Becoming a foster parent is an incredible opportunity to provide a secure and loving home for children who have faced tremendous obstacles. It is no secret that raising a child of your own is hard, and becoming a foster parent is no different. Before deciding to become a foster parent, it is crucial to take a look at your finances. Having a strong foundation financially will go a long way in minimizing the stresses of raising a child. According to the U.S. Department of Agriculture (USDA), it costs a middle-income family an average of $12,980 per year to care for a child. While it is true that you will receive some money from the state to support your foster child, it may not be enough to cover all of the costs.
Budget (Spending Plan)
A spending plan is a way for you to see where your money is coming from and where it is going. You will start by adding up all of your income sources for the month. You will then add all of your expenses you have for the month, which include fixed and variable expenses. Fixed expenses are those that stay the same from month to month such as rent or car payments. Variable expenses are those that change from month to month like groceries or medical expenses. If you are spending more than what you are bringing in, this is an opportunity to make some adjustments. This could include re-evaluating subscriptions or eating at home more often. When becoming a foster parent, you will have to provide a budget to your agency to prove that you are financially stable enough to care for a child. Take this seriously! Fostering is meant to provide for the children who need it. If you are not able to cover your expenses with your income, this may not be a good time for you. This is especially true since, most often, you will spend more money on your foster child than what you will receive in state support.
According to the U.S Department of Health and Human Services, on average, foster children stay in care for over a year and a half. With this in mind, having an emergency savings account is important for times when the unexpected arises. The rule of thumb for an emergency savings fund is three to six months’ worth of expenses. Having this amount on hand will allow you to avoid taking on credit card debt to fix the family vehicle or pay for medical expenses. There may come a time when, as a married couple, you decide that one of you will become a homemaker and opt your foster child out of daycare. In this situation, you might consider an emergency fund closer to six months of expenses. The last situation you want to find yourself in is both spouses becoming unemployed, with kids to care for and no emergency savings to hold you over until one or both of you find a job.
Whether you file your own taxes or hire someone to help you, it is important to know the tax benefits that you are entitled to as a foster parent. The biggest benefit that could apply is that you can claim the foster child as a dependent on your taxes. There are stipulations on the amount of time a foster child must be in your home before you claim them as a dependent. Reach out to your tax preparer or a tax professional on whether you can take advantage of this.
As mentioned, you receive a subsidy as a foster parent. Because this subsidy is meant to be used for the care of your foster child, it is non-taxable. You will not need to report it on your tax return. If you itemize, it may also be possible for you to deduct expenses to clothe, feed, or care for your foster child as a charitable donation if the costs are not reimbursed. Again, seek a tax professional if you are unsure which expenses would qualify.
Financial Preparation Can Help Make Fostering a Fulfilling Experience
Taking a look at your finances, budgeting, having emergency savings, and taking advantage of the tax benefits of a foster parent are all ways to ensure you can provide for your family and foster child while they are in care. Fostering is critical to filling the void of a healthy, safe, and secure home that these children wouldn’t have otherwise. It is a rewarding experience, but without proper financial planning, it can be quite the opposite.