Can you afford another child? Ask yourself these questions

How much does it cost to go from two kids to three kids?

There are certain things you can try to prepare yourself for when you become a parent for the first time. The cost of raising a child, however, is not one of those things. Right now, the cost of raising a child in the U.S. is about $234,000, and several studies suggest that number may continue to climb.

So, with that eye-popping number in mind, what should you do about your budget if you want to add to your brood? Of course, some parents might be able to swing it so that they’re spending slightly less than the quoted $234,000 — but the fact remains: kids are expensive! Even with careful budgeting and proactive financial planning, it might feel impossible to move the needle in the right direction.

But what if you feel called to have more kids? How are you supposed to prepare?

Whether you’re looking to have 2 or 3 children, or feel strongly that 4 or more kids are in your future – you have options. Knowing the cost difference when planning for multiple kids, or knowing what to expect going from 2 to 3 kids, is key so that you can start thinking ahead.

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How will our expenses increase?

If you’re growing your family or planning between 2 or 3 kids, you know that expenses are going to increase. Some costs—childcare, diapers—may be obvious, while others, like additional healthcare expenses or varying extracurricular activity fees —  sneak up on you. Setting a proactive budget that’s split into “needs” and “wants” can help you wrap your brain around what expenses are going to increase with each happy addition to the team, and what expenses you can reign in.

What are the needs of our family?

“Needs” are what your family requires to live comfortably. These might be your groceries, utility bill, and transportation costs. When your babies are little, the increases here are going to stay small (except for childcare, an expense that may grow and which you can budget for depending on your childcare needs). However, as time goes on, your children will start to have their own unique interests and needs. It’s exciting to watch their personalities develop as they grow into themselves, but different people have different needs to budget for.

There’s no telling what small changes to your expenses will happen over time. The more kids you add to your tribe, the more unknown future variables you’ll find hidden among housing costs, auto costs (more kids equates to more trips for activities, which equates to more gasoline and wear-and-tear for the car), and general extracurricular activities.

How will we budget for fun?

While travel, extracurricular activities, or trips to the ice cream store aren’t technically necessary — they do occasionally come with the territory of being a parent. These days, many parents are experiencing pressure to spend more. As a parent, you naturally want what’s best for your children, and it can be hard to set a spending limit on things you know will enrich their lives and give them valuable experience. It can help to plan ahead for some big-ticket expenses – like college education and childcare.

A few steps I have my clients implement are to have separate savings accounts for different goals. If travel is something you hope to prioritize, setting an annual budget for the family and stashing away monthly will help to ensure you have the funds available for the trip while still allowing you to stay within your limits. In addition, for something like extracurricular activities, I recommend having a bigger goal around why your child is participating in each activity. What will they get out of it? How might these skills benefit them? Why do you want them to do the activity? By really focusing on getting the most out of one or two activities, you’ll save money on additional fees and costs associated with taking on more.

What is our plan for education costs?

On average, parents can expect that in-state university will cost about $26,000 a year. Not every parent plans on covering all of their children’s college costs – but if that’s something you’re considering, it’s in your best interest to be on the ball. 529 plans are education savings plans sponsored by a state, and they offer a variety of investment options. In addition, friends and family can contribute to these accounts as well for holiday and birthday gifts.

Any money that you put into these accounts will grow federal income tax-free, so long as it’s used for qualified education expenses— which can be a huge benefit if you want to start saving for your children’s college education. Of course, there are other cost-saving options! Countless scholarships, loans, and grants are available for your children to apply for once they’re in high school.

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How will our insurance and medical expenses increase?

Your medical premiums will increase as you add your children to your policy – but some plans only charge you for your three oldest children who are under 18. This is fantastic news if you have 4 or more children under the age of 18 – because your policy might not charge you for your younger children, even though they’re still receiving coverage. Keep in mind that every policy is different, so check the plans offered through your employer to find which one works best for your growing family.

Even if insurance coverage is easy to estimate, medical expenses might be less so. While we all hope for happy, healthy children, life is unpredictable. Whether you’re dealing with a bug being passed around at school, or an adventurous child who breaks an arm climbing a tree – it’s tough to budget for the unexpected.

If you have a high-deductible health plan (HDHP), you can consider opening a Health Savings Account or Flexible Spending Account to set money aside for qualified medical expenses. These accounts are funded with pre-tax money, which can help lower your taxable income (and help you take home more of your paycheck for other expenses).

