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Growing family, stretching budget

Another child is a lot of work, a lot of fun and perhaps a bit more worry. Wondering how you'll save enough to put all your children through college? You can plan for their future without breaking your budget. Start small, start now, and you can make it happen.

Key takeaways

  • Take a good look at your budget to make room for the expense of another child.
  • Check if your employer offers a flexible spending account that you can use for dependent care costs.
  • Kick in a little extra each month or divide your existing contribution.

Congratulations on adding to the family!

Consider yourself a pro — from bouncy swings to baby monitors, you’ve got this parenthood thing all figured out.
Bonus points if you’re also thinking about how your next child’s future education fits into your budget.
(If you’re not, now is a perfect time to start.)

Every penny counts

With another baby on the way, you should revisit where your money is going. Take a look at all costs and add items triggered by your newest family member. Hospital bills, day care and all those diapers will make an impact on your monthly bottom line. See where you can adjust, make cuts and set a plan that you and your family can stick to over time. Putting a little money into a 529 education savings plan every month may be easier than you think.

Reduce and reuse

If you’ve saved items from your first pregnancy, you’ll be able to reuse them for your second bundle. Bassinets, strollers, toys and more can make another go-round with baby number two. And with the experience you have from the first, know what you really need versus what's more frivolous. The savings on big and little purchases could be a nice chunk of money that you could use to start a new 529 savings plan.

Prep for tax time

Having another baby means updating your withholdings. Take a look at your tax forms and make adjustments to reflect your new status. You may owe less money or even receive a refund. That's another great opportunity to contribute to a 529 savings plan!

Look for perks

Does your employer offer a dependent-care flexible spending account (FSA)? These accounts pull pretax dollars out of your paycheck. Depending on your tax bracket, you can then apply up to $5,000 to day care costs.* You won't pay taxes on the FSA money taken from your check. So that's money in your pocket (and in your 529 savings plan).

Divide and conquer

Say you’re putting $100 a month into your first child’s 529 savings plan. You want to do the same for your second child, but you're not sure how to save for two. It’s likely better for both children in the long run to have separate accounts.

In theory, your first child will go to college before your second. So you could use that $100 a month to focus on getting your first through college. You could put $75 in your older child's 529 savings plan account and $25 in the younger's. Since 529 savings plans are flexible, you can switch the beneficiary from one child to the other if there’s still funds in the larger 529 savings plan once your firstborn heads to campus.

Ready to create a detailed plan?

Things to do next

  • Take an inventory of your existing baby products to see what you can reuse.
  • Make a list of any added expenses that come with a new baby.
  • Talk to a financial professional about opening another 529 savings plan for your new child or starting 529 savings plans for all your children.

Related articles

Saving for two? You’re going to need more than one 529 education savings plan

Teaching children to save for their education

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