The Joys and Financial Challenges of Parenthood

Parenthood can be both wonderfully rewarding and frighteningly challenging. Children give gifts only a parent can understand — from sticky-finger hugs to heartfelt pleas to tag along on Saturday morning errands. As you raise them and make sure they get a good, strong start in life, one thing is obvious — children are expensive! Fortunately, you can take steps to prepare for the financial challenges you face.

How expensive is raising a child?

The United States Department of Agriculture estimates that the average nationwide cost of raising one child in a two-parent family from cradle to college entrance at age 18 ranges from $174,690 to $372,210, depending on income.1

Reassess your budget

As your family grows, you may need to make changes to your budget. Many living expenses may increase, including grocery, clothing, transportation, healthcare, insurance, and housing costs. You may also need to account for new expenses, such as childcare, or adjust your budget to account for a decrease in your income if you decide to become a stay-at-home parent. Your budget may also need to expand to include new financial goals, such as saving for college or buying a home. Making sure that your budget reflects your new financial priorities can help you stay on track.

Review your life insurance coverage

What would happen to your children if something happened to you? Life insurance is an effective way to protect your family from the uncertainty of premature death. It can help assure that a preselected amount of money will be on hand to replace your income and help your family members — your children and your spouse — maintain their standard of living. With life insurance, you can select an amount that will help your family meet living expenses, pay the mortgage, and even provide a college fund for your children. Best of all, life insurance proceeds are generally not taxable as income.

Keep in mind, though, that the cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. We typically recommend term life insurance which covers you for a fixed period (i.e., 10, 20, or 30 years), is designed to protect your dependents in case you die prematurely and is cheaper than other life insurance policies (i.e., whole life).

We also recommend you check with your employer who may offer group-term life insurance coverage (typically $50,000 per employee).  If your employer provides in excess of $50,000, the excess amount must be included in your income and is subject to Social Security and Medicare taxes.2

Consider purchasing disability income insurance

If you become disabled and unable to work, disability income insurance can pay benefits — a specific percentage of your income — so you can continue meeting your financial obligations until you are back on your feet. Short-term disability insurance is sometimes provided through your workplace, either as a mandatory or voluntary benefit. For more flexible and comprehensive protection, consider buying disability income insurance.

What about Social Security? If you do become permanently and totally disabled and are unable to do work of any kind, you may be eligible for benefits, but qualifying isn’t easy.3

Start building a college fund now

According to the College Board, for the 2019/2020 school year, the average cost of one year at a four-year public college is $21,950 (for in-state students), while the average cost for one year at a four-year private college is $49,870 (the total cost of attendance includes tuition and fees and room and board). Even if those numbers don’t go up (and they are expected to continue increasing), that would come to $87,800 for a four-year degree at a public college, and $199,480 at a private university.4 Oh, and don’t forget graduate school.

College costs may seem daunting, especially if you’re still paying off your own college loans, but you have about 18 years before your newborn will be a college freshman. By starting today, you can help your children become debt-free college grads. The secret is to save a little each month, take advantage of compound interest, and have a sum waiting for you when your child is ready for college.

The following chart shows how much money might be available for college when your child turns 18 if you save a certain amount each month.

Keep saving for retirement

Many well-intentioned parents put saving for retirement on hold while they save for their children’s college education. But if you do so, you’re potentially sacrificing your own financial well-being. If you postpone saving for retirement, you might miss out on years of tax-deferred growth, and it may be hard to catch up later.

Ideally, you’ll want to save regularly for both goals. but if you have limited funds, prioritize saving for retirement. Your child may receive financial aid to pay for college, but there’s no such option for you.

  1. Source: Expenditures on Children by Families, 2015, released January 2017.
  2. Source: IRS Publication 15-B (https://www.irs.gov/government-entities/federal-state-local-governments/group-term-life-insurance).
  3. Source: Social Security (https://www.ssa.gov/disability/).
  4. Source: College Board, “Trends in College Pricing 2019”, November 2019 (https://research.collegeboard.org/pdf/trends-college-pricing-2019-full-report.pdf).

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020

Building Good Financial Habits

Managing finances for many people is difficult and for some can be overwhelming. This is not because people are incapable of managing their finances, but rather they have never been shown how to do so. Basic finance like paying bills and understanding taxes is not taught in schools and most of us did not learn from our parents (or were taught bad habits instead). Below are some tips to help you effectively manage your finances:

1. Keep it simple

Life is complex enough and often the best strategies in life are the simplest. Managing your finances should be the same way. Try and automate as much of your finances as possible. For example, have direct deposit set up and on payday have your bills be paid electronically on the same day. Automate some form of savings as well on each payday to build your wealth as well. In this process, the rest of the money left over can be for you to spend.

2. Pay yourself first

It is important to make sure you save money into a savings account each payday. You want to have at least 3 – 6 months of living expenses so when something happens like a job layoff you do not have to take on debt to manage the situation.

