Financial Steps to Take When Having a Child [PODCAST]

[00:00:00] Hey, this is the Catholic money mastermind podcast. The show where we explore the intersection of our faith and finances, you can learn more about our organization and find show notes. At Catholic financial planners.com. And please note that nothing in this episode should be construed as investment tax

or legal advice. Here is financial steps to take when having a child.

Ben Martinek: [00:00:23] Well, hello everyone. Thanks for joining us today. This is Ben, Andy and Sean. And we're here to talk about first steps to take. Once you have found out you're having your first child, so fascinating topic, I suppose, first things in order. Congratulations to you. That's exciting news. How awesome love having children.

Totally a blessing. And we just want to make sure that you are ready to go financially speaking for this new responsibility and gift. And that's what we're going to talk about today. So, you know, before, before the call, Sean, you had some interesting ideas right off the bat, and you wanted to share if you don't mind, when you go ahead and tell us what you were thinking about how you would plan for, how are you go about thinking and planning [00:01:00] for having a child.

Sean Mullaney: [00:01:01] Absolutely Ben, and let me add my congratulations to all the expectant parents out there. All the best as you plan to read them. Sir for baptism classes and baby registries and all that good stuff. And you know, I think what you need to think about from a financial planning perspective. Okay.

I'm about to have my first child, what do I have to do financially? And there's really only two things you need to plan for. One of those things, unfortunately, is what would happen if mom or dad were to die or both, and these things do happen. What would happen financially for my child, if mom or dad were to die while the child is still a minor child.

So that's the first thing you need to plan for and all the different things we're going to talk about in terms of tools and trusts and wills and all that good stuff. That's all aligned around that first objective, right? Or most of that is. And the second thing to plan for [00:02:00] is, well, wait a minute. What if mom and dad live while the child is still a child, we've got a plan for that.

And there are tools for planning for that. So that's all you really need to be thinking about is what happens if mom or dad dies early. And then what happens if hopefully mom and dad live? That's all you got to take care of, then.

Ben Martinek: [00:02:21] Yeah, well, that's a, that's a pretty simple answer there, right? I'm mean we're just going to figure for one situation of implant for the other. And if we got both of them covered, but it sounds like we're we've thought through everything we need to think about. So that's a good thing. Can Sean, well, Andy, if you don't mind wanting to chime in, what are some of the initial thoughts that come to your mind?

Let's, you know, we can hold off on the scenario in which mom and dad die. That's obviously a possibility, but probably not the most enjoyable one to think about and, and probably the most unlikely to happen. So let's just presume that mom and dad are going to live. Let's cover that scenario. So, Andy, what, what would you initially want to see somebody do.

Andy Flattery: [00:02:53] I'm glad we started with this because I've had a chance to work with a fair amount of young families and actually we're pregnant now, too [00:03:00] guys. So when you were saying congratulations, I heard you speaking directly to me.

Ben Martinek: [00:03:05] Good. Good. Good for you. Congratulations.

Andy Flattery: [00:03:07] But, but I think, you know, a lot of parents, when they have a new child, like they have this kind of feeling of responsibility and feeling like they have to do something, but they don't often know where to start. So I like how we started on this very simple. Idea of just understanding what the problem is.

And I think a lot of people, they start, they immediately jumped to kind of tactics. It's like, well, this must mean I need to start a college savings fund. Or maybe, maybe they know something about life insurance or something like that. And they know they need to get that. And all those things may or may not be a good idea, but I think starting kind of at the very basic level is, is really important to understand.

So. Over the years, like I've had a chance to kind of create a checklist that we used with our first child, and I've been able to pass on to some clients as well, too. But I think at the very, at the very beginning, let's just start with kind [00:04:00] of reviewing your financial plan or in some cases, if you're a young family, maybe just creating.

A financial plan in the first page, in the first place and really understanding what, what it is that you want your money to do for you. And so I think that's, that's the best place to start now throughout that financial planning process, you're going to come to all sorts of. Ideas as to how you can plan your finances.

And then when the, when the baby comes along, you'll realize, you know what, we've done this financial plan. We realize we need things like build up a cash cushion. So that's, that's one thing to check off create a new budget. So a new spending plan. You're going to realize that maybe the spending you were doing without a child, or maybe with.

