First Person: How Our Personal Finances Changed After Baby Number Two

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Well, baby number two has arrived, and with it, some financial adjustments to our lifestyle and future planning. I do my best to plan well for our financial future, but with each child we add to our family ranks, it changes how I must plan for this future. While we do pretty well keeping our child-related costs down, it doesn't mean that the associated costs of having kids doesn't significantly impact our family. Therefore, here are some of the ways in which our personal financial situation has changed with the coming of baby number two.

Up Front Costs and Supplies

Having a baby can come with some big costs. Even though our second child cost us less in medical and supply costs than I initially expected, the total cost ran right around $3,000, which is a hefty hit to take, especially with almost half that cost coming in one lump sum after baby's arrival.

While we tend to do our best to keep a $5,000 emergency fund on hand for just such occasions, the baby costs put a significant dent in this fund, leaving us having to rebuild it over the short-term.

Tax Changes

One of the positives of having a baby is the tax repercussions of having an extra person in our family. While the fiscal cliff might change just how beneficial a child will be on our income taxes, in the near term it provides an extra child credit to the amount of $1,000, as well as an extra exemption in the amount of $3,800, which can help lower both our federal and state income tax amounts.

College Plan Adjustment

Having baby number two has totally changed our college plan for the kids. When we just had one child, part of our plan revolved around actually moving to the state in which our son decided to matriculate. However, with our children now being about five years apart, making such a move would leave our second child having to change schools right before hitting high school…a tough time for many kids, let alone when having to make all new friends in a new location.

Therefore, while this part of our plan is still on the table as an option, we're not considering it as heavily as we did before our second child was born. This means that we have to re-evaluate college options, since out-of-state tuition can be significantly higher than in-state. While we still have plenty of time until we have to make decisions on this part of our financial lives, in the interim, we're putting more savings toward this aspect of our finances just in case. Since now we'll have two kids to possibly have to help finance college, we're putting more toward college savings and less toward retirement.

Retirement Outlook

Well, if we really wanted to retire early, we probably wouldn't have had another child. With upfront costs of having a baby, and then the additional costs encountered in caring for that baby once here, most plans for setting retirement money aside have been put temporarily put on hold until we pay off baby expenses and rebuild our emergency fund. This however, doesn't mean that we are giving up on our retirement plan altogether.

We hope to put the money that we are currently using to rebuild our emergency fund toward our retirement savings once we've topped off our rainy day fund. We also hope to put some of the tax savings we realize by baby number two toward retirement as well. While that extra $1,500 or so in tax savings we hope to realize come year's end isn't much when it comes to our overall retirement needs, every little bit counts!

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