Planning for children

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Planning for children

Postby berg » Mon Mar 25, 2013 12:20 am

My wife and I are thinking about having a baby in the next year or two. I think we have a lot of our basics down in our finances (20% home equity, maxing retirement funds, emergency fund).

What additional finance preparation would you give to someone considering having a child in the next few years?

For those of you saving for college, how soon did you start saving and how aggressively do you save for college (the cost 20 years from now seems too astronomical to even say out-loud).
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Re: Planning for children

Postby jsl11 » Mon Mar 25, 2013 2:57 am

I can suggest three things:
1. Pay down any consumer debt, such as credit card debt, you may have. If you don't have any, keep it that way.
2. Get term life insurance on both of you. It is inexpensive when you are young. Buy a lot to allow for inflation and more children later.
3. Get disability insurance for whoever is employed. If you both work and intend to work, you both need this coverage.

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Re: Planning for children

Postby lwfitzge » Mon Mar 25, 2013 6:06 am

I started with 529 funds immediately for each of my kids. I went w my state fund because of the state income tax benefits. As time is usually my friend w compounding, I seeded them early w a decent investment (e.g., $10k). Because of the uncertainty of which school (if any) my child would attend, I aimed not to overfund the 529 (e.g., put some money in taxable account) as there are penalties for tapping the fund for noneducational purposes except for hardship etc. I aimed for a track that would get me to the reasonable future cost of an in-state school which in my state, is currently $100k/for 4 year of tuition/board/books etc. Looking forward for new parents is a big question as if current annual growth rate of college costs will price many out of the market. My business sensibilities (and admitted crystal ball) suggest that "willingness and ability to pay" by consumers will catch-up w colleges if it hasn't already and they won't be able to charge rate increases above inflation forever. I don't think college tuition will be that price inelastic.
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Re: Planning for children

Postby jon-nyc » Mon Mar 25, 2013 6:07 am

berg wrote:For those of you saving for college, how soon did you start saving and how aggressively do you save for college (the cost 20 years from now seems too astronomical to even say out-loud).



I raced to get him a social security number so I could open up a 529. But it was in 2009 and I wanted to take advantage of a discounted stock market.

As for how aggressively, it depends on a number of factors, not least your desire and ability to pay for his education - do you want to give him a boost, or cover it all? And can you do so? Also your state may have tax benefits for contributions up to a certain amount - in NY its 10k, so contributing less than that leaves some free money on the table.

I was definitely on the extreme of aggressive, I fully funded his 529 before his 4th birthday (fully funded means I put away what I estimate will cover the entire cost of his education anywhere he might go). Like with retirement, there are great benefits to front-loading funding. The tax code makes it easy too, you and your spouse can contribute 140k by taking advantage of the 5 year 'advance' on gift tax exclusions allowed for 529 contributions.
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Re: Planning for children

Postby Grt2bOutdoors » Mon Mar 25, 2013 10:16 am

berg wrote:My wife and I are thinking about having a baby in the next year or two. I think we have a lot of our basics down in our finances (20% home equity, maxing retirement funds, emergency fund).

What additional finance preparation would you give to someone considering having a child in the next few years?

For those of you saving for college, how soon did you start saving and how aggressively do you save for college (the cost 20 years from now seems too astronomical to even say out-loud).


As the others have said - term life for both you and the mrs.
I started 529 plan as soon as I obtained social security number - not fully funded yet, but getting there.
I started a taxable account the year before with the intention that will supplement 529 if it's not sufficient. But first max out your retirement plan. I'm not sure how much higher this education bubble is going to go for state schools - so I use I bonds as well, if we don't need it - then it will complement retirement, if we need it for other uses we can easily access it. If private goes to $1 million for 4 years, they can keep it.
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Re: Planning for children

Postby DTSC » Mon Mar 25, 2013 10:19 am

Grt2bOutdoors wrote:
berg wrote:My wife and I are thinking about having a baby in the next year or two. I think we have a lot of our basics down in our finances (20% home equity, maxing retirement funds, emergency fund).

What additional finance preparation would you give to someone considering having a child in the next few years?

For those of you saving for college, how soon did you start saving and how aggressively do you save for college (the cost 20 years from now seems too astronomical to even say out-loud).


As the others have said - term life for both you and the mrs.
I started 529 plan as soon as I obtained social security number - not fully funded yet, but getting there.
I started a taxable account the year before with the intention that will supplement 529 if it's not sufficient. But first max out your retirement plan. I'm not sure how much higher this education bubble is going to go for state schools - so I use I bonds as well, if we don't need it - then it will complement retirement, if we need it for other uses we can easily access it. If private goes to $1 million for 4 years, they can keep it.