With one fewer, fewer child in your household is going to change. Now that there's one more mouth to feed. So create a new budget and understand what that spending is going to look like. And then I think those are the kind of the two real basic things that you could do, right, right off the bat sound.

Does that sound [00:05:00] like a plan? Do you guys.

Ben Martinek: [00:05:01] Yeah. I mean, I think that works right. I mean, you're really wanting to be like, Hey, let's w what's your financial plan on the longterm? And you know, how much does having the child here affects things in, in that site? You know, you know, inherently we're financial planners, right. So we kind of want to know.

What does this mean in terms of your long-term planning? Does this affect anything in terms of what we have to be doing day to day for that? Or does this really adjust things? I think for most people we could probably say this shouldn't be a huge wrench, right? I mean, we're kind of hopeful that we're having children and that this is a blessing we were receiving our lives.

But it's definitely a game changer, you know, speaking from experience, right. It's, it's fun being just a husband and wife at home and having our lives and working and living every day. But now. Now we're expecting a new addition to the party and no, these don't come with owner's manuals as they like to say.

So it's it's a bit of a surprise and an uncertainty and we're stepping off into a whole new world.

Sean Mullaney: [00:05:54] Andy. I really liked how you phrased it. In terms of shoring up your own finances, right? So when you're on the [00:06:00] airplane, they tell you put on your own mask before you help you know, children. And I think that's really important here, right? The best thing you can do for your children's financial future is shore up your own finances.

So I really liked how you phrase that in terms of working on your emergency fund, working on your own budget, get your house in order, and that's going to make your children's financial lives so much better.

Andy Flattery: [00:06:25] That's something that you can pass on to our kids, right? If your, if your children grow up in a household where they recognize that their parents are handling money well, and they're kind of. Teaching them these kinds of basic these basic principles, because they're able to witness it by their parents being responsible.

That's a legacy that you're passing on whether or not it's formalized or not. The, the kids can recognize that.

Ben Martinek: [00:06:51] Yeah. Well, let's just take a moment and dig into this a little bit, because I'm sure we have some folks who are wanting to know more details. So what are you guys looking to see when it comes [00:07:00] to an emergency fund? How much savings would you say is at least enough? And then maybe beyond enough to, Hey, this is really where we would like to see.

W w what would you guys generally recommend on this?

Andy Flattery: [00:07:11] yeah, Sean, I can take this one. I think real basic, if we just started with six months expenses, that's a great starting point. Some people might want more than that based on what type of career that they're in, but I think in a real basic level, find out what your household expenses are and. On a monthly basis and, and take that time six.

And I think that's a really good starting point. Most people don't have the privilege of having that amount of money in a savings account somewhere that they aren't touching on on a week to week or month by month basis. So let's, let's start with six months expenses.

Sean Mullaney: [00:07:47] Thoughts on that. Right? One is. I think that the answer varies if you're a one income or you're a two income household, right? Meaning if you're two income, you have two different sources of income. You have a [00:08:00] little more flexibility. If one spouse were to get laid off. So you could lower that. A little bit, or at least somewhat if you have two incomes in the household.

But generally speaking, yeah, three to six months. And especially if you only have the one income six months is, is much more optimal. The second thing I'll just add is Roth IRAs, and I know this is getting into a tactic. In terms of your own retirement, a Roth IRA is a great vehicle and it should be thought of as a retirement vehicle.

However, it does have an escape patch, right. And so you're able to withdraw your previous contributions to a Roth IRA at any time. Tax and penalty free. And so what that means is that the Roth IRA can sort of perform a bit of double duty. It can be sort of a, an emergent, a backup emergency fund. If you need it to be again, that's not what you should plan for it to be.

You should plan for it to be to a long-term. Retirement savings vehicle. That's very tax advantaged, but if need [00:09:00] be, if things got really bad, you could access it in an emergency in terms of your previous contributions. So that's another thing just to keep in mind, it's a little bit of an overlap between retirement planning and emergency planning.

