How to Life Plan with Your Children’s Future in Mind

  • Written by Luke Murray

For most people, a big part of their life plan involves kids. Children are one of life’s great joys, but also one of life’s great financial burdens. The good news is that the earlier you start planning for the inevitable costs that come with children the better you’ll be equipped to deal when challenges - both expected and unexpected - arise.


Work a new baby into your budget as soon as possible


If you have a baby on the way, you need to start budgeting for the costs associated with their care as soon as you can. Don’t wait until your baby is born to start considering them in your financial plan. Calculate all the costs that your family will incur with another head in the house. This includes, but is not limited to, food, diapers, clothing, child care fees, and medical expenses. These costs need to come out of whatever you’ve allotted for necessary spending, not discretionary spending.


With all the hustle and bustle of a new baby, don’t overlook the housing situation. The one-bedroom starter home may have been nice when there were just two of you, but adding another body to the house will require more room. Start budgeting now for the possibility of purchasing a larger home in the future. Of course, as crazy as it sounds, depending on the size of your current home, you may find that you need to downsize. Children are expensive, and the money you’ll save with a smaller mortgage and utility bill will be well worth it. Analyze your current situation and budget appropriately to avoid a stressful headache later on.


Create an emergency fund for life’s curveballs


No amount of planning can prepare you for when life throws you a curveball. For all unexpected expenses involving your kid, it’s essential that you have an emergency fund that will prevent you from having to borrow money to pay for small to moderate expenses. This emergency fund should contain at least six months of pay, just in case you lose your job. You should create your emergency fund even before beginning to pay off outstanding debts and invest - it’s that important.


Focus on education


Education is perhaps the biggest expense that parents must plan for when having kids. Even if you opt for public schools (no private programs or tools) all the way K-12, you still have to worry about college.


“As soon as your child is born, you can begin saving in one of many tax-favored education savings accounts [including] the 529 College Savings Plan and the Private College 529 Plan,” says NerdWallet. The 529 savings plan is similar to a Roth IRA in terms of tax advantages. You contribute after-tax dollars but don’t pay taxes on the earnings as long as you use it for qualified education expenses. Some states even offer a tax deduction on your contributions. The private 529 plan has similar tax benefits to the standard 529 savings plan, with the addition of allowing you to prepay for tuition. With the constantly rising cost of tuition, this is an amazing tool to utilize for your child’s future.


Always prepare for the morbid stuff


Bad stuff happens, and denial isn’t going to help anybody. You have to make sure your children are flush if the unspeakable happens to you. Apart from death, a disability that prevents you from earning can also be catastrophic.


“Your ability to earn an income is your greatest asset. Protect it. If disability income insurance is offered through your employer, take advantage of the opportunity and the group rate that may be offered. However, most group plans cover only a portion of your income. So to fully protect yourself, you may want to consider a supplemental individual policy,” says Northwestern Mutual.


When it comes to death and dying, a life insurance policy is a must if you have children. Also, you have to get your assets in order - whether that’s in the form of a last will and testament or a probate-free transfer on death deed program like the one offered in some states.


Your kids’ future is directly tied to yours. If you die without preparing the path for all of life’s contingencies, you could leave your kids high and dry.


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