Top Financial Things You Should Do After Having a Baby

As some of you know, prior to my life as a glorious SAHM, I was miserable as a financial advisor. Now, despite me not enjoying the actual work of a financial advisor, it was incredibly practical and useful in terms of preparing for my own personal future. (Also, I met some awesome people who started off as clients and became my friends.)

One of the main reasons I took the job (other than desperation, fear, and general cluelessness) was because even though I knew I wouldn’t really like it, the knowledge gained about finances and money was invaluable.

And since we just had our fourth child, Sasquatch, I recently had to make a bunch of updates to our finances in order to ensure that in the event of our improbable demise, ALL my children (no matter how new), would be financially taken care of.

Incidentally, I wrote a similar piece in my Money Series three years ago after Glow Worm was born. (Also, my buddy at Just Making Cents riffed off this current post on his blog. Want to see how he scored?)

So, I thought since I just did a bunch of adulting and took care of this crap, here are some of my Top Financial Things You Should Do After Having a Baby.

Disclaimer: I am a former financial advisor and used to own a financial advising firm with my mother. I am not being compensated by any entity or company for the following information. I am ONLY explaining what I do for my own family. If you should so choose to take this advice, please realize that it is not customized nor tailored for your specific situation. I am not dispensing personalized advice for you or your family. I am not responsible in any way, shape, or form if your investments rise or fall due to market conditions. YMMV. You have been warned.

1) Update/Create a Living Trust or Will

I know. I’m a morbid sort. But believe me – your loved ones will appreciate the forethought and time you took to make sure your assets were titled correctly, as well as included all your progeny.

Wills detail where and who gets your stuff, but Living Trusts go a step further and bypass probate. Furthermore, they can detail who will assume guardianship of your children, who will be the trustee over your assets should you die before your children are legally able to manage their assets, as well as whole slew of other handy details that make your financial life easier.

Remember: probate can take at least 60-90 days and often times, much longer (not to mention, you have to pay probate taxes). Bypassing probate is super important when your children may need to access funds in order to cover their living expenses.

Make sure your will/trust include ALL your children. (Well, assuming that you want to include all your children. But since the majority of my readers have small/young children, chances are, you do.)

I may be a registered Democrat, but I started off as a Republican and certainly do not think the government can cure all and do all. As a result, I really do not want the government to decide who should take care of my kids, where my assets should go, or anything else related to my personal or financial life.

If you are like me in this regard, make sure you get a living trust or at the very least, have a will.

Also, make sure you actually title your assets in the name of your trust.

It makes zero sense to have a living trust but not have any of your assets in it. That just means you wasted your money on lawyer fees without any of the benefits of their lawyering.

2) Update your beneficiaries.

Whether they be IRAs, Roth IRAs, 401(k)s, life insurance, Transfer on Death accounts – WHATEVER. If it has a beneficiary, make sure your newest child is added to the beneficiaries.

The possibility that my children may think I purposely disinherited them from any of our accounts versus just being an idiot or procrastinator or just a forgetful human makes me so sad. No child should be cut out of their inheritance due to stupidity on the part of their parents.

It’s a pain in the ass, I know. Lots of forms to sign and social security numbers to look up. I get it.

Do it anyway.

As soon as possible. One never knows the future – and though morbid, better safe than sorry.

3) Open up a savings/brokerage account and/or a 529 college savings account for your child. 

Again, opening accounts is easy; funding them is harder. Fund the accounts, too.

Right after a child is born, I always deposit any gift cards or financial gifts in their account right away. (For gift cards, if someone gives my kid a $20 to Target, I will deposit $20 into their account and use the Target gift card however I want.)

I also transfer some “seed” money to get the account going as well as deposit any gifts they get throughout the year. I also set up their 529 plans with an automatic monthly investment. This way, I build in saving automatically and don’t have to remember to do it. (If I waited until I remembered, I would never save any money.)

I realize that not everyone has the luxury or benefit of people giving gifts or even having excess funds to save for their kids. Even so, I urge you to open up the accounts anyway. You never know when people are generous and kind during birthdays, graduations, and holidays. It is always better to be prepared. Plus, even if you can only sock away $10/month, that is still better than nothing.

