Middle Path Finance

How long will you keep your children on your health insurance plan?

I ran across this interesting article today about how lukewarm many parents are about keeping their adult children on their health insurance plans. What are your thoughts on the topic?

http://money.cnn.com/2011/06/08/news/economy/healthcare_uninsured_kids/index.htm?iid=HP_LN

Pregnant? Open your 529 plan NOW.

If you are pregnant, opening a college savings account has probably crossed your mind. Now is the time. Don't wait.

Yes, you can open a 529 plan before your baby is born. This is a little known-move that is legal and usually encouraged by state-run 529 programs.

If you are pregnant, but won't have your baby until the next tax year, opening a 529 plan and funding it before the end of the year will allow you to save up to $2,000 extra for college and get the benefit of a state income tax deduction.

All you have to do is name yourself as the beneficiary when you open the account. When the baby is born and his/her social security number arrives in the mail,  make the baby the beneficiary of the account.

I took advantage of this last year when I was pregnant. The Bean was born in April 2008, but I opened his 529 plan in November 2007. The extra tax deduction was nice, but we also thought we might benefit from this in another way.

The money you put into a college fund in the first three years of a baby's life is more valuable than the money you add later because it has more time to grow tax-free before college. Hurray for compound interest.

It's the same concept that applies to retirement savings. Money you save in your 20s and 30s is worth more than that saved in your 40s and 50s.

For instance, if you save $250 a month starting when your baby is born, you'll have $120,000 by the time college rolls around (assuming a rosy 8 percent return). If you wait until the baby is 5, you'd need to save $440 a month to reach that same amount. (Example from Liz Pulliam Weston's Easy Money).

Of course, if you have parents or family members who would like to contribute to the fund, encourage them to do so when the baby is younger, rather than waiting.

Our goal is to sock as much as possible into the 529 in the first few years. But it isn't all about the compound interest. Frankly, we don't know how much having a child is going to cost us year-to-year, if the family will fall upon hard times due to death, job loss or disability, so we thought we'd better save what we can while we can as a hedge against the unknown. I don't want to sound negative. But we know first-hand that disasters happen, and you have to get and stay in a position to survive them. 

We didn't want to make the mistake of thinking we'd be better able to afford to fund the plan later, when in reality, we don't know what our finances are going to be like in the future. If there would be more children, better paying jobs.

If you are expecting, do a little homework about your state-sponsored 529 plan and think about putting a little something away.

Babies on a budget: outfitting the little one for next to nothing

Consumer Reports estimates that new parents spend $12,673 on their new baby in the very first year. I say babies really aren't that expensive. It's just that a lot of new parents fall into what I like to call the "Baby Racket." Even articles on how to save money advocate spending too much.

Baby accoutrement manufacturers love to play on your fear and your guilt. That's why every product description says that if you buy X, your baby will be safe. You wouldn't want your precious little one to have an accident, would you? Then buy this. And, if you want your baby to be smart or have a leg up for college, that's even more money out the door on the latest whatzit.

I am a new mom. The Bean was born April 1, 2008. Yes, an April Fool. But I am no fool. My first trip to Babies R Us left me feeling queasy. When did strollers become $400 "travel centers"? Why does one outfit, that the Bean will outgrow in a week, cost $15?

I set out to find another way. There was no way in hell I was going to pay more than $400 for a stroller. I managed to outfit a nursery- crib, changing station, clothes and all, as well as buy diapers and a stroller for less than $600.

And as for the rest of the costs. The Bean costs about $350 a month to support, and $200 of that goes to his college 529 plan.

How on earth is he so cheap? I'm not doing anything radical or crazy to keep costs down. I'm just shopping smarter.

Here are my thrifty tips for new parents.

1. Buy used. Babies outgrow clothes very quickly. Most of the baby clothing you find at yard sales and baby resale shops have only been worn a couple of times, and they are cheap. And I mean cheap. 50 cent onesies and $1 sleepers are very common. Stores like Once Upon a Child, and some locally-owned baby resale stores, went a long way in filling our needs. We also bought a used stroller for $12, a jogging stroller for $25 (they usually go for $250 plus), and a Boppy portable swing for $29. Yard sales are great places to buy used toys and play mats for pennies on the dollar. And the best part? You can sell all of these items back to the resale shop when you are finished with them.

