Ask the Readers: How Do Children Affect Financial Priorities?
Published on - December 5th, 2008 (by J.D. Roth) 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:
- Corrinne wrote about making the move from two salaries to one.
- Lynnae from beingfrugal.net told how to prepare for a baby without going broke.
- Amanda described the shockwaves of a lifestyle change.
- Nickel gave tips for how to start a family without breaking the bank.
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.
This article is about Ask the Readers, Budgeting, Kids, Planning
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WILL
Get a will – even if it is one of the cheap do-it-yourself CD kits. Why? Because in some states (such as Virginia), if you don’t have a will, all life insurance assets go directly to the child (even if the spouse is named on the policy).
What this means is that you could buy a $1 million short-term policy on your spouse, so that if the unfortunate happens, you’ll have enough money to raise your child to adulthood/financial independence. However, you don’t get a will, so instead the money is awarded to the children, placed in an escrow account, and held there until they are adults – with the added complication that you must show up in court every year to justify how well you are investing their money. You end up having NOTHING to help your children when you really need it, and then when the kids are old enough that they can take care of themselves – they’re suddenly millionaires. In some states, if you don’t have a will, it can make having life insurance essentially useless as a disaster-planning tool.
BABY SEAT
Many hospitals won’t allow you to leave without one. This (and a baby mattress) are the only two things that you absolutely should buy new – everything else can be used.
LIFE INSURANCE
Term will give you the best bang for your buck. If you take the approach that life insurance is to help provide for your family without hardship in your absence, you don’t really need it once your children are adults – this makes 30 year term insurance ideal.
TRANSPORTATION
Kids need to go to the doctor’s office often. And even if you are within walking distance of a pediatrician, you child may need to see a specialist for some reason. For example, my son was a breach baby, so my doctor wanted a specialist to look at his hips to ensure that being in the wrong position for the last few weeks hadn’t caused any problems.
SAVINGS
Ultimately, children do have the potential to get scholarships, grants, and student loans – whereas the same things are not provided for your retirement. Max out your retirement options first; then set money aside for college education.
There are a few schools of thought when it comes to college education savings:
*529 plan – you place money aside into a 529 plan (formerly called an education IRA). Money is held for future education costs and grows tax-free. Money in a 529 cannot be included in federal formulas for financial need. Each state has one, and you can use any state’s plan for any school (public or private). What many people don’t know is that each states’ 529 plan has different overhead costs and different managers – so some are better than others. For instance, Utah has one of the best performing 529s, with very low overhead costs. One downside is that money can ONLY be used for designated educational costs – such as tuition and books. This could cause some problems. For instance, it might only cover books from the college bookstore – forget buying them online. Or maybe only on-campus housing or food from campus eateries. Other living expenses during college (like a car and gas) will need to come from other sources. Also, a 529 may not be useful if your child decides to take an alternative educational route (I’m not sure if you can use a 529 for trade schools). Or if your child manages to get through school on scholarships (as I did) or doesn’t use it all up because they went to a community college, the money won’t become available to that child without penalty until they are 35. Yes you can roll the money over into a sibling’s 529, but what if you only have one child? or your youngest just finished school? Waiting until they’re 35 can be a long time to wait to have access to any leftover money, and your kids might need it before then (like to buy or renovate their first house).
*Gifts to Minors Act – basically set up any type of account (stock, mutual fund, money market, bonds) in your child’s name, with you as a guardian. Any one household can place up to (I think) $20K in any one child’s name per year. The guardian has control over the accounts until the child turns 18. From there, it’s theirs. The child can use it for anything – tuition, books, car expenses, food, a one-time $20,000 trip to Cancun… assuming they know it exists. Since the money can be used for anything, you don’t have to worry about what happens if there is any extra money leftover after college – it could be used for the downpayment for a first car or house. (My family actually went this route. I didn’t use ANY of my college fund because I was able to get academic scholarships, work part-time, and get family assistance. I have the option of using my old college fund for an emergency fund, my husband’s law school costs, and seed money for retirement/house downpayment/my son’s own college fund.
*Save up your own money in a designated account. This gives you total control and flexibility with the money. If one child needs a lot of money for grad school while another needs none because they aren’t going to college or are going on scholarships, you can account for that. If there’s any money leftover, you can use it for retirement. If you have some major, unexpected emergency before college, you have the option of using it if absolutely necessary. Like a minors account, if you invest wisely, you might actually outperform a 529 (some of them do have significant yearly overhead costs). It’s in your control, so you can prevent a splurge to Cancun. However, if you aren’t that great at picking investments (or you don’t have much will-power), it could really hurt you and your kids.
Depending on the family’s income, number of dependents, future plans (such as a spouse going to grad school later or your own retirement options), and financial savvy, any of the three options could be valid. Each one has separate tax and future financial aid implications. The tax implications, in particular, will be very specific to your state and your household. However, I caution you to NOT make avoiding taxes your primary concern (after all, you can avoid a lot of taxes by not making any money). Focus on best return and what will be best overall for your family.
