Ask the Readers: How Do Children Affect Financial Priorities?

First off, if you have the opportunity to do so, sign up for any tax-free things you can. We have two children and have maxed out the Childcare FSA (my wife works and we pay for daycare), and contribute $1300 a year to the Healthcare FSA — co-pays do add up when you have four of them, plus the cost of medicine, too. All these funds come out prior to taxes. A childbirth is a “qualifying event”, but you need to make changes within 30 days.

Also, make sure you update your paycheck withholding accordingly, as well. You’ve now got a dependent.

As for the car question, that comes down to the environment they live in. How far away is the pediatrician’s office? How available is transportation when you REALLY need it — like when you have to take your child to the doctor’s or hospital immediately? At the very least, you probably need to purchase a car seat, since at SOME point you will likely put your kid in some kind of car — a cab, a rental for a trip, etc. A car is not an absolute requirement by any means, but that answer is highly dependent on what sort of area you live in.

I’d also caution against the urge to go buy “everything you need” right away. And I’ll encourage also that you stay away from high-end “baby boutiques” with $500 strollers and the like. Most of the stuff you can get either used (Craigslist, Children’s Orchard, garage sales, other consignment shops, through people at work) or at Target and it will all work just fine. For the first 3 months a baby doesn’t need much at all, and until crawling/walking happens, they only need the most basic of toys and excitement. Even after they start moving around, the simplest toys seem to be more entertaining than something complex.

Enjoy your kid, though, they are a lot of fun (and a lot of work). It’s not entirely clear to me if Kat is planning on staying home or staying employed, but either way still results in decent kids — make YOUR decision as for what works for YOU and YOUR SITUATION. There will be many, many people who will judge you continuing to work (if you choose to do so) and “neglect” your family. Ignore them and do what you want to do — being a parent is a balancing act, and part of that balancing act is keeping YOU happy, too.

And finally — restrain from giant life decisions during your baby’s first three months of life. Sleep depravation isn’t a good time to figure stuff like that out.

We have a young baby and have not gotten our act together about a 529 college plan yet, but one thing we did was open an ING money market account for our son. Every month we put a certain amount in his account. It’s a small amount now ($50), but we plan to increase that as he gets older.

I would second the importance of life insurance. I currently don’t have an solid income (just part-time on the side work), but we have life insurance on me now, since if something happened to me, my husband would have to spend a significant amount over the years on childcare.

I think everyone has made some great points. Just to reiterate what Jason said, high-end products for babies are a waste of money. For the first couple of years they will cycle through things so quickly (even big buys like cribs and strollers) that it just doesn’t make sense to spend large sums on these items. Keep safety in mind though.

Also, I think having a child reiterates the importance of an emergency fund – you never know what might happen and throwing kids into the mix increases the variables exponentially. Think about daycare, healthcare expenses (and increased household expenses with diapers and baby foods), college, and whether or not any future children are planned. Best wishes!

First off congratulations on the baby. Second off, your life is going to change in ways you have yet to envision, enjoy the ride.

My simple advice is this. You child will not give a hoot what clothes they wear, what they sleep in, how big or what color their room is, what toys they have, etc. until they are significantly older. All they care about is being comfortable (food, shelter, clothing and doses of love). So don’t spend money buying that “oh so cute” seventy dollar dress or leather jacket they’ll outgrow in a month or the five hundred dollar playpen with all the gizmos and gadgets. All that crap is typically for your ego and that of your family (grandparents are especially notorious for this, enjoy but keep it in check). Buy safe and smart, and lightly used if possible and practical. If you let yourself, you will find much more than subtle pressures coming from every angle to provide “the best” for your baby. There are many parents who justify their expensive purchases by making grand declarations on how it’s the “best” for their child and they simply can’t see how or why someone wouldn’t do “X” with their kid. It will sometime set you back on your heals in wondering if you’re doing right by your kid. Chances are, you are, don’t sweat it. Like I said, a kid would be quite happy wearing a puke stained (but cleaned) onesy while sleeping in a used playpen with a raggety blanket as long as they’re warm, fed, and clean.