Actually, you can open a 529 for yourself (or your spouse) right now. When Junior is born, you can change the beneficiary to Junior. There's no need to rush for a SSN.

With children, the most important thing to plan for is not money, but TIME.
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Re: Planning for children

Postby MN Finance » Mon Mar 25, 2013 10:31 am

I agree with the existing comments. I have increased my life insurance policy several times (first when married, then bought house, then kid, kid, kid, etc). If you reevlaute life insurance, I would bump it up to what you might need in the future, not just what's needed today. So, get the $2M policy, not the $1M, for example (you can always drop it later). DIsaibility is also critical and the most overlooked.

529s are great of course, and obvious. But what I like about them best is that every time money comes for holidays/birthdays, I pocket the cash and just electronically drop it into the 529s - quick and easy and it actually does add up. That said, I have decided we are not going to stretch/reach/struggle to fully fund 529s any time soon (unless income is really good / win the lotto / etc). It's pretty tough to fully fund the plans and it's imposible to know what life will be like 20 years from now, so we've taken the approach of funding what we can, but it's a second tier priority.

The other biggest change is simply how much kids cost, which seems partly obvious. We have 4 kids. It's absolutely stunning if I add up what we spend ourselves vs what we spend on the kids. Now this is not a big deal if income is ok, but I imagine it can be if income is tight. The reason being kids don't (generally) cost you a percentage of your income, they cost a fixed amount. So if you make $150k or $50k kids will generally cost about the same and impact each family differently. This is not an accurate budget, but I'm thinking of things we've spent money on in the last 3 months.... swim lessons ($500), piano lessons ($750), hockey team ($500), school supplies ($250), birthday party ($250), santa ($1000), shoes & clothes ($400), allowances ($100), new bike ($100), etc. We spend $1000/mo on food and other household items due to kids. Then lifestyle changes like larger vehicles, more expensive family vacations, etc. And of course there's college, weddings, etc. Everything can be done cheaper and no family needs to do it all, but life gets pricey every day ($80 yesterday for a cheap buffet after church). I don't track the annual cost, but if we really weigh everything all in, I'll bet it costs us $50k / year vs. what it would cost us to live without kids... and that probably still leaves college totally unfunded.
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Re: Planning for children

Postby schnoodlemom » Mon Mar 25, 2013 10:38 am

If you're a dual income couple now, consider any change in income, expenses or healthcare benefits with a pregnancy, birth & childcare & project how your new budget will look. It can just be a rough draft, but it's good to plan ahead. Don't get discouraged as kids and families thrive on a wide range of budgets.

We started 529's for our children when they were very young after reducing debt & maxing tax-deferred retirement accounts. We contribute annually up to our state limit for tax-deduction ($10k). The plan is to have enough for 2-3 years of in-state public university saved. The rest will come from cash flow, student wages, scholarships, gifts, small loans etc.
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Re: Planning for children

Postby Hikes_With_Dogs » Mon Mar 25, 2013 10:42 am

jon-nyc wrote: I fully funded his 529 before his 4th birthday


Hmmm. Do you live in a state with income tax? It would seem if you fully fund it ahead of time you lose the tax advantage. When I lived in a state with income tax ,we just funded to the limit of the write-off (8k per parent/year).

Also, I don't want to steal the OP but if anyone had any thoughts about Guaranteed Education Tuition (GET) vs. a regular 529 (portfolio) I'd be interested in reading about. Or perhaps I should start my own thread on it.
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Re: Planning for children

Postby bottlecap » Mon Mar 25, 2013 10:44 am

In addition to all of the other suggestions, just save as much as you can, especially if one of you will quit or go to part time. On the other hand, take the time and spend some money to do things that you might not be able to when you have a young child.

Good luck - being a parent is fantastic.

JT
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Re: Planning for children

Postby MN Finance » Mon Mar 25, 2013 10:49 am

One more thought - I say this only becuase it's the boglehead forum - don't get fixed too much on planning for the future at the sake of today. It just may be worth taking that trip to disney even if your emergency fund is spotty, or someone dropping out of the workforce so they can watch pigtails bounce down the bus steps every day.
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Re: Planning for children

Postby Rupert » Mon Mar 25, 2013 11:42 am

You've gotten good advice so far. I'll just reiterate the importance of the following three items: (1) eliminate all consumer debt (car loans, credit card balances, etc.); (2) build a very healthy emergency fund; and (3) buy term life insurance. It's extremely important to buy life insurance before your wife gets pregnant. Many companies will not write policies for pregnant women (or won't write them after the first trimester), and your wife may develop conditions, such as gestational diabetes or high blood pressure, during pregnancy that will forever impact the price she pays for insurance. These conditions are very very common during pregnancy and can affect women who were otherwise completely healthy (and not overweight) prior to pregnancy. I'll add one final thing that I don't think anyone has mentioned so far: If you both work and plan to continue working, start talking to friends in your community about the availability and cost of childcare. Depending on where you are, high-quality daycare for one child can cost $5000-$15,000 a year. Nannies, assuming you pay all the payroll taxes, etc., and aren't paying cash under the table, are generally more expensive than daycare. If you choose daycare, you may need to get on a waiting list as soon as your wife gets pregnant. That's right - long before the child is born. So brace yourself for all that.
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Re: Planning for children

