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Family financial planning

September 18, 2017

I have been saying for quite some time that we would like to have kids, but we aren’t quite ready.  We’ve finally reached a point where we are ready to start trying – which means we could expect to have a child as early as late next year, or much later, or not at all if things don’t go well.  My few readers all seem to be conscientious people who wouldn’t think about asking inappropriate questions, but I will still add that I’d appreciate not getting questions or advice related to whether and when to have children. I don’t intend to discuss that here, or detail any struggles or successes. Money questions/advice is allowed!

From a financial stand point, here’s what I’m doing to improve our financial position for this possible huge change.

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1. Income replacement fund: While I will have sick leave and disability insurance, the USA has no paid family leave, so we’re mostly on our own for maternity leave. (I don’t get  California’s paid family leave.) While the idea is that we can live on T’s salary, I still have about 4.5 months of take home pay set aside for this time. I don’t intend a long maternity leave, but I don’t have any real plans yet. My goal is for finances to not be the limiting factor.  I actually had this as a 2016 goal, and completed it then.

2. Cash flow improvement: I decided to finally kill the last bit of my student loans. The math hasn’t changed, so this still is an emotional decision rather than a mathematical one. The interest rate is still extremely low and the required monthly payment is in the noise of our spending… Still, the balance is small enough that I can pay it off incredibly easily and I like the idea of eliminating a monthly bill.  I refinanced with Earnest a while back, which got the rate even LOWER.  Let me know if you want a referral link for $200!  I’ll likely do this somewhat gradually and have it done within the next 6 months or so.

I’m tempted to pay off our 0% interest car loan, since that has a non-negliglbe impact on our monthly spending. (We could have paid in cash, but opted not to.)  Since this is literally 0% interest, it is unlikely we’ll take this step.  It just doesn’t make sense.

To reduce our housing costs, which are our biggest monthly costs, I plan to complete this year’s mortgage pre-payments (just sent in another $5k, and want to do $5k more).  Next year, I’d like to pre-pay another $35k, and my preliminary budgets show this is possible. With a recast, we will take advantage of the reduced payment obligation all this pre-paying has bought us.  Ideally, we would have had a 30-40% downpayment when we bought our house (because housing here is SO EXPENSIVE), but it just wasn’t possible on the timeline we were looking. Making big prepayments and recasting allows us to retroactively increase our downpayment.  (Not literally, but the end result is similar.)  That does mean we are back on a 30 year timeline nominally.  I fully expect we will pay it off sooner, but it will cease to be a priority.  A total of 15-20 years is likely, but anything less than that is not likely to be possible in this high cost area.

3. Take care of imminent home projects and have a healthy home maintenance fund:  We have to finish our bathroom remodel and the patio project.  Next year, I’d like to paint the exterior of the house and do some basic landscaping in the front.  (The back can continue to be a jungle disaster.)  The landscaping could be put off if we get busy or don’t want to spend money, but we are in the bottom 5% of our neighborhood in terms of appealing landscaping.  We aren’t the absolute worst, but it’s pretty bad. We just can’t compete with retired folks who have time and money for these things!

We plan to put in some sweat equity on these projects, but it depends on how crazy the estimates are.  I really don’t want to paint our house ourselves, but if I can’t find someone to do it for less than ~$8k, then we’ll figure out how to do it ourselves.  I fully expect it to be less, but you never know until you start getting quotes! To give you an idea of labor costs around here, we’ve been quoted $25k – $48k to have a general contractor in charge of our relatively simple bathroom project.  This is absolutely NUTS.  I interpret these quotes as a polite way of saying “we don’t want to do such a small job, please go away unless you want to add a skylight and increase the floor plan.”  When we finish the project, I will share our actual costs!

I also want to retain a significant chunk of savings future roof replacement.  We don’t plan to replace  the roof until we get T’s tenure decision.  I’d like to get quotes to replace our 1950s windows – especially some large sliding doors – but that is a post-tenure project as well.  If we end up deciding to move, the next people can deal with those projects. The projects we are doing this year are more likely to increase a sale value – curb appeal and a bathroom upgrade.  While an older roof makes a house a bit less attractive, it is unlikely to be a deal breaker unless the market cools significantly. Which it might, but still.

4. Continue retirement savings:  Not much to say here, but we’ll keep building on the foundation we created in our 20s.  I will max out my 401k in the early portion of the year, which is what I usually do. If stocks go on sale (i.e. the market crashes), we may increase T’s allocation since he has access to a 403b and a 457b and we generally only max out one of those (he also has a pension and one other plan that kicks in when he has summer salary). We’d probably have to reduce the mortgage prepayment to accomplish an increase, which is why I don’t want to do it unless the market goes down.

So, that is it. For the parents  (or parents-to-be) out there, did you do anything special to prepare your finances for kids?  Did finances play into any decisions about when to have kids?  For us, I’m glad we have had this extra time to improve our finances, but it wasn’t the driving decision behind waiting.

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14 Comments leave one →
  1. September 18, 2017 8:37 am

    I used to want to pay off our mortgage before having a kid, but that would delay our timeline further out than I feel comfortable. I do have new investing/savings-based goals I think we’ll hit though. Sadly, while my employer used to have paid maternity leave, they cut the benefit a year ago and now we are back to just my disability insurance (grumble grumble).

    Best of luck with your family planning!