If you’re considering daycare or stay at home, the debate is endless. All I’ll say is that I’ve seen kids raised with stay at home parents who were absolute sh*ts and kids raised spending plenty of time in daycare who are great kids, and visa versa. IMHO it’s the parenting you do when you’re there that really counts. You guys do what’s right for your family.

I’ll agree with the article that you need to get the life insurance on you an your spouse, IMHO term is better and cheaper. Get a will done and ensure it’s not only for this child but will cover others you may have (there are simple clauses you can put in so you don’t have to update the will every time you have a child).

I would *not* recommend paupering yourself in preparing for their college. I would recommend starting a 529 account or other college savings plan now. Drop $500 to $1000 (whatever the minimum is) and add just a little (say $20) from each paycheck or so or whatever you decide on and raise it a bit every year. You may not fund a $400K college education, but even today $30 – $40K can get two years community college and two years state college in most places with minimal or no loans. Obviously it’s your call on how much you decide to invest there.

I also would budget for plenty of trips to the doctor the first year. You’re new at this. Chances are you will end up bringing the child in more than you think either because you are concerned or because the little bugger gets more ear infections those first six months than you ever had in your lifetime. Trust me, by the third kid you’ll have a better idea of when you can wait to take them and when you need to take them in first thing. With the first kid, just take them in first thing all the time. Your learning.

Nuff said. Best of luck.

Definitely a good point about the college savings versus retirement savings. Your children will have 40 years of earning potential after college, but your personal earning potential will be peaking. So be helpful, but its not necessary to pay for everything.

I like the idea of the 529 (mine helped me through school and we have one for my daughter – 14 months old). It’s a great way to tuck away money given to your child when he/she is too young to want to buy some toy. Also, you could consider a credit card (yes, I know be careful with credit cards) such as the Futuretrust Mastercard, which puts 2% of every purchase into the 529 you set up. Or since you will be paying less in taxes, dedicate that “savings” to the 529. Or if the market has you freaked out, do the same with a cash back credit card and put the savings into an ING dedicated savings account, which could then be used to buy longer term CDs per GRS instructions.

But really it all comes down to setting priorities. What matters most is that you and your partner are on the same page, and that you achieve a healthy balance between taking care of your little one and taking care of yourselves.

After my son was born I found that he was nowhere near as expensive as I had feared. I have the advantage of free formula as a perk from work, plus my partner is breastfeeding whenever possible. The warehouse stores save money on staples such as baby wipes and diapers. I found that the added expenses are cancelled out by the fact that restaurants and bars are now a distant memory. He will start daycare in a few weeks, and luckily the one we chose lowered their infant room rates by 10% recently because they’re operating well below capacity.

My personal goals are to maximize my retirement savings before even thinking about college savings. You can always borrow for a house, a car, a boat, or an education, but you can’t borrow for retirement. I will probably heed the advice of the other posters and start a savings plan with a few grand and plunk a small amount in, but I’m not going to save aggressively for his education until my salary has increased accordingly.

I would share 5 suggestions with Kat:

1) Try to relax and enjoy your child as much as possible. Children mostly want and need their parents’ attention and love. Don’t let financial matters get in the way of this.

2) Stay at home with your child if you can. It sounds like you and your husband are in a good financial position so, why not devote this season of your life to raising your child? It will pay dividends well beyond any financial earnings.

3) Start saving at least a little for college now. You will thank yourself later.

4) I didn’t see specific mention of a written budget above, but it is likely you have one. Be prepared to make adjustments! Your priorities are about to change and you will need to be flexible with your budget. Go with the flow on this. See how your expenses change and re-prioritize as needed.

5) Don’t be afraid to buy used items for the baby. It is a great way to save a ton of money. We selectively bought some things new, but my wife found a lot of great deals at garage sales, kid sales, and secondhand stores.

I think you are already way ahead of the curve because of what you’ve been doing financially. I don’t think anyone can be fully prepared for how a child changes their life. Therefore, my advice is mainly centered around remaining relaxed and flexible. You’ll work the rest out.

