Love at first sight
Last week was my son Will’s 8th birthday, and in honor of his birthday, I thought I would devote my blog this week to children and finances and lessons that I have learned as I have grown into a financially savvy mom….
Will was not my first child. I had a miscarriage early on with my first pregnancy, and even though the doctor assured me that the odds of me having another child were very high, I felt a depression like no other. However, I vowed to myself that if I did have another child, I would speak openly about my story to give hope to others. After the miscarriage, it took me six months to get pregnant and each month felt like an eternity. Not only that, it seemed like everyone around me was getting pregnant where I was not.
I remember distinctly indulging in a huge pity party with wine and sushi when I heard Brittany Spears was pregnant. After six pity parties, I got another positive pregnancy test that led to my first doctor’s appointment where he performed an ultrasound to see if everything looked healthy. I will never forget the second I saw that little pulsing blip on the screen that was my son. I fell madly in love with him at that moment, and I tell him to this day that I have not stopped loving him for a single second since.
Children are the death of net worth
The problem with falling in love like this is that it can be an irrational love that leads you to make choices that are not always financially sound. I fell victim to this irrational financial behavior, and I have witnessed many other parents do the same. From the time I was in high school, my dad used to say, “Children are the death of net worth.” I do not think that a visit with him went by when I did not hear this line, and I always thought it was cruel, until I had a child and realized that my dad was just speaking the truth.
No matter how cruel this sounds, it is a financial fact that children cost money. Yes, they will give you great joy and allow you to feel depths of love you never imagined, but they cost money. And the best way to weather this blow to your net worth is to prepare in advance. I believe that we are given nine months to not only develop a healthy child but to implement healthy financial strategies. Here are some smart financial steps you can take while your baby is developing.
4 steps to take before your child is born
- Determine the monthly cost of your future child and bank it – No matter how much people tell you children cost and how many spreadsheets you can create, there are always more costs than you can imagine. Do you plan to have a night nurse? Are you going to bottle-feed? Will you need childcare? A good rule of thumb is that children will cost you on average an additional $1,000 a month. Once you see that beautiful blip, start putting aside $1,000 in a child cost savings account. By the time this child is born, you will not only have $9,000 saved up, but also you will have lived in your post-child budget and adjusted accordingly before the baby arrived so you should not have much post-baby budget adjusting to do.
- Register responsibly – Your baby registry is the last opportunity you get to ask those you love for specific financial help with this child, so you should do it wisely. You do not need expensive car seats or fashionable baby clothes. You need diapers, wipes and onesies that can withstand all of the bodily fluids a baby can release (and let me tell you, there are more than you can imagine). I know it may seem more exciting to open up cute clothes at a shower, but the future you, will appreciate the fact that you opened boxes of diapers and wipes or gift cards to Target, Amazon or Wal-Mart. The gifts you get from the registry will save you out of pocket costs down the road.
- Nest responsibly – As parents, we want the best for our children. We want them to have better than we had and more. The problem is that most children will not form long term memories at least until the age of 3 or 4; therefore, all of the financial strain and stress you will go through to give them what we never had is like throwing money down the drain. The fact is the cute nursery; nice crib and bedding are all what we want and not what they want. Your child will not care about the name on his or her stroller or the thread count on his or her sheets. When you are picking out items for the baby’s environment, think about how he or she won’t remember it and don’t “feel bad” because the baby is in a crib you found on Craigslist or the car seat that is not in fashion. This train of thought will not only save you money, but it will build an important foundation for your child later on as far as valuing what is important.
- Set up savings accounts before they are born – Inevitably when your child is born, people will give you money and gifts. A great way to support the financial health of your child is to set up an account in his or her name that you can deposit these funds. Initially you can set up an additional savings account in your name and deposit any funds here. Then once you catch your breath and get your child’s social security number, you can set up other accounts like UGMA (Uniform Gift to Minors Act) or 529 accounts. A UGMA is very easy to set up with your bank and you have a number of flexible investment options. A 529 would be utilized for higher education costs, and 529 plans in some states also give you additional state tax benefits that might be helpful to you down the road. We set up a 529 account for Will when he was a few months old, and we have been excited to watch it grow. Whenever he gets birthday or Christmas money, we contribute to this account for him.
The most important lesson I can impart on you before your child is born is to understand that love does not equate to stuff. You will have a long road ahead of you as far as childcare costs and the first few years of your child’s life is the best time to build a strong financial foundation as well as a spending foundation that will last you in the long run. That little blip of love may cloud your financial judgment, but you will have to fight to remember that a financially fit parent is the best gift you can give your child.
Do you have children? Do you think you were financially prepared for them? If not, what are some lessons you learned?