Picture this: You have finally gotten your financial house in some semblance of order, when -- poof! -- you find out you're going to have a baby. Just like that, a hole is blown through the metaphorical roof. You want your child to have all the necessities -- a nice home, a college education and plenty of financial smarts -- but how do you get started?
You can begin by taking a look at your own finances. Get them in the best order the you can (sorry, helping with that is beyond the scope of this top 10 list), and then read through the list here. These financial events, presented more or less in chronological order, are the things you should be planning for as you raise your child to be money smart and financially independent -- without wrecking your own bank account in the process.
Special Needs Kids
According to the U.S. Department of Agriculture, the total cost of raising a child born before 2013 until age 17 is a staggering $245,340 [source: Lino]. For a child with special needs, that number can be a great deal more depending on the child's needs. You may encounter additional medical-related expenses or need to make modifications to your house as your child grows up. Plus, there are other potential costs, such as therapy, special schools, a caregiver and the additional savings and life insurance you'll need to ensure your child is well cared for after you're gone. You may even have lost income to consider if you end up taking time off to care for your child.
While the costs of raising a special needs child can be enormous, some advance planning will help you sleep at night. Begin saving money as soon as your child is born. There are two benefits to this. First, you can take advantage of compounding -- that is, watching your money grow faster. And second, your expenses may increase as your child gets older. Keep in mind that any money should remain in your name -- or in a trust for your child. If you put money in your child's name, he or she could become ineligible for benefits like Supplemental Social Security and Medicaid.
Whether you opt for public, private or home school for your child, the costs of education from kindergarten through high school increase every year -- with many of those costs passed on to parents. Beyond what each of us pays in taxes to support education, parents are being asked to cover more and more supplies, not to mention the cost of extracurricular activities, field trips and standardized tests.
According to Huntington Bancshares' annual Backpack Index, which looks at the costs to parents of back-to-school items and activities each year, costs in 2014 rose up to 20 percent over 2013 [source: Huntington Bancshares].
Costs of private schools continue to rise as well. According to Private School Review, the average cost in the United States for private school tuition is $9,195 [source: Private School]. As with public school, that cost generally does not include supplies, activities or uniforms, if needed.
Homeschooling continues to grow in the U.S. too, with an average cost per child of about $900 [source: Bentley].
Costs vary by state and community. So, explore the options in your area to make the best choices for your child and family.
An allowance can be a great tool for teaching kids about money as they explore the cost of things and learn about delayed gratification by saving for expensive must-haves. An allowance can also help save your sanity, as it reduces your kids' insistence on having you buy them the latest and greatest -- at least by a little.
Some say it's not the allowance itself, but the time spent by parents on the educational aspect of money that's most important. But we're looking at expenses, not philosophical questions here. So, how much should you give a child for an allowance? When should you start? Should you tie it to chores? All of these questions have pros and cons and should be considered in the context of your own family.
That said, experts generally agree on a few things related to allowance. First, plan ahead so you can use an allowance as a teaching tool to help your kids understand budgeting and money management. Second, set up the rules in advance about what the allowance covers. Consider whether your child should save or donate a portion -- or whether the allowance should be based on chores. Third, start as soon as kids are old enough to know that things cost money and recognize the difference in coins and bills, somewhere between the ages of 4 and 7. Finally, be consistent. Give the allowance on the same schedule every week or two weeks.
Disability of a Parent
What if you're injured in an accident or develop a chronic illness that keeps you from working? How will you take care of your family? The first line of defense is a savings account. Maintain an easy-to-access account with enough money in it to cover six months or more of your expenses.
After that, you will need disability and health insurance coverage. These are essentials for most people, but especially for parents, since medical expenses are the number one reason for personal bankruptcy. And if you suddenly find yourself disabled, you are likely facing not only potentially catastrophic health care costs, but also a reduction or complete loss of income. Many employers offer both health and disability insurance. If yours does, sign up, and include your spouse, if appropriate. If not, thanks to the Affordable Care Act, it is much easier to get health insurance.
Disability insurance can be expensive to obtain on your own, but there are advantages to private insurance versus insurance from your employer. Often, individual policies will pay you up to 70 percent of your income tax-free, which probably comes close to 100 percent of your take-home pay. When your employer provides the benefit, payouts are taxed as income [source: Dummies].
