Jason Close knows a lot about sound money advice. And leading up to the birth of his first child this month, even he's amazed at how much parents can do to prepare.

Close, a 29-year-old financial planner in the Detroit area, is used to dishing out advice for others. And since the birth of his daughter Violet on Sept. 13, he and his wife, Jackie, are finding themselves in the position of planning for one of the most major financial events in many people's lives. One that catches many off guard.

Planning for a child is a financial mind-bender because there are so many unknowns, ranging from the baby's health to future needs and interests that the child might develop later in life. A trip to the emergency room or proclivity of a kid toward an expensive hobby can sink a couple that had been financially independent before having kids.

"There are huge unknowns," Close says. "There are new expenses you can't fully anticipate."

There's also the sheer magnitude of the cost of raising a child, which is one of the biggest expenses Americans face. It costs the average middle-income family $234,900 to raise a kid from birth to age 18 in current dollars, says the U.S. Department of Agriculture. That's up 23% from what a family spent to raise a kid in 1960, adjusting for inflation.

"If everyone sat down and looked at the costs, the whole species would be extinct in 20 years," says Lynn Ballou, a financial planner in Layfayette, Calif., who raised two adopted children. "And sometimes we don't know what the costs are going to be."

Given the extreme trickiness of financial planning for a new member of a family, parents and financial planners urge couples approaching this stage of their lives to:


One of the first decisions couples must make is how they're going to reconfigure their lives and schedules to accommodate the new arrival. The first big decision to force the issue is whether both parents will return to work or if one will stay home to provide care, says Rita Cheng, a financial adviser based in Bethesda, Md.

Prospective parents should look at their expenses and how much they earn based on one and two incomes, and try to figure out which option makes the most sense, Cheng says. Be careful, though, because parents often overlook hidden costs. For instance, they might think they can keep working their long hours and just pay for day care. But some parents don't realize that most day care centers and schools close earlier than work hours and charge extra for extended-hours care, Cheng says.

And for couples that decide to keep one parent home, remember to factor in the lost contributions to retirement accounts and Social Security as well as changes to insurance coverage, she says. Parents that decide to stay home should also consider costs to get retrained so they can re-enter the workforce, if desired, after the child grows up.


It's prudent for anyone to have enough cash in the bank to hold them over for three to six months. But given the tremendous unpredictability of children, the importance of a cash cushion is magnified, says Laura McMahon, a financial planner in Indianapolis and mother of a 14-year-old son. It's not unheard of for parents to have more than six months of cash, just in case something unexpected happens.

During the nine months leading up to their child's birth, parents-to-be should aggressively stockpile cash and cut debt while there's more certainty in their financial life.

Waiting too long to create a rainy day fund might leave families exposed. Most families spend $12,290 to $14,320 a year to raise a child, a big financial burden to deal with as well as save money for emergencies.


If there's one thing expectant parents know they'll probably need, it's additional life insurance, Close says. Given the higher costs of raising a child, a surviving spouse would need access to cash in case something were to happen. Parents need to consider how much income would have to be replaced if something happened to one of the parents, he says.

But the review of insurance coverage shouldn't stop at just life coverage. Couples frequently underestimate how much their medical costs will rise and should re-evaluate what plan they're signed up for and whether it's still appropriate, McMahon says. One of the things that surprises young couples most, immediately after having a child, is the size of their portion of medical bills connected with the delivery, she says.


After you have a child, it's not all just about you and your spouse anymore. You need to quickly make contingency plans for the new member of your family, Close says. It's imperative to get the legal documents in place that will assign a guardian for your child if both parents were to die prematurely, he says.

Meanwhile, Close often encourages young parents to set up a trust that would be established to care for the child as well as designate a person to manage the financial affairs.


Given all the obligations that need to be handled even before Junior utters his first word, it's easy for parents to lose sight of other, even bigger, financial obligations down the road. College planning is perhaps the biggest looming financial hurdle. Some parents think it's too soon to think about saving for college when a child is just born.

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But by starting to save when a child is born, or even before, parents can dramatically reduce the financial strain of the process.


Parents and financial planning experts insist that parents should have a financial plan, but build in flexibility. Much of what's enjoyable about having kids is the unpredictability they bring.

To cover unexpected costs, Ballou recommends parents save 5% to 10% of income each year to cover "unknown costs."

Despite the challenges of planning for children, though, it's well worth the time.

Having a plan for money in place allows parents to focus on being parents, which is already emotionally and physically demanding, Cheng says. "If your finances are strong, you can focus on being a better parent."