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Financial planning for having children: The Basics

Having children is expensive. Here's how to prepare a financial plan for a family lifestyle.

Video Transcript

- When planning financially to start a family, make a list of all the increased costs and changes in income that will result from having children, and the duration that this will last. Raising children means increased medical care costs or increased health insurance premiums. It also means budgeting for clothing, diapers, food, toys, educational supplies, activities and higher education. And don't forget housing.

A child or two means an extra bedroom. It's likely that one parent is going to have to step away from work for a while, which means decreased family income. If you're financially able to hire a caregiver, you may not have to sacrifice job income, but you'll have the additional expense.

Consider whether you want to raise more than one child in the spacing and ages of multiple children. It may be more economical to have several children close in age to allow the at-home parent to re-enter the workforce sooner rather than later.

Children close in age may also be a benefit when applying for financial aid, since aid is partially awarded on the basis of costs of all children in school during the same academic year. If you're saving for your child's higher education, the IRS offers tax breaks to those using the Coverdell Education savings account, or your individual state sponsored 529 qualified tuition program.

Some good news is that children are a tax break, but you'll still spend a lot more on the kids than you'll save on taxes. In order to get the credits, you must complete the appropriate federal income tax return, and calculate the amount using the IRS's complex methods. However, a good tax software program or tax professional can help.

Raising a family is a major responsibility, and should be given careful consideration and financial planning. If you're properly prepared emotionally and financially, children can be the greatest joy in your life. Stay financially fit, friends.