Congrats!

The only thing I’ll throw out there is how are they getting to the doctor now? Babies are notorious for needing to go to the doctor. Is there a way for them to get to the doc’s office at any time needed? If not perhaps a cheap but safe vehicle might be needed? Just my two cents.

I’ll second those who say start a high-interest savings account for your child.

That way when they’re in school and allowance/pocket money comes up, you can show them what happens to money that’s been invested as a way to motivate them to choose to invest some of ‘their own’ money.

The first year there aren’t that many new expenses, once you get past the initial bump. That initial bump of acquiring all the new baby stuff can be softened dramatically by buying used, getting stuff for free off of freecycle, etc.

When they hit about 6 months and want more ‘solid’ food (mashed anything, etc.) get a blender and a bunch of small tupperwares if you don’t have one. Babyfood costs $.50 or more per little container. A single yam, banana, potato, squash, etc. is much much cheaper than that and anything but bananas freeze well. Applesauce is probably the only thing that’s cheaper to buy than make (unless you have an orchard).

Kids don’t care if their toys are fisherprice. They don’t even care if their toys are toys. Our son loves playing with an old keyboard, cups, spoons, and other household things as much as he likes his leap pad learning toys (gifts, I’d never buy them!).

Having raised 3 sons, who are currently ages 22, 18, and 15, and having 2 of them currently in college and the 3rd there very soon, I strongly suggest that you begin putting money aside for college.

When my oldest was in 6th grade, we started a mutual fund with $100, then deposited $25 per son into the account. Then with each pay increase that we earned, we increased that monthly deposit by $10 per son.

This has provided us with funds that we are withdrawing from at a rate of about $2000 per semester per son, without completely depleting the mutual fund.

We had a goal of having enough supplemental funding to endure through 3 sons, but because of the economy today, it will be a challenge.

At least we got out of it what we did with minimal upset to our lifestyle.

Further, we were advised not to establish this account as a 529 account, providing us with the flexibility to withdraw for any other family emergency that could arise. Unfortunately and fortunately, we have needed to withdraw for 2 urgencies with vehicle repairs.

If we had to do it over, we would have started this approach at the time my sons were born.

We may redo this approach for any future grandchildren.

One thing I don’t think has been mentioned is that Kat should contact her HR department and find out what compensation (if any) is afforded to her during her time off. My wife stayed home for 6 months. During that time we received income from her Family Medical Leave Act, Disability from her health insurance, and she cashed in all her PTO and vacation time. So even though she was off of work for 6 months we still had a stream of income (albeit not at the same rate she was earning) still coming in.

My wife went back to work after six months to 2/3 time (thankfully, this was available for her). Speak with the HR dept and bosses to see what options are available if Kat still wishes to be employed but perhaps spend more time at home.

My wife works 2-3 days/week and this is just the right balance for her between home and work.

One way to save when you have children is to say no… a lot. My parents had no problem saying no to the endless stuff we just had to have. A good thing because we always wanted something new one week, and something new the next. Here are my mom’s favorite money saving quotes that I give to you for free.

When we didn’t like what was for dinner: “You know where the peanut butter and jelly is.”

When we wanted something.
“You don’t need that.”
“Honey, I can’t afford that now.”
“No.”

When we were bored
“Read a book if your bored.”
“Go clean your room”
“Help me with the chores.”

My mom’s answer to what the neighbors, family, in-laws, might think.
“When they pay my bills, then they get a say in how I spend my money.”

Good advice.

I’m pregnant with number four (yeah!). My hubby is a construction worker and I stay at home and do a little accounting on the side. Here are some of the things we’ve done that have worked. A number of these have already been mentioned, so consider me underlining them. (We live in one of the most expensive housing markets (well, until recently anyways) in the US. If we can make it on one salary without any problem, I don’t see why it is so hard for others.)

1) A 529 plan for each kid the first year they are born. We don’t always have much to put into it, but every little bit helps.

