A question that comes up time and time again in the world of financial planning is this: How much does raising a child really cost?

Some experts say you should allocate 20% of your annual family income. In more specific terms, a couple with an income of $60,000 should plan on spending $12,000 a year on their first child; for one earning $30,000, the figure would be $6,000.

Is this a logical formula? Well, yes and no.it would take a genius to determine exactly how big a financial burden childrearing really is. There are so many aspects to consider-habits, priorities, values and lifestyle, not to mention your budget and child's health.

Major expenses to come

One thing is certain: the arrival of your first child will definitely alter your financial status. Instead of just the two of you, there'll be three, but your income will still be the same. You'll be incurring major expenses to buy important items such as baby furniture, a car seat, a stroller, or appliances for making baby food. Naturally, you'll be hoping that family and friends will help celebrate the occasion by making a much-needed contribution, and doubtless appreciate baby showers organized by your co-workers.

The expense curve also fluctuates with your child's age. Up to four years, costs will be high because of all the basics you'll have to purchase; there's no getting around it. From age four to the pre-teen years, expenses will fall off somewhat; after that, they'll tend to rise again. After all, you can't expect your little darling to walk around without all the "in" gear! That, plus teen spending money and sports equipment will definitely put a hole in your budget!

How to Prepare Financially

The birth of a child may be your most cherished dream, so you should plan accordingly. While waiting for the new arrival, review your budget and start putting something aside whenever you get paid. This will make you more familiar with the situation when the "great event" occurs. Like all parents, you'll want the best for your kids, but is it all that important for them to sleep in a brand new crib? Consider borrowing one from a friend instead.

In addition to financial considerations, having a family has legal implications as well. To learn more about this subject, consult the I'm a New Parent section.

Children Number Two and Three

Just because you should put aside 20% of your family income for your first child doesn't mean you'll have to double that amount for the next. The durable goods you bought for the first can be used for the second, although your family expenses will rise overall.

A third child, however, may call for major expenditures such as a larger house and bigger car. While a minivan will be more convenient in several ways, it costs more to buy and uses more gas. Childcare costs will also increase. Depending on your earnings, one of you might decide to stay home and raise the children; this will have immediate and future financial repercussions, especially with respect to your retirement income.

Finally, you should think not only about day-to-day expenses, but contingencies as well-for example, providing for your family financially in the event of premature death. For more information on this subject, go to the Couples With Children section.