Death of a Parent
Despite our best intentions, none of us gets out of here alive. If you're a parent, your death or the death of your co-parent could be financially devastating for your children. Life insurance, which pays out to your family or beneficiaries in the event of your death, can help ease your burden. Estimates for how much insurance you need range from 10 times your annual salary to just enough to bury you. For a realistic estimate, consider the expenses your family has and what it would take to maintain its lifestyle.
How much will your funeral expenses be? In the U.S. in 2012, the average cost of a funeral was between $7,000 and $8,000 [source: Funeral]. Cremation is a less expensive option, but can still run several thousand dollars. A third alternative is to donate your body to a medical school after your death. Check with colleges and universities in your area for their policies on accepting body donations.
How many years will your family need your replacement income? Does your spouse work outside the home? Are your kids grown and gone, or are they toddlers with a lifetime of needs ahead of them? Do you need to factor in college, weddings or the additional expenses of a special-needs child?
Life insurance need not be a one-time purchase. As your family's needs change, you may need to increase or decrease your life insurance.
Seems like it was only yesterday she was driving a Big Wheel around the yard. Suddenly, she's 16 and in her own car. While not an essential for every teenager, a set of wheels can ease the burden on the family's regular driver. It can also be very expensive for a teenager to drive. Not only is there the cost of the car itself, but also there are ongoing costs including gas, insurance, maintenance and the seemingly inevitable accident.
Talk to your teen ahead of time about a car. You'll want to get some things out in the open too, such as who will pay for the car, what kind of car is in the budget and who is responsible for things like insurance, gas and upkeep.
An extra driver in the family can help everybody out -- from running errands to picking younger siblings up at school -- but make sure your teenager understands the costs and responsibilities, and be sure to plan for it financially before her 16th birthday.
Is your teenager constantly asking for money, or could your family use a little help making ends meet? Either way, it might be time for your child to get his first job. A job for a teen, just like for adults, can be more than a means to income. It's also a good way to learn how to work responsibly, how to get along with a variety of people and how to manage newfound wealth. Some of the most common jobs for younger teens can be found right in the neighborhood, such as babysitting, dog walking, pet sitting or yard work.
Older teens may be more interested in working in a restaurant or retail (oh, the discounts). If you're concerned about your teen's grades or social calendar, maybe you should encourage your child to consider a summer job. If you help your kid with a budget and savings plan, it might be a way to earn money that can last throughout the school year.
While you may be convinced that your budding little genius is going to get into Harvard on a full ride when she's ready for college, the truth is that tuition -- and all of the associated costs -- is getting more and more expensive, and getting into college, much less on a full ride, has become much more competitive.
Beginning to save for your child's college may be unrealistic while he's still in diapers, but it is a good time to start thinking about it. A 529 plan is a college savings plan operated by states and educational institutions. You set up a plan and designate your child as the beneficiary. You, or anyone, can then contribute to that plan. When your child is ready for college, he can use the money for qualified expenses including tuition, fees, computers, books and even room and board. Earnings are not subject to federal tax -- and most often not to state tax either. Keep in mind, though, that contributions to a 529 are not deductible.
Plans vary, and you don't have to set up a plan in your state. Do some research to find a plan that offers the benefits you need. And rest easy. If your genius does get a full ride to Harvard, the funds can be transferred to a sibling or other beneficiary to help fund that child's education [source: IRS].
Nobody wants to think about being unemployed, but avoiding the subject doesn't help anybody either. If you are concerned about the stability of your job, consider some ways to prepare now for potential unemployment that might help save your pocketbook, your sanity and your house if the worst happens.
An old adage says you should have enough money in a savings account to cover six months of expenses. If you're facing potential unemployment, try to have enough for eight months or a year. Supplement your income with freelance work by starting a small business or selling stuff on eBay. Practice living on one income. If your job is going away, pretend it already has and live only on your spouse or partner's income. Start looking for a job now, while you're still employed.
What if it's not you that's unemployed? What if, like so many young people these days, your adult child can't find a job? Consider these things if you're facing "boomerang" children:
- Lay out the ground rules involving rent, utilities and groceries ahead of the move.
- Don't tap into your retirement account to help your kids.
- Don't be your kids' bank. If they ask you to pay their debt, make it a loan of your own, and spell out terms.