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I find it interesting that so many of you are recommending *buying* a car instead of merely *obtaining access* to one on the few occasions they need it. Many cities have formal car-sharing services (i.e. Zipcar), and of course taxis, but it would also be reasonable to set up bartering arrangements with friends and family for car rides to the doctor.
A little creativity can go a long way in the carfree lifestyle. See Divorce Your Car, How to Live Well Without a Car, etc.
In many states, the hospital will not allow you to leave with the baby unless you have a car seat, so you will need one before the birth, even if you’re taking baby home on the bus.
(Mind you, this is a childfree, carfree person, so I don’t have direct experience. But this is what I imagine when I do imagine caring for a child.)
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My husband and I were both in graduate school when we had our son. Our biggest expenses were healthcare (crappy student insurance), term life, food (I had to supplement with formula) and diapers. We accepted clothes and things from everyone who offered to give us things. Network with other mothers in your area and you will realize that everything gets handed down….you too will have so much stuff that you will THANK other mothers who want your stuff!
If you do need formula, ask at the pediatrician’s office for samples. They have tons and give it to you if you ask.
For formula and diapers, go from cheaper to more expensive options to try out which one works for your child. Use each for a week (unless there is a very major reaction) before moving on to the next.
I don’t know if Kat or her husband is planning to stay at home with the baby? Our son is almost 4 years old now and we stagger our work hours so our son does not have to go to full-time preschool.
But most important, pad your e-fund as much as possible. Especially if you go the daycare route, you will have a lot of medical bills and even some ER visits. You will need a car and car-seat. The hospital will not discharge you otherwise, and babies need to see the doctor often, sometimes unplanned, sometimes at weird hours.
And, Congratulations! Enjoy the ride. It is the most fulfilling thing you will ever do.
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Like some, I suggest setting up a 529 as soon as they are born with some money (75/month?) taken out regularly. If any relatives ask what they need say “college.” You can get all the typical baby gifts for relatively little at thrift stores or yard sales.
You can adjust your contributions over time based on how much of the eventual expenses you think they should handle themselves. Be in a position to decide on merit rather than simply based on the remaining time to save until they start college
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I’m going to give a hearty “amen!” to what Martin said about children not giving a hoot about most stuff that is marketed for babies. Skip the uber-expensive stroller, crib, and clothes. Your financial well-being is much more important than impressing your fellow parents.
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JD, Aren’t your cats going to go to college? 4 cats in college could exhaust your savings !!!!!
Ha Ha!
Have a great Friday! A great post!
Catherine
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After our first baby, we were a little surprised at how many medical bills we got. We talked with a number of people (doctors, insurance companies) before our son was born and they all said a typical birth would cost around $1500 with the insurance we had at the time.
We figure we ended up spending around $4500. My advice? Save more for medical costs. Get in touch with your insurance company and make sure you have a handle on what your out-of-pocket max is before the insurance company picks up the entire tab. Then shoot for saving that much.
If all goes well, you’ll have some extra money to pay off bills, save, take a vacation when the baby gets old enough to leave with grandma, or whatever. If things get complicated? My wife spent a week in the hospital before having our second son, and he was in the ICU for 12 days. Total costs (before insurance) were about $70,000. Our out-of-pocket max is $6000, so now we’re paying off those bills and wishing we’d had more set aside.
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On retirement savings: lots of folks mentioned that you’ve got limited time to save for retirement vs the kid having time to earn/payback college debt… plus there’s the whole issue with scholarship eligibility being affected by how much you’ve designated for his education expenses. But what I don’t think anyone has mentioned is that the lifetime earnings of women WITH CHILDREN are consistently lower than women without, and men of either genre. Sociologists spend a lot of time talking about the reasons why, but for your purposes, you might want to keep this in mind as you’re figuring out how to allocate funds to your IRAs or other retirement vehicles. And remember, if you (or your spouse) take time off to be a stay-at-home, your lifetime earnings for the calculation of social security will also be affected, so sock away even more in your own retirement accounts!
On the car front: yes, access to transportation might work out (as opposed to *buying* a car) but with a kiddo you really need to have access when you need it, and having to work around availability in a car sharing program may not work. That said, don’t feel that you have to run out and buy the big safe SUV with six doors. Even a hatchback, while admittedly a pain in the tuchas for the first year while the kid is rear-facing, isn’t insurmountable. And you might be able to pick one up used from some other set of parents who are convinced that their little car simply won’t do anymore.
Budget tip on carseats: once you get out of the bucket (probably about 6 months?) you’ll want to find a seat with high weight AND height limits. There’s nothing more frustrating than buying the good car seat (which is pricey!) and discovering that *your* child grows like a weed and now you have to buy a *new* convertible carseat because he’s still too little/young for a booster but too tall to be safe in the one you already own.
