You’ve heard it before: life changes once you have kids. As the proud parent to a six month old baby boy, I can attest that the rumors are true.
Having kids brings a quite a bit of chaos to your life. And to try to get a handle on things we’ve read several of the popular contemporary baby books. In most of them the message is the same: apply a consistent routine. When your baby knows when to expect sleep time, feeding time, or play time, they gain confidence and often start to excel. In other words, routine = fewer moving parts, less chaos, and more confidence.
I think our personal finances have a lot do with this as well. When you have a kid your financial picture changes. You have different and greater obligations, and need to start thinking about college costs. The fewer “loose ends” you have with family finances, the less chaotic your family life will be and more you’ll thrive.
So to help us get a feel for the financial side of parenting, I’d like to welcome my guest Josh Brein to the blog. Josh is a Seattle financial advisor and president of Brein Wealth Management, LLC. He’s also a proud dad to his daughter Erin.
Today, Josh will share with us how your finances change once you become a parent, as well as essential financial moves new parents should make.
Welcome, Josh! Let’s get to it:
Let’s say you just found out you or your partner were pregnant. What’s the first financial thing you should do?
First, make sure to see if there’s any way to get an idea of exactly how much medical costs during your pregnancy add up to. Contact your health insurance company or check with them online to get a statement of your maternity benefits. That should give you a great idea of what would be covered and what you may have to actually spend money on. Be prepared to spend money on the birth.
From a financial point of view, how does your life change after you have kids?
Your responsibilities definitely increase when you have little ones at home, especially since they get sick ALL the time. Medical costs add up. You’ve also got things like daycare, diapers, baby food, and formula. You can easily spend hundreds per month that you’re not used to spending when your new baby shows up.
I keep hearing that kids are really expensive. But right now my son is six months old, and we don’t need to spend much on him other than diapers and a few clothes. When will he start costing me more? What are some of the biggest expenses?
Lol is daycare free in Oregon? Most two income earning families have to pay for some kind of childcare: we spend $500 a month for our daughter Erin to go to daycare twice a week for five hours at a time.
Also, if your son gets sick he could easily max out your deductibles and max out of pocket expenses for your health insurance. My Daughter got a really bad staph infection last summer that could have killed her. She had to stay three nights in the hospital, get IV antibiotics and it cost thousands. Even though we were well covered we still had close to $2000 in medical expenses just from that visit. These things come out of nowhere.
[Editor’s note: Good point. I’m one of the lucky ones who’s spouse has been
willing to dying to give up her career and stay at home to raise the kids. Love you babe. We’re fortunate to be able to do this on one income, and as of now our son doesn’t attend daycare. I’m glad to hear Erin’s OK.]
What are the best ways for new parents to save money?
Make sure you have money in the bank for emergencies that you can get at quickly if you need to. You should have anywhere between 3 and 12 months’ worth of expenses saved, depending on what type of income you earn. Start there.
[Editor’s note: One of my favorite ways to do this is to automate your savings. If your paychecks are deposited directly into your checking account, set up $XX to sweep over a savings account the day after you get paid. Setting money aside as soon as it comes in makes it harder to spend.]
What’s your take on the best way to start saving for college?
I’m only an advocate for funding your children’s education if you’re mostly debt free and able to actively save at least 15% of your income for your retirement (on top of your college savings for the kids). If this is you, I usually recommend a 529 college savings plan. If one isn’t offered in your state you can another state’s plan.
[Editor’s note: Check out our recent post on college savings accounts. It includes a good description of 529 plans.]
A lot of people really want to give their kids a hand up. If you have to choose between saving for your kids’ college tuition or your own retirement, what should you do?
Definitely fund your own retirement. Once you’re able to save at least 15% of your income for retirement and are mostly debt free you can start to think about helping your kids with college costs.
What about risk management? Bringing a kid into the world comes with a lot of responsibility. How do your insurance needs change once another human being depends on you to live? How can new parents ensure everything will be OK if they’re not around to care for their child?
I almost always recommend life insurance to new parents if they don’t have it already – especially if they own a home financed by a mortgage. If you have people depending on you for money that aren’t capable of earning it themselves, your financial responsibility increases quite a bit.
You can ensure your loved ones will be taken care of by calculating your life insurance needs, and being proactive about finding coverage that aligns with your goals and budget.
[Editor’s note: Good point Josh. This argument extends beyond your life too. People in their 30s and 40s are far more likely to become disabled than to die. Along with life insurance, disability coverage is a must to secure your family’s well being.]
Any good parenting books you’d recommend?
I read an awesome guide for new dads called Commando Dad. It was military themed and super funny. It had a bunch of great drawings, diagrams, and instructions for everything that I had no idea how to do: changing diapers, bathing my daughter, getting her to sleep, etc. It definitely helped.
[Editor’s note: My parents gave me that book for Christmas this year. It’s toward the top of the stack but I haven’t read it yet.]
Financial literacy is a pretty big deal these days. How can parents instill good money habits in their kids?
Rule number one: if you want your kids to be good with money then set a good example yourself. Rule number two: take it a step further and teach them not just what to do but why you do it, and why you choose to be responsible with your money.
Anything else you’d like to leave readers and parents with?
Stick to the basics. Save for emergencies. Try to be debt free and communicate with your spouse often about money. Work as a team and get your kids started off on the right foot by having a solid foundation for them to grow and prosper from.
Thanks Josh for chiming in today! Having kids is a huge transition, and they add new dimensions of both stress and joy. Having your finances in order is a great foundation for your family. Be sure to check out Josh’s blog The Art of a Plan.
So what do you think? What are some of the most important financial moves for new parents? Did we miss anything?