Ben Martinek: [00:09:13] Yeah, that's a great suggestion, Sean. I totally agree. And there are some other restrictions with ROVs. You have to have the money held up in the account for at least five years before. You can withdraw it. Tax-free and penalty-free but no question, you know, if you haven't got that Roth IRA clock going and your income is low enough to still be able to contribute to it directly, you know, presently your AGI has to be a little below 200,000 to make that happen, which would be most folks then.

Yeah. Let's get that Roth IRA as a backup savings account going for you as another way to store the money.

Sean Mullaney: [00:09:44] Yeah.

just to

be crystal clear on that, the five-year clock applies to the old earnings in the Roth IRA, but the old contributions can be taken out tomorrow. And what happens is you build up a history. Three of contributions and those come out first. So [00:10:00] it does really accelerate this ability to, or it enhances this ability to use it as an emergency fund, the earnings, which come out last cannot be accessed for at five years.

And there are other requirements generally involving age, 59 and a half. But yeah, the IMR, the Roth IRA is an emergency fund is I think something that sometimes people overlook that said, like we said, at the beginning, don't. Plan on using it that way. Have it as a backup vehicle.

Ben Martinek: [00:10:30] To me, I wasn't aware of it. That was just the basis was free and clear right away. I figured that five-year window P applied to the whole account balance. So here it is, I've been doing this for eight and a half years, and I learned just something new today. So hopefully that's a new tidbit for everyone else.

Who's listening as well as, so thanks for shedding some light on that,

Andy Flattery: [00:10:48] Yeah, something new everyday Ben, and that's the way it goes. You know, the other thing to add to this is if in this case of the Roth IRA in the back of your mind, it is kind of an emergency fund or [00:11:00] it's something that you're thinking in six to 12 months, we are using this particular account for X that's, where you really want to.

Pay attention to what the underlying investments are, because just because you can access the funds does not necessarily mean that the investments inside the Roth IRA itself are appropriate to be thought of as short-term savings or even medium term savings. So for example, if, if the Roth IRA owns treasury bonds, that's a little bit of a different situation than if it's 100% invested in everyone's favorite electronic car company based out of California.

Ben Martinek: [00:11:36] Right. We'll leave that undisclosed, but I'm sure the viewers or listeners will be able to piece that together a little bit for us. Well, I'd love to keep talking about the rock, but I think we're going to be going down a rabbit hole. If we go that way. Great suggestion, definitely something you should be thinking about as optimizing your financial situation.

But I would like to pull it back to the emergency fund here briefly, you know, most Americans live paycheck to paycheck. They estimated [00:12:00] 75 to 80%. That would mean, you know, a good, large. Number of the viewing audience here today, as you know, probably in that situation. And so, although getting to three to six months emergency fund is definitely where I think we need to be getting each and every one of you perhaps even as long as 12 months of, you know, if you want to go that far.

But if you're living paycheck to paycheck, And you just need to get some savings going, let's shoot for at least a bare minimum of a thousand dollars, just so you've got something to your name and then you know, working up to at least that first month and one month of living expenses set aside, you know, that's gonna depend on household to household and which, what it costs to be you.

I love that expression, you know, budgeting is all about what does it cost to be us every month. And so, but you know, that's probably at least three to 5,000, maybe $10,000 on a minimum. And then we can go from there. I don't feel that we need to get you to a full three to six months right away.

Definitely should plan to have that over the longterm. But if you don't have any savings, let's get at least a little bit of savings off to the side. Now we've got a kiddo on the way, because you're going to appreciate having some, some bit of a cushion and you're not on that [00:13:00] paycheck to paycheck cycle. But you know, with that said, let's talk a little bit about budgeting, cause you've brought that up, Andy, you know, Hey, let's get get a budgeting. What, what do you guys recommend? I've had, I suppose, Andy, I had you go first. I'll have Sean lead it up this time, but what would you recommend for for budgeting resources to help someone shore up their finances?

Sean Mullaney: [00:13:19] I think the first thing to do is look at your credit card statements for the last three to six months. Right? So it's sorta taken inventory of where you actually are. So your credit card statements, your debit card, your checking account. See where the flows are going out. Right. And then think about that in terms of a percentage of your income and look also at, well, how much am I actually saving here?