On entertainment: once you manage to trust your new baby to a babysitter (and for some people, this takes quite a long time) and if you’re not able to convince someone in the extended family to do it, you’ll want to plan for the cost of the babysitter in your date night budgeting. (Lots of people will expect in the neighborhood of $7-11/hour, and expect it to be on the higher end if you’re not talking about the 12-year-old who lives down the street. An alternative: search out other young families and trade date nights!)
If you’re not already a member of your local botanic garden, zoo, and/or museum of nature and science, you might want to budget in a membership to one or more places. Usually, until your kid is two, you can get away with the “plus one” membership which will get you and your spouse in while the babe is free; they usually run in the neighborhood of $50 each. A family membership (for the older kids) will be closer to $80/year. Even though Jr. won’t be squealing about the zebras until he’s closer to a year or more, *you’ll* appreciate having a destination when you just need to get out of the house… and a movie or coffeeshop is no longer so easy. Plus if you have a membership you won’t get frustrated when you have to go home after 30 minutes because of a diaper blowout or temper tantrum or whatever.(And another budget tip: these are great to request as “experience” gifts from the grandparents.)
On buying used: search out a neighborhood parents group. Aside from potentially meeting other parents in your area (and opening the possibility of a babysitting coop!) if they maintain an on-line mailing list, you’ll hear about the gear people are looking to part with first (often at a discount over what they’d sell it to you off Craigslist) as well as the packed-with-baby-goods garage sales.
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We are planning to have kids within the next year or two and some of the things we plan to do are:
1. Buy mostly used stuff unless it is a safety issue. (We already do this for other things)
2. Use cloth diapers.
3. Spend money on experiences versus material things. For example, a family trip to the zoo versus a new bike. Quality time is more valuable than material things.
4. 529 savings (starting small). I believe education is the best investment for his/her future. Again, less emphasis on material things.
-Charlotte
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Priorities?
A Will.
Life insurance on both of you, make sure you give some thought to what happens if you die together and leave your child alone.
Medical insurance (since you live in the states yes? Not Canada where we are all covered).
Top up that emergancy fund. 3 months might not do it anymore, you may want more like 6.
Your retirement savings (this can but doesn’t have to include home ownership)
Tax free savings in any form, in Canada there are a number of ways to do this RRSP, TFSA, RESP etc, take advantage of what ever is available where you are.
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I disagree with the poster who said the homemaker has no income to insure with life insuance. Not on paper perhaps, but if the spouse who stays home passes away, the children have to go somewhere so the working spouse can still work. You have to do what makes sense for you, but in our case, we had three sons in three years and live thousands of miles of relatives. For 20 dollars a month, I’m insured for 500,000. It’s piece of mind for me, as the homemaker, not only for my children but for my husband.
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Since the relationship between the parents is described as a partnership instead of a marriage, estate planning and child support need to be the first priorities to protect the interests of the child. After that, you can worry about which partner will be saving, which partner will be supporting, and which partner will be spending.
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A couple things I thought of immediately when reading this post:
Detract from retirement savings to pay for kid’s education? Personally, no. I subscribe to the thought that “there are sources of money to help fund your child’s education–no one else is willing to pay for your retirement”.
When you decide if one parent will stay home while your child is young, make sure you revisit that decision at least every year or so. Our daughter turns 3 this month, and Trophy Wife, who generally stays home, is picking up the pace with her two home businesses (Arbonne and freelance writing & editing). That “picking up the pace” puts more burden on me–which is fine if that’s communicated and expected, and can lead to problems if it’s not!
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Hi
It’s probably been mentioned before here but I’ll weigh in with my experience on kids and money as well
Take as much “charity” as people are prepared to throw at you…especially for first babies. Use the thrift shops for most things. I found cloth nappies a total PITA (especially for boys)… so I saved elsewhere to afford disposables. You’ll figure out what savings in time come before savings in cash.
Okay. If I were doing this again and knew what I know now, this is the one big thing I would have done as soon as I knew I was pregnant.
I’d have set up a fund specifically for the teen years for each of my kids. Once your child gets to highschool, the expenses they incur are nearly always “Arbitrary Necessities”.
There are Dance Lesson term fees
The Cricket Club fees
The Footy Club fees (We live in Australia so Aussie Rules Footy for my son here)
There are the school text books
The mobile phone pre-paid costs
Allowances of course
Clothes for work, school
Camp fees
Ack…the list is endless so you hopefully get my drift.
You may want an entirely separate account for the grocery bill! Teenage boys EAT like proverbial very-hungry-caterpillars.
Set up an account for the years between 11 and 21.
Seriously! If I’d done that when my babes were little and put just a small amount aside in the early years…these years now would have been so much less financially stressful
Hope that everything goes well for you all.
Happy Christmas and New Year and CONGRATULATIONS
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We don’t have kids yet but will hopefully be there in a few years. I like reading about the preparation now, even when we’re not at that point. I know you’re never truly prepared for the change, but I want to be as ready as possible. Like I know my ability to save will probably drop after kids, so I’m trying to increase my savings now. I’ve started looking into day care, pre-school and communities with good public schools to know how much these will cost. I wish Kat and her growing family luck.
