With children, plan financially

FROM THE CRADLE to college, people need help with a lot of financial issues when it comes to their children or grandchildren. Here are my answers to two questions about raising and educating children, from a recent online discussion:

Q: My husband and I are 30, both steadily employed, and we bought our first home last year. Our incomes are a combined $150,000 a year. We have $15,000 in an emergency/life happens fund, another $37,000 in savings and about $100,000 total in various 401(k) and TSP [federal Thrift Savings Plan] accounts. I have about $11,000 in student-loan debt, but it's only at 1.625 percent interest, and we pay an extra $200 in principal toward our mortgage each month (30-year fixed at 3.75 percent). We're normally able to save about $1,000 a month, more or less. We'd like to start a family now. In the Washington, D.C., area, what's a good amount to save for a baby fund?

A: You are doing one of the best things for your baby by managing your money well. But I'd like to throw this in before addressing the baby expenses.

I have a pet peeve when people put the word "only" in front of the percentage rate on the debt they owe. Although the interest rate on the education debt is low, it's still debt. Take $11,000 out of the emergency fund since you've got another pot of savings and pay off the student loan debt.

If you both plan to continue working full time, put child-care costs at the top of the list of new expenses. Families with an employed mother and children younger than 15 paid an average of $143 per week for child care in 2011.

Not including college costs, a middle-income family will spend $234,900 to raise a child born in 2011 to age 17, according to the Department of Agriculture. The USDA's Center for Nutrition Policy and Promotion has a calculator on the cost of raising a child at www.cnpp.usda.gov/calculatorintro.htm.

In addition to child-care costs, there is of course food, clothing, diapers and baby items such as a crib, stroller and the toys you will want to buy. But be careful about overspending on baby items.

For tips on budgeting for your baby, check out babycenter.com, a pregnancy and parenting website. It has a calculator for first-year expenses (babycenter.com/baby-cost-calculator). Talking to their users, the site found moms said they spent about $10,000 the first year.

Q: I have a dear, very intelligent friend with consistently questionable financial decision-making skills. He is 67, single, virtually no retirement money saved, rents his house, has credit-card debt and an old car (12 years old). He is currently working in the tech sector making $120,000. He mentioned that he might want to put money in a life insurance policy for college for his only granddaughter, who is 2. I told him her education is not his problem and he needs to focus on debt and for the day he no longer is working. What say you, oh wise one?

A: I think you are being a good friend by being concerned about the guy's financial situation. I also think your friend needs to catch up on his retirement savings and get out of debt, but he can focus on his finances and still provide some financial aid for his granddaughter because it's important to him.

If he qualifies, he could take out an affordable term life-insurance policy for the granddaughter. He will have to shop around, but it can be done.

Or he might also consider putting money in a 529 college savings plan for the child or advising her parents to open one to which he can contribute. Tell him that he doesn't have to save all the money she'll need. But every little bit helps.