2) Keeping my hubby and my retirement/insurance/living will up to date. This is truly a gift to the kids.

3) Staying away from trendy purchases. A new born baby needs diapers/wipes, clothes (8 or 9 outfits as they go through several a day), a car seat (even if you don’t have a car – here they won’t let you leave the hospital without it), and a little rubbing alcohol to clean the umbilical cord. Don’t buy anything else until you absolutely need it – even if people say it is a must. Every family and every baby are different and most of the ‘must haves’ we purchased for our first baby went to Goodwill years ago. Instead start putting away money for those items that you know will come up (more clothes – they grow out of them every couple months, a stroller – for little babies we actually prefer a backpack, a crib – our babies sleep with us the first year, etc.) You’ll figure out what you need by how things go once the baby is here. It’s hard to preplan this.

4) Plan ahead for larger purchases and save accordingly – we’ve known for a while that we wanted 4 kids and that when we reached that point we would no longer fit into our car. We’ve been saving for a mini-van for three years. Even if you don’t need a car right now, I would imagine that you will once the baby starts school.

5) I know it seems like preschool (at 3) and Kindergarten (at 5) are far away, but they really aren’t. Depending where you live, preschool can be pricey (in our are $275 – $500 a month). Plan ahead to pay for it. Plan ahead for where you want your child to go – sadly some preschools have such long wait lists, you have to sign up the moment the baby is born to have a fighting chance to get in.

6) Relax. A good lot of the ‘rules’ of raising babies are folklore. Let you baby tell you what he/she needs. Don’t sweat the little stuff. Babies are hardier than they look, need to be exposed to germs/dirt, and don’t need all the fancy lotions, potions, and gadgets. When your little bundle arrives he/she comes naked. Cover their bum, keep them warm, keep them fed. It is hard to screw this up.

Best wishes! Your first is REALLY a wonderful experience.

My son is 4 months old right now and is a true joy. However, he’s expensive. The money we used to spend on us, we now spend on him. We’ve also tightened up the belt and cut back in other ways. My wife is the main bread winner and we’re only getting a portion of her salary based on maternity leave benefits.

Based on what was outlined, by the reader I’d say continue to focus on debt reduction and build the emergency fund. Children will throw all sorts of unexpected expenses your way so the emergency fund and possibly an emergency line of credit could be happy.

While I advocated keeping up with the debt reduction if it’s affordable, during the first year it might be difficult to really get ahead. The key is to be thrifty and frugal in your purchasing.

The discussion of fancy baby items and how they are more status symbols than necessities reminds me of a recent online debacle regarding Target and some Britax car seats (see for example this news source: http://www.whec.com/article/stories/S668882.shtml?cat=572).

In short, Target accidentally priced some $275 Britax car seats online for around $50 w/ free shipping. Deals websites all over the country posted it, and they ended up selling thousands of seats in a few hours (some people were buying dozens to sell on ebay for profit). It would have been a HUGE loss for Target, so they canceled most of the orders. Chaos among mothers ensued and outcries of unfairness and the like abounded. A mother scorned is NOT a pretty sight.

It was quite amusing to read various mother forums, but what really bothered me was how so many mothers felt that this was their one chance to own a fancy car seat and that Target owed it to them to sell it at a tremendous loss. Some people might argue that Britax is safer and that’s what the hullabaloo was about, but I really think it was because Britax is so expensive and a status symbol among moms. Some moms were so emotional about it (threatening to sue etc.) and bemoaning how now they couldn’t afford a safe seat (you can buy a highly rated car seat for as low as $50 on sale). It really underscores J.D.’s regular refrain that advertising manipulates us.

The most important thing Kat and her husband can do for their new family is to communicate with each other about their money. Some financial difficulties that families run into aren’t preventable, but many are. Among my friends I’ve seen that the most common financial problems have stemmed from partners assuming that they have the same goals when they don’t.

The kinds of questions they should be asking themselves and each other:

Do they both anticipate helping their child(ren) with higher education costs or does one of them think that kids are on their own after high school? The answer affects how much goes into a 529 versus a 401k.