4) Update your benefits.

If you have health insurance – ADD YOUR NEW BABY. Even if it is no longer your company’s open enrollment period, a new baby (whether through birth or adoption) is considered a life changing event and you usually have 30 days after birth/adoption to add your child to your health insurance.

If you don’t remember to add your child, then you will have to wait until your next open enrollment period before you can do so. Depending on when that is, you would have too pay for all the well-baby appointments and immunizations out of pocket and just pray your child doesn’t get sick or hurt the first year.

Save yourself the worry and the potential financial disaster. Enroll your child in your health benefits.

If you have other benefits at work that they qualify for, by all means, add them to those, too.

5) Get life insurance or make sure your life insurance is enough.

Look, I get it. I’m obsessed with untimely demises.

People always complain that life insurance is paying for something that won’t likely happen. But you know what? We pay for car insurance and hope to never use it. No one complains about that. (Well, that and it’s illegal to drive without car insurance. It’s thus far, not illegal to be alive without life insurance.)

Anyhow, my point is, if you are the primary breadwinner for your family and you die, how will your family provide for their living expenses? If you are one of the breadwinners, how will your family make up the difference in income? And if you are the SAHP, how will your family pay for the child care services you provide?

Even if you live modestly and have a lot of savings, how long will your savings last?

And right now, I really want to address the SAHP.

Look, I know you can always go out and get a job. I am obviously not commenting on our abilities to work and get well-paying jobs.

But to do so immediately after your spouse dies? While taking care of grieving kids and household stuff and paperwork and the business of the dead?

That is much harder.

And the last thing you want to think about after your spouse dies is how much of a hole you are burning through your savings while trying to find a job and sending out resumes and going on interviews while you and your children are grieving.

That sucks.

Furthermore, even if you, as the SAHP get a job, you will either have to accept a lower paying job in exchange for flexibility in your work schedule to take care of your children. Or, you have to pay for someone else to take care of your children. Either way, there is a monetary outlay that eats into your income.

Also, life insurance through your employer is great and all, but you need life insurance independent of your employer. 

Why? Because if your employment terminates, so does your life insurance. And then, when you re-apply for life insurance, you will only be older and more likely to be in worse health.

Oh, and if you get a large amount of life insurance, (eg: $1 million), get multiple policies. That way, if you have a financial difficulty or you no longer need quite as much life insurance because the kids are grown or your savings are much larger, you do not have to cancel the entire amount only to re-apply when you are older and likely to be in worse health and have higher premiums (after all, the older you are, the closer you are to dying).

So, if you wanted a total of $1 million coverage, get two $500,000 policies. That way, if your financial situation becomes more volatile or you no longer need that much life insurance, you just cancel one $500,000 policy and still have the other $500,000 policy.

All this talk of death when there is a new life in the family. Seems counterintuitive. But I firmly believe that once you bring a life into the world, you are responsible for providing for them. And children are never more vulnerable than after the death of a parent.

Thus, it behooves us to do all we can while we are alive to make sure that our children are protected and provided for when we are not.

Besides, the superstitious part of me feels as if you are just inviting trouble if you don’t get this stuff taken care of ASAP.

The practical part of me knows that life happens and that when you have a new baby, you’re totally sleep deprived and overwhelmed – but you also know that the baby is new and it’s a good reminder of doing this stuff before you completely forget or it’s too late.

Now, get cracking!

(And don’t forget to check out Just Making Cents comments and feedback and additional advice!)

How to Pay for College

Author’s Note: Today’s guest post is by my college buddy, JT, from the blog, Just Making Cents. Since I just had a baby, JT was kind enough to step in and write a post for my blog – and it is totally appropos since I have four kids to put through college. 

Anyhow, JT offered to add a post to my Money Series that I started when I had Glow Worm. I love his perspective because JT has 15+ years of Wall Street experience (he was a big shot at a famous hedge fund) and he and I used to talk finance back in the day when I was a Financial Advisor. (Of course, JT had to dumb down a lot of stuff for me since he is heads and tails more amazing than I ever could hope to be.)

