How to financially prepare for baby
I always talk about The Three B’s when going back to work. Preparing your Baby, your Boss and your Brain to go back after maternity leave. Well there is a forth B….your BUDGET! Troy is my guest blogger today talking about the real deal when it comes to your money and your baby’s future!
Its 2:26 AM January 29, 2015; there are few times in one’s life that you remember the minute in which your life changes forever. This is the moment that I officially became a father. As I looked down at this tiny 7lb 13oz, gray little creature I finally knew what pure love was. Now don’t get me wrong, I am passionately in love with my beautiful wife… but there is something different about this. Something uniquely immortal. The best way I can describe it is when The Grinch’s heart grows three times its size (but luckily mine didn’t start out as small as his).
You are probably asking yourself, that is touching and all… but what does that have to do with financial planning? Well, let me tell you!
As with most things in life, intention outweighs action. As a certified financial planner I speak to people who have young children, or even grown children, about planning for that child’s future education I almost always get a resounding “Yeah, I’ve been meaning to talk to someone about that but I just keep forgetting to get around to it.” Or in the case of having grown children “Yeah, I wish I had talked to someone about this when they were young but by the time I got around to it, it seemed like it was too late to start.”
My response to both scenarios is that there will always be something else that is “more important” that pops up and then I usually ask them a question “When is the best time to plant an Oak Tree?” After a confused look and a quick thought of “Has this guy been listening to me?” I get some non-committal answer or a shoulder shrug. My response is of course “Absolutely! 100 years ago!” (Even greater confused look) Follow up question “When is the second best time to plant an Oak Tree?” (Look of Okay.. this guy has lost it). My answer then comes “Today”.
The moral of the story is that everyone wishes they had started eating better and working out BEFORE beach season is here. Now, since we cannot go back in time and plant that Oak Tree 100 years ago, the next best thing we can do is plant that seed today (start saving for ourselves and especially the next generation).
Here is the most common question I get from new parents:
“Should I open one of those government college account things (aka 529 college savings account)?”
A quick summary of a “529 plan” is simply this… It is a tax code and nothing more. It is a tax code that essentially says you can use pre-tax dollars to put money aside for your children’s (or grand children’s) future qualified education. At first glance this looks great right? Using pre-tax dollars to put money aside for educational purposes? (Before going on I should point out that each plan is set up differently in different states and can be used for tax deduction purposes when applicable)
But what happens if you sweet little baby decides not to go to college one day? What if they decide to go to receive an education from an “unqualified institution”? What if they decide to start their own business? You as the owner of the account will take on massive penalties and taxes to access that money. Not to mention this money is invested directly into the stock market which if you were alive in 2008 will remember that that might not be the best place for your money.
Here at Havins Financial we have a few requirements when it comes to saving our money whether it is for ourselves or for the next generation:
- A savings account should be AUTOMATIC and saved for the point of saving it
- It should have growth potential with ZERO market risk (aka you CANNOT lose principal)
- It should be accessible for WHATEVER you need that money for, i.e. education, start a business, down payment on a house, retirement, etc.
- There should be ZERO penalties for accessing your own money
A week or so after my wife and I decided to start her life off as best as we possibly could and in one small yet powerful aspect of that we decided to start putting away $100 for her future. (WARNING: numbers nerd alert) That translates to $1200 a year, and if that amount is kept up from the month of her birth until the day she turns 65 is $78,000. Averaging 8% return, which is a modest return when there is absolutely ZERO risk of losing principal, what do you think that initial 78k will blossom into? A whopping 2.2 MILLION dollars!! TAX FREE!!! No, I did not mistype that, or miscalculate. That is simply utilizing compound interest correctly over a long period of time.
Now again, you might be saying to yourself, well I didn’t start putting money into an account like that when my child was a month old so I guess I shouldn’t do it at all. Just because you didn’t plant that seed 100 years ago doesn’t mean that if you do not plant it now that it wouldn’t be strong and beautiful tree 100 years from now! If we can help plant your financial Oak seeds, please let us know. Check me out at www.havinsfinancial.com for your complimentary consultation to see how I can help your seeds of today grow into financial security for you and your family!
Troy M Havins
Are you prepared financially for baby? Leave a comment or question below!