Postby drizzle » Mon Mar 25, 2013 12:23 pm

I found a helpful college calculation spreadsheet yesterday. Takes inflation into account, and shows you what you'd need to save for it. It didn't play nice with Google Spreadsheets, but I was able to fix it in excel then upload it.

http://office.microsoft.com/en-us/templ ... 61841.aspx

We have 1 kiddo and one on the way. They have not been as expensive as we planned, but we've enjoyed them a lot.
We aren't fully funding 529's but we put a consistent amount in every month.
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Re: Planning for children

Postby Hikes_With_Dogs » Mon Mar 25, 2013 12:32 pm

Rupert wrote: Depending on where you are, high-quality daycare for one child can cost $5000-$15,000 a year.


Ours is $20,700/year in a HCOL area.

And waiting lists are 1-2 years long. So get on the list now!!!
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Re: Planning for children

Postby jon-nyc » Mon Mar 25, 2013 12:51 pm

Hikes_With_Dogs wrote:
jon-nyc wrote: I fully funded his 529 before his 4th birthday


Hmmm. Do you live in a state with income tax? It would seem if you fully fund it ahead of time you lose the tax advantage. When I lived in a state with income tax ,we just funded to the limit of the write-off (8k per parent/year).


I do, but I did the major 'top up' my last year of work (retired at 44).
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Re: Planning for children

Postby mojave » Mon Mar 25, 2013 1:29 pm

"Depending on where you are, high-quality daycare for one child can cost $5000-$15,000 a year."

5k?

In the Chicago area expect $30k plus.
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Re: Planning for children

Postby Professor Emeritus » Mon Mar 25, 2013 1:35 pm

berg wrote:My wife and I are thinking about having a baby in the next year or two. I think we have a lot of our basics down in our finances (20% home equity, maxing retirement funds, emergency fund).


:happy Caution As my "new mother" daughter always says "they have a child, SHE had a baby" :oops:

Anyone who manages the house and the spouse before the baby is so ahead of the game we can only wish you well !! :beer
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Re: Planning for children

Postby livesoft » Mon Mar 25, 2013 5:26 pm

mojave wrote:"Depending on where you are, high-quality daycare for one child can cost $5000-$15,000 a year."

5k?

In the Chicago area expect $30k plus.

I'm laughing too much since at that price there should be lots of folks starting day cares in order to become billionaires.
Our daycares at YMCAs in New York and Texas were very reasonable and very high quality. One can also have in-home daycare at less than $30K plus per year. I think there are quite a few folks here on Bogleheads who might equate high quality with high cost. Or maybe one pays lots for daycare for the same reason one drives a Bentley or a Ferrari.

Also perhaps paying for child expenses is as addicting as crack cocaine.
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Re: Planning for children

Postby Hikes_With_Dogs » Mon Mar 25, 2013 5:33 pm

livesoft wrote:
mojave wrote:"Depending on where you are, high-quality daycare for one child can cost $5000-$15,000 a year."

5k?

In the Chicago area expect $30k plus.

I'm laughing too much since at that price there should be lots of folks starting day cares in order to become billionaires.
Our daycares at YMCAs in New York and Texas were very reasonable and very high quality. One can also have in-home daycare at less than $30K plus per year. I think there are quite a few folks here on Bogleheads who might equate high quality with high cost. Or maybe one pays lots for daycare for the same reason one drives a Bentley or a Ferrari.

Also perhaps paying for child expenses is as addicting as crack cocaine.


Or maybe that's what it costs because that's what the market will bear?

I live downtown in a big city with a HCOL. Yes, I could drive 30 minutes out to the suburbs, drive back downtown to my job, work my 8-10 hours, then drive 30 minutes back out to the 'burbs, get my child, and drive 30 minutes back home. Or I could just pay the premium for using the day care right across the street from my work.

It's not a ferrari or a BMW. It's a nice, clean, regular day care. More like a Honda. And it had availability. Like I posted before, most places I called (I called over 10 when we moved here) had waiting lists of 6 months at the minimum, 1-2 years was more likely.

And everything in Texas is _damn_ cheap!

The YMCAs here don't take kids under 5. I'm talking about infant/toddler rooms.
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