I hope you enjoy his post and also head on over to his blog, Just Making Cents, where he blogs about finance, teaching your kids about finance, and parenting successful kids. 

Now that Halloween is over and you have eaten all the fun-sized Kit Kat bars and tossed the gluey candy corn, you will likely come across an underrated confection: the Blow Pop.

For first-timers, the Blow Pop’s hard candy exterior eventually recedes to a surprising, softish gum center, lasting twice as long as other candies.

Sadly, when it comes to a parent’s finances, not all surprises are as sweet, or enduring things as welcome. Just when you think you’ve paid all the costs to raise your child, up surfaces college tuition bills. Surprise.

A Hard Blow:

Those are some big numbers but hard to crack without some context. Because this is Mandarin Mama’s blog, let’s analyze the case of a Bay Area family with 2 children.

Assume this family owns a standard 3 bed, 2 bath home in San Jose, which costs $775,000*, and drives 2 cars. This family saves for Stanford** and Berkeley** (their children are exceptionally smart) and the parents want to retire at 67. They’re fairly frugal, only going out to eat occasionally and taking local vacations.

Stanford costs about $60,000 a year. Berkeley costs about $28,500 a year (Both figures include room and board). To catch up to tuition growth, you would need to save $11,000 a year for Stanford and $5,750 a year for Berkeley from the moment your child is born up to the last tuition payment.

Here’s what this family would need to make in income (for readers with 4 children – ahem! – it’s safe to assume you’ll need more income. A lot more.):

CostsAnnual
Housing$45,840
Food$12,000
Utilities$10,000
Transportation$9,600
Clothing/Supplies$1,000
Other/Misc$5,000
Saving for Stanford$11,000
Saving for Berkeley$5,750
Taxes$45,010
Total Costs + Taxes$145,200
401k$18,000
Total Income Need$163,200

Don’t make $163k a year? There’s hope for you.

4 Tips on Paying for College, Depending on Your Phase in Life:

1. Newly Unwrapped (You are pre-child or have children ages 0-5): Make that budget so that you can max out your 401k and put in $6-11k per child into a 529 plan if you have children. You are in the phase of life where you should live as frugally as possible, really watching your expenses. If you save well in this phase, it provides a great foundation for the next 3 phases.

2. The Fruity Shell (You have children ages 5-12): Start talking to your children about money now. Teach them what money is and how to make it. Have your child allocate a portion of his or her profit to college savings, a portion to spending (beyond the food, clothes, and shelter you provide), and a portion to charity.

When your child knows how to make his or her own money, this reduces the amount you need to spend on their clothes or gadgets, and increases the amount you can allocate to your retirement and their tuition.

The side benefit to this is that when they know it’s their own sweat going into paying for college, they’ll have a more purposeful outlook and make college and what-to-major-in decisions more pragmatically.

(I would not recommend pushing them to start a business. Rather, I would present it as a fun thing to do, then layer in the business and finance concepts.)

3. The Gum Shows Through (You have older children ages 12-16). Start (or continue) your child’s financial education. Discuss potential side-businesses they’d be interested in starting.

At this age group, they have two important resources and skills: 1) they are tech savvy, and 2) they have a developing social network. They can tap into both resources and start a blog with affiliate links or an eCommerce store. Like in the previous step, advise them to allocate a portion of the proceeds to their college savings. The side benefit to this is that starting and running a business looks good on their college application.

(Again, I wouldn’t push your child to start their business. At this age, I would emphasize the extra spending money and the benefit of it for college applications.)

If you are willing to switch jobs or go back to work, consider working for the college near you. Sometimes they have reduced tuition for themselves or partner colleges for employees. Research this first and see how long it takes to qualify for such benefits.

4. Chew Time (Your children are 17+): Don’t panic. Even if you haven’t saved anything, there are ways to minimize the bill and still save toward retirement. I’ll spend the most time in this phase since it’s the most urgent.

