“How many kids are too many? - Reuters Blogs” plus 1 more

How many kids are too many? - Reuters Blogs

Posted: 31 Dec 2010 07:47 AM PST

Newborn quadruplets delivered by caesarean section lie in a cart at a hospital in Hefei, Anhui province July 28, 2010. REUTERS/Stringer Carl Friedrich and his wife were perfectly happy – and busy – running a wealth management practice with a bustling household of four daughters. Then a bouncing baby boy arrived.

"For us, that was the tipping point," says Friedrich, the managing principal at Friedrich Wealth Management in Syosset, New York. "Four kids was a do-able, and five kids…it's a stretch."

Anyone with kids knows that growing a family is an emotional decision fraught with financial considerations – and limitations.

With the average cost of raising a child estimated at more than $220,000, one family's "tipping point" is another's happy medium. So how do you know how many kids are too many?

Start by taking a cold, hard look at these five key costs, Friedrich suggests.

College
Sending your kids to college may seem far off, but it's one of the biggest expenses you'll incur raising a child – and the sooner you start planning, the better. "With college inflation outstripping consumer inflation by 3 percent to 4 percent annually, that's no small fee," Friedrich says.

Saving for college in a 529 plan is a good option, so long as you're aware of some of risks involved. For example, Friedrich feels the age-based allocation plans often have too much exposure to equities and, as such, are risky for parents who are late to the college savings game.

"If you've got a child who's under a year old, you can afford to ride out some volatility, but it's not too long before you have to start pulling out of that," warns Friedrich. Still, Friedrich suggests even those with a moderate risk tolerance opt for a more conservative age-based plan.

Tim Maurer, a financial planner at Financial Consulate in Hunt Valley, Maryland, takes it one step further: he recommends his clients come up with a family education policy that sets out exactly what they want to accomplish for their children. In his own family, for example, the plan is to save enough money to send his kids to an in-state state university, a cost he puts at about $15,000 a year for tuition, room and board.

Still, that doesn't mean he recommends piling all your savings into 529s – quite the opposite, in fact.
"I always say parents should be under-saving in their 529 plans. They're imperfect," he says.

Maurer's beef with 529s is two-fold. For one, he says they require participants to pay a commission for a plan that's often limited. Secondly, the plans don't accommodate unforeseen circumstances. For instance, a couple with two kids that puts 100 percent of their college savings into a 529s will be hit with penalties if they withdraw funds if one (or both) children decide not to go to college, or if they've over-saved.

For that reason, Maurer recommends putting only half of your college savings into 529s and the remainder in a liquid investment savings account, an "under-rated" savings tool that offers immediate access to cash, penalty-free.

Childcare
Budgeting for the expense of childcare can be a sobering experience, to say the least. "Ask any parent: the biggest challenge isn't having the children, it's finding affordable childcare. And once you figure that out, having the second and third child raises the question of whether it's affordable to stay in the workforce," says Stacey Bradford, author and family finance blogger.

Bradford makes a valid point: The cost of full-time care for a 4-year-old ranges anywhere from $4,050 to $13,150 a year depending on where you live, according to a report by the National Association of Child Care Resource & Referral Agencies. More bad news: the average annual cost of childcare for an infant is higher than a year's tuition and fees at a public college in most U.S. states.

Determining how many kids you can afford requires a close look at not just your finances, but the practicality of both parents staying at work. Can the family survive on one income? How much time – if any – do you want to take off work when a new child arrives?

"I've seen couples where the wife's entire income, plus some, was being absorbed by the cost of someone else providing child care," says Jim Heitman, a financial planner at Compass Financial Planning in southern California. "At one point you've got to ask yourself if it's worth it."

But leaving a job to offset childcare expenses isn't a decision to take likely, warns Bradford. One of the biggest mistakes people make is thinking they can jump right back into the workforce when they want to at the same salary – not necessarily an easy feat, she says.

"Sometimes it makes sense to remain working even if you're just breaking even on childcare if you're concerned about losing your long-term earning potential," she says.

Think about your need for a dual income down the road, Bradford advises. Childcare expenses may be worth the short-term financial strain if it means you're advancing your career in the long-run.

Must-haves
Figuring out how many kids you can afford often leads to making a decision on what aspects of your lifestyle are non-negotiable. Are you willing to give up yearly vacations to far-flung exotic locales? The luxury of two cars? Weekly splurges on clothes or fancy restaurants?

"I see a lot of young couples who make a good living and put off having kids. They're fulfilled, they're making good money, and they're allowing their lifestyle to consume their dual-incomes," says Maurer.

You may be in for some surprises, warns Friedrich. He and his wife were big believers in the public school system and had every intention of enrolling their daughter. But when she didn't make the cut-off age to attend kindergarten, Friedrich and his wife made an expensive decision: they enrolled her in private kindergarten classes.

"That was a five-figure expense we hadn't anticipated," Friedrich says, adding that an education was a "must-have" for his family.

Maurer recommends couples experiment by living off half of their combined income to get a feel for what their lives are like with a considerably smaller paycheck. When the time comes to have children, they can make an informed decision on what degree of financial stretch is comfortable for their lifestyles.

Your Home
Is your home big enough to accommodate a child? What about two or three children?

"A whole new set of factors come into play that weren't there before when you start having kids," says Mark Berg, president of Timothy Financial Counsel in Wheaton, Illinois.

And while size matters, location is a major consideration, too: is your home in a good school district, and if not, can you afford private education? What family infrastructure do you have nearby? How far do you live from work? What childcare options are in the neighborhood?

Keep in mind that moving to a bigger home often means moving further away from your job, a burden that can add precious time to your daily commute.

"You don't want to move three hours away from work to get that extra bedroom," says Heitman. "Mom and Dad showing up for recitals are more important than kids having their own space."

Time
It may sound cliché, but it's true: "One of the biggest expenses of having children isn't financial, it's the expense of guilt or distance from your household," says Maurer.

In other words: get used to having less time. The arrival of one child often requires juggling a career with running a household, and that means less time for everything from going to the gym to dinner with friends. Ask yourself how much time you're willing to give up — like other "must-haves" in life, time is something that many people take for granted until it's gone.

This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php
Five Filters featured site: So, Why is Wikileaks a Good Thing Again?.

SEC brings fraud charges against former exec of kids' clothes firm Carter's; firm cooperates - Minneapolis Star Tribune

Posted: 20 Dec 2010 10:44 AM PST