7 Lessons About Money I Learned After Having Twins
When I first found out that my wife and I were having twins, I figured that raising our boys would be expensive. Learning that the U.S. Department of Agriculture (USDA) estimated that middle-income parents would spend an average $25,880 on twins in their first year really shocked me.
The USDA estimated that U.S. families could spend from $353,100 to $815,640, depending on the family’s income level, to raise twins born in 2013 through high school. These estimates didn’t even include college tuition!
The good news is that there are plenty of ways to bring down the estimated costs of raising twins. Here are the seven lessons about money I learned after having twins.
1. Don’t Buy Everything
“Two of everything!” is one of the first things that people tell me once they find out that I have twins. In theory, having twins should double your expenses. In reality, it doesn’t. More than one parent of multiples advised me not to buy everything and they were 100% right. You can do just fine with only one of many items, including baby bathtub and pack-and-play.
Even more, there are so many baby items marketed to parents that you can do without, such as the Baby Brezza Formula Pro One Step Food Maker retailing for $150. While you always want to give your babies the very best, keep in mind that sometimes less is more. You already have a long list of must-buy-two items, including car seats and cribs (you can get away with just one only for so long!), so don’t hesitate to cut down on non-essentials.
Warren Buffett said it best: “If you buy things you do not need, soon you will have to sell things you need.” Splurging should be the exception and not the rule.
2. Look for Niche Discounts
Somedays you may feel that you’re the only parent of twins in your neighborhood. The reality is that the U.S. twin birth rate was 33.9 per 1,000 births in 2014, up from 33.7 per 1,000 births in 2013. As more parents have twins, more businesses are extending special discounts to those parents.
- Babies R Us extends a 10% discount when you purchase two of the same item on the same in-store visit. Qualifying items include baby furniture, car seats, strollers, high chairs, and gates.
- Pampers offers a one-time set of coupons to parents of twins and multiples by mailing your name and address along with the hospital discharge copies to: Pampers Multiple Birth Offer, The Procter & Gamble Company, P.O. Box 599, Cincinnati, OH 45201 or by calling 1-800-726-7377.
- Luvs Diapers also offers a one-time set of coupons as well and you can write to the same mailing address as above with attention to “Luvs Multiples Birth Program” or call 1-888-665-3257.
Businesses seek ways to attract customers from different niches. There may very well be a discount out there for you, but it may require you to do some extra leg work, such as calling the company or mailing a letter.
3. Buy Life Insurance
Now that you are a parent, buying life insurance is one of the money moves to make or you’ll regret it 20 years from now. Right now is the cheapest rate that you’ll ever be able to get life insurance, so you’re better off locking into it now than waiting several years.
If you’re the main or sole breadwinner of your household, provide financial security to your dependents in case you’re no longer there for them. Could your spouse tackle the monthly mortgage payments, car payments, and living expenses without you at all? Nobody likes to think about their own mortality, but things are very different now.
Life insurance is the foundation of financial planning to help protect your family against life’s pitfalls.
4. Start or Build Up Your Emergency Fund
With twins, I have learned how essential it is to have a cushion to lessen the blow of many surprise costs — such as certain vitamins and medicines not covered by health insurance, or changing to a more expensive baby formula due to sensitive digestive systems. Only 38% of Americans can pay unexpected expenses, such as $1,000 for an emergency room visit or $500 for a car repair, from savings. Achieving the right balance between interest rate and liquidity is often possible with a high-yield online savings account, which provide interest rates ranging between 0.75% and 1.25%. Make sure to read the fine print on access to funds to avoid surprises.
Having a rainy day fund is essential to keep your monthly budget on track, so start (or build up!) yours today.
5. Adjust Your Withholding
Of course, since I’m asking you to start paying for life insurance and putting money away in a savings account, I do need to give you a way to come up with those extra monies! The easiest one is to revisit how much you’re currently withholding every month for taxes. In 2014, the IRS doled an average of $3,096 in tax refunds.
Unless you got a refund entirely based on tax credits, you’re withholding too much in taxes. Using the $3,096 average, you could have an extra $258 every month. Now that you have dependents, you may qualify for several exemptions and tax credits, including the Child Tax Credit and the Child and Dependent Care Credit, to effectively reduce your tax bill.
Remember that a refund is money that just sits in Uncle Sam’s pocket making you 0% interest!
Use the IRS Withholding Calculator or talk with your accountant to find out how much you should withhold every month. Then, accordingly adjust your W-4 with your employer.
6. Open a Traditional or Roth IRA
While the 401K is the most popular type of retirement account, the Roth offers much more flexibility when it comes to taking distributions before age 59 1/2. As a parent of twins, having my retirement account as a last-resort fund that I could tap into without IRS penalty to help my sons is very important.
For example, I could take up to a $10,000 distribution to help them to pay for their first home. As long as I don’t go over that total limit, I can split the distribution as I see fit and can take one in separate years. Another penalty-free withdrawal from an IRA I can take is to cover qualified higher education expenses, including tuition, fees, books, supplies, and equipment required for the enrollment or attendance of my sons at an eligible educational institution.
Bonus: Using an IRA, you can save an extra $5,500, or $6,500 if you're age 50 or older, in 2015 and 2016 for retirement.
Saving in an IRA allows you to take early distributions without penalty for qualifying purposes.
7. Start Saving for Your Kids
Another great Buffet-ism is "Someone’s sitting in the shade today because someone planted a tree a long time ago." Imagine if you had an extra 18 years to save for college or retirement, wouldn’t that be awesome? That’s exactly the lesson that my wife’s and my own parents passed on to us the moment they found out we were having twins. (See also: 8 Money Moves to Make When You Find Out You're Pregnant)
A little bit goes a long way. Even saving $100 every year for 10 years is much better than starting to save $1,000 10 years from now:
- With a 0.5% annual rate of return, you would end up with $1,025.57.
- With a 1% annual rate of return, you would end up with $1,051.88.
- With a 2.5% annual rate of return, you would end up with $1,135.45.
- With a 4.5% annual rate of return, you would end up with $1,258.57.
- With a 7% annual rate of return, you would end up with $1,443.48.
When thinking about saving for your kids, especially for education-related expenses, evaluate all options, including custodial IRA accounts and 529 plans. Many of these type of accounts provide full or partial income tax deductions. (See also: The 9 Best State 529 College Savings Plans)
Leverage the power of interest compounding over a long period of time and give your children a head start on saving for education or retirement.
What money lessons did you learn with the arrival of your baby?
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