Community College

Your child may want to consider spending 2 years at a community college then transfer to a 4-year college. The advantage of this, besides cutting tuition almost in half, is that it helps the GPA. If your child has a 3.8 the first two years at Diablo Valley College and squeaks out a 2.8 at UC Santa Barbara, his or her overall GPA is a solid 3.3.

The best thing is for your child to know what they want to do, find the college that best enables that, then find the JC that’s a feeder school to that college. It doesn’t diminish career prospects to attend a JC first. When people ask about schools, it’s from where you graduated rather than where you started.

Lower Cost, But Not Quality

Remember that there are plenty of financial aid and scholarships available. The listed price of tuition is generally not the actual cost.

If a public university most fits your child, attending the in-state flagships like Berkeley, UCLA, Michigan, or UVA offer almost unmatched quality per cost.

However, if a private university best fits your child, focus on schools with large endowments and smaller enrollments — they sometimes offer reduced tuition based on your income.

Research schools with endowments north of $5 billion but undergraduate enrollment of fewer than 12,000 (a private school with an undergraduate enrollment north of 12,000 has less money to spend per student and less scholarship money. Essentially, you are paying private school tuition for public school experience).

The Logical Path

If neither flagship nor well-endowed/smaller private is an option for your child, make sure your child has a strong idea of what career path he or she wants to take. So if he or she wants to do electrical engineering, find the in-state public school that routinely sends its electrical engineers to large electrical engineering employers before your child applies to college.

Don’t wait until college starts to figure things out. There is a very specific script of majors and progression of internships that prequalify candidates for certain (often the most sought-after) employers.

Income, More or Less

You yourself may want to consider starting your own side or online business to generate extra money. If your business makes enough to cover your expenses and you feel confident enough to leave your day job, you will reduce your income, qualifying your child for scholarships and reduced tuition from certain schools.

If your business takes off, consider paying yourself a low salary to qualify your child for scholarships and reduced tuition. Carefully research this, however, since some schools consider your net worth as well and may require more history of low income.

The Decision 

Now, if it has to be a choice between saving for college or retirement, choose retirement. Your children will have a long career that will help them pay off their debt. You…do not.

That’s a Wrap:

Don’t let large, scary numbers frighten you from acting. No matter what phase of life you’re in, the future can be as sweet as a lollipop if you’re willing to research and put in the extra effort. Yes, you can have your candy and eat it too.

Like what you read and want to find out more about money and parenting? Get a free, 3-day course on teaching your child about money and I’ll send you a free guide to helping your child start their own business. Just sign up here with the phrase “Mandarin Lemonade.”

*Based on median home listing in San Jose, CA on Realtor.com

**Cost of College: Using data from the CollegeBoard of price increase above inflation plus inflation, both for the last decade, Stanford and Berkeley cost assumed to rise 4.25% and 4.75%, respectively.

Savings Growth: Assumes historical growth rate of the S&P 500 of 7%.

Why I Have a Financial Advisor: Money Series Pt 5

Now, it may seem weird to you that I have a financial advisor – especially since I used to be one and own a financial advising firm with my mother. I’m sure it won’t be any surprise to anyone that my mother is my financial advisor. What can I say? It saves on fees.

Well, the reasons I have my mother manage my money versus managing it myself are largely the same reasons most people have a financial advisor. And those are because I don’t have some combination of the following:

1) Time
2) Interest
3) Ability
4) Resources

(For the record, mine is a combination of 1 and 2.) With that said, here is my inside scoop on what to look for in a financial advisor should you choose to have one.

Disclaimer: I am a financial advisor and own a financial advising firm with my mother. I am not being compensated by any entity or company for the following information. I am ONLY explaining what I do for my own family. If you should so choose to take this advice, please realize that it is not customized nor tailored for your specific situation. I am not dispensing personalized advice for you or your family. I am not responsible in any way, shape, or form if your investments rise or fall due to market conditions. YMMV. You have been warned.

