Three Under Three

My wife and I just welcomed our third girl on May 11th. It is both exciting and extremely stressful. Being a financial advisor over the last 10 years, I have projected income and expenses into the future for over 400 families.  Needless to say, I was well aware of what the costs of having children at all ages and stages.

What you quickly realize when you are expecting a third child is that your life is about to change.  One, because the little people that you have created now outnumber you (see them below).  Two, you need to buy a minivan or large SUV, mainly because all three kids will be in a car seat.


Baby Chloe


Noelle (almost 3) and Chloe (1 day)


Sienna (18 months) and Chloe (5 days).

*Deep breath*

Right, three girls under three (temporary as my oldest turns three in June).

Let’s break down some expenses for a family of three in the United States. Some quick back round. We both work. We want to save for college. I already own a home that can accommodate 3 kids.  I am 34 years old.

New Car and Car insurance
As I briefly touched on above, sedans and crossovers are not designed for a family of five. With just two kids, these cars barely have enough space. With three, you either always take two cars or you buy a minivan. We chose a Honda Odyssey. Depending on the model, the price can range between $27,000 to $42,000 per year. Large SUVs are costlier which is one of the reasons we chose the van.

Child Care and Early Learning
Both my wife and I work. For us to go to work, we must pay for someone to watch our kids until kindergarten. Kindergarten starts at age 6. The average rate we have seen is $15 per hour for child care services in our home. For argument’s sake, I will use a standard 40-hour work week plus an hour for commuting each day. In this example, the cost of childcare is $32,400 per year.

529 Plans
We have established three 529 plans. This is rather easy to do and once you start, you eventually forget about it. The funds that I have started for them are invested in a US Total Stock Market fund which is 100% equities. Right now, I contribute twice a month. Noelle’s payment goes in on the 23rd and Sienna’s payment goes in on the 12th. There is no magic to the date that the money goes in (though they are back tests that I could run to pick the best day) earlier the better, more time to compound. The baby will have her own account and I will start at $300 per month. Every year, I will raise the amount that I add in every month. The chart below shows the rising cost of college. At 3% compounded, the tuition costs at a leading private school will be $104,306 and at 5%, $141,887. I won’t bore you with the details but to fund tuition for one year of school that costs $65,000 today, I will need to save approximately $4,500 and get a 7% growth rate. Presumably, I will have 12 years of school to pay for (3 children X 4 years of school), so this means I will need to save $54,000 per year. I will do my best to save and invest, but I can’t control: inflation and my growth rate on my investments.

Health Insurance
This is not your grandparent’s health insurance plan. We have two plans. One for me and one for my wife and the children. My plan is a high deductible plan which also HSA eligible. My plan costs less than $400 per month. My wife’s plan is around $1,200 per month. When the baby comes, her plan will increase by $180 per month. Combining the two plans, the total cost of health insurance will be approximately $1,800 per month. The cost of health insurance, just like college tuition, has been growing like a weed.

The table below shows the annual expenses I have for saving for college, caring for my children (until kindergarten), and Health Insurance, otherwise known as the “big three.”  I excluded my mortgage because it did not increase since I had children.

spend table

My goal is to increase the 529 savings, as long as I can fund my retirement.  The biggest risk I have right now is inflation in all three areas, assuming we both continue to work.  Unfortunately, history is not on my side.  The line graph below shows the price changes for selected consumer goods and services. The big three have been increasing the most, college tuition, childcare, and health services by way more than the others.


Some things I have done 

All of us face the risk that inflation erodes our purchasing power away.  I know I cannot control inflation, but I can do a few things to help fight it off.

  •  I have combated the increasing cost of rent by taking a 30-year mortgage back in 2011.  My interest rate is 4.0%.
  • I am curtailing the cost health insurance by contributing to a Health Savings account, staying active and living a healthy lifestyle.   Also, my wife is on a better plan (Silver), and I am on a catastrophic plan.  The catastrophic plan is a few thousand dollars cheaper than the Silver plan.
  • I am keeping my other discretionary expenses low by not eating out and taking my lunch to work.  This also helps with living a healthier lifestyle.
  • After I pay all my necessary savings, I invest every dollar in the stock market.  My portfolio is 100% stocks.  Investing in the US stocks has been an inflation hedge over the long haul.

Thanks for reading.  Everyone’s situation is different, but we all face the rising cost of inflation on our expenses and other services.  Please pass along to someone you think can benefit from this post.


Source: Carpe Diem, BLS