Financial planning for having a big family

[bank5]

My DW and I have talked about having a big family (as many as 4 kids). We might not be that fortunate or we might have one and completely change our minds

Do you think there are any good strategies that would make a large family less of financial burden?

One example I can think of is the old debate between paying off a mortgage vs funding your retirement account. Right now all of our extra money goes towards our retirement account. However I'm starting to think it would make more sense to pay off the mortgage as quickly as possible to free up more cash quicker. Does that make sense?

 

[REWahoo]

Bank, here are a "few" threads discussing this very popular topic:http://www.early-retirement.org/for...f-the-mortgage-or-invest-the-money-30644.html

 

[LOL!]

However I'm starting to think it would make more sense to pay off the mortgage as quickly as possible to free up more cash quicker. Does that make sense?

No that doesn't make sense.

I come from a big family. Hand-me downs are the rule. Once you are past 3 kids, there are not many, if any, additional costs ... other than your time.

While you might take a family with 2 kids out to dinner or to McDonalds, that won't happen much with 6 kids. Ditto for going to the cinema, aquarium, zoo, etc. You will probably concentrate on free public parks. It will be unlikely that all the kids are enrolled in soccer and music lessons. However I did know a family that had a string quartet of young children.

 

[Rambler]

One of you will have to be the stay at home parent. 4 kids in daycare will eat up most if not all of a moderate salary. If you are both high earners, maybe not. Then again, with one of you as a stay at home parent, who also cooks and cleans, you don't have the cost of take-out every night, nor the cost of a maid/housecleaning service. I know in many families the wife takes these responsibilities, but I have a good friend who is a househusband, even though he is an attorney. His DW started her career as an accountant earlier than he was able to pass the bar. Her career took off, and it was (for them at the time) a better deal financially and family wise for him to be the house-husband.

BTW, we wanted 3, but were only blessed with 2 kids. Youngest leaves the nest soon for college, we'll be empty nesters (or as some of my friends tell me, two little lovebirds sitting in the nest).

R

 

[haha]

Youngest leaves the nest soon for college, we'll be empty nesters (or as some of my friends tell me, two little lovebirds sitting in the nest).

R

Good for you guys!

Ha

 

[W2R]

My DW and I have talked about having a big family (as many as 4 kids). We might not be that fortunate or we might have one and completely change our minds

Glad you are thinking of that possibility. Always leave that option open. Some couples planning to have many kids are surprised to find that their family feels complete to them after just one. Others might feel that really want more than they had planned on having.

 

[bank5]

Glad you are thinking of that possibility. Always leave that option open. Some couples planning to have many kids are surprised to find that their family feels complete to them after just one. Others might feel that really want more than they had planned on having.

Yeah, that's exactly what I hope to do -- leave the option open. We're not really set on a number but I don't want to be in the position where we would want another kid but can't do it because of financial reasons.

 

[bank5]

No that doesn't make sense.

I come from a big family. Hand-me downs are the rule. Once you are past 3 kids, there are not many, if any, additional costs ... other than your time.

While you might take a family with 2 kids out to dinner or to McDonalds, that won't happen much with 6 kids. Ditto for going to the cinema, aquarium, zoo, etc. You will probably concentrate on free public parks. It will be unlikely that all the kids are enrolled in soccer and music lessons. However I did know a family that had a string quartet of young children.

Great examples. I think vacations would probably be a lot different too. Instead of flying places and paying for 6 plane tickets it would make a lot more sense to drive to the beach, mountains, or Disney.

 

[bank5]

One of you will have to be the stay at home parent. 4 kids in daycare will eat up most if not all of a moderate salary. If you are both high earners, maybe not. Then again, with one of you as a stay at home parent, who also cooks and cleans, you don't have the cost of take-out every night, nor the cost of a maid/housecleaning service. I know in many families the wife takes these responsibilities, but I have a good friend who is a househusband, even though he is an attorney. His DW started her career as an accountant earlier than he was able to pass the bar. Her career took off, and it was (for them at the time) a better deal financially and family wise for him to be the house-husband.

BTW, we wanted 3, but were only blessed with 2 kids. Youngest leaves the nest soon for college, we'll be empty nesters (or as some of my friends tell me, two little lovebirds sitting in the nest).

R

We've thought about one of us staying at home. We both have decent jobs but our salaries are about the same and not enough to get by comfortably on one salary. I think if we have 4 one of us would need to be making more by then or stagger it so all 4 aren't in daycare at the same time. Who knows what will happen.

Congratulations on becoming empty nesters!

 

[FinanceDude]

See if you have one, first. The first child will be the one that gets your priorities straight. many expenses you never thought of will crop up. I would have a HEALTHY emergency fund and cash reserves when the first one arrives. There will be an adjustment period, that's for sure.....

 

[bank5]

Bank, here are a "few" threads discussing this very popular topic:http://www.early-retirement.org/for...f-the-mortgage-or-invest-the-money-30644.html

There's some great info in there. I didn't see the exact question that I was wondering but I'll probably go back in and dig around some more.

