with a mortgage paid a median value of $1,102 a month, while those who rented paid a median of $728 a month. Maybe that’s why Dubuque tied for second with 44% of returns claiming interest income.

Dubuque tied for this spot with Ithaca, N.Y., where the same percentage — 44% — of returns claimed interest income. It’s not easy determining how Ithaca residents were able to save so much. The Census Bureau reported that the median annual household income here was just $30,291 in 2016, while 44.8% of the people lived in poverty. At the same time, the median value of owner-occupied homes stood at a fairly high $219,100. This makes Ithaca’s high savings rate a bit of a mystery.

Appleton, Wis., is easier to explain. This area ranked fourth on our list with 42% of returns claiming interest income in 2017. This isn’t surprising: The Census Bureau said the median household income here was $53,878 in 2016, while the median value of owner-occupied homes was a fairly low $137,800. Perhaps residents spent less on housing costs and were able to save more.

Iowa City, Iowa, finished fifth on our list, tied with Appleton with 42% of returns claiming interest income. That percentage was a popular one, with Rochester, N.Y., and yet another Iowa city — Cedar Falls — tying with Appleton and Iowa City.

10 cities that earned the most interest income

Here is a not-so-shocking fact: People who make more money tend to save more of it. That’s proven by our list of metro areas in which taxpayers claimed the most interest on their returns.

Look at Naples. Those living here earned a lot of interest income in 2017. According to our research, the average return filed here in 2017 listed a whopping $3,224 in interest income. That easily topped our list. The reason is fairly obvious: A lot of wealthy people live here.

The city is a costly one, with the Census Bureau showing that the median home value is $770,000, while it costs owners with a mortgage a median $2,987 a month. With those barriers to entry, it’s not surprising that the median household income was $84,830 in 2016. When you earn more, it’s easier to save more — a lesson made clear in Naples.

Fairfield County was second on this list, with the average tax return listing interest income of $2,434 in 2017. Again, this is another high-income area, with the Census Bureau reporting that the median household income was $86,670 in 2016.

Next on our list is Vero Beach, Fla., where the average interest income reported on tax returns stood at a healthy $1,839. This city is a bit more puzzling: The Census Bureau showed that the median household income was a modest $38,405 in 2016. And it’s not particularly cheap to live here, with the Census Bureau stating the median costs for owners with mortgages as $1,654, while monthly rent stands at a median of $829.

Coming in fourth on our list is another Florida tourist metro, Fort Myers, where the average interest income per return was $1,195. This is an interesting place: In the city of Fort Myers, with a population of almost 80,000, the median household income is $38,971. But if you focus on the smaller area of Fort Myers Beach, where the population is just more than 7,000, the median household income is $59,416.

The New York City metro area claimed the fifth spot on this list, with an average interest income of $1,146 reported per return. With a population of more than 8.6 million, New York City itself sees a wide range of yearly incomes. The median household income is $55,191, but plenty of households saw a far higher income than that. This helps explain the Big Apple’s high spot on this list.

10 cities with the lowest Saving Scores

While there are plenty of metro areas where people are saving, there are others that have earned low Saving Scores from our research. In most of these areas, the median household income is low. In others, unemployment is high.

This isn’t surprising: It’s a challenge to save when you don’t make enough and you’re struggling to find a job.

The first metro area on our list of areas with the lowest Saving Scores — Hinesville, Ga. — earned a Saving Score of just 0.5, with 15% of income tax returns filed in 2017 claiming interest income. The average filer here claimed just $80 worth of interest on their returns.

The median household income stood at $42,949 in 2016, according to the Census Bureau. That is below the median household income for the U.S., which the Census Bureau said was $57,617 in 2016.
El Centro, Calif., ranks high on this list, too, coming in second. Unemployment is a problem here, with the Federal Reserve Bank showing the rate at a high 17.2% in El Centro as of August 2018.

Third on our list was Fayetteville, N.C., earning a Saving Score of 1.8. Only 18% of tax returns here claimed interest income in 2017, with the average return listing just $149 in interest income. The median household income was $43,882 in 2016, while 18.4% of the population lived in poverty. The Census Bureau also reported that 14.2% of the people younger than 65 do not have health insurance, a factor that could account for the low savings rate here.

Pine Bluff, Ark., scored a low 3.0 Saving Score with 19% of income tax returns claiming interest income. Pine Bluff’s population is declining, falling to 42,984 in 2017, a drop from 49,083 in 2010 — a dip of 12.4%. At the same time, the median household income was just $30,942 in 2016, while 32.5% of residents lived in poverty.

Rounding out the bottom five of savers was the metropolitan area of Florence, S.C., with a Savings Score of 3.7. Just 17% of returns here claimed interest income in 2017. The median household income here was not terrible, but at $44,989 is still below the median for the U.S.

How to save more money

Need to increase your savings rate? There’s no secret formula. Start with crafting a household budget. List the income that comes into your household each month and the money you spend during the same time. Include both fixed expenses such as your monthly rent, mortgage payment, auto payment or student loan payments while estimating those that vary each month, such as your utility bills, transportation costs and grocery bills. Make sure to also budget for discretionary expenses such as eating out and entertainment.

This budget will tell you how much you should have at the end of the month for savings. If you don’t have much, or if you are spending more than you are earning, you’ll need to cut back on whatever expenses you can. This might require slashing your spending at the supermarket or cutting back on restaurant meals.

Be sure to start an emergency fund, too. You use the dollars in this fund to pay for any unexpected expenses that pop up, such as a busted water heater or blown transmission on your car. If you have this fund built up, you won’t have to resort to paying for these emergencies with a credit card, something that will build up your debt and make it even more difficult to save.

It’s important to note, too, that it might be a bit easier now to earn interest on your savings. That’s because as the Federal Reserve raises its benchmark interest rate, banks and credit unions are starting to do the same, boosting the interest rates attached to their savings accounts and CDs. These rates might still be small, but they are set to improve, so now is a great time to begin saving those dollars.

Methodology

To rank cities, MagnifyMoney created a Saving Score on a scale of 0 to 100 that included three equally weighted components:

  1. How broadly individuals in the metro saved (measured by the percentage of all tax returns that declared interest income, ranked by percentile).
  2. The metro’s dedication to saving regardless of their income (measured by the percentage of total income that came from interest, ranked by percentile).
  3. The absolute magnitude of savings in the metro (measured by the average interest income per tax return, ranked by percentile).

MagnifyMoney measured these factors using anonymized data from tax returns filed with the IRS from Jan. 1 to Dec. 31, 2017.

To be counted as a saving household, the taxpayer must declare interest income using Form 1099 on their 2016 tax returns. Filers who earned over $10 in interest on savings and investments, including a high-yield checking or savings account, a CD, a money market account or certain types of taxable bonds, should have received a copy of 1099-INT, which reflects interest income reported by financial institutions to the IRS.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Dan Rafter
Dan Rafter |

Dan Rafter is a writer at MagnifyMoney. You can email Dan here

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