How to financially plan for having kids

Before you go, we thought you'd like these...
Before you go close icon

There are plenty of times in life where you can just wing it. Spur of the moment road trips, experimental recipes, presentations you haven't prepared for – these are all times to throw caution to the wind and see what happens. Some people are just better on the fly.

Having children does not fall into that category.

Starting a family is one of the biggest responsibilities you can take on, and going in blind is sure to have dire consequences. The first year of child-rearing can be a nightmarish blend of stress, anxiety and sleep deprivation – not a good time to realize you haven't prepared.

Like most things, it's all about putting in the work. The more effort you put into planning, the more at-ease you'll feel while figuring out how to be a parent. Here are some basic tips for anyone looking to start that process.

You Don't Have to Buy a Home Right Away

When you're trying to have a baby, most people go into "nesting mode." They want to bring their child into a world with a perfect nursery and a kingdom designed to fulfill their needs. It's a natural urge, but there's usually no need to purchase a new home before having a baby.

Lee Huff, parent and travel blogger at BaldThoughts.com, said many of his peers insisted that he and his wife buy a home with a yard before they had kids. Huff soon realized that his children didn't need a yard while they were babies. They spent most of their time inside.

"Bottom line, there is no rush to buy a 'dream house" just because you are having a baby," Huff said.

Financial advisor Katie Gampietro Burke of Wealth by Empowerment said couples consider a new house for their growing family should remember that less is more. A smaller home will have fewer utilities, cheaper property taxes and less expensive homeowner's insurance.

"Buying a cheaper home will give you flexibility because you may plan to return to work full-time, but then decide to reduce your hours," she said.

Increase Your Emergency Fund

Almost every parent and financial planner gives the same piece of advice: beef up your emergency fund before you have children. Evan Powers of Cypress Financial Planning said he tells his clients to increase their emergency fund by 50%, or six to nine months of expenses.

"Expenses are always highest in the first few months of a baby's life. Those increased costs often come at a time when income is under pressure due to parental leave from work, which isn't always paid," he said. "Having extra savings on hand can provide a bit of a buffer, especially if unexpected costs – like medical bills – come into the picture."

No matter how well you plan ahead, it's necessary to have an emergency fund. Even the most well-prepared parent can't predict how much medical care their baby will need or how much time off they'll have to take.

Plan for the Birth

Many couples take lamaze classes to get ready for the birthing process, but few prepare for the cost of the birth. Even with insurance coverage, giving birth costs $3,500 on average – more than $8,000 when you include pre-natal care and follow-up appointments.

You can't avoid that cost, but you can prepare for it by stashing away money in a Health Savings Account or Flex Spending Account.

"While insurance pays a lot, using an HSA or FSA account can save you even more," said personal finance expert and new parent Eric Rosenberg.

You can put up to $3,400 a year in an HSA. All contributions are tax-deductible, so you'll owe the IRS less when it's tax time. Funds left over in an HSA roll over if you don't use them that year.

If you have an FSA, you can contribute up to $2,600 a year. FSA contributions are deductible from your salary and will lower your taxable income. Parents can set up automatic transfers to an HSA or FSA months before the delivery so they'll be prepared for the bill.

Related: 15 Ways to Prepare Your Finances For Your First Baby

Decide on Child Care

One of the toughest decisions expecting parents have to make is how they will handle child care. The debate between day care and stay at home parenting is a personal choice that every parent has to make for themselves, and what works for one family may not work for another.

Many parents find themselves measuring the value of their job with the outrageous costs of childcare. Look at the income you receive after taxes and compare it to what you'd pay at a daycare. Daycare typically costs about $1,000 a month, and wealth coach Rocky Lalvani said it's often cheaper for one parent to stay at home.

"While that seems like a daunting reduction in income, the reality is the costs of working may not be worth it," he said.

But even if it makes financial sense to become a stay-at-home parent, it's not for everyone. Some parents find their careers suffer if they take time off, and it's harder to come back to their chosen field. Some people just don't want to be stuck at home, even if they're not earning much more than they pay for daycare.

Start the discussion early so you can plan ahead. Entrepreneur Steve Chou's wife decided she would stay home for a year after they had kids. They ran the numbers to make sure they could afford to survive on his income alone.