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I had this same dilemma last time this year. We had our first baby in April, and as the household CFO, I was terrified.
But, now that he’s here, the only real changes as far as investment strategy was opening and fully funding a 529 plan. You can put $2,000 and take a state tax deduction for that amount, each year.
We still fund our retirement accounts. We still put money in savings.
Babies don’t really change much, as they aren’t as expensive as you’d think.
Of course, I work from home as a freelance writer, so I am lucky that I can avoid daycare.
If you do plan to keep working , start shopping for a daycare right now. That will be the most expensive part of having a baby.
Once you know what that costs, you can figure out how much you have left to devote to retirement savings and 529 plans.
Food, clothes, etc. for babies aren’t that expensive. We spend about $350 a month on the baby, and most of that is the 529 contribution.
Good luck!
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Me and my wife have a 4 month old boy. The biggest thing for us has been not falling for the advertising that tells you just how much stuff you need for your child. If you believe it all, then you’ll spend a fortune on things that you really don’t need, or only use for a month or two.
Prior to our sons birth, we spent very little. We bought most things for his nursery second hand (eBay etc), or were given things (clothes etc) as gifts when he was born. Now he’s here, our costs haven’t really increased. My wife is breastfeeding, so we don’t spend anything on food. We bought washable nappies, so after the initial outlay, this is a small cost to wash them.
We are planning to save for his future which will cost something each month in savings, but it sounds like you are far more prepared on that front than the majority of people.
Overall, it sounds like you’ve got things sorted – just apply the same philosophy regarding money that you have now once the baby’s here and you’ll be fine. Most of all, just remember that once he or she arrives, you’ll be so happy that these worries will be the last thing on your mind
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I agree with Jen, about being prepared for all contingencies. My second child was born with a condition which required a lot of medical treatments. Even though we had great insurance which covered all the treatments, my husband decided to leave his job so he could care for her at this time. Since we kept our expenses well below our income, we were able to manage on one income.
Life & short & long term disability insurance and estate planning are really important.
The choice dh & I made re: college funds was to NOT put money into 529s until we’d maxed our tax-sheltered retirement options. So we max our 401ks, then our Roth IRAs, then start on the 529s. The Roth money is “swing” money – we can spend it on college if we need it, or we can use it for retirement if one of our kids chooses not to go to college.
Good luck.
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I do not comment on technical finance; what I underline is that kids are a privilege today.
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Marriage would be a good idea it gives an identification dimension. I went round-and-round with a civil servant in Puerto Rico about my first born’s birth certificate. I wanted my last name on it not my wifes maiden name. Marriage is about $250 and payback is under a year. Ok full disclosure would be I’m a church going, gun owning, Sarah Palin voting type of guy and that whole world view is part of the reason I’m recommending marriage.
Anyways, you mentioned nest-egg: good. With a real cash balance opportunities to save more money come up. It’s ironic but true, you’ll see what I mean if you folks are new to a nice fat emergency fund.
If your health insurance isn’t good consider one of you changing to an employer that will offer it. There is going to be more to life than the $/hr. Start thinking quality of life not bottom line.
A boring part of a financial plan (ranks right up there with emergency fund) would be his & hers term life insurance. This is about $40 a month and transfers crushing rough-life risk away from the kid.
Next I would be sure and latch on to any subsidized money. Tax Saver’s Credit, ETIC, Child something or another (if you are low tax bracket). Or just tax deferral of defined contributions if you are high tax bracket. Payback is about $200-$2,000 year, and the behavior that makes the credit available to you increases your networth. That’s parental.
My last point: a modest 529-esa thing could be done if you still have leftover funds. Guaran-dang-tee you will change your family tree one way or the other. You might as well be changing it for the better. Payback is better cashflow in 18 years, which is important but certainly lower urgency than anything else I mention.
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I would like to weigh in on the side of you don’t necessarily *need* a car. I’m speaking from my own experience. Here are my details:
I live in a major metropolitan area with extensive public transit and our house is virtually above a subway station.
I have a 3-year old daughter and we have never owned a car.
For most trips with her now and when she was a baby we took public transit. If we needed to go somewhere more inaccessible we got a zip car.
For planned weekends away we rented a car from the local place down the street.
On the one occasion when we needed a car in the middle of the night for an emergency we called a cab.
For us it just does not make financial sense to own a car. My husband walks to work and my monthly unlimited transit pass is $110 and even if we owned a car I would still buy the pass to take transit to work.
Our average monthly expenditure on transportation is $200-$250, including my pass, occassional fares for my husband and daughter, occasional zip car usage and approximately one rental a month.
I know that there are large parts of North America (I’m Canadian) where this would not be feasible but I just wanted to weigh in that you should really assess your own needs and location. Don’t let anyone tell you that you *need* a car. There have definitely been a couple of times where it would have been nice to have a car but they would not have been worth the estimated $500/month cost to maintain it even if we bought it with cash.