In my OP I did a poor job phrasing my question. Right now, I'm trying to weigh both of these options:

Option 1: Put all of my extra income into a retirement account and don't worry about the low interest debt (including my mortgage)

Option 2: Pay off all of debt as quickly as possible without funding a retirement account


Financially, option 1 is the better move. However, if we want to have a big family, option 2 might be the better move. Having smaller debt payments 5-10 years from now could allow us financially to have more kids.

I'm sure we'll continue to do both options, but am I on the right track (or losing my mind ) with this?

 

[ziggy29]

I come from a big family. Hand-me downs are the rule. Once you are past 3 kids, there are not many, if any, additional costs ... other than your time.

Oh, pick me, pick me -- I was the fifth of five children and the fourth of four boys. Can I ever vouch for this one...

 

[Independent]

There's some great info in there. I didn't see the exact question that I was wondering but I'll probably go back in and dig around some more.

In my OP I did a poor job phrasing my question. Right now, I'm trying to weigh both of these options:

Option 1: Put all of my extra income into a retirement account and don't worry about the low interest debt (including my mortgage)

Option 2: Pay off all of debt as quickly as possible without funding a retirement account


Financially, option 1 is the better move. However, if we want to have a big family, option 2 might be the better move. Having smaller debt payments 5-10 years from now could allow us financially to have more kids.

I'm sure we'll continue to do both options, but am I on the right track (or losing my mind ) with this?

I'm trying to understand why "Having smaller debt payments 5-10 years from now could allow us financially to have more kids."

Are you saying something like this: "In the future, I'm planning for one income of $70k. Expenses with 2 kids will be $55k plus $15k for mortgage, so we will just cash-flow. Each additional kid is another $7k. So we couldn't afford 4. But, if we pay off the mortgage now, we'll have cash for all 4." ?

Since money is fungible, does it really matter? Money that goes into "retirement" accounts today could be drawn out to pay the mortgage if you decide to have 4. So I think it comes down to tax, employer subsidy, and market return issues on the retirement accounts that you are considering.

For example, if you're in a higher tax bracket today than you expect to be when you have kids, then maybe putting money in a tax-deferred account with plans to withdraw it then could tax sense (but unlikely due to penalty taxes). If your retirement account is a 401k, then the employer match may drive the numbers. If you're concerned that the market will be down right when you need to withdraw to pay the mortgage, then you want to pay the mortgage instead of putting money in the retirement account.

So it may come down to the tax rules for the specific retirement account you are considering, and the AA in that account. Do you know what you would be using?

We had 3 kids, but knew we had an income cushion. We're pretty conservative, so we would have paid the mortgage down if we had expected the income/expense to be real close - the market risk would have scared us (but we didn't have a 401k at the time).

 

[Kronk]

My DW and I have talked about having a big family (as many as 4 kids). ... Does that make sense?

Edited out the fluff. No, that does not make sense.

 

[freebird5825]

Do you think there are any good strategies that would make a large family less of financial burden?

Strategy - get 'em all w*rking right out of diapers. No sissies.

Just kidding...I am 5th child of 5, 3rd girl.

Family resources were scarce to begin with, and even scarcer for me as the caboose. So any extras I wanted were up to me to earn doing little j*bs for neighbors, weeding gardens, shoveling sidewalks, or "helping" clean house. It was a great social and earning/rewards life lesson.
Oddly enough, I am the most financially successful of the brood.
I wonder why?

Never had kids, so I can't help there. Count on sleep loss.

 

[ziggy29]

So any extras I wanted were up to me to earn doing little j*bs for neighbors, weeding gardens, shovelihg sidewalks, or "helping" clean house. It was a great social and earning/rewards life lesson.

For me it was mixing up the meat loaf. When my mom made meat loaf, she hated getting her hands in there and mixing all the ingredients. She used to pay me a quarter to do it -- big money for a 10-year-old in 1975, especially for five minutes of work...

 

[freebird5825]

For me it was mixing up the meat loaf. When my mom made meat loaf, she hated getting her hands in there and mixing all the ingredients. She used to pay me a quarter to do it -- big money for a 10-year-old in 1975, especially for five minutes of work...

Your Mom was one smart lady!

 

[bank5]

Strategy - get 'em all w*rking right out of diapers. No sissies.

Just kidding...I am 5th child of 5, 3rd girl.

Family resources were scarce to begin with, and even scarcer for me as the caboose. So any extras I wanted were up to me to earn doing little j*bs for neighbors, weeding gardens, shoveling sidewalks, or "helping" clean house. It was a great social and earning/rewards life lesson.
Oddly enough, I am the most financially successful of the brood.
I wonder why?

Never had kids, so I can't help there. Count on sleep loss.

I grew up in a similar situation (5th out of 5 including step siblings, although we all didn't live under the same roof). I didn't have a ton growing up either but am now in a more comfortable financial situation than my siblings.

