The Finances of
Starting a Family

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Growing your family is one of the most impactful life-decisions you can make.

It’s no surprise that it’s also one of the most impactful financial-decisions you can make.

Given its impact, it’s never too early to start at least thinking of the potential impacts it can have on your money (Don’t skip this week just because you may be far away from even considering kids!).

Here are 4 Areas to Think Through Before Having Kids:

1. It’s Budget Time

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If you’re single and without dependents, you can be a little more laxed when it comes to a budget once you’ve got an emergency fund and are saving 15% of your income each month.

That all changes when that income needs to now raise another human.

So here’s how you prep:

1. Review 3-6 months of spending and categorize it. What are your monthly needs, monthly wants, and random wants?
   1. Categorizing helps you easily see your largest expenses and which expenses can be most easily cut if needed
2. Project New Expenses. Everyone will be different here, but some baselines to get you started
   1. Delivery Costs:
      - Out of Pocket: $2,500-$3,500
      - Without Insurance: Up to $26,000
   2. First-Year Expenses:
      - $15,000-$23,000 (Diapers, formula, clothing, doctor visits, etc.)
3. Review and Compare
   1. What is the gap between how much you earn and how much more you will be spending once a baby arrives?
   2. How much will you need to save for the large, upfront delivery costs?
   3. What will that do to your spending/saving?

2. Have the Daycare Discussion

Childcare costs are ~no joke~

In Houston, Infant Daycare (<18 Months) averages $1,067 per month (but ranges from $300 - $2,382 per month).

Toddler care (18-36 Months) has the same average but creeps up to $3,738 at the high end.

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So, it’s no surprise that many couples have a very serious discussion around one parent staying home to raise the kids.

This discussion is far more than financial and should be had over many weeks and months - not decided quickly.

One person staying home drastically alters family dynamics around daily schedules and housework. It may also have long-term implications for the career (and earnings) of the one who stays home.

So, like most things in relationships, initial expectation setting and regular check-ins on those expectations will be critical here.

3. Get Your Insurance and Estate Plan In Order

Once you have a child you, rightfully, will adopt a bit more of a protective mode and want to minimize risk (so I'm told🙂)

Here’s your four-step checklist to get your bases covered:

1. Each parent needs term life insurance. Even if one of you stays home, that work has value and will need to be recouped should something happen to you.
2. The working parent(s) needs disability insurance.
3. No more blindly picking health insurance each year. Take the time to research options the next time it comes up for renewal. Throw both plans into ChatGPT and weigh the pros and cons.
4. Go to Freewill.com and set up a will, power of attorney, and healthcare directives.

Each of these will only be used in extremely difficult situations. But having these in place will ensure that the difficult situation is not even harder on your loved ones.

4. Revisit Your Investments

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As mentioned earlier, how much you are able to save and invest may change.

Also changing are the types of accounts you use for that saving.

Some new accounts to explore once you have a child:

• A Spousal IRA allows you to continue tax-advantaged retirement savings if one of you stays home
• 529 Plans enable tax advantaged investing for K-12 Tuition and a variety of college expenses/student loan repayments
• The Dependent Care Flexible Spending Account (DCFSA) takes paycheck contributions that can then be used on things like daycare, pre-k, summer camps, and babysitters.

It may also be a good time to review the investments in your HSA and Brokerage accounts to ensure they align with your potential short and medium-term expenses.

Shifting some assets to lower-risk investments may be relevant here.

Having a child is a life-changing journey.

By planning ahead and getting your finances in order, you can focus on what matters most: The Selfless Work of Parenting. 

I did two Fast Start sessions this week down the road at the University of Houston! One for Healthcare Undergrads and another for the Grad School of Optometry.

Got a few more lined up over the next few weeks.

If you've got a group you'd like a session for, reach out!

Talk to you next week,
Chris
[email protected]

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All of this content is for educational purposes only and should not be taken as financial or investment advice. Any mention of securities is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned.