Advice for Financial Planning

Recently, a reader asked us to speak about plans for paying for college when you have a larger family. I must admit, “how will you pay for college?” is one of the more personal questions, once strangers have established that they are all, indeed, yours and you do, indeed, know how “it” happens.

Financing life with a large family is serious stuff, even long before college becomes an issue. We have found that finances have been an important area of growth in our marriage, which is why I volunteered to write about it and begin the conversation.

First of all, I think that small savings early on in marriage can really add up, and I would advise any young couple to begin, even as soon as their engagement, to talk about and plan financially for life as a family. We did not do this as much as we should, but my husband is financially prudent by nature (that makes one of us), so we made fairly good decisions, but if I had been really planning ahead I would have saved even more early on.

I firmly believe that it is a big mistake to go into debt to pay for a wedding party, whether the parents or the couple are paying, and I am hoping that one of the effects of the recent economic difficulties will be a cultural change on this issue. If you have the money and choose to spend it that way, have fun, but we must understand that a prudent and wonderful life can be begun without a fancy ring or a fancy cake, most of our grandparents began that way.

Recently, my husband found a program called Seven Steps to Becoming Financially Free. This is an AMAZING resource. I believe that this program should be made part of all marriage preparation courses in the Catholic Church, as well as offered for other parishioners. It is a legitimate and sound financial planning course combined with a bible study and prayer plan to help your understand financial stewardship. This concept of stewardship has really changed our outlook and we have had really positive conversations about money and been able to make much better, more peaceful decisions since we began the program. At the time that we started it, we were at a bit of an impasse, as the realities of first time home ownership were combining with the slowing economy to make money a real source of stress in our marriage. I would say that we are both much more comfortable with our financial situation and decision process now, even though the dollars and cents have not really changed. We know where our money goes, we have a plan for the present and the future, we do not feel gutted every time we have to talk about money and we do not spend money that we do not have.

Now, when it comes to paying for education, let’s be honest — there are many of us who have to finish paying for our own educations before we begin to think about our kids! Seriously, it is a goal of ours to not still be paying for our college when our oldest starts college. The answer here is something called “debt acceleration” and I encourage you to read more about it in the Seven Steps to Financial Freedom book and workbook.

In addition, please indulge me in a few other pieces of financial advice:

1. If you do not have children yet and you are both working, try to live on one income. This will help in two ways — first of all, you will not have to factor in a drop in standard of living when you decide whether to stop working when you have children, and better still you will already have money in the bank as well. We did this, or pretty close, during the few years after college. My husband worked before we were married and he lived at home and saved a lot, and then we lived on less than our two incomes when we were newlyweds. When he went to law school, the money we saved together with his summer incomes went a long way to reducing the debt we had to take on.

2. Be open to less than ideal housing situations. Now, I am not suggesting that you live in a slum with extermination problems, but we made a very nice life in several very small, fairly unattractive apartments, in “uncool” neighborhoods, even with as many as four children. When your children are very small, you can stick them anywhere, so two bedrooms were really plenty for us until fairly recently. Our rent when he was in law school was a tiny amount, and we lived in a family housing complex which we loved, we made great friends and had a great time. Back then, they would loan you an almost unlimited amount of money when you were in school, so some of our friends lived in much nicer places, took vacations, etc, all on student loans. We lived on less as a family then most of the single folks. Because housing is your single biggest expense, you can make a big impact by being especially thoughtful in this area.

3. Get life insurance coverage for both parents. It would be catastrophic to lose your spouse, and while you cannot prepare for that, you can make sure that you would not have an immediate financial crisis as well. Many couples only hold insurance on the working parent, but think of this — if a SAHM dies, her husband will have to pay someone to do everything that she does, or take time off from work for a while, or both. In the case of homeschoolers, children may have to go to school, and you may want private or parochial school to be an option in that case. Lastly, to just think of the worst possible scenario, if both parents were to die it is just irresponsible to leave someone else to care for a number of small children without putting the financial means in place. This is tough stuff, and I know it is tough to justify it if you are just barely making ends meet as it is, but please do not put this off.

4. Start now. You can enroll in Upromise and earn free contributions to a college savings account. You may have relatives who give your child money from time to time — put these small gifts in an interest bearing account and they will add up. I believe that Valley National Bank gives 4% interest in a child’s savings account, which is a pretty high rate for something with no minimum, and it is a great feeling for the kids to see the money start to compound. You might decide that rather than telling them the money is for college, you are saving it for their “future.” That money might buy the used car which they drive to summer jobs in high school, or if you are in a position to pay for college they might use it for an engagement ring someday. That money might help to finance a year off before or during college to do mission work, something that would not be covered by student loans.

However, unless you have significant financial means, steer clear of making major contributions to a 529 type college savings account where you will be locked in to using the money for college. While there are benefits to this type of account, many of us would be better off paying down high-interest debt, including our own mortgage or student loans, rather than saving in this way.

5. Be open to the fact that your children may have to carry some debt from their education. While this may make it harder for them starting out, it may also help them to be financially prudent. Also, I think that when the time comes it is well worth considering whether some private colleges are really worth the money, when compared with honors programs at State universities.

6. Work hard every step of the way. Seriously, parents of large families are going to have to do more with less, and this may mean cleaning your own floors or having your teacher husband take several summer jobs. You are going to have to figure out how to have fun in the backyard rather than heading to Disney World, how to make the most out of hand-me-down clothes, how to use the library instead of the bookstore. The benefits will be great and we will grow in humility. Our children will be better off. However, I have recently made a decision to stop telling my children that we cannot do things because we they have a lot of siblings. I know a woman who says “that is not how we choose to spend our money” rather than “we do not have enough money for that” — she is absolutely right, because this is a choice we are making about how we use our resources.

7. Put your life in God’s hands. This is first, last and most important, and is an integral part of all areas of family planning. We are called to be stewards of our resources and talents, and to use them to make a return for the kingdom. I am not a providentialist, and I believe that this requires a delicate balance of prudence and trust in the Lord. As we have seen in the recent economy, many were tempted into living way beyond their means and are really suffering for it now, however, we can be open to children and live within our means if we are careful, and when we are generous with God, both in our tithes and in our generosity to life, He will show us the means.