Having kids can be one of the most rewarding things we can do in our lives. It can also be one of the most expensive. Studies show that it can take anywhere from 172k to 233k dollars to raise a child to the age of 18. If you break that down, it’s an average of over eleven thousand dollars per year. That’s a lot of money. Remember, that’s for one child. Keep adding that number for each child you’d like to have. With all the added expenses, there are many financial considerations to think about before starting that family.
How Many Do You Want and When?
One of the biggest questions you’ll need to ask yourself (and your spouse) is how many kids do you want? Although the cost per child may decrease in some way with hand-me-down toys and maybe clothes if you are lucky enough to have two of the same gender, those perks won’t save you all that much money over 18 years. For every child you add to your family, you’ll need to be able to provide that much more income or find a way to save money elsewhere. Before having any children, you should make sure that you look far enough into your financial future to ensure that the number of children you want and your financial standing makes sense.
Another vital question to ask is the timing of multiple children. Will you want to wait a year, two years, maybe five before having your next child? When adding all the expenses that come with having children, you’ll need to make sure that your income can keep up. Maybe you’re already in an ideal financial situation and could afford two now. Perhaps you’ll need to wait for a few raises or promotions. Don’t strain yourself by having them too fast if it’s not financially possible.
Will Someone Stay Home?
For any dual-income families, deciding to give up your job temporarily or maybe even permanently versus paying for childcare can be a difficult decision. Most of us would love to stay home and raise our children, but it’s not always financially possible. However, childcare can be pretty expensive these days as well, so what do you do? From a financial standpoint, you’ll need to figure out childcare costs against how much you would earn by having both parents working. If by staying going back to work but paying for childcare, you’ll end up with less money, then it doesn’t make sense. However, if the cost and salary are similar, you’ll need to determine if the extra cash is worth it.
Don’t make this determination based purely on salary, either. For one, you’ll need to go based on your post-tax income. You’ll also need to factor in any benefits like health insurance into any equation. There are also tax breaks you can receive each year when paying for any childcare-related services. Make sure you know all the financial implications one way or another before making your decision.
Do You Have a Stable Income?
One of the most important questions to ask before having a child is if your income is stable enough to have children. Suppose there is any reason to believe that your income could drastically change for any reason. In that case, you might not be financially ready to start a family. It’s best to have a steady and predictable income before having children. Some professions are more commission-based and might not have the same consistency as others. Take the average of your past 12 months and make sure that would be enough to cover your typical expenses.
Do You Have An Emergency Fund?
When deciding to have children, an emergency fund becomes that much more critical. For one, once the little bundle of joy comes, it will become that much harder to establish one if you haven’t started one. Additionally, the amount in the emergency fund will need to be much higher due to the rise in monthly expenses you are about to see. Finally, although essential to have an emergency fund without children, it becomes so much more important once you do. The last thing you want is to have lost income and not provide everything your child needs until you can get back on your feet.
Do You Have Life Insurance?
Life insurance is something we hope we never need, but it’s crucial to have. Having the financial protection, it provides in case something should happen is a must. Raising a child on your own would be difficult enough, but needing the remaining parent to provide all the income would make it even harder. Many companies will offer life insurance as part of their benefits package. If not, there are plenty of ways to get it on your own as well. Being young is no reason not to protect your family financially. It’s easy to get coverage and should be done before any children arrive.
You’ll Likely Need a Bigger Car
More than likely, your current vehicle isn’t big enough to handle everything that comes with starting a family. Sedans and other smaller cars are typically sufficient to get through the day-to-day stuff, but having an SUV or a cross-over vehicle can make life much easier. Strollers, pack and plays, car seats, and a ton of other child accessories are tough to fit in smaller cars.
Don’t forget about family vacations too. Smaller cars won’t come close to being able to hold everything you’ll need to pack up, even with only one child taking up half the back seat. As your family grows, storage space will go down while the amount of stuff being packed will rise.
Before adding any children to your family, make sure you already have a larger vehicle or have a nice-sized down payment already tucked away. This will allow you to make that purchase shortly without straining your finances.
Will You Eventually Need a Bigger House?
Thinking about a bigger house may be way down the road here, but it’s something that you should be considered from the get-go. Kids take up a lot of space all over the house, and you don’t want to be living on top of each other. You might need more bedrooms or simply bigger bedrooms as they get older. Where will you store their toys? Is there enough space in the kitchen for a full-size table? Will you need a room for them to play in that’s not your living room? These are all questions you’ll need to consider when starting a family. Suppose your house isn’t big enough to fit the needs of everyone in your growing family. In that case, you should start preparing financially for a possible move as soon as possible.
Can You Handle Rising Expenses?
When determining if your finances can handle having a baby, it’s important not to strain your finances too much. Unfortunately, most expenses in our lives tend to go up over time, not down, and kids are no different. Even after getting rid of the hefty cost of childcare, if you choose to do some, once kids reach school age, there could be aftercare, sports, toys, games, medical bills, etc., to look forward to.
Basic needs of living like food, clothes, rent\mortgage, etc., will more than likely be more expensive a few years from now than they are now. If your finances are stretched too thin now, it will make it that much harder when these expenses are even a little bit higher. It’s almost a guarantee that costs will be higher. Still, it can be challenging to have our incomes keep up with the rising expenses, making it that much more important you have more than enough to make the addition to your family.
Don’t Forget About College
The cost of college tuition has continued to rise to astronomical levels and shows no signs of slowing down. It’s essential to start that college fund as soon as possible as eighteen years sometimes don’t feel long enough to gather enough money to pay for all of their tuition. Contributing $200 a month for eighteen years will likely get you to about 77k, which should cover most of the bill, but it’s tough to determine how much college might cost that far down the line. No matter how much it will cost, we can all agree that it’s a lot you’ll need to start contributing starting on day one.
Could You Handle Twins?
Life has this funny way of not always going according to plan. Clearly, most pregnancies will result in only one baby, but could your finances handle it if it were two? I’m not saying that to start a family, you absolutely have to have the financial ability to handle twins, but the thought should be somewhere in the back of your mind. Just another always be prepared type thought as it’s always a possibility.
No matter your current financial situation, adding a new addition to your family will need careful consideration from a financial perspective. Not only can kids themselves be expensive, but with the possibility of needing bigger houses, cars, and the inevitable rise in the cost of living, it’s essential to make sure that both your current and future finances will be able to meet your needs.
Jeff is a fan of all things finance. When he’s not out there changing the world with his blog, you can find him on a run, a Mets game, playing video games, or just playing around with his kids.