A car is not an asset. It’s a tool that some people need because of their lifestyle choices but I’m just saying that the choice to have a child does not necessarily mean your lifestyle requires a car.
Just my two cents.
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To answer some of the recurring questions in this thread:
1. On college – We started a college plan this year a;ready.
2. On working or staying-at-home – My work is output-based. I am negotiating with my superior to allow me to work from home (which is a five minute walk away from the office) one or two days a week. We can also bring kids to work on Fridays. So that leaves me with 2-3 days when I would need a sitter. I also have other online-based gigs which thankfully renewed my contract for next year.
3. On buying a car – There are two hospitals near our place. We really decided to live in this area since everything is within walking distance. So we have no plans to buy a car.
So far, we do plan on opening the savings account for our baby soon.
I agree with the comments that health care will be the biggest cost for this phase. We can only address that by padding up our emergency fund.
I did not anticipate life and disability insurance. So thank you for bringing that up. I will start researching on them. Same with estate planning.
Ultimately, we are enjoying this time when we are getting to know her. So we are keeping things simple for now — we will save up as much as we can and continue our simple lifestyle. We decide on how to allocate the money after a few months, when we finally get the hang of this.
Again, thanks for your advice.
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Babies are incredibly cheap, but a few things I would add with small children:
Limit television severely. You would not believe the stuff they don’t need when they don’t know about it. (PS. you can’t limit television if there’s more than one in a main room of the house.)
Likewise, stay out of stores. I found early on that if I wasn’t out shopping, they didn’t want anything. (Also, neither did I.)
When you are shopping, say no, always. I had to retrain when I became lax with my “Okay”s, and the requests went up, as did the whining. It was fun to realize I could get through a long supermarket trip with three young kids and not hear one request for some item or another. (I saw them looking, longingly, but quietly.) You’ll feel mean, and you’ll think it’s only a dollar, but they’ll forget when they pull out of the parking lot.
The real trouble with kids is they will nickel and dime you to death.
Finally, delayed gratification is critical. I watch these kids getting Xbox 360′s when they’re 8 years old– 8! $600 of equipment bought for them by someone else! And we wonder why they get to college and drown with credit cards–after they’ve spent their whole lives getting what they want like magic. Spending your thirteenth year saving your $5 a week allowance for a Wii will cure a whole lot of that. (My universal response to non-saving kids– Oh, you want to spend my money on it, but not your money? Interesting plan you have there.)
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If you finished college and started to work, then start saving, don’t wait to get married or for the baby to come first.
Save for yourself too, maybe you need to go o vacation, etc. Remember! Bible says: Proverbs 21:20 “The wise man saves for the future, but the foolish man spends whatever he gets.” You need to learn to live on a margin. That means live on less than you make. John D.Rockefeller said many times, “Save 10%, tithe 10%, live on 80%.” Obviously that worked for him. He was a very wealthy and influential person. I think the principle of living on a margin applies also to our time.
If she needs the car? my answer is Yes. You never know when you need it. If you need something really fast from the pharmacy, market, or big shops to buy some tools or whatever you buy, you need this asset, sometimes is cheaper to have a car.
How many homes have fallen apart because kids are being ignored while parents are too busy making money to buy things for the kids? So, my advice for them is take care of you child first, and the money will come. But, save, save and also don’t limit yourselves to much from good things.
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We were in the same position and had to make the decision betweeen buying a house or my quitting my job. We (I, mostly) decided to buy the house and then I had to remain working, but I knew that I didn’t want to raise my kids in an apartment forever. Since it was a conscious decision, I don’t feel resentful when I go to work. Now I am home on maternity leave with my second child and have been able to be home for 6 months and I plan to return to work part time. I think part time work is the best solution if you can find a way to do it.
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There is a lot of good advice here. We didn’t find our son expensive at all for most of his growing up years, but we are not extravagant people and had definite thoughts about how he would be raised. I find those figures on how much it takes to raise a child totally ludicrous. We never bought into the latest in clothes, toys, etc. Hand me downs, thrift shops, yard sales, and birthday and Christmas gifts from family and friends easily supplied us with plenty to clothe and entertain our son (usually we had an excess of clothes and toys to pass on to others). He did start wanting certain costly clothes in high school, but he’d work for them or request them as gifts. As far as food, after we were done with formula and baby food, he just ate what we would eat. Our food budget didn’t change.
Day care can be outrageous. Home day care can be far more economical. We knew a lady who had just retired and wanted to babysit a few kids. She was the only babysitter our son ever had and is considered his third “grandmother.”
We did not allow our son to have any video game systems until he was 15. He remained more of a child, stayed engaged with books and typical child play (playing outdoors and playing sports), and that kept wants and expenses way down. That may sound outrageous, but he even thanked us for it later saying that all his friends’ younger siblings just played video games all the time, mostly not interacting with anyone. He was allowed to play some computer games as he was growing up.
