Having kids is not cheap. There are many expenses that are associated with small children that are hard to get around no matter how frugal you are. For instance, if you are a dual income family, you must pay for daycare and disposable diapers as most daycare centers will not accept cloth diapers. In our area, daycare for an infant can run a family $1000 a month. You may rejoice when your child enters preschool because you will find an extra $1000 a month in your pocket. Instead of just absorbing that money back into your budget, why not earmark it for something else?
Imagine if you took that $1000 a month and invested it? That is $12,000 a year! You could continue to pay it to yourself, perhaps setting up a college fund for your child with the money you used to pay in daycare. In five years, you would have $60,000. After that, just let it sit and earn interest for the next eight years, and your child’s college education would be largely paid for.
What if one of the parents decides to stay home to care for the children, in part to avoid expensive daycare? They may not have the $1000 a month to put away. While this is true, there are still plenty of other expenses associated with young children that you eventually won’t have to pay. For instance, we are paying roughly $75 a month to diaper our two girls, and I anticipate within the next 6 to 8 months, both girls will be out of diapers. It would be very easy to just absorb that $75 back into the budget, but that isn’t what I plan to do. Instead, I plan to set up a college education fund for my kids and invest that $75 a month. Yes, $75 a month will not add up very quickly, and it certainly won’t put even one of my children through college. But it is a start, and it is more than we are putting away right now.
Likewise, if you have a monthly car payment, when the car is paid off, use that money to pay yourself a car payment so you can pay for your next car in cash. If you bought a car 7 years ago, and had a monthly payment of $475, and you paid off the loan in four years and continued to make that monthly payment, you would now have $17,100 set aside for a new car, which would be enough to buy a nice, one to two year old car for cash.
You may argue that the car payment or the daycare payment was a hardship and that now that you no longer need to pay those payments, you need the money to pay for other things. This might be true, but if your child was still younger than preschool age, you would find a way to make the payments because you would have to. Or, if you now have other expenses for your child such as after school care for $300 a month, deduct that from the $1000 you used to pay for daycare and save the remainder. If you can maintain that mindset, you will find yourself reaching your financial goals quicker than you imagined, simply by not seeing that money as “free money” to now spend as you will but rather as money to continue to invest in your and your child’s future.