1) Make sure you like the person. This seems like such a stupid reason. After all, there are plenty of likable people out there who should NOT be financial advisors. But ultimately, you’ll be discussing the details of your financial life as well as your hopes and dreams for the future (because let’s be real – that all requires money). If you don’t like your financial advisor, it’s going to be pretty difficult divulging such intimate information. Plus, you’ll be talking to them at least a few times a year. If you don’t like the person, you’ll put off meeting them, likely not follow their advice in a timely manner, and in general, waste everyone’s time.

2) Don’t get hung up on “The Best.” Just like the rest of life, “The Best” is a moving target and different for everybody. Whether it’s “The Best” advisor, fund, or stock, you’re most likely not going to have it. Or have it at the wrong time. There is no way out of the thousands of financial advisors you are going to have “The Best.” Even if you’re a gazillionaire, you’re not. Settle for good and competent. You want reasonable returns (whatever that means to you), sound advice, and a responsive attitude.

3) Don’t pay for a financial plan. Pay for advice and management. This is not to say that paying for a financial plan is a waste of money. Indeed, if you are confident that you will hold yourself accountable to following every single item on your plan, then, have at it. But let’s be real. You most likely won’t. Instead, you’ll have paid approximately $1,500-2,000 for a fat pile of paper that just sits on your shelf collecting dust while your financial house is still in shambles. Then a few years later, you’ll go through the cycle again.

Save everyone the trouble. Pay an advisor to manage your money. I wouldn’t necessarily give them full discretion over your funds (that seems unnecessarily trusting), but do follow their advice. Usually, this translates into a monthly fee. Think of it as having an advisor on retainer. Not only do you get to call them up and ask for advice any time you want, you also have someone actively looking at your account and managing it in a way that is consistent with your desires.

4) Along with #3, avoid paying per transaction/by commission. Now, realistically, some products are commission only. (eg: Annuities, life insurance, REITs) But for the most part, this way, you know that the advisor is recommending you buy/sell something because it really IS a good thing for your account (and not because they get paid a commission). As for annuities, life insurance, and REITs, they all have their place and can be good for you depending on your situation. Annuities and life insurance get pilloried quite often but in reality, I have highly recommended their usage. (Annuities especially since despite the higher cost, it’s the closest thing most people will get to a pension.)

5) Have as much of your assets at one place. I don’t mean one fund or one stock. I mean, have as much of your assets as possible held with the same financial advisor. Why? Because they will have a fuller view of your financial life and can give you better advice if they have the big picture. Also, it sounds awful, but financial advisors are only human. They will pay more attention to more money (because you are a bigger client). If you spread out your assets across several advisors, you are pretty much guaranteeing no one will look at your stuff.

Ok, that’s it for now. If I think of more, I will add it to this post or write another one. For those of you with financial advisors, what has your experience been? And for those of you without one, why haven’t you gotten one yet?

ETA:A friend asked me a great question on FB that I wanted to share with the rest of you.

I want to get started! Where do I start? It’s long overdue. How do you know which advisors are for you and your best interest? I thought of reading up on stock trading and understanding it, so I can do it myself. Signing up on Etrade? Talk to me. Lol.

Here’s my response:

I’d start by asking friends (especially those who are wealthier than you). Check out their recommendations. Or you can just walk into a Schwab, TD Ameritrade, or Ameriprise and ask for a broker on duty. Or, keep your eye out for seminars and attend some. Once you have some names, google and interview them.

Most advisors will talk to you and get to know you without charging you. If they do, run away. If they recommend you open an account or buy something with them before getting to know you, run away. Find out how they get paid. How do they decide or evaluate what is a good stock or fund? How do they determine when to sell? How often will they review your account? What type of clients are they looking for?

Also, trust your gut. If someone makes you feel uneasy, run. They may be perfectly honest but if YOU don’t feel comfortable, then they are not for you.

Most advisors end up with a book of business that looks like them. So you want to look for someone who is similar to you (except has time, interest, ability, and resources to do investments). You want someone who has similar values and world view.

Thanks for asking! Hope that helps. Feel free to ask more questions.