When you’re on your own (or even with a partner), money decisions are generally straight-forward. You set personal goals and you work toward them. But what happens when you add children to the mix? How do you plan for them and for yourself at the same time? Kat is expecting her first child this month, and needs advice on how to prioritize her finances:

My partner and I are just finishing the first phase of our relationship — starting our lives together. I am 25 and he is 31. More or less, I like where we are now financially:

  • We’ll be debt-free by the end of the year.
  • We have no mortgage — we are renting.
  • We have no car since we chose to live near our places of work.
  • We’ve started an emergency fund.

In our current situation, we can live comfortably on my partner’s salary alone (50% needs, then split the rest on wants and savings, like the balanced money formula). My income can be aggressively put into savings.

However, things are about to change since we are expecting our first baby later this month. (We have saved up for hospital expenses as well and gathered some baby stuff already.)

What I want to know is: How do we start this off right? I am putting our 2009 projections and goals in order now. If it were just the two of us, I would say that 2009 will be a year devoted for catching up on retirement savings. But with a baby on the way, what are the things we should be saving for?

I do my best to offer advice from my own life and my own experience. However, Kris and I have no children. (If this question were about cats, I could help.) In the past, several GRS guest authors have shared their wisdom about preparing for children:

These are all great articles, but I’m not sure they address Kat’s concerns. It sounds to me as if she’s prepared for the baby’s arrival; she’s worried about the long-term impact on the household finances. Though Kris and I don’t do these things with our four cats, the following seem appropriate to somebody expecting her first child:

  • Kat and her partner are in a solid financial position. Now is a great time to draw up goals for the future. Do they want to buy a house? Will they reduce their own retirement savings to set money aside for the child’s college education?
  • It’s important to decide the roles each partner will play. Will both work? If so, what provisions will be made for daycare? If not, how will Kat and her partner decide who remains on the job?
  • If Kat hasn’t already, she should take care of two tasks that most people procrastinate: life insurance and estate planning. (Creating a will isn’t as scary as you might think.)
  • They should also discuss how much financial support they plan to lend their child on the long run. This is an important decision, and not as clear-cut as some might think. The Millionaire Next Door makes it clear that too much financial support for children can hurt their ability to fend for themselves.

But, as I say, I have no children. I don’t know how having a kid affects your financial decisions. I don’t know how you juggle your own retirement savings while saving for the child’s future. What about you?

Do you have advice for Kat and her partner? What financial preparations should they make? Do they need a car? How should they prioritize future saving? Are there things that you wish you done differently with your money as it relates to your kids? What are some of the things you did right?

Note: Here’s some follow-up from Kat.

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