2. Shop smarter for the things you buy new. Major retailers will have you believe that the bare minimum you will ever be able to pay for a crib is $300. I say phooey. Look for less expensive alternatives. I bought a crib for $100 from Ikea. I also bought a very stylish and easy-to-clean high chair there for $19.  Both have all of the features of their more expensive counterparts. A little Internet shopping goes a long way. Just don't use a crib made before 1990. Safety standards have changed.

3.Don't fall for the hype. You really don't need half of the things you think you do. You really only need a crib, mattress, a couple of sheets, some blankets, clothes, a swing, a sling,a $10 baby bath tub, changing pad and a stroller to start with. You'll also need a chair in the nursery.

Don't let anyone convince you you need specialized, expensive items that you can't use for a long time, like a special changing table. You can get a changing pad and put it on top of a dresser or another piece of furniture. I used a 1950s dresser I inherited from my grandpa. It's a dresser the Bean will be able to use until he goes away to college.

4. Go boob or go generic on food. I breastfed for the first five months. It cost only $60 a month, all for the pump rental. When I switched to solids, I was happy that they cost only 49 cents a jar. And, generic brand formulas, particularly those made by Target, appear to be the same as the more expensive brands such as Similac and Enfamil, only for half the price. At first, I was afraid to use generic formula, so I shelled out $25 a can for Similac. But, after talking to some other moms of perfectly healthy babies, all who had used generic formula, I made the switch. A $12 can of formula can last a long time. I estimate it costs only about $60-75 a month to feed the Bean.

5. Diapers. If you aren't careful, diapers can eat up some cash. I have found that cheaper brands such as Luvs work just as well as the twice-the-price Pampers. Also, we invested in some Happy Heiny's one-size reusable diapers. They work well, are washable, and save us about $50 or so a month on diapers.They cot about $16 each up front, but can be used for about a year, or until your baby outgrows the largest size setting. They have more than paid for themselves already. Also, there is no shame in potty training at a reasonable age. The average age for potty training has gone up in the past few years. Babies are ready for potty training anytime after 12 months, with the average age hovering around 18 months.

The diaper companies would have you believe that kids as old as 3 should still be in diapers and training pants. This is merely a racket, so go ahead and get the potty training train rolling.

6. Doctors. This is the hardest one to pin down. a new baby means your insurance premium will go up and you will have out of pocket expenses for well visits and vaccinations. The Bean added about $50 a month to our insurance costs. We pay $15 out of pocket for each doctor visit and have only gotten one extra bill for about $50 in the first 8 months. It wasn't as bad as I thought. But my bills for delivery were the worst part, so it's good to sock away extra money to pay the hospital bills that your insurance won't cover 100 percent. If you are pregnant, plan for that.

7. College and such. I'm a strong believer that it pays to save early and often for baby's college.I opened a state-sponsored 529 plan when I was 5 months pregnant, in 2007, so that I could save more for the Bean's college. I was able to contribute the $2,000 maximum for 2007 as well as 2008 because I opened the account early. How did I do that? I opened the account in my name while I was pregnant. After Bean was born and his social security number arrived in the mail, I made him the beneficiary on the account. This is a trick I picked up as a financial journalist. The director of my state's program said it was a perfectly legal and legitimate way to start a college fund. Right now, Bean's college is his largest monthly expense, but one that will hopefully pay dividends later.

8. Birthdays and holidays. I'm sorry but $400 birthday parties with ponies and clowns are silly. When I was young, in the 1980s, party games meant Hungry Hungry Hippos and a game of hot potato with a literally hot potato wrapped in tin foil being tossed around. Kids have fun no matter what. You don't need to make it fancy. A cake should just about do it.

What about Christmas? Well, Bean will be 9 months old for his first Christmas. He's getting one toy. At the moment, his favorite things to play with are a Ziploc bag filled with quarters and a ball point pen (with the cap on), so I don't feel bad giving him only one new thing.I imagine keeping the consumerism out of holidays will get harder as he grows older, but I do believe that how we handle the first five Christmases will set the stage and lay the foundation for those that follow. We are going to try to keep it simple, with a limit on gift-giving. Grandparents can show their love by adding to the college fund, and Bean will hopefully treasure the three to four gifts we plan to give him every year. After that, I suspect each gift would have a diminishing return.

I'm sure there are more ways to have a frugal baby. If you have any ideas, please post them in the comments section. We need to keep new parents out of the poorhouse!