    • September 19, 2017 6:34 am

      Thank you! A paid off mortgage would be fabulous, but not at all possible for us. :/

  2. Josie permalink
    September 18, 2017 8:44 am

    Did you write up a blog post about refinancing your student loans with Earnest? I’d be interested in hearing a little bit more about it and possibly a referral link as well! Thanks!

  3. Jenna permalink
    September 18, 2017 9:32 am

    We started making daycare payments to a separate savings account to get used to not having that money each month. I earmarked it for all of the unknowns that go along with having a child. We haven’t dipped into that money yet (our son is now 1), so it’s still there as an extra buffer to our emergency fund.

    • September 19, 2017 6:39 am

      Great idea – always nice to have an extra buffer!

  4. September 18, 2017 2:39 pm

    Finances were a huge reason we waited as long as we did, so I nodded at every point on your list. They’re good ideas anyway but great when you’re considering the impact of adding a small human to your family. The only other thing I did that I don’t see here is estimate the worst case scenario cost (or so I thought) for childcare and start banking that monthly during pregnancy. I would have liked to do it even earlier than that but we weren’t quite ready for it. Still, we did well starting when we did.

    Personally, I’d wave people off SoFi now even if their interest rates are good because it appears that their company culture is that absurdly sexist culture that plagues other tech companies and I’m opposed to giving companies like that my money.

    • September 18, 2017 4:35 pm

      Good point about SoFi culture! For similar reasons, I take Lyft even when it is more $ than Uber (although Peter Thiel is a key Lyft investor, so you just can’t win).

      That’s a good idea for daycare, but I think I don’t necessarily want to increase our cash and the mortgage prepayments are intended to cease (or at least be reprioritized) in favor of daycare. But the idea is the same, get used to a significant chunk of money disappearing every month. I will have to think about the best way to simulate that while maintaining other priorities.

      HAHA, comparing my total remaining student loan balance to a month of daycare is a fun calculation. Would be gone in < 2 payments, so it really is a trivial amount at this point.

  5. September 18, 2017 3:37 pm

    It must feel nice to have finally decided you are ready! I hope that things are smooth with minimal anxiety in the process.
 🙂

    I really like the idea of paying off your student loan before having a kid even with the low interest rate. I also like the idea of maxing out your 401(k) early in the year to make sure you still get the funds in.

    We are mostly set on not having children, but I would really love to not have a mortgage before having kids. Unfortunately it’s a bit of a catch 22 because we would need a bigger place and it would not be financially wise to pay off a larger place’s mortgage before having children. So many of the financial aspects of having children terrify me. But one thing is for sure is that I would want all of our going forward finances combined from the time I was pregnant if we did choose to have children.

    • September 19, 2017 6:43 am

      It feels sort of nice, but as you noted, there is lots of potential for anxiety and such going forward! So, nice to know we’ve accepted a bunch more uncertainty and chaos! And also, it is to the point where waiting is not very smart from a health perspective. Possible, yes, but just no longer something we should be putting off if we can help it.

      Yes, a paid off mortgage would be very nice, but not realistic for us. And not necessary either, it would just be nice.

      We were having a conversation the other day about an activity for a hypothetical teenage child, and I said something like “yeah, but we won’t be able to afford X when we have kids!” and T pointed out by the time said kid was in their mid teens, it was likely that our mortgage would be close to paid off even without massive prepayments. My response was that I sure hope we live long enough to reap those benefits!

  6. September 20, 2017 5:43 pm

    I think all we did to prepare financially was have me graduate from (graduate) school and have a real income. Well, technically we started trying a couple months before I graduated, but I knew I would graduate in May. DH took another year to graduate, but we really only needed the one grown-up income. Since I was infertile we didn’t actually have the baby until we had a house and two incomes and a second car.

    So I dunno, I had baby fever, but part of why I had baby fever was because my graduate school anxiety was gone.

  7. October 13, 2017 5:12 am

    We had some milestones we wanted to hit first, including a house, a savings goal, and living on one income even when we had two. I’m really glad we did that last one, because we couldn’t have predicted that we’d have a sick baby and I’d be out of work for three years to take care of her. Keeping a big cushion of savings and the ability to live off one income was more important for me than paying off student loans or the mortgage. The suggestion to start “paying” daycare now into a savings account is a great one, and I’d also say that fully funding an HSA if you have one or at least saving your entire out-of-pocket maximum for one year would be a very good way to prepare. The actual having of a baby probably costs as much as the first couple years of that baby’s life, aside from daycare expenses.

    • October 13, 2017 9:20 am

      Paying off the student loans and mortgage directly supports our ability to live off one income, since it improves our monthly cash flow – so that’s important to me. A recast reduces our monthly mortgage by more than $500/mo compared to our starting mortgage payment.

      Daycare is $1200 – $2200 month (in home is on the low end, centers are on the high end). Banking this is a good idea, but starting now isn’t feasible considering my other goals. We have a lot of cash savings and I don’t want to increase our cash position by another ~$24k over the next year. I also feel like this is my “last chance” to dump money to other goals before daycare takes over. Still, a modest increase in cash is a good idea, especially since some of our cash is intended to be spent. Then again, my “maternity leave” fund is not exactly intended to be spent (since we’d live off of the other salary, + SDI and sick leave), it is just available to be spent if needed.

      Anyway – I’ll look at my numbers again and see if we can plan to start banking a daycare payment ~6 months out or something.

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