We also kept him to one activity at a time until he was in high school (and then they need multiple activities to qualify for college), which kept expenses reasonable but, more importantly kept him more grounded and not overloaded.
The biggest expense is definitely now while he’s in college. Yes, we did have a 529 plan (that’s a must IMO), BUT remember that the 529 plan ONLY covers tuition. There are a lot more expenses for college, like textbooks, room and board, etc. Ideally, your child can work a part-time job to help with expenses. (Right now, there are few jobs where he is. We won’t allow him to be a pizza delivery guy because of the wear and tear on our car and he’s not in the safest area for this job.) We actually bought stock in utitlities from his birth until he was 12. Then we purchased the 529 plan in a lump sump purchase. Even after that purchase we had several thousand left for other educational expenses. The most we ever spent per month on the stock purchases was $150. I know in general stocks can be scary, but I know we spent far less than if we’d done the by-the-month 529 plan. If you can’t afford a 529 plan or one that covers 4 years of college, going to community college the first two years can be a fantastic reasonable tuition option, and costly room and board is eliminated, too (although there may be some commuting costs). In our state, students are guaranteed acceptance at a 4-year school after two years with a 2.0 GPA at community college.
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Re: daycare, yes the cost is expensive. IMO you do get what you pay for.
My choice was for a center. I’m an impatient person and a short-fused mother. I projected those feelings onto day care providers. I’d rather my children spend their days with caregivers who are supervised, and who have some backup so they can take a short break if they are at risk of losing their temper.
Also, it is my observation that sometimes homebased care is best for younger children, those under 3. By the time a child is 3 or 4 they really benefit from being with their peers in a preschool or daycare setting.
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@Shirley — very interesting post! I have two young kids, and we plan to do most of what you were able to do with your son.
One correction about 529s — you can use the money to cover other expenses beyond tuition:
From the IRS (http://www.irs.gov/publications/p970/ch08.html):
“Qualified education expenses. These expenses are the amounts paid for tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution (defined in the next column).
They also include the reasonable costs of room and board for a designated beneficiary who is at least a half-time student.” (You scared me, I had to double-check!
)
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@TosaJen–thanks so much for your feedback! I apologize for scaring you. I should have clarified regarding the 529 plan. I do understand the IRS rules. I don’t know what state you are in and what specific plans are offered. However, we selected the Virginia Prepaid Tuition Plan because it guarantees that tuition will be fully paid for the period you choose (in our case, 4 years) and also covers some fees. That plan does NOT cover room and board. The plan that covers tuition, room, board, and textbooks is a trust, which does NOT guarantee that these expenses will be covered when the child enters college. It’s subject to market conditions and the more you spend for qualified expenses, the more quickly it gets eaten up. If that were my only option, I don’t think I’d choose it. I’d rather invest money on my own. We already know that we will get “more” for our money with the prepaid tuition plan. Our son is in his third year of college and the money we used to purchase the plan is almost “expended,” but we still are guaranteed next semester and next year. Virginia shows you the remaining amount on your yearly statements in case you should opt out of college and want your remaining funds back. Anyway, here’s the info on the choices we have in VA now. http://www.virginia529.com/LearnComparison.asp
When we initially purchased the plan, we only had the first two options, that’s why I just referred to the tuition plan and the trust. However, I’d make the same choice again if I had to, but I just wanted to make everyone aware of considerations re: the tuition plan. Thank you for showing it was not as black and white as I presented. You do have to look at all the options though. With costs dramatically increasing, I think the guaranteed plan is still the best, but I don’t know how dramatically costs of purchasing plans have increased.
@HollyP–You raise good points, too. I do think you really need prior knowledge and recommendations about home day care (just like the other day care) to ensure its safety and viability. And, yes, I didn’t mention that once our son was 3 he started going to preschool, at first two days a week for half days and then at age 4, three days a week for half days. (Still a very reasonable well-established preschool in our area … half days were just right for his age.) Then he started kindergarten the following year. In addition to the one or two other children with the babysitter (usually her granchildren), there also were other children next door to the babysitter so he usually had a small group of children to interact with during the day. It’s a situation that worked well for us and has for many others, but I know it’s not always the case. I do know folks who want children and have opted not to have any more because they can’t afford the commercial (for lack of a better word) day care costs for more children. I am not disputing the quality of that care, however, that just seems very sad to me. I think there are other options for many.
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I offer this suggestion cautiously, as I am NOT a parent:
Provide for a child-caretaker in the event you both die. No, it’s not pleasant to think about, but do you want the state deciding who raises your children? My brother asked me if I would godparent his son, and I took a weekend to think it over – not because I don’t love them, but because I DO. Accepting godparenting responsibilities also means I’d be willing to raise my nephew if, God forbid, anything happens to my brother and his wife. Since I am not the chicken of spring, I also suggested my brother have a fall-back plan in the event I die first. I strongly suggest you make these choices WHILE you have choices; you need to discuss between you, and with the potential childcaretakers, who is actually going to do it. You think your brother and his wife are going to do it, but she thinks her sister and her husband will, and her MOM thinks SHE will? Time to find out who you want who is able and willing. Mom is willing, but she’s 70 and not in good health? Sis is willing, but you’re not crazy that she doesn’t go to church every week? Brother goes to church every week, but isn’t willing? Find out, make informed choices.
