Tips on how to make your children your best investment.

If you're a parent, you can probably recall the moment your child was born. You probably remember the anticipation you felt while you waited for them to arrive and the emotions you were overcome with; emotions you probably never felt before in such capacity. In that moment you're ready to care for your new baby and devote your life to them, no matter what the sacrifice or cost.

As parents, we want to make the most of raising our children. We aim to make their lives even better than our own and give them opportunities to excel. But we can get distracted from our goal when we see how expensive it is to raise kids and it gets harder to focus on the opportunities we have to invest in them. Sometimes we can't see how the financial decisions we're making today end up being expenses that don't benefit us or our children.

There's an easy way to calculate your expenses in raising your children, but there is no clear method for determining if you're making your children your best investment or whether your investments in them are the right ones. As parents, we have to consider and analyze our financial decisions and make them count when raising our kids. Instead of calculating the costs of raising children, try looking at these expenses in a new light. Test yourself on how well you're managing them, and then consider where to adjust to make your children an investment. There are three major areas to consider:

Needs

Every household has certain necessary expenses and how you budget for these expenses could possibly be the most important factor in determining how expensive your children are to raise. When you involve your children in the budgeting process, you create an opportunity to teach them how to budget on their own. When it comes to necessary expenses like utilities, look beyond monitoring and setting usage limits, which only amounts to regulation. Rather, teach the importance of a family value, such as conservation. Take the kids shopping with you and let them see the true cost of the items they use every day. Show them how spending more money in one area simply leaves less in another. By having them participate, you will instill in your children responsibility that will last a lifetime.

Danielle Aguiar, CEO of My Smart Budget, is living proof that if you teach your kids about money management early on, they'll be able to completely manage their own spending by the time they're teens--something a parent usually only dreams about. Her son, a young tennis player, was spending money on restringing his rackets regularly. Aguiar taught him how to manage his money in such a way that eventually he was able to afford his own stringing machine and save his money to use on other things.

She recommends getting children involved in family finances by giving them a specific expense to handle, such as personal care items or clothing. If your child is a responsible spender, reward them by contributing to their savings account the same amount they are able to save, giving them both an incentive to save and an understanding of how to do it. Start with just a few categories when they are "tweens" and as they mature consider giving them more responsibility. There are some helpful tips on her Web site, www.mysmartbudget.com. When your children learn how to manage their own money effectively, they will be more thoughtful about how they spend their money, as well as yours.

What about expenses like babysitting and daycare? Are you sending your child to a certain daycare center because they have better developmental programs? If so, then you might want to consider this expense an investment in your child's future. On the other hand, if you are spending more than you can afford, look for ways to reduce these expenses. Ask your family or friends if they can help watch the kids a few days a week. If you need a night out, try a babysitting co-op with another couple and trade off babysitting duties. Check with your employer to see if they offer childcare or reimbursement programs or if you qualify for a Dependent Care Flexible Spending Account. Try to minimize the cost of these and other necessary expenses so you can invest more in other areas that will benefit your children.

Wants

Some wants bring enjoyment to our lives, like a family vacation, while others, like eating at a fast-food restaurant, may be downright unhealthy. Try to avoid those that teach your children bad habits to make room for the ones that improve your quality of life.

Here's a test to see if your children have adopted an unhealthy spending habit:

Take your kids to your local mall or shopping center and watch how they behave. Do they start asking you to buy them something? Do you do it just to get them to be quiet? The word is practically taboo, but are you spoiling your kids? Try to stop and evaluate what you're thinking at that moment--why are you purchasing that item? Can you justify it as something they've earned? Take a look at the big picture. How often are you giving in to your kids' wants? Consider how unplanned purchases may affect their perception of spending. Work to reduce or eliminate behavior that can negatively affect your children's spending habits in the long run.

For wants that actually benefit our children's lives, like vacations and outdoor activities, determine how you're spending on these by looking back to your last family vacation or outing. Break down your expenses into categories like food and snacks, travel, park fees or any other items needed for the trip or activity. Now look at how much you had budgeted for these items. Did you spend more than you budgeted? If you did, determine how much. Consider if you are spending on a whim or if your kids have a large say in the activities you do, which could be contributing to spiraling costs. This is where your kids are an expense rather than an investment.

Consider how much you want to spend in areas that add great value to your family. Even though it may be considered a want in the budget, it's still a good place to spend money when it has high value emotionally.

Investments

So far we have looked at expenses that, for the most part, impact our children's lives today, but what about the expenses we incur today that may not show their impact for many years? These expenses may make the biggest difference in whether we are investing in our children or simply spending on them.

Investments are expenses that may take a lot of time, money and energy now but provide great savings and return in the future. One of the most important investments we'll make is in our children's education. This may mean enrolling them in private schools or simply spending more time with them after school. If you have them enrolled in a private school, is the education they are receiving worth the price you are paying? Determine the value of your child's education on a number of factors, such as the quality of the facilities, the breadth of the curriculum, the availability of extra-curricular activities, and your child's academic achievement. When your child is young, consider contributing to a Coverdell Education Savings Account (formerly Education IRA). Funds contributed to a Coverdell ESA may be used to help pay for kindergarten all the way up to graduate school. Contributions are limited to $2,000 a year per student, but earnings are tax-free when used for qualified expenses. Since not everyone is eligible to contribute to a Coverdell ESA, it's best to check with IRS Publication 970 for more information.

Even while they are in grade school, you'll want to look ahead to the college years. Since the cost of higher education is not getting any cheaper, start saving as soon as possible for this important investment. In addition to the Coverdell ESA, you may also want to look at a 529 College Savings Program. Every state has one and there are a number of tax benefits for using them, including tax-free earnings. Learn about your state's program at www.savingforcollege.com. While it may not seem like much, investing in your child's education early may give them a head start on making the Dean's List.

Will the next generation fall into the same financial behaviors we did? Time will only tell. But if we take the time to teach our kids these skills now, it could be the difference between them continuing to be an expense, or being financially independent, once they reach adulthood.

As the proverb goes, "Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime." The same can be said about money management. You can do a great job of taking care of your children simply by treating them as just another expense or you can invest the time and effort into teaching them how to manage their own finances. One will take care of them for a day; the other will benefit them for a lifetime.

As parents we always say our children are our biggest reward. Shouldn't they also be our best investment?

Liz Davidson is CEO of Financial Finesse, the leading provider of unbiased financial education for employers nationwide, delivered by on-staff CERTIFIED FINANCIAL PLANNER™ professionals.

Source: Forbes - http://tinyurl.com/y92hc2u