Kids and Money

Your Long-Term Budget: Planning for Kids

December 6, 2011

The following is a guest post.

Keeping a regular budget is an essential foundation of strong financial planning. No matter your expenses, whether they be groceries, medical bills, rent, or engagement rings, planning for them and documenting them is the best way to restrict your spending, organize your bills, and find areas where you can cut expenditures in the future.

While this all happens over the course of a medium-term time frame – usually months and years, rather than days or decades – the basic principles of planning and budgeting are just as important when you’re planning your spending for the long run.

Long run budgeting decisions primarily involve four of the biggest moves you’ll make in your life: getting a job, buying a house, getting married, and having children. On this blog we focus on issues of family finances, on resources, methods, and things that should generally be considered when one is in charge of spending for their whole family, not just for themselves. But one of the biggest elements of family finances, budgeting, and planning comes even before a full-fledged family is in place; I’m talking here about the financial preparation required before a child is born -before a family is fully in place.

People often ask me how much it costs to raise a child from birth to the age of 18. While there are several online calculators that can provide you a rough estimation, this question is naturally a hard one to answer. Studies have shown that the average costs rests somewhere around $200,000, but the standard deviation is a wide one and the cost of your child may fall far from this median. Most families share several common costs: food, clothing, education, recreation, transportation, and insurance. These costs can be broken down pretty accurately before a child is born, and I encourage you to take advantage of online calculators and financial planners to flesh out an idea of such expenses before your son or daughter arrives.

But certain expenses should be considered individually beforehand. Even if you don’t have a perfect breakdown of child-rearing costs before your child is born, it’s important to sit down with your spouse and discuss the following questions:

-Are we going to upgrade to a larger home as a result of this child?

-Are we planning to pay for private education of any sort?

-Are we planning to pay for college?

That last question, although it may seem incredibly remote right now, is actually the most important one to consider, long-term, when a new child is about to be born. After all, college is a very expensive investment these days – an investment that a parent should plan for from birth. If you expect to pay for your son or daughter’s college education, your best bet is to open a college fund when they are born and gradually add money to it, as you would a retirement account, every year for the next two decades.

In this manner, the birth of a child can play directly into your medium-term budgeting plans, since college costs should be set aside on a regular basis, no difference from mortgage or rent. But, no matter what you decide regarding the big child-rearing questions, it’s important to consider more than just nurseries and nannies when you are expecting – and to have a financial plan in place, too.
















  1. Before I was pregnant, I was sure I didn’t want to pay for college. Now, I’m leaning more towards establishing a college fund and plugging it with gift money.

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