- Set a time frame for your child to move out.
Most importantly to the successful reintegration of a child into your home, say the experts, is to keep talking to each other.
Here Comes the Bride
The average wedding in the U.S. in 2014 costs $25,200 -- and that doesn't include the cost of the honeymoon [source: Wedding Report]. If your dream -- and your child's -- is a wedding with all of the bells and whistles, you can expect to spend even more. Here are some of the things you may spend money on when planning a wedding for your little girl – or boy:
- Dress and accessories
- Tux and accessories
- Party and shower clothes
- Wedding planner
- Rehearsal dinner
- Gifts for groomsmen and bridesmaids
- Hair and makeup for the big day
- Wedding and reception flowers and decorations
- Wedding and reception music
- Venue and catering
Whew! Maybe you'll get lucky -- and they'll elope.
Are you confused by the difference between term and whole insurance, as well as all the other life insurance you can buy? HowStuffWorks sorts it out.
Author's Note: 10 Financial Events to Plan for in Your Children's Lives
Full disclosure: I don't have kids. Instead, I have a gaggle of nephews who will pick out my nursing home, so I've worked hard to be part of their lives. One thing I learned early on is that while they'd never turn down money or stuff, what we all enjoy the most is adventure. Birthday celebrations began when they were 2 as afternoons at the zoo, walks in the woods or ice cream for lunch. As the boys grew older, their birthdays became weekend adventures to nearby cities, museums and movies, each accompanied by food of their own choosing. And as they continued to grow -- they're all teenagers now -- they became more involved in what we did. Planning, making suggestions, learning how to survive the disappointment that no matter how much I loved them, I never was going to go skydiving -- or watch them do it. I'm so glad my family is willing to share its kids. It's been great for me, the kids and the parents. And I'm counting on it to pay off in the long run -- with a room at the best nursing home in town.
- Bentley, Vicki. "What does it cost to homeschool?" HSLDA. 2013. (Oct. 17, 2014) http://www.hslda.org/earlyyears/Costs.asp
- Family Education. "When Your Teen Wants a Car." (Oct. 17, 2014) http://life.familyeducation.com/teen-driving/personal-finance/47214.html
- For Dummies. "Taking a Close Look at Disability Insurance." 2014. (Oct. 17, 2014) http://www.dummies.com/how-to/content/taking-a-close-look-at-disability-insurance.html
- Guillot, Craig. "The Cost of Raising a Special Needs Child." Mintlife. July 23, 2013. (Oct. 17, 2014) https://www.mint.com/blog/planning/the-cost-of-raising-a-special-needs-child-0713/
- Huntington Bancshares. "Backpack Index." July 22, 2014. (Oct. 17, 2014) http://huntington-ir.com/ne/news/hban072214.htm
- Internal Revenue Service (IRS). "529 Plans: Questions and Answers." Sept. 23, 2014. (Oct. 18, 2014) http://www.irs.gov/uac/529-Plans:-Questions-and-Answers
- Julien, Stacy. "When Adult Kids Move Back Home." AARP. May 25, 2012. (Oct. 18, 2014) http://www.aarp.org/money/budgeting-saving/info-05-2012/adult-kids-move-home.2.html
- JumpStart. "How to Raise a Money-Smart Child." (Oct. 17, 2014) http://www.jumpstart.org/assets/files/MoneySmart%20Child.pdf
- Lino, Mark. "Expenditures on Children by Families, 2013." United States Department of Agriculture. August 2014. (Oct. 11, 2014) http://www.cnpp.usda.gov/sites/default/files/expenditures_on_children_by_families/crc2013.pdf
- National Funeral Directors Association. "Statistics." April 12, 2013. (Nov. 12, 2014) http://nfda.org/about-funeral-service-/trends-and-statistics.html
- Private School Review. "Average Private School Tuition Cost (2014-2015)." (Oct. 17, 2014) http://www.privateschoolreview.com/tuition-stats/private-school-cost-by-state
- TIAA-CREF. "Baby on the Way?" (Oct. 17, 2014) https://www.tiaa-cref.org/public/advice-guidance/education/financial-ed/empowering-women/how-to-financially-prepare-for-a-baby?p=1331944006928
- The Wedding Report. "Average Wedding Cost." (Oct. 18, 2014) http://www.costofwedding.com/