While I would love to dedicate an entire blog to the 90's ABC sitcom, I'm going to delve into the financial considerations when it comes to having children. As the rhyme goes, "First comes love, then comes marriage, the comes the baby and the... credit card debt, the minivan loan, and the house mortg-age!" Obviously, the decision to start a family should not solely be based on money. Families form in many different ways. However, regardless of situation, there are some important financial topics to tackle before starting a new family to ensure your new "team" is well-positioned for the future. This is such a beefy topic, I'm going to split it into multiple weeks. This week, I'm going to focus on how to prepare financially for children.
The boy on the right looks like he wants the picture over with so he can get back to Fortnite.
New Family Checklist
So you're ready to start a new family. Whether it's through childbirth, adoption, step-children, or other means, your personal finance budget is going to change. Depending on the situation, you may have some time to plan and adjust as needed to accommodate this major life event. Here is a checklist to help you prepare financially as a first-time parent:
Insurance - While you should have insurance coverage already, but it becomes absolutely critical when having a child. Besides the costs of the actual birth, there will be several appointments before and after the little bundle of joy arrives. Whether your new child is born or adopted, you need to make sure your child is covered under your insurance. Your new child qualifies as a "life-changing event", so if you're insured through your employer, you can change your plan outside of the enrollment period.
Budget - Money may not be the deciding factor in whether you have children or not, but it definitely needs to be a consideration. This is another example of where a personal budget comes into play. Updating your budget to reflect child expenses will give you some insights on whether you can afford to raise more children. Considerations like child care will have a significant impact on costs. Doing some research on actual costs will help you prepare an accurate budget. My good pals at the USDA tell me a child costs $233,610 to raise through the age of 17 - that's right, not including any college expenses!
Work - Another important consideration is income - will your income change as a result of having children? In some instances, it may make more sense for one parent to stop working and take care of young children at home rather than pay for daycare if the other parent is able to pay the other bills with his or her income. What about that second job or freelance work? If you're already a parent, one of the challenges you'll likely face is the balance between work and time with your children. If you're used to working 60 hours/week before kids, you may find it difficult to continue at that pace in addition to parenting.
Count Your Blessings - And Costs
The checklist above may help get you started, but let's dive a little deeper by playing out an example. Let's say Beth and Larry recently married, and are excited to start a family soon. Beth wouldn't mind a pair of small, well-behaved boys, and Larry wants to repopulate Earth. While they'll probably need to meet in the middle on number of children, there is the sheer cost of raising children. Using the USDA statistic above, the average annual costs for one child is $12,978 per year. Using rough numbers, let's say two children would cost $25,000 per year. And Larry wants more?!?!
If Larry and Beth's annual household take-home pay is $84,000, that's over 20% of your money to raising one child. Based on my own experience, the second child does not cost as much through the power of hand-me-downs, so let's pretend you're only spending $10,000/year on a second child. You're now putting 38% of your income towards the little ones.
Below is their budget including the cost for their first child. As you can see, they are in pretty good shape with #1, with money left over even after building up an emergency fund.
Now, let's go for that second child! I've plugged in the extra $10,000, and look at the difference:
Beth and Larry went from a very comfortable situation to operating at a loss. And how would this play out in real life? Of course, the emergency fund would cease to exist - the contributions would stop and withdrawals would begin. Over time, credit card debt would likely build up, and suddenly our happy family is struggling to get by. Forget Larry's football team of children!
Thrift
Good parenting requires a multitude of skill sets. You're job duties include teacher, disciplinarian, playmate, housekeeper, and chef just to name a few! When it comes to finances, I highly encourage parents to be savvy shoppers when buying childhood goods. Short-term items like toys, books, clothes, etc. can be found on various online marketplaces or rummage sales if your looking to tighten up your family finances. If you're lucky, you may have friends, family or neighbors with older children who can supply a steady stream of hand-me-downs to help your family. Of course, the courteous thing to do is pay it forward once your family no longer needs the items. Buying all of these items new gets very costly, especially considering the short time frame of use. This doesn't mean you have to go full-on Macklemore. Just be selective in what you buy relative to your budget.
So much to consider here! Next time, we'll get into more considerations with money and children. Until that time, hug your kids and read them some Berenstain Bears.
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