Right? How much is going into my Roth? IRA? My workplace four Oh three B 401k, TSP, those types of accounts and see how much are we actually spending right now? Think about how much are we going to have to add? Once baby comes in terms of additional medical costs, diapers, [00:14:00] nursery, clothes, those sorts of things, and take it from there.

I think it's understand where you are today. Understand the additional costs and then say, well, wait a minute, but how much do we really need to save in order to be successful financially as part of our financial plan? And then scale back, you know, scale your, you know, look at places you can have efficiencies in your spending.

There are technology tools out there. I, myself don't recommend any particular technology tool out there, but there are very good ones. Andy, I don't know if you have other thoughts on the budgeting process.

Andy Flattery: [00:14:36] yeah. Say, you know, for new parents. One of the things I always like to talk about with regards to the budget is a lot of the things that raise are going to raise your, your monthly spending are still optional. So there's a lot of talk, especially here in the U S just about how expensive it is to have kids, which, you know, in some cases is completely accurate, but it's also very true [00:15:00] that in a literal sense, children are free.

So I, I was. I was looking, there was a great post that I I'll try to post it in the show notes, but someone did unread it last week on the personal finance subreddit. And it was someone that was breaking down the actual costs of what their monthly budget looked like with children. And a lot of these things were still things that are optional.

So. You know, a lot of people breastfeed instead of using formula, which of course breastfeeding is free. As long as mom gets more calories. A lot of people stay at home with children as opposed to sending them to a place like daycare, which can be very expensive depending on what city you're in and, you know, depending on the situation that can be optional.

So I just want to encourage people if, if you're feeling like this is insurmountable and whatever, the latest article talks about that. Says how many millions of dollars it takes to raise a child says which, you know, we can all argue about how, how accurate that is. And we can agree [00:16:00] that there are some degrees of accuracy to it in a very literal sense.

Children are free. And a lot of these things are still choices and not obligations is what is what I would say about that part.

Ben Martinek: [00:16:12] Yeah, I totally agree with that, Andy. I mean, don't burn yourself down with too much responsibility or expectations. Here human beings have been on the planet for quite some time and we're going to continue to stay on the planet for a while. And folks have gotten by with a lot less than what we enjoy in terms of our modern conveniences.

And so you know, in terms of what it takes to have a child, you know it's, it doesn't take a whole lot. Right. So I think, I think we can all get by with quite a bit. Obviously there is expensive as you want them to be as, as someone once told me. And I think that's, that's really where it comes down to they're as expensive as you want the child to be. Sean. Do you have any thoughts or anything you would want to chime in with

Sean Mullaney: [00:16:45] I think those are great points, right? Meaning sometimes I say about personal finance who says, right, who says you have to spend a thousand dollars on a stroller. And I very much agree with you, both that. You need to spend in a way that makes [00:17:00] sense for your family, for your children. It's not about keeping up with the Joneses or having the best stroller or those sorts of things.

Ben Martinek: [00:17:08] Right. Well, I do I know Sean, you were hesitant maybe to endorse a particular software product we're here. With our firm and our own family in terms of what we use, we're big fans of why not. And so if, if somebody is listening to this and they're looking for just a good product to go with that you know, just don't know which one to choose from.

You know, we've been using that for five plus years and I, I love it. And you know, pre prior to the use of being on a budget or the use of windup windup stands for you need a budget. You can find them online@youneedabudget.com. They I mean, I, it just felt like it it's improved our financial situation tremendously.

We've been using it for a little over five years and I'd never go back to be quite honest. So if you've ever been on the fence of whether or not to have a budget, I think it's a slam dunk. Yes. Go ahead and move ahead with this, but the. The, the basics of what it takes to be on a budget really is it's clarity and awareness and what Sean has suggested even about just looking through credit card statements and [00:18:00] getting a better sense of where you stand.

Like, I mean, ultimately that's what a budget is supposed to do anyhow. So that's a very good starting point of getting underway, but yeah, if you have any anxiety worry, concern about the future and whether or not you're gonna have enough money or how it's all going to work. Boy. I mean, the budget is what resolves, all of that is what starts to piece everything together.

