One day last August, my then six-month-old son fell face first from his swing onto the wooden floor half-a-foot below. Luke was a mobile tyke even then and I had forgotten to strap him into his seat, despite repeated instructions from Mrs. Tepper who had left him in my charge an hour earlier.
Panic ensued. I rushed into his room after I heard the thud and consoled my understandably miserable infant. A bump quickly rose on his forehead and I phoned our doctor thinking I had caused serious and permanent injury. The pediatrician asked me (in that tone doctors have when you call them off-hours for questions apparently beneath their dignity) if Luke was vomiting or unconscious. No. Any kind of bleeding? No. Keep an eye on him, but he's probably fine. Which he was.
But I spent the rest of the night in silent terror as the bump deepened. When he finally went to sleep that night, I snuck into his room and put a finger beneath his nose. Yes, he was still breathing.
Fast-forward to last month. Luke had determined to test the limits of his physical universe and ran headfirst into the side of our bathtub. He came away with a bloody, swollen nose. Mrs. Tepper called the doctor for instructions (and a dose of vague condescension), while I tended to Luke. But there was no panic, no unease, no nagging fear that our son had endured some critical blow. I didn't feel the need to check his breathing in the middle of the night. Parenting, like most things, improves with time.
The same is true of your ability to deal with money. I had just started at Money when Mrs. Tepper became pregnant, so it's not as if we had ample time to set up an emergency fund or sketch out a meaningful budget before his birth. Over the course of our first full year as parents, we've had to learn the finances of parenting—even if one of us writes for a personal finance brand.
Here is some of the hard-won wisdom I've gleaned from my sometimes beautiful parenting grind.
You'll Spend More Than You Think
There's a strange cognitive dissonance that new parents must embrace. The decision to bring a child into the world, at least in my case, tends to be uninformed by finances. Are we ready to care for children is more of a question of values and love than a cold calculation of what you can afford. We didn't estimate the weekly cost of child care, how long Mrs. Tepper would take off for maternity leave, how much of that was paid, and how we'd afford rent and food without her paycheck. We didn't look into how a newborn would inflate our insurance premiums, which of our policies should cover the tyke, or how much a delivery would set us back. And we were completely ignorant of the price tag on all the day-to-day items, from strollers and cribs to diapers and wipes, that he would need. We both had jobs and figured we'd figure it out.
But bearing a child is an intimately financial decision, especially since our society does so little to palliate the pocketbooks of new parents (whether it's paid leave, child or health care.) We'll likely spend a quarter-million dollars on Luke before he hits college-which could easily cost another quarter-million dollars. How is it even possible to spend that much?
Experience informs. Putting aside child care, which cost us more than $15,000 over the past 12 months, it's not terribly difficult to see where the money goes. Not only did his stroller run us close to $1,000, but we just spent another $50 on something called the Parent Organizer, a device that attaches to the stroller and holds the coffee you need to drink to stay awake because you haven't slept well in over a year, and some fabric cleaner that removes spilled milk (and coffee) from the stroller. We spent about $1,000 this year on diapers and wipes and creams that make him happy and don't cause his skin to break out in hives. Our credit card statements are filled with hundreds of similar purchases.
I'm glad we didn't budget out our lives before we decided to have Luke. Parenting shouldn't be a decision based solely on affordability. Life is too short. But, in case you were curious, this is why your friends with kids aren't particularly enthusiastic about your two-week excursion to Lisbon.
Be an Equal and Honest Partner with Your Spouse
Couples tend to obfuscate when it comes to discussing money and finances. Most avoid the topic, as an American Express survey found, while others lie to their partners about money. While you may know that you need to chat about budgeting and debt and spending, as a recent Money survey found, the actual process of doing so can be less than enjoyable.
In the grand scheme of things, Mrs. Tepper and I haven't been adults for all that long. We've been out of grad school for about three years, married for almost two, and parents for 17 months. Crafting budgets that account for all of the expenses surrounding Luke is hard enough, not to mention the difficulty coming up with a plan for saving for college without going broke. For a few pointers, I turned to CFP Board consumer advocate Eleanor Blayney.
First and foremost, says Blayney, learn what money means to your spouse. “For some it means security, so they’re looking to save, while for others it offers prestige.” If your husband or wife is a hoarder or a spendthrift, there’s often a reason why. Knowing where your partner comes from can help decrease tension and clarify his or her point-of-view.
Next Blayney recommends you and your spouse go into separate rooms and estimate how your after-tax income is being spent. That is, each of you should write down how much you believe you’re putting toward three buckets: 1) fixed, non-variable expenses (like your mortgage and child care); 2) non-discretionary, variable expenses (food and transportation, for example); and purely discretionary expenses (like entertainment).
After you’ve complied your list, Blayney suggests, “pour a glass of wine and compare notes. Identify real discrepancies in your outlook and find common ground.”
Everyone should be involved in financial decision-making. When the dynamics of a family evolve, spouses often take different domains of domestic responsibility, from managing the children’s homework to paying the bills. If one spouse is completely removed from any understanding of financial decision-making, or appreciation for long-term goals like retirement, conflicts can metastasize with time.
Therefore, be completely transparent about your financial choices. Both spouses should appreciate the savings rate and investing choices that are being made and what benefits this long-term planning will produce. Think of it as “marriage insurance."
“Focus on common goals—whether it’s a boat or retirement, “says Blayney. “You’ve got to decide as a couple how much to save together."
Consider Your Mortality
If you have a child and a spouse who depend on your income to support their lives, you need life and disability insurance. The concern for a lot of parents can revolve around which type of insurance to get and for how long. (Not to mention confronting your inevitable demise.)
“I’ll have clients who have gone to buy insurance and the broker asked how much can you afford?” says Dallas-based financial coach and planner Katie Brewer. “They’ll come away with much more than they need.” That’s money that could be put to better use elsewhere. The best route is to buy a 20-to-30 year term policy that covers about 10 times your income. You should only worry about covering your income for a certain period of time, and term insurance is the cleaner alternative. You can most likely to find low cost options through your employer, but you may be restricted in the amount you can insure. Check out Mint.com’s life insurance calculator for more coverage selections.
When you sign-up, don’t forget disability insurance. Like life insurance you can generally find low-cost options in your benefits package. If you can’t, look to reduce the price on an individual policy by delaying the period before you receive benefits – from three months to six. Brewer also recommends looking for a group discount through an alumni or professional group – she’s insured through the Financial Planning Association. Keep in mind, whatever Social Security disability benefits you receive will be subtracted from your payout, which is also subjected to taxes. That’s why maintaining a robust emergency fund is so vital.