9.0 MIN READ
Are you financially preparing for kids?
Starting a family is a big decision – financially and otherwise. There’s a lot to consider when it’s time to make this choice.
As a fee only financial planner in Boston who specializes in working with couples in their 30s and 40s, I have a lot of experience talking through the financial logistics of adding children to a family. Financially preparing to have children is on almost all of our clients’ minds, whether they anticipate the arrival of their first child or are looking to add a second or third baby to the mix.
But until last October, I didn’t have a lot of personal experience with financially preparing for kids and doing the necessary financial planning ahead of growing a family. That changed when our daughter was born in the fall!
Preparing our finances ahead of her arrival gave me a whole new level of appreciation for what’s required to get all the money-related matters organized ahead of time.
Here’s some of what we thought through before making the decision to have kids, and how our finances and allocation of resources played a role in our choice.
How Financially Preparing for Kids Played into the Decision to Expand Our Family
Our family’s finances weren’t the leading factor in the decision to have children, but it certainly played a big role in determining the timing that my wife and I were comfortable with when it came to adding a baby to the household.
Before we reached certain financial milestones and goals, we weren’t really even talking about having kids because we had other priorities we wanted to focus on at the time.
As we increased our financial stability, that helped free up the mental space and energy to begin having the conversation about whether or not we really wanted to become parents.
That proved very helpful to us, as were able to talk more about what our actual desires were without the background noise of external factors.
That doesn’t mean those external factors – which include money but can also look like societal pressure, comments from other people or relatives about our decision, and so on – don’t influence the decision to have children.
Kids cost money, and making the choice to grow your family without considering the financial implications may not be the best idea.
But you also need to get clear on what you actually want, separately and independently from logistical and practical challenges. From there, you can plan for how to best achieve your goal. (This goes for any other big life choice or priority!)
Personally for us, the discussions around whether or not to have kids felt much more free-flowing because we chose not to get serious about the idea until we dealt with some financial priorities first.
This is not necessarily the best approach for everyone. Countless other factors could mean that you might not be in the ideal financial place before having kids – but having them anyway is actually the right choice for you.
The most important thing you can do here is being mindful and intentional about this discussion. And, arguably, I’d say there’s truly no rush: our daughter was born when I was 42. You likely have more time than you think.
Financially Preparing for Kids Means Thinking Through the Resources You Have to Allocate
While money wasn’t the leading factor in terms of when and how we decided to add a child to our family, we have had serious conversations about letting our baby be an only child because we don’t want to stress our family’s resources.
That doesn’t just mean money, but time and energy too. We only have so much of ourselves to give to our child – and each other, and our work, and our other relationships, and our community, and ourselves.
We recognize that time, money, and energy are finite resources, and any time you’re working with a constraint like “not having unlimited funds or hours in the day” (as we all obviously are!) then you have to get clear on priorities so you can make the right tradeoffs.
There are many, many reasons why we don’t feel obligated to have more than one child. Not stretching our family’s finances too thin is one of them.
It’s not unreasonable or selfish to honestly look at all the demands of parenthood, financial and otherwise, and either delay, opt out entirely, or simply have fewer children than previous generations. For our family, an only child is our way of “having it all.”
A Key Component to Prioritize: Financial Stability
When it comes to financially preparing for kids and starting a family, make sure you put on your own oxygen mask before helping others. Yes, that’s horribly cliche – but also extremely important.
That idea takes many forms, and in this case, it’s ideal to create a baseline of stability for your own life before throwing kids into the mix.
If your earnings or your career is shaky or sporadic, for example, perhaps you want to prioritize establishing a steady income with a reliable job before focusing on having kids.
Or if you couldn’t come up with the money to pay the full deductible on your health insurance should you have a need to do so, then you need to work on building a cash cushion for emergencies before deliberately taking on the expense and responsibility of caring for a child.
From our experience, the increase in insurance and medical costs has been the single biggest new expense in adding a member to our family.
Before having a child, my wife and I rarely walked into a doctor’s office – let alone amassed multiple bills in a short time period. This is why we use high-deductible health plans and use HSAs as a way to increase savings and grow wealth.
But even through a normal, healthy, low-risk pregnancy, my wife hit her deductible in the year she had our daughter. On top of that, there were a few health concerns early on for our daughter that needed a few follow-up visits to specialists.
Thankfully, the concerns ended up being just that: concerns. We were beyond grateful and extremely relieved that our baby received a completely clean bill of health… but getting that peace of mind meant thousands more dollars in imaging, specialist visits, and extra appointments with our pediatrician just to be sure.
Without our solid financial foundation, these bills could have been devastating. And again, this was all within the bounds of normal and healthy pregnancy, delivery, and infant care. If something actually had gone wrong, those costs could have been even higher.