And, and you know, let's, you know, if you, if you are missing something and then you can have the confidence that, Hey, if I, if we got all the puzzle pieces and we're not missing one, then, well, we've got all the puzzle pieces. We're not missing one. We don't have to worry about something that we're missing.

So budgets are, are wonderful. I, I couldn't endorse them highly enough.

Andy Flattery: [00:18:37] Ben that was beautifully said yeah, in our household, we, we are world school. So we use just a simple spreadsheet and once a month, We sit down and we just go through what our monthly spending was for the previous month and what it could look like for the upcoming month. And that's kind of our, our kind of monthly ritual.

And then throughout the month, we'll have conversations [00:19:00] here or there about different things that come up. If, if something surprises us or something, isn't quite what we had talked about. That's a conversation that goes on throughout the month.

Ben Martinek: [00:19:10] Yeah, great. I mean, again, it's, the budgets are about communication conversations and check-ins, and the, you know, there's many ways to go about that. It's just important that I think you're doing, especially. The new arrangement of a child and kind of the unknown for that brains, it helps to be having conversations about this as you.

You approach a new way of life together. I'd like to take some time now, guys, we've talked. I feel like, you know, the real good basics of what to do initially. Let's get an emergency fund in place. Let's at least get some savings set aside, give you a little bit of a cushion. Certainly don't be living paycheck to paycheck.

If you have been any longer, let's stop that. That's not good for anybody. And you know, we're talking about getting on a budget and cleaning things up and giving yourself clarity and hopefully starting to think long-term. And as part of that budget process what are some real. Tactics, you know, we've talked a little bit already about the Roth IRA, but what else would you would you guys [00:20:00] recommend for initial things to be thinking about in the next nine months to a year as we've got a baby growing away in mom's tummy?

Andy Flattery: [00:20:07] I guess I'll, I'll take this one and start with just really shoring up your insurances. And this is where I think it's really helpful to engage with a expert insurance agent or a financial planner that focuses on insurance, but just a couple of things to throw out here. The big one is probably life insurance.

And the idea here is. W what do you, what would you want to see happen if God forbid something were to happen to you or your spouse while, while your children are still young? We could call it under 18 years old. And so as young parents, like hopefully a lot of times you're young and healthy, you can acquire life insurance for you know, really a few bucks.

A lot of times it's under a hundred dollars a month if you're looking at something like term life insurance. So that's where I think that's kind of a no brainer. Here [00:21:00] in, in in the U S in 2020, that's something that's pretty easy for most people to acquire, assuming that they are somewhat healthy.

You know, the other one is disability insurance ensuring your future income is a big one that a lot of times is missed, but I think it's worthwhile reviewing at this particular time as well. Consider. Upping your, your liability insurance. So you know, something like an umbrella policy could be worth looking at at this particular time.

And then the last one I would say is just reviewing your health insurance policies and, and just marking your calendar to make sure that your new child is added within 30 days of of birth. That can be one where, you know, new baby in the house. A lot of times it's all hands on deck and you can forget about what things need to happen.

With something like this, but make sure your child is added to the policy within 30 days. And I think those are kind of the four big ones on the insurance front.

Ben Martinek: [00:21:55] Yeah, you Sean, do you, do you agree, are those where you would turn your attention to, in terms of insurance [00:22:00] and those types of insurance?

Sean Mullaney: [00:22:01] Absolutely. Just a couple of additional thoughts on that. When we talk about life insurance, the conversation can get very complicated very quick. And what I tell your tell all the listeners is try to make it as uncomplicated as possible. There's really only one four-letter term. You should be thinking about when you think about your own life insurance and that's actually that word term.

You want term life insurance, that's it. Okay. Do not be going into anything sophisticated. The idea here is to protect your loved ones in the event of your early death. That's it, this is not a time to be doing tax planning, doing anything fancy. I've had client and prospective client situations where they have an insurance product other than term life insurance.

And I've never had someone who's been very happy with that arrangement coming in my, in my virtual door. Right. So make sure when you're looking for life insurance, you focus on something called term [00:23:00] life insurance, which all it does is it says if you pass away, Your loved ones, get a certain benefit.

