Budget | Capital Group

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.

Child with baby

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 in to 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.

Look for perks.

Does your employer offer a dependent-care flexible spending account? 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. Because the money was pulled out before taxes, you can avoid about $1,500 in taxes. That is money in your pocket (and in your 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!

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 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.

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 your advisor about opening another 529 savings plan for your new child, or starting 529 savings plans for all your children.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses, summary prospectuses and CollegeAmerica Program Description, which can be obtained from a financial professional and should be read carefully before investing. CollegeAmerica is distributed by American Funds Distributors, Inc. and sold through unaffiliated intermediaries. 

Depending on your state of residence, there may be an in-state plan that provides state tax and other state benefits, such as financial aid, scholarship funds and protection from creditors, not available through CollegeAmerica. Before investing in any state's 529 plan, investors should consult a tax advisor. 

If withdrawals from 529 plans are used for purposes other than qualified education expenses, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax. State tax treatment of K-12 withdrawals varies. Please consult your tax advisor for state-specific details.

American Funds Distributors, Inc., member FINRA.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.