 

[bank5]

Edited out the fluff. No, that does not make sense.

I might completely agree in one to two years

 

[bow-tie]

My only advice is - have the first youngin'.... and evaluate your next move after the 15th straight night of very little sleep...

 

[bank5]

I'm trying to understand why "Having smaller debt payments 5-10 years from now could allow us financially to have more kids."

Are you saying something like this: "In the future, I'm planning for one income of $70k. Expenses with 2 kids will be $55k plus $15k for mortgage, so we will just cash-flow. Each additional kid is another $7k. So we couldn't afford 4. But, if we pay off the mortgage now, we'll have cash for all 4." ?

Since money is fungible, does it really matter? Money that goes into "retirement" accounts today could be drawn out to pay the mortgage if you decide to have 4. So I think it comes down to tax, employer subsidy, and market return issues on the retirement accounts that you are considering.

For example, if you're in a higher tax bracket today than you expect to be when you have kids, then maybe putting money in a tax-deferred account with plans to withdraw it then could tax sense (but unlikely due to penalty taxes). If your retirement account is a 401k, then the employer match may drive the numbers. If you're concerned that the market will be down right when you need to withdraw to pay the mortgage, then you want to pay the mortgage instead of putting money in the retirement account.

So it may come down to the tax rules for the specific retirement account you are considering, and the AA in that account. Do you know what you would be using?

We had 3 kids, but knew we had an income cushion. We're pretty conservative, so we would have paid the mortgage down if we had expected the income/expense to be real close - the market risk would have scared us (but we didn't have a 401k at the time).

You bring up a lot of great points.

Before I was thinking about it strictly in terms of monthly cash flow. I was also thinking about how I wouldn't want to pay tax penalties if I had to withdraw from retirement accounts. I was predicting that if all my debt (mortgage, students loans, hopefully not car) is around $2000 month that would make it more difficult to have an kid compared to making $1000 /mo in debt payments.

Now I'm thinking more in terms of how money is fungible and using money from my retirement accounts might not be the worst option. I don't plan on doing this, but if it's necessary to afford another kid I think it would be worth it.

Since I joined these forums I've been working on aggressively adding to our retirement accounts. Right now we're contributing:
1. 6% of my salary towards a pension plan
2. 6% of my DW salary to 401k (I believe 3% company match)
3. Maxing out our Roth IRA accounts
4. About $1,000 / mo towards a 403b account

I could cut back on #4 to pay off some of our debt. However, since our highest interest debt is our mortgage at 5.25% I'll probably leave it as is for now.

 

[shoe]

I have 3 kids and in my opinion, it's really only the first one that's hard. The addition of each kid gets easier until the third just slides right into the family and is taken in stride. Because my DH was a teacher, his retirement was taken right out of his check so we didn't have a choice whether to save or not. Thank God! There were times when we had very little money and we lived paycheck to paycheck for years, but we ended up with three well-adjusted adults so the dearth of funds must not have hurt them.

 

[Independent]

You bring up a lot of great points.

Before I was thinking about it strictly in terms of monthly cash flow. I was also thinking about how I wouldn't want to pay tax penalties if I had to withdraw from retirement accounts. I was predicting that if all my debt (mortgage, students loans, hopefully not car) is around $2000 month that would make it more difficult to have an kid compared to making $1000 /mo in debt payments.

Now I'm thinking more in terms of how money is fungible and using money from my retirement accounts might not be the worst option. I don't plan on doing this, but if it's necessary to afford another kid I think it would be worth it.

Since I joined these forums I've been working on aggressively adding to our retirement accounts. Right now we're contributing:
1. 6% of my salary towards a pension plan
2. 6% of my DW salary to 401k (I believe 3% company match)
3. Maxing out our Roth IRA accounts
4. About $1,000 / mo towards a 403b account

I could cut back on #4 to pay off some of our debt. However, since our highest interest debt is our mortgage at 5.25% I'll probably leave it as is for now.

If your highest interest debt is the mortgage at 5.25%, I can see where you would say you can beat that in a Roth or a 403b. Especially if you are thinking that the retirement money is more of a "contingency fund" which you don't really plan to dip into. Like I said, we were more conservative, but we were looking at a 9% mortgage.

Don't forget that the biggest expense of multiple kids is becoming a one income family (or paying so much for child care and second job expenses that it feels like a one income family).

 

[LOL!]

Great examples. I think vacations would probably be a lot different too. Instead of flying places and paying for 6 plane tickets it would make a lot more sense to drive to the beach, mountains, or Disney.

You can drive to Disney, but you won't have enough money to pay the entrance and ride fees, so you will just turn around and drive home.

It not just the expense of all this, but it's the logistics as well. I remember piling 9 of us into a huge station wagon to go places. And "places" had to be reasonably self-contained so that siblings would not wander away.

 

[Westernskies]

Have one or two, secretly get a vasectomy, and keep on trying as hard as you can...