How will childcare costs increase?

This is a growing expense that many families deal with when they have more kids, including my family. My husband and I recently had our second child, and the costs for both of our children to go to daycare is the equivalent of some people’s monthly mortgage payment.

We saw this cost coming and have been saving for a while, but that doesn’t mean it hasn’t shifted how we approach our current budget or the other savings goals we have. Everyone has a different approach to solving this dilemma. Some families choose to have a stay at home parent, while others have two working parents — or one parent who works from home.

If child care is in your growing family’s future, it’s in your best interest to start saving for that increased expense now. You can also try negotiating a lower rate for having multiple kids in childcare at once or compare the price difference between a nanny and daycare to determine which one is the most economical option for your family.

What financial opportunities might we miss?

As my husband and I made the transition from one child to two (just five months ago), I can tell you one thing I seem to always be losing more of: time. Admittedly, I’m spending a lot more time with my family, enjoying my two adorable kids, and loving life.

But I’m also spending a lot less time on creative work projects, networking with colleagues, and focusing on self care. I still manage to work some amount of these things into my day-to-day, but my schedule is notably less flexible since having my second child. In a world where time is very literally translated to money, reducing the amount of time you have or the flexibility with which you’re able to spend it might mean making less money as a result.

Recognize lost financial opportunities (and keep your eyes open for new ones)

Something else we lose when we choose to have multiple children: financial opportunities. When you have flexible cash flow, you have the opportunity to invest and grow your wealth.

If we spend an average of $11,666 a year on daycare in the U.S., and we take that figure and multiply it by five (or the number of years until your little one will head off to Kindergarten), we can assume that $58,330 will be spent on daycare for each of your children. That same amount, when invested at a 7% return over 20 years could result in just over $225,000 saved toward retirement. There’s no right or wrong answer here for your situation. All you can do is be aware of the numbers and evaluate where you’re willing to reduce or cut back in order to make sure you’re investing and saving enough for your own future.

How will the “Cheaper by the Dozen” theory play out?

The “cheaper by the dozen” theory is that the cost of children goes down as your family grows. Although some expenses inevitably increase, others are completely taken out of the equation:

  • Hand me downs eliminate the need to buy most new clothes and toys.
  • Purchasing food in bulk at a Costco or Sam’s Club is often way less expensive than buying it at your local grocery store.
  • Budgets have to be tighter, which results in reduced spending across the board.

There are also tax benefits to having more kids. The new tax code increased the total child credit to $2,000 per child (under 17 years of age). This is a $1,000 increase from 2017’s child credit. $1,400 of the credit is refundable — which means that even if you don’t owe any money on your taxes this year, the government still owes you this money after you file. The tax code also outlines a $500 credit for dependents who don’t qualify for the $2,000 credit. This might include a college-aged child who lives with you for over half the year. Talk with a trusted CFP professional to evaluate how your situation may be impacted.

What do we want for our family?

Parenting is all about expecting the unexpected, and while you can predict some changes in your budget, you can’t necessarily predict or be prepared for everything that may come your way. Parenthood can be the most exciting adventure you’ve ever embarked on, and with savvy budgeting, you can make the increased expenses work. Regardless of what road you choose to take, you have to do what’s best for you and your family.

Nobody else can tell you what’s right for you, your partner, and your kids (although many will try!). Only you know your values and dreams, and if growing your family aligns your financial decisions with those values — you’ll plan accordingly and feel fulfilled.

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Mary Beth Storjohann, CFP® and Founder of Workable Wealth, is an author, financial planner and accountability partner working to help clients in their 20s-40s across the country make smart, educated choices with their money. Her recent accolades include the “Top 40 Under 40” by Investment News, “10 young Advisors to Watch” by Financial Advisor Magazine, and “10 of the Best Personal Finance Experts on Twitter.” She frequently appears on NBC as a financial expert and her expertise has been featured in The Wall Street Journal, CNBC, Forbes and more.

Haven Life Insurance Agency (Haven Life) does not provide tax or legal advice. This material has been prepared for informational purposes only and is not intended to provide tax or legal advice. You should consult your own attorney or tax professional.

Haven Term is a Term Life Insurance Policy (ICC15DTC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111 and offered exclusively through Haven Life Insurance Agency, LLC. Not all riders are available in all states. Our Agency license number in California is 0K71922 and in Arkansas, 100139527.

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