Are they going the cloth diapers from craigslist route or disposables? Do they both agree with the answer? That affects how much disposable cash they’ll have.

Have they discussed whether buying a house in a few years is important? Are they planning for public schools or private? Are the answers to the house/school questions compatible?

If they buy a house, do they anticipate using home equity loans to pay for school/buy trucks and boats/be an emergency savings account? Do they think home equity is something you count on only when you sell a house and you never, ever touch it before then? These questions may be less relevant today than a year ago, but I’ve seen a divorce come straight out of this conflict and it wasn’t pretty, financially, for the kids.

Does either of them have strong feelings about day care, pro or con? How flexible are those ideas if one of them discovers after the baby is born that they didn’t know themselves as well as they thought?

You get my drift. The more you talk to each other the better idea you’ll have as to where to put your money. Good luck – from your letter it sounds as though you and your husband are on your way to being careful, thoughtful parents.

Congratulations on the baby!

Also, it sounds like you’ve done a great job setting yourself up for financial success with the baby on the way. I don’t have kids myself yet, but I treated quite a few in med school… so in addition to all the great suggestions above, this is my slant on how to save money on healthcare-related issues:

Wash your hands OFTEN– this cuts down on transmission of germs (parents get sick much more frequently when their kids bring home illnesses). Then you and your husband won’t have to use up sick days to recover; you also save money on doctor’s visits.

Life insurance and health coverage is very important; please spend enough money to make sure you’re covered adequately.

When your child gets sick, call a pediatric advice line first (check with your local hospital or pediatrician to see if they recommend a particular one). This may save you time, anxiety, and the cost of a visit to the pediatrician’s office or emergency room.

Speaking of emergency rooms, please try to keep yourself and your child away from them unless it is truly an emergency. The wait is hard on young kids, the visit may be expensive depending on your health insurance plan, and there are many horrible germs in the hospital that you don’t want to expose your child to.

Good luck with your first! And babies are resilient, so don’t beat yourself up too much about doing things perfectly. Go with whatever works for you.

In my experience, my husband and I were not financially prepared to have a child. Kat and her partner seem prepared and knowledgable about their finances. Before the baby arrives, Kat and her partner should communicate how they want to financially prepare for the baby and how they want to live their lives as a family. Once the baby is born, the baby will always be #1.

I think there are several things they need to consider, such as will Kat work after the baby is born? If so, who will care for the baby while they’re away at work? Do you have parents to watch your baby? Or will you send your baby to daycare? And having no car will also affect their daily life with baby. How will you take your baby to doctor’s appts?

When my husband and I had our baby, we had no money. We didn’t have any relatives to watch our baby when we were at work. We had to put our son in daycare when he was 3 months old. There was no way that I could be a stay-at-home mom. I had to work. Our rent is through the roof where we live. Daycare fees are also outrageous nowadays. My son is in preschool now and it seems like we’re paying for a private school.

Financially, my husband and I are surely but slowing getting to where we want to be. Paying off debt little by little and saving up money for ourselves and our son. Kat and her partner seem to be in a good place financially. When you start saving money for your child, the question always comes up, ‘should I save for my child’s college education?’ I’ve read many personal financial blogs and the consensus is that your child can always get a loan when they go to school. But can you get a loan for your retirement? We still try to set aside in my son’s account just as much as we do for our own savings/future. We’re at least trying to save up for our son’s future.

Our lifestyle now really affects our decision on having baby #2. We’re trying to pay off our debt and save up for a house. We’re trying to get to a good place financially before we decide if we want another child. Children are hard work. We want to enjoy our child now and all of his milestones. Before you know it, your baby will be a teenager and won’t want to spend any time with you. Enjoy their younger years, it goes quick!

