And Baby Makes Four: Financial Planning and Your Second Child

Even parents with several children can recall with crystal clarity the emotions, trepidation, anticipation, and planning that surrounded the birth of their first child. When you’re becoming a parent for the first time, you’re more likely to think carefully—sometimes to the point of obsession—about everything from which car seat you should buy to starting a college fund. You are eager to do everything right, and you spend a lot of time working toward that end.

Sometimes, though, when it comes to the second child, parents have a tendency to think, “We’ve done this already; it’s handled.” Leaving aside the obvious (and yet, always surprising) fact that no two kids are alike, even when they come from the same parents, it’s important to approach the financial aspects of adding a fourth person to your family just as carefully and thoughtfully as you did the first time around. Here are a few items for consideration that can help you be as financially prepared as possible for the arrival of a second child.

  1. Housing and transportation. Will there be room for everybody? It’s not uncommon for a second child to create an immediate need for more space. Many young parents who have been managing just fine with two bedrooms will suddenly realize that having the older sibling share sleeping quarters with an infant who requires 4:00 a.m. feedings is not ideal. Similarly, if the two children are separated in age by four years or less, you’ll now need room for two car seats and their associated accessories. The more you can plan in advance for these needs, the less they’ll cramp your budget when baby #2 comes home from the hospital.
  1. Daycare costs: Doubling down. Unless your first child is already in school, you should plan for doubled daycare costs. Daycare centers in the US charge an average of $1,230 per month for a single child, and while many centers offer a discount for a sibling, it’s typically no more than about 5%. Budgeting for two full monthly daycare fees is your most conservative option. You may even want to do the math to figure out whether having one parent stay home from work would save enough on daycare costs to offset the reduction in income.
  1. Revisit your budget. And speaking of budgets, it’s a good idea to think ahead about estimated monthly expenses for consumable items like formula, baby food, and diapers (according to the American Academy of Pediatrics, the average baby goes through $931 in diapers in the first year alone). Depending on how long it has been since your first child was born, you might be surprised by how much these have increased in cost over time (thanks, inflation!). Refreshing your “budget awareness” in light of these approaching expenses can keep you from getting blindsided while also dealing with the sleep deprivation that comes from having a new baby in the house.
  1. Embrace the joys of hand-me-downs. I know of a family with six brothers and sisters who range in age from mid-thirties to early twenties. They’ve made a virtue of necessity by creating a family tradition around passing gently used clothing, toys, and other childcare items down from one family to the next as the newest cousins are born. Especially for newborn clothing that typically gets worn for a month or two before being outgrown, such “recycling” can save significantly on the apparel budget for the babies who come along later.
  1. Don’t forget the future. Even when it’s not your “first rodeo,” caring for a newborn is exhausting. But even in the midst of predawn feedings, near-constant diaper changes, figuring out childcare logistics, and all the rest of the tasks that go with parenting, remember that you still need a plan for funding your children’s education and your own retirement. Sure, you’re juggling more monthly costs now, but thinking ahead about the items above should help you put a plan in place before the new baby comes home. That, in turn, has hopefully prepared you to continue setting aside regular deposits to your IRA, 401K, and your children’s 529 plan or other educational funding vehicle. Even if you must temporarily reduce the amounts you’re putting in these accounts, stick with it. You won’t be buying diapers and formula forever, and as those expenses decline, you can gradually resume the amount you’re saving for their future—and yours.

As a fiduciary, fee-only financial advisor and wealth manager, Empyrion Wealth Management provides advice to family stewards and other clients that places their benefit before everything else. To learn more, click here to read our white paper, “Family Stewards.”



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