"Meanwhile, we brainstormed different ideas for various gigs and businesses that we could run on the side while taking care of our child," he said.

Think About Future Expenses

Many couples want to start planning for college as soon as they have a baby. 529s, prepaid tuition plans and other savings vehicles are the perfect way to prepare for your child's financial future. But like a breathing mask on an airplane, parents need to consider their own financial futures before they start saving for their kids.

"Remember, you can't take out a retirement loan, but you can take out student loans for tuition," Powers said. "Pay yourself first, then worry about your child's college savings."

You shouldn't allocate money toward a college fund if you're not saving at least 10-15% of your salary for retirement. It may seem heroic to plunder your retirement funds for the sake of your kid, but will you really be helping if you can't afford to take care of yourself in old age? Your child would probably rather pay off student loans than be hit with unexpected expenses from an incapacitated elderly parent.

If grandparents and other relatives want to give your child cash, it's a good idea to open a 529 where the money can grow until it's time. You can then contribute to that account whenever you deem appropriate, such as after getting a promotion or receiving an unexpected windfall.

Not sure if your nest egg is big enough? A financial advisor can figure out if you're on track to retirement or need to catch up. They can also help you come up with a plan to contribute to the 529 responsibly, so you can save with confidence in your child's future as well as your own.

The post How To Financially Plan For Having Kids appeared first on The Fortunate Investor.

RELATED: Remember #4!!

7 PHOTOS
6 rules to follow when shopping online
See Gallery
6 rules to follow when shopping online
1. Make sure that the website you are ordering from is secure
"Many websites will have a seal at the bottom stating that the website is indeed secure and will not make your information public under any circumstances. A site that has 'https://' at the beginning of their web address as well as a padlock symbol is typically a site to trust." -My Broken Coin
2. Search for product reviews beforehand
"Returning items to online stores can be a major hassle. So why not find out what others think of the product before you purchase it online? For example, before buying a new laptop, search for comments and complaints associated with the brand. If there are more negative reviews than positive, and the same problem is reoccurring, then it may not be a brand worth investing in. This will save yourself from buying something that would have to be returned to the store soon after receipt." -My Broken Coin
3. Look for promo codes before checking out
"Who doesn't like saving money, especially on necessities? Almost every retailer will have some sort of promotion available, so ensure you look for one before purchasing. You may not find every code useful or relevant to your purchase, but there are plenty out there that could save you money. So, before you check out ensure you search your retailer for voucher codes and see how much you could save." -My Broken Coin
5. Check and double check your shopping cart
"When shopping online, it's incredibly easy to get side-tracked and accidentally add things into your shopping cart. For example, you may double click on an item and not notice that you've order two of it until it's too late. As well as this, if you've visited a site before but abandoned your cart before purchasing, the site will sometimes have saved your items when you visit again. Thus, it's incredibly important that you double check what you're buying." -My Broken Coin
6. Track your order
"Many sites give you the option to track you orders. This is especially handy when you need your order by a specific date (before Christmas, in time for a birthday party, etc.). Stay on-top of your order's location at all times, including the cities that it is arriving in and departing from every day. A lot of online trackers go through FedEx or UPS and are typically very accurate." -My Broken Coin
4. Price-match whenever possible
"Price-matching and price-comparison is the one of the best strategies for saving money while shopping online, as you will be able to purchase items that you otherwise would not have been able to afford. Retailers are in constant competition with each other to offer the best price and product to customers, so find the one that's offering the best deal." -My Broken Coin
HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

Credit Card Compare

Credit Card Compare

Whether you're looking for great travel rewards or low annual fees, find the card that's right for you.

Compare Now

From Our Partners

20 Folks Recall Shocking Interview Moments That Made Them NOT Want the Job 20 Folks Recall Shocking Interview Moments That Made Them NOT Want the Job
Man Suspects His Wife Is Cheating On Him - Then His Daughter Reveals What's Really Going Man Suspects His Wife Is Cheating On Him - Then His Daughter Reveals What's Really Going
Nature Gets Revenge On Safari Hunter Who Killed Elephants And Lions For Sport Nature Gets Revenge On Safari Hunter Who Killed Elephants And Lions For Sport