6 Financial Planning Considerations for Growing Families

There are a variety of financial planning considerations for growing families. Be sure to keep these in mind to stay on track towards your financial goals. 

The average cost of raising a child in the United States is $233,610, according to a 2015 study by the U.S. Department of Agriculture. And with inflation persisting near record highs, that number is even higher today.

Indeed, growing your family can be an exciting and fulfilling endeavor. But it’s also a tremendous responsibility—financially and otherwise. Whether you are in the planning stages of starting a family, expecting, or recently welcomed a new child, it’s important to consider the impact on your personal finances and plan accordingly.

Here are six financial planning considerations for growing families:

Children can affect your finances in a variety of ways. As your family grows, be sure to keep the following financial planning considerations in mind.

#1: Review Your Financial Goals & Priorities

New parents are often faced with difficult decisions about how to best spend their money.

For instance, prior to having children, it may have been possible to take a lavish vacation on a moment’s notice. Now, you may need to put that money towards more pressing matters, like childcare.

Yet children don’t just affect your day-to-day finances. They can also upend your long-term financial plans.

For example, you may have previously planned to pay off your student loans in the next year and retire by age 55. However, now your goals may include paying for your child’s college education and upgrading your family’s home.

As your family grows, it’s important to periodically review your financial goals and reprioritize as necessary. In some cases, you may need to adjust your timeline to account for competing financial priorities.

If you’re not sure where to start, consider working with a financial advisor. A trusted advisor can help you identify and prioritize your financial goals and develop a plan to achieve them.

#2: Develop a New Spending Plan

According to Care.com’s 2022 Cost of Care Survey, more than half of families surveyed pay more than 20% of their take-home pay on childcare. And while childcare tends to be one of the larger expenses associated with raising a child, a multitude of expenses tend to increase as your family grows.

Consequently, you may need to update your spending plan (or create one) to account for new and rising expenses. In addition to childcare, here’s a list of expenses that commonly increase as your family grows:

• Groceries and personal care. If you have a newborn, diapers and formula can significantly add to your grocery bill. As your children get older and hungrier, they can cause your food costs to skyrocket.
• Housing. You may find you need more space to live as your family grows. Upgrading the family home has a variety of associated costs—for example, mortgage payments, property taxes, utilities, and routine maintenance.
• Transportation. Your car may be fine for you. But once you have precious cargo on board, you may find you need to buy a more reliable vehicle. Meanwhile, a new and larger car may mean higher insurance rates and a more expensive gas bill.
• Clothing. If you’re lucky to have hand-me-downs, clothing may not be an exorbitant expense—at least initially. However, new clothing and shoes can become a significant budget item as your children grow.
• Healthcare. Not only does it cost more to add another person to your insurance plan, but you’re also likely to be making more frequent trips to the doctor when you have children. These costs can add up quickly, depending on your insurance plan.

Indeed, spending can be one of the most important financial planning considerations for growing families. While you may need to make certain sacrifices, keeping your spending under control is absolutely essential for meeting your long-term financial goals.

#3: Update Life Insurance Policies and Estate Planning Documents

It’s a good idea to review your insurance coverage and estate plan any time you experience a major life event. But it’s an especially important financial planning consideration for growing families.

If you don’t have life insurance, you may want to consider purchasing a policy after your first child. Similarly, you may want to increase your coverage as your family grows.

Life insurance can help cover a variety of emergency expenses if something happens to you or your spouse. And if something happens to the primary breadwinner in your family, it can help replace that lost income.

There are many options when it comes to purchasing life insurance. In general, term life insurance is less expensive than a whole life policy. According to eFinancial, the average cost of a 10-year, $250,000 life insurance policy is between $15 and $17 per month for a healthy 40-year-old.

In addition, it’s wise to review your estate planning documents as your family grows. Specifically, you’ll want to make sure you name a guardian for your children in your last will and testament should something happen to you and your spouse.

Moreover, you may want to update the beneficiaries on your accounts or set up trusts for your children. A financial advisor or estate planning attorney can help you determine the best way to meet these goals.

#4: Set Up a College Savings Plan

Saving for college is generally another important financial planning consideration for growing families. While there are many ways to do this, a 529 plan is a common and tax-efficient way to save for future education expenses.

While 529 plans don’t have contribution limits, contributions count towards your annual gift tax exclusion limit for that calendar year. For example, in 2022 the annual exclusion limit is $16,000 per donor. That means you and your spouse can each contribute up to $16,000 to a 529 plan tax-free.

You can also invest your funds within a 529 plan on a tax-deferred basis. Distributions for qualifying expenses are also tax-free.

There are two types of 529 plans: prepaid tuition plans and education savings plans. All 50 states plus the District of Columbia sponsor at least one type of 529 plan. You can use this database to browse your state’s 529 plan offerings.

#5: Take Advantage of Income Tax Credits and Deductions

Taxes are another important financial planning consideration for growing families. In fact, having children may come with a number of tax benefits.

First, make sure your child has a Social Security Number (SSN) before filing a tax return as new parents. Typically, you can request an SSN when you fill out the birth registration form at the hospital. However, if you don’t give birth in a hospital or forget to check the appropriate box, you can request an SSN at your nearest Social Security Administration branch.

The most well-known tax credit for new parents is probably the Child Tax Credit. Prior to the American Rescue Plan Act, which increased this credit during the Covid-19 pandemic, the Child Tax Credit allowed new parents to deduct up to $2,000 per child depending on their income.

In addition, parents may be able to deduct certain childcare and medical expenses from your taxable income. Be sure to consult with a CPA or tax expert to ensure you’re maximizing your tax benefits.

#6: Look for Opportunities to Streamline Your Finances

Lastly, time and energy can also be important financial planning considerations for growing families. Indeed, as your family expands, your time and energy often shrink.

In other words, you may no longer have time to manage the details of your personal finances yourself. Even tasks as simple as contributing to your emergency fund or retirement savings may fall through the cracks.

To ensure you stay on track towards your financial goals, look for opportunities to streamline your financial planning efforts. For example, consider automating your savings and retirement plan contributions so you don’t have to think about them each month. You can also automatically invest your contributions, so you don’t miss out on the positive effects of compounding.

In addition, you may want to consider delegating financial oversight to a trusted financial advisor like SageMint Wealth. An advisor can proactively help you navigate challenges, minimize risks, and take advantage of opportunities that you may otherwise miss.

SageMint Wealth is a Southern California-based wealth management firm for high-net-worth individuals, families, and business owners. We have a passion for supporting women, the LGBTQ+ community, and individuals in the technology space. If you’d like to learn more about certain financial planning considerations for growing families and develop a plan that supports your goals, please contact us. We’d love to hear from you.