Income planning when you're expecting

By Brett Anderson

St. Croix Advisors

By now you have realized that it isn’t going to be just you and your significant other anymore. The two of you have decided to start a family and as you both anxiously await the arrival of your new addition, there are a few things to start thinking about.

Nine months is going to go faster than you both realize, and having a bulk of your planning done will tremendously ease the transition from two to three or four. You will have new expenses, as you already know (and I’m sure you’ve been told by the majority of your friends and family), kids are expensive. You and your spouse are going to have to be ready for these additional expenses.

Daycare costs are probably the largest expenses with a child, at least initially. The good news is there are ways to decrease and successfully manage your daycare expenses. When you go to sit down with your company’s HR representative, ask about a flexible spending account.

A flexible spending account will allow you to set aside up to $5,000, tax free, for childcare expenses. The catch with a flexible spending account is that it is on a use it or lose it basis. If you only spend $4,500 dollars on childcare expenses in the year, you will lose the remaining $500.

When your child is young, you could easily spend over $5,000; therefore, the use it or lose it basis would not be a factor, but as you child gets older, daycare costs decrease. Bearing that in mind, you may only want to set aside $4,000 into your flexible spending account.

Not every company offers a flexible spending account, but it is something worth asking about because it is a helpful asset when setting aside money for your child. Consult your tax advisors to stay updated on changes with these types of plans.

Formula, diapers, clothes, toys, learning tools and so much more will add up. While I don’t have a spectacular answer to save on all of these other than watching the Sunday paper for coupons, I do have a solution for clothes.

Children, babies especially, grow at amazingly fast rates so clothing can become an extraordinarily large expense. So my solution is hand-me downs. If you have a friend or relative who has had a child, ask them if they have baby clothes or other clothing their children have grown out of. This alone will save your family a lot of money to use elsewhere.

Saving for college is on any parents mind, maybe as soon as they find out they are expecting. I have yet to meet a family who isn’t concerned about saving for their children’s college. A college fund account is a positive planning tool to set up as soon as possible to continually set aside money for your child.

If your parents are anything like mine, they plan on spoiling your kids rotten. An easy way to increase your child’s college fund is to ask them not to stop spoiling their grandchild, but rather than spending all the money on toys and gifts, take half the money and put it into the savings account for your child’s college fund. I am sure they will be more than happy to oblige.

With all of these new expenses and obligations, it is easy to put saving for retirement on the back burner. I highly recommend avoiding this at all costs. It is nearly impossible to replace the time value of money. Be sure to be saving something each year for retirement. Starting a family is an exciting adventure and being prepared financially will help aid in your journey.