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Again, for what it’s worth: I think Shirley@76 offered one of the smartest suggestions I’ve ever seen: putting an age-limit privilege on something for her son. I think if you and your husband talk now, it would be wise to rough out a calendar for your children of when they can look forward to certain adult privileges: dating at X age, getting a license at X age, using the car at X age, a limit of X amount of time on the computer INCLUDING schoolwork – and that’s IF they prove they’re adult enough to handle it, subject to being revoked if they break curfew, fail at school, forget to chores, etc. Let them have things to look forward to: privileges that come with being older and more adult, as opposed to having Wii systems when they’re 8! Teach them to be self-sufficient: if they can toddle and take toys out of the toychest, they can learn to toddle them back. If they’re tall enough to reach the back of the stove, they’re old enough to learn to cook. Junior high is old enough to be in charge of their own laundry. Everyone is part of the household, EVERYONE HELPS. This makes for good family training for life!
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@LaBellaDonna–Thanks for you kind words. I shared all the things we did right, not the “other” ones.
I wanted to add that I am in complete agreement on your comments in #80, but wanted to add more. We put that information in our will after we talked to the family members we wanted in those roles. In our case, the people we entrusted with the care of our son (very loving family members) will not also directly have our money. They will be given enough to take care of our son, for sure, but we appointed someone else in the family to have the trustee role as the family members who were caretakers were not really good with money. We wanted to be sure that the money our son would inherit would be properly managed to care for him, provide his education, etc. So, do consider that you can make those kinds of “dual” choices. Both parties are perfectly fine with the arrangement. (I actually think both were relieved a bit. LOL)
We are in this role for a dear friend’s child and it still humbles me with the honor, but also sobers me with the very serious responsibility. Again, she and her husband asked and we actually thought about it a few days to be sure before I committed us.
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Shirley: Smart, smart, smart. I know I wouldn’t be the best choice to invest for my nephew.
I do want to add something for those couples who are planning to have children. Several posters here have pointed out the necessity of having to provide unexpected medical benefits for a child. I would like to add that just becaus YOU are planning on ONE child, that doesn’t mean that’s what the spin of the egg will give you! It would be better to prepare for TWO (and, better, three) children, if at all possible. Quite a few folks get surprised with twins, and there’s an occasional triplet thrown into the mix. I’d rather prepare ahead of time, if I had the choice. As matters stand, I’ve never been fiscally stable enough to have children – too busy funding a fiscally irresponsible partner. I don’t do that any more, however.
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One of the best tips my mother gave me was to exchange a lot of the clothes I got at my baby shower. People love to shop for the adorable and tiny 0-3 month stuff, but those will be outgrown quickly. I’ve heard tons of people bemoan the fact that even dressing the baby in a new outfit every time, they could barely get through them. I checked the tags to see where they were from, and traded a lot of it for larger sizes (including 12 and 18 month stuff) that I knew I would need later on.
One thing I’ll recommend purchasing if you don’t already have one: a digital camera. This may seem like a frivolous purchase, but the memories of your baby’s early life will be blurred by sleep deprivation and time, and pictures (and journal writing if you can find the time) are priceless later on. Film cameras are great, but people take more pictures with a digital and you won’t have to worry about costs for developing prints until you have the cash to spare.
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Well, my advice would be to not have kids in the first place, but that’s besides the point.
Beyond that, I don’t understand how some of you can recommend limiting your child’s activities, one sport at a time, etc. How is the kid supposed to figure out what he likes to do if he’s forced to just do one thing? Part of growing up is finding who you are and what you enjoy, by participating in different activities and interacting with different groups of people, not just ‘one at a time because that’s more economical for us (the parents), and it teaches a sense of value.’ Maybe a kid sort of likes the activity that they are currently in, but would be forced to give it up if they wanted to explore a different one, one that they could potentially become their love in life, but instead decided to stick with the one they are currently involved with, because there is a chance they’d be giving that up for something they may turn out to hate. If you want to raise a kid like that, you shouldn’t really have any. Kids aren’t something to cut corners with. I’m not advocating giving in to their every want and desire or anything similar, but being ‘economical’ isn’t the way to raise the best child you can. After all, it wasn’t the child’s decision to come into this world, it was the selfish one of the parents, so if you aren’t willing to pay the price, then let someone else have kids.
One other thing, someone mentioned setting a pre-determined calendar for their child, in regards to dating, driving, etc. How does that make any sense? A child could be mature enough to start dating at 14, whereas another may not be ‘ready’ to do so until about age 17, you can’t just lay out the time line your child needs to abide by before you know their relative maturity, life skills, and all that good stuff.