3.  Use technology

There are many great tools out there for free to help you manage your finances. For example, your bank should provide a tool to help you track your budget. Your credit card carrier should provide a free resource to track your credit. If these tools are not available use 3rd party tools like www.creditkarma.com for monitoring your credit.

4.  Be honest with yourself

Take a close look at your spending habits and understand what bills are necessary like rent and utilities. It is important to identify bills that are non-essential items like eating out, buying expensive items, etc. and work on reducing those expenses. The idea here is to not say you can’t have fun but work on making sure you enjoy life while still focusing on long term goals. Your $3 latte each day is not what is keeping you from being a millionaire. Just focus on spending less than you bring home and monitor your progress over time to help ensure you stay on track.

5. Be kind to yourself

Managing finances is hard and there are a lot of emotions mixed with our money. If you make a mistake do not beat yourself up but acknowledge it and move on. The only mistake in life is not learning from our mistakes. 

Also, you do not have to do this alone and there are professionals out there (like us) that are happy to help you!

If you missed our Money Mastery webinar series, we discussed strategies to pay down debt and tips to create healthy financial habits.  Check out the series by clicking here.

Do Not Lose Sight

These words have just been sitting heavy with me lately. As I think about them it has so many different meanings and is something, I just wanted to share.

1. Do Not Lose Sight of the Finish Line – The end of the year is in sight so make sure to complete any goal or projects you wanted to complete this year. Too many people run out of strength and do not complete things that they start. Take advantage of this time by staying focused and finish strong.

2. Do Not Lose Sight of Yourself -We have all been impacted by COVID but some worse than others. If your finances or health has been negatively impacted this year, do not isolate yourself but reach out and seek help. Contact us if you have nowhere else to turn.

3. Do Not Lose Sight of Loved Ones – During this pandemic too many people have been negatively impacted and we are seeing a larger number of people struggling with addiction or suicide. Reach out to loved ones just to check-in, especially if they live alone.

4. Do Not Lose Sight of What is Important – We are approaching elections and amid great turmoil in our wonderful country. Do not lose sight of what matters most, relationships. I have seen too many people burn bridges and lose a relationship with friends or family because of political beliefs.

5 Steps to Care for our Most Important Asset – You!

To say this year has not been normal is an understatement. We are only in August, but it feels like it has been over a year since all this craziness started. Right now, it is normal to not feel normal. No one expected a crisis that would force us into isolation. There is craziness all around us and it would not surprise me if Godzilla or King Kong attack next month the way things have gone. This makes it more important than ever to make sure you take care of yourself. Let’s explore some key things that you should be doing right now.

1. Develop a daily routine

We are all creatures of habit and routines provide comfort and peace of mind. Set a daily schedule and stick to it with the same morning routine to help feel a sense of normalcy. This is especially important if you have kids at home.

2. Get outside

Many studies show the value of vitamin D (sunshine) and how it improves overall health and decreases anxiety and depression. Make sure to see 20-30 minutes a day of sunlight. Take a walk, ride a bike, just sit and relax, but make sure to get some sun!

3. Get some exercise

This can work great in combination with going outside. Pandemic or not, getting to the gym can be inconvenient; online alternatives can be used many times throughout the day and in any room of the house. It does not mean you need to spend a lot of money either. There are great videos on Amazon Prime for free and many workouts can be found online for free (i.e., YouTube or YogaWorks). If you like the idea of a trainer, use an app like FitPlan.

4. Make time for yourself

It is important to have a hobby or take some time to pursue your passions. Spending time doing things we are passionate about energizes us and provides a sense of purpose. What are you passionate about and want to spend more time doing?

There are several connection-based websites.  One of them, Meetup, helps members find and connect with other people who share their unique interests. During the pandemic, Meetup began enabling members to meet virtually, which is a great way to form new connections. For instance, users can participate in book-club discussions or test their pipes with virtual karaoke.

5. Finally, unplug

It is important to stay socially connected these days and Zoom suddenly became a household name. However, be careful about how you use social media. Unplugging for a couple of days from it is invigorating and you will find your overall mood and mindset will improve. Take time to unplug from other media and technology as well. Take some time to write, enjoy nature, or start a business. Less social media and more time spent productively (this includes sitting on your porch watching a sunset) provide more fulfillment.

Missed our Summer Webinar Series?

Financial Wellness – Summer Webinar Series

In case you missed the live sessions of our Summer Webinar Series, you can watch the replays now (while complimentary, registration is required for On-Demand viewing).

The Social Security webinar is now available On Demand by clicking here to watch the replay.

The Medicare webinar is now available On Demand by clicking here to watch the replay.

The Estate & Legacy Planning webinar is now available On Demand by clicking here to watch the replay.

The 7 Pillars of Financial Planning webinar is now available On Demand by clicking here to watch the replay.