I’m sorta in the same position as Kat, except we are not pregnant yet, but planning/thinking about it for next year.
This is what we’ve done/plan to do:
We saved $5000 for our baby fund this year.
We likely will add $10,000/$15,000 to the fund next year (we have not yet finalized our 2009 goals).
We bought a nused car this year that was larger and 4 door. We needed/wanted a new car and bought something that would work for a baby/family. We paid cash for the car.
We increased our emergency fund to $20,000 this year.
We researched life insurance this year but we did not buy.
We know that we will need to pay a nanny post birth as we both work and want to continue working. We’ve started thinking about that issue, finding out how much it will cost and the optins.
We want to do college pre-pay for the baby and we will want to do that early so we’ve started thinking about how much that costs as well.
We will need to send the baby to private school and we’ve started thinking/researching how much that costs.

But what we don’t plan to do is sacrifice our future for the baby’s future (i.e. put college ahead of our retirement savings). Instead we plan to keep our expenses flat (this past year we saved $50,000) keep putting money away for our retirement and our long term and short term goals.

This second post, separate on purpose, isn’t exactly on topic. I just want to share my sister’s experience with a new baby to demonstrate that a baby doesn’t necessarily mean you have to spend more money.

For the first year of my nephew’s life, my sister did not have *any* increased expense. She bought cloth diapers on craigslist and resold them later (several times as he changed size). No net expense. She was able to breast feed (not universally possible, but usually an option) so no expense for formula. Sure, he ate some regular food, too, as he got teeth, but she just mushed up some of their food for him so no extra expense. They did co-sleeping (again a choice that’s not for everyone) so no expense for crib or bedding. Clothing was given by friends with older babies and then passed on to other families. No expense for clothing. The few toys he played with were given happily as gifts from aunts, uncles, grandparents so no expense for toys.

They did have to shell out some money for health insurance, but it was recovered at tax time with the additional dependent deduction and the child tax credit. They also incurred expense for his birth, but that was offset (quite unexpectedly) by a decrease in my sister’s wardrobe costs. She is a stay at home mom and when she no longer needed fashionable work clothing she found she was dressing in casual second-hand clothes and saved a ton.

This post in NOT NOT NOT meant to say that everyone can or will want to have this same experience with a child. I just like to provide a different perspective than is commonly found. Enjoy your new baby!

I have a toddler at home and a new baby on the way. My wife has a good job with a good salary so I stay home and do daddy daycare.

Our friends bought very expensive cribs, strollers, and clothes. We can afford these things, but found our baby stuff by going to garage sales, using freecycle on Yahoo Groups, and finding clothes at Goodwill. With the money we saved, we put money into our child’s college savings fund.

Several people mentioned term life insurance and someone mentioned disabililty insurance – both of these are important, but most important is to get them NOW. If you leave work after the birth of the child, the amount of either insurance you can get is limited, as they are based on your earnings (in part for life, completely for disability). A homemaker has no income, and therefore no income to insure. Get a non-cancelable disability insurance policy now, because even though you don’t get paid for it, no one is going take care of your children for free if you become disabled. For life insurance it’s not such a big deal, though you can get a bigger policy with an income than without one. But disability insurance is impossible to get (ask me how I know) once you leave work.

Without reading the above comments and at the risk of repeating what someone may have already said, when deciding how to direct your money to either:
a) savings for the child(ren)’s future educational expenses or
b) savings for you and your partner/spouse’s future retirement
remember this. Your child can borrow money (as painful as it may be) to go to school in addition to being awarded scholarships/grants but no one (perhaps not even Uncle Sam and Social Security) is going to help you pay for your retirement. And, as in the case of the article’s subject, if you’re already out of debt now, you certainly don’t want to set yourself up to have to live in debt when you retire. My $.02

Kids change almost everything financially.

You have new budget categories (diapers/baby clothes/formula/baby food/education/health care etc)

You end up with less time alone as a couple, so you don’t go out socially as much (at least for the first few years)

When you do start to spend time together as a couple again, you have childcare expenses

Social excursions and vacations become more family-focused

You start re-evaluating everything about the way you live including what you drive, where you live, your child care situation, who you spend time with, how often you visit family.

Living as three instead of two is an entirely different lifestyle and the ramifications are different for every family. Some things will change because they have to, some things will change because you want them to.

But it’s so worth it