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@Nick–If you’ll go back and reread my comment, you’ll notice that keeping him to one activity “more importantly kept him grounded and not overloaded.” We observed tons of other kids who had so many acitivities they couldn’t even start on homework until 10 or 11. Our son was in bed much, much earlier until he was a teenager. One activity at a time referred to major, ongoing activities and until he started high school, that plan served him well. He still did single activities and weekend activities occasionally, in addition to his one major activity. It was never an issue of us denying activities he adamantly wanted to do. If he had come to us saying he really wanted to commit to more than one major activity, I am sure we would have considered all the circumstances, but the fact was that he was very comfortable with the level of outside activities, home stuff, and homework. He was a very balanced kid–vs the majority of the kids we saw all around him who were stressed out. And, while you would probably disagree with this, we always taught him that he had to stick with a commitment once he made it. At most, that was one semester. If I had it to do over again, I’d do the same. I don’t feel we cut any corners. Plus, because we didn’t go crazy with tons of activities while he was younger, once he started high school we were able to support sending him to several leadership/international conferences (in DC for conferences related to Congress and Dept of Justice/Supreme Court, and in Europe and Australia).
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[quote]I agree with the comments that health care will be the biggest cost for this phase. We can only address that by padding up our emergency fund. [/quote]
Actually, that’s not the only thing you can do. You can contribute more to a flex savings plan for medical expenses. You set this up with your employer. You usually have to set it up and/or adjust it on an annual basis when you have open enrollment for employee benefits, but sometimes your employer gives you the opportunity to make mid-year changes for things like births.
The medical flex savings account is AWESOME! It’s tax free, and you contribute regularly (usually monthly). You can use it for doctor copays and bills, prescription drugs, eyeglasses, even over the counter prescriptions and some medical supplies. Talk to your benefits administrator at yours or your partner’s work about this account – it’ll help you budget for expenses and save a bunch of money in the process. It’s great for anyone that has kids!
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You are very lucky to have a job where you might be able to work from home, however you have to remember that taking care of a young child is a full-time job. When my son was an infant, I did some consulting work from home, and was lucky to get in 20 minutes of work before my very-patient baby needed something. I felt like it was a major accomplishment some days to have taken a shower and do one load of laundry!!! Full-time mothers are not lounging around all day, they are working at the hardest job there is, raising our children. So, in my experience, you won’t be able to successfully work much with a child around. If you don’t have family that can help, perhaps a “mother’s helper” could come in after school and play with the baby while you get some work done. Many middle schoolers would love the chance to make $7-$8 for a couple hours of helping, and you can keep an eye on them too. Good luck.
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First, congratulations on your first child! My wife and I are also expecting our first in June and debating many of these same questions.
BUY A HOUSE?
There is a common misconception that you need to own a house to raise a family. This is simply not true. A baby (and even an older child) doesn’t know or care if you rent or own or whether it’s an apartment or single-family home. Do whatever works for you financially and don’t stretch yourself thin trying to buy a place. Just make sure you have enough room. Usually 2 bedrooms should be fine for 1 or even 2 kids. (They can share a room for awhile if needed.) And if you are close to a park you don’t need your own yard.
BUY A CAR?
You mentioned that neither of you have cars. As much as I hate to admit it, you may need one with a baby on the way. You don’t need to go to the extreme and buy an SUV as most parents will tell you. Just get something safe and with 4 doors. And buy used, you’ll save a ton of money during that initial depreciation period. (New cars depreciate almost 10% the first 10 miles they’re driven off the dealer lot.) I’ve found that buying a car that is around 3 years old is the best because they still usually have low mileage, may still have some remaining warranty, and there are usually good deals since many leases end at 3 years and dealers get flooded with these used vehicles. We just bought my wife a used 2005 Acura TL to replace her 2 door Honda.
SAVE FOR COLLEGE?
One thing I learned from my parents is to open a savings account for college when the baby is born and put $50 into it every month. With the rising cost of tuition, this may not fully pay for college by the time they are 18 but it will certainly help. Put in more money if you can afford it. A college education is one of the best gifts you can ever give your kids.
SAVE FOR “BABY STUFF”?
If you can, have a friend or parent plan a baby shower and create a baby registry somewhere like “Babies R Us” or Target. (Their money will go further there than somewhere like Pottery Barn Kids!) This is a great way to get a bunch of common items as gifts. But you’ll no doubt still need to make some semi-major furniture and equipment purchases such as a crib, changing table, stroller, car seat, etc. While no one item is extremely expensive, they will add up to a heft sum overall. I’d suggest setting aside some money for these expenses.
I’m learning that babies are expensive.
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@Vince: The significant issue in the rent/own question is school districts. If you have to move, you could be changing schools, which is disruptive for kids.
On a lesser (but still significant) note, changing neighborhoods is also disruptive for kids.
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