If you’re not starting from a strong financial position, bills like this or unexpected expenses can quickly become heavy burdens.
This being said, I know most people never feel completely ready to have kids… financially or otherwise. You don’t have to be in the perfect situation before you start a family, but you should at least have a baseline of predictability and security in your life.
Kids are chaotic enough. You don’t want to be dealing with unnecessary financial stress on top of whatever they throw at you!
Real life isn’t always smooth and predictable. Things go wrong and we have to deal with unexpected curveballs all the time. You don’t need to know exactly what’s coming at you, but you should build a financial base that’s sturdy enough to handle a few setbacks from time to time before adding complexity to your life in the form of children.
At BYH, we talk about having a “bulletproof balance sheet.” What that means is having a financial plan that includes
some room for error. Consider adopting this approach as part of your financial planning process if you’d like to expand your family.
How Much to Save Before Having a Baby
Everyone wants to know how much to save before having a baby. But the thing is, having kids is much more about your cash flow than it is about setting aside a set amount of money.
A child is not a one-time expense. Kids create an ongoing cash demand for at least 18 years! This is why we say asking how much to save before having a baby isn’t quite the right question when financially preparing for kids.
If knowing how much to save before having a baby is your specific concern, we have an in-depth piece on our blog about this very issue.
The TL;DR is that you do need some amount in savings to consider yourself financially prepared to have a baby. But it’s the strength of your ongoing cash flow that may determine how financially ready you are to become a parent.
And the biggest “expense” to plan for? It’s not a specific line item in your budget per say. It’s more about the overall additional pressure kids can puton your cash flow.
People know that kids cost money, but for some reason they don’t tend to think about this in relation to other major, fixed costs in their lives.
For example, many parents feel pressured to stop renting and buy a home if they don’t already own a house before having a baby (or they want to buy a bigger, more expensive home to make room for a growing family).
Most people will look at their current budget and cash flow to determine how much house they can afford, and buy as much as possible.
They think a house is an investment, which is not true for most people. They also fail to factor in the costs that come with having a child or having more children before they plug that massive fixed cost of a mortgage payment into their monthly spending.
(We recommend limiting how much you spend on housing each year to 20% or less of your income. You can read more about why we suggest this rule of thumb here.)
A lot of people can suddenly find their cash flow extremely stressed because the mortgage that was manageable before the added cost of a new baby or another child suddenly becomes a burden when they need to start paying for everything, all at once.
Making the Right Choice for You (and Building a Solid Financial Foundation Either Way)
There are a lot of ways to get creative in order to achieve your goals, but that can be really difficult when it comes to parenting – because everyone has a (strong!) opinion on the RIGHT way to do things, what you absolutely have to do or have to be a good parent, and so on.
There is no single way to be a good parent. A baby needs your love, attention, presence, and commitment above all else… not brand-new everything, top-of-the-line accessories, name-brand strollers or $1,600 bassinets (yes, there is such a thing).
There is so much societal pressure to parent in a certain way, so the first thing to do is try and step back from all of that noise to determine what actually works for you… and what you truly want.
If you’re not ready to be a parent right now, and finances are one reason for that, that’s okay.
Don’t let anyone rush or pressure you into the decision to have a child. The only person who can determine the
right timing for that is you.
On the other hand, what if having a child as soon as you can is truly what is most important to you right now – but you’re not sure if you can afford it? How can you be financially preparing for kids when you feel like it’s just too expensive to start a family?
Perhaps time to look at how you’re currently using your money. Does how you spend align with your stated number-one priority of having kids? If not, you may need to make some changes and cut back in some areas so you can free up cash flow to start getting financially prepared to become a parent.
In addition to saving money where you can via accepting help, hand-me-downs, or choosing a minimalist path, I would also recommend considering the flipside: what can you do to boost your income or earnings potential?
Saving is great, but it’s one side of the coin. Don’t forget to consider how you can increase your income and earn more, too.
No matter what your situation, it’s always good to build a solid financial foundation by:
- Spending less than you earn
- Aiming to save a high percentage of your income
- Building a cash reserve for emergencies and unexpected events
- Investing wisely to build wealth over time
It’s also critical to ask for help when you’re not sure what to do next. This is especially true as your financial situation gets more complex – which certainly happens when you throw kids in the mix.
It also happens as you earn more, grow your assets, gain more responsibility… and have more to lose should something go wrong.
If you don’t have one yet, getting a financial plan in place can be a key step in properly preparing to expand your family.
About the Author
Eric Roberge, CFP®, is the founder of Beyond Your Hammock, a fee-only financial planning firm based in Boston, Massachusetts that specializes in providing planning services and investment management to professionals in their 30s and 40s.
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