How to Financially Prepare for Children?

by Kevin on November 13, 2008

We have some really close friends that recently were blessed with a healthy baby. They are the first in our group of friends to have kids, and it’s got me thinking about the whole being a parent someday thing.

Note to anyone who knows us reading this blog: our plan includes children. But not for several years. So don’t get excited. My wife is going to be shocked that I could even write this post. Children terrify me.

Preparing Your Finances for Kids

All of this baby talk got me to thinking… how do you prepare, in a financial sense, for having children?

I can tell you what the generally acceptable debt-to-income ratio is if you’re trying to buy a house. I can tell how much to save up cash for a new vehicle because I know, roughly, what we would look for in a new vehicle and how much it would cost.

But how do you prepare for kids? Is there a standard amount that one can expect when having kids? $5,000 the first year? $15,000? $25,000?

Some ideas of where the cost of children comes from

  • The whole pregnancy cost (all of the check ups, insurance deductibles and co-pays, in-hospital delivery costs, etc.)
  • Diapers, food, pediatrician check ups
  • Furniture (changing table, crib, whatever else is needed for a nursery)
  • Car seats and other transportation (perhaps a larger vehicle, strollers, etc.)
  • Diapers and food
  • Kid clothing (buy used!)
  • Future education, trips

My wife constantly reminds me that millions of people have children every day that don’t plan for it. That’s fine and works for them. Nonetheless, I like to be prepared.

What We are Doing to Prepare for Kids… Way Down the Line

We’ve made a few changes in our lives to prepare (again, several years from now) for kids. We’ve opened up two new categories in our savings plan for “Children education” and “Children (General Fund)”. The former obviously for future college costs and the latter for the “start up” costs of having kids. We’re thinking the general fund will help fill the gaps of what we don’t get from baby showers and all of that craziness.

We’ve also told our families to not give us any gifts for Christmas, birthdays, or our anniversary. We are very content in our current lifestyle and our parents have already given us so much. The plan is if they feel like they have to give us something, then they can contribute to either of the kid categories to help pay for stuff.

Small changes for now. But at least it’s a step in being prepared for the future.

What have you done, or did you do in the past, to prepare for kids?

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Mr. ToughMoneyLove November 13, 2008 at 11:45 am

If you are terrified of kids, the financial problems are the least of your worries!

Seriously, good thinking on the family gift thing. Asking them to instead contribute to a college fund is a great idea.

kalieris November 13, 2008 at 11:46 am

Get *really* good health insurance. If you are opting for a less expensive HMO type plan because you and your wife don’t get sick much, make sure you review it for what kind of coverage it would provide if your child is born with any health issues. Our son required a neurologist, and our HMO (which had been just fine for the pregnancy and even after he was born for well baby type stuff and ear infections) was wholly inadequate for specialists, both in terms of who we could go see, and how much of it was covered. It also pays to get a plan that covers things like occupational therapy and non-generic medication. Not trying to be a downer or scare you, but nobody ever plans that their child might have medical problems, and it would’ve bankrupted us if family hadn’t stepped in to help.

Also, if your company offers flex spending, take advantage of it, for the pre-tax advantage if nothing else. It’s nice to get that $5K back, even if it doesn’t cover all your expenses.

philip November 13, 2008 at 2:39 pm

Kids? Heh, single and nothing on the radar so this is not an issue at all yet. However my brother just had their second child Monday! I am thinking of getting a bond or something as a gift for the kiddo. Unfortunately I think you have to have their SSN to get them in their name now, so that is kinda weird, don’t know what to do about that.

kalieris November 13, 2008 at 2:51 pm

@Philip – At the hospital, right after I gave birth, they had me filling out a form for my son’s birth certificate and – no joke – his social security number. We got the number and a card before he was 3 months old. Weird, but also kind of useful.

philip November 13, 2008 at 2:53 pm

I know that they get the number almost right away, but do you want to give that number to a sibling just for them to give a Savings bond to them? I am looking into other options also, because of the having to have the number issue.

I am kinda curious if you can still get paper copies of stock shares, I know buying individual stocks is not the “best” investing, but I think it would be cool to give a few shares of some big company, maybe GE, or something more child friendly but just as lasting, maybe disney or something.

Kevin November 13, 2008 at 4:25 pm

I would argue against giving them anything that involes a SSN. The fewer eyes and systems that have seen the number, the better (at least until they are old enough to do something about it on their own). Plus, don’t savings bonds return really low rates?

Contribute to a 529, or open up a savings account in their name. You’ll probably get a very similar return in the savings account than with a bond. Uneducated guess here.

Leann November 13, 2008 at 5:37 pm

As Kevin’s wife I must say that my jaw dropped to the floor when I read this, and I haven’t been able to pick it up yet 😉

Paul November 13, 2008 at 11:08 pm

Here are something I’d consider:

* Buy everything used, except when safety is involved (car seat, crib). We hit garage sales all summer collecting clothes often for 25 cents, which is a steal.

* Don’t get caught up in all the first time parent stuff for the sake of being caught up in it. Buying all the cutie stuff will get you in debt in a hurry.

* Contribute to Health Care Spending Account (or equivalent) that is pre-tax money. With the way the Dr billed for visits, checkups, delivery etc…. it was one big charge, which is good, but not good for HCSA considerations. Our 2nd son was a Feb baby, so bills and HCSA spanned 2 calendar years making reimbursement more work then it should have been. If you can plan it, get preggers in Jan – March.

* Don’t be a spazz.

* Buy a Binsi skirt for your wife. Worth the money for the comfort. http://www.birthinbinsi.com

Have fun and enjoy it! Be involved, help with the delivery if you want / Dr allows and cut the cord. Best day of your life!

Alison November 22, 2008 at 12:01 am

I think good health insurance is extremely important, and it’s been our experience that everything else pretty much falls into place. Because really you can think that you are financially prepared for a baby, but things can change in nine months and you might find yourself not as financially prepared as you thought you would be.

Sandy Naidu January 7, 2010 at 2:18 pm

Nice post – Teaching kids the ‘value’ of money is absolutely essential. They should realize that money comes from hard work – buying anything and everything they ask is absolute no no.

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