That's all you want to be doing there. Andy, you mentioned liability insurance. A lot of times this will be referred to as umbrella insurance. It's actually a really good policy to get. It's usually offered very cost-effectively with your homeowners policy or your auto policy or both. So those are two great places to go, to get a quote on that.

Umbrella liability policies are very important, especially in this day and age. And then with your disability policy, a lot of times your workplace will have that as a good option. You know, you may want to look around at other providers, but your workplace benefits is definitely the first place to start in terms of looking for a good disability policy.

You should have that in place, regardless of whether or not you're having a child, but particularly now it's urgent. Now that you're having a child to have a disability policy in place.

Ben Martinek: [00:23:56] Yeah, I totally agree with both of you on what you're suggesting. I think insurance is pretty [00:24:00] natural go-to option to be considering. It's one of the things we initially look at whenever we're working with somebody you know, I think in terms of going into the details of these various insurance policies, we'll just have to save those all for their own respective show because they are nuanced and there's plenty of items to consider here, but.

Yeah, health life disability, some liability, additional liability insurance. These are all good things for you to be thinking about. And you know, I think if I were to say anything, at least with this segment or for you to be thinking about you know, as a listener is that, you know, only insurance doesn't really grow wealth.

And you know, one of the things we want to be doing on the longterm is to be thinking about how to grow wealth insurance is there to protect it. But you know, the more we spend on insurance, the less we're able to use to grow. And so insurances It's a good thing to have, but it's only kind of a, a loss or a you know, they call it a negative expected value.

It, it, it's a drain on your finances. So you're, you're not making money on insurance. If you have any sense that you're going to somehow come out ahead and, and Make tons of money on insurance, [00:25:00] then you're probably being sold something because it's just not how insurance works, but you know, that aside it's important to have definitely the thing you should be thinking about before you as you get underway here, looking into the future.

What about what about a few other ideas, guys? I'm an insurance aside, you know, all those are pretty important. Sean, what, what would you think would be another item you'd like to start to review or think about.

Sean Mullaney: [00:25:21] Yeah, Ben we've talked a lot about what if you live, right. Let's talk a little bit more about, well, what if you die early? And actually, I think you should think about it as. You're now pregnant. You're expecting you should make. The following three appointments. If you're a Catholic listening to this podcast, I think you need to make an appointment with your pastor to get the baptism process underway.

Obviously you need to make appointments with your OB GYN. And the third appointment I think you need to make is with your lawyer. I know that might sound a little odd. Well, all right, we're having a child. I don't even have a mobile or why am I [00:26:00] making an appointment with my lawyer? And it really has to do with.

Hey, what if one of us dies and we've got a minor child at home and a lawyer can do several things for you. And this is things about wills, things about trusts, those sorts of things. Let's start off with a will. Why would you have a will will is essentially if you were to die instructs the court instructs, the state creates law that says, all right, my assets are certain of my assets go to certain people and that's important, but that's not the only thing a will does.

Will designates the guardian of your child in the event you were to die, right? So you don't want to have a situation where both mom and dad somehow die. Usually it's an accident type situation, and now you have a minor child. And there is no designated guardian for that minor child. Right? The will is the way to do that in most [00:27:00] places.

Again, consult with your lawyer. That's the big thing, right? Make those appointments with your pastor, your OB GYN and your lawyer. Talk to a lawyer who's licensed in your state and say, look, we're expecting, we know we're going to have a minor child at home. We want to take care of our minor child in the event that we were to both die or even one of us were to die.

But certainly if you were to both die and we understand we need to designate a guardian for our child in the event that we're not here anymore. Andy, I mean, what are your thoughts around wills and what are your experiences around working with clients that are expecting and wills?

Andy Flattery: [00:27:36] Yeah, I have a good estate planning attorney friend here in town who tells a great story about a Catholic family that he worked with. And, and both of them actually died in a car crash. It was like the Bruce Wayne situation and the child was left was left in orphan. And the way, the way he describes it is.

In, in this sort of situation, which of course is rare, but [00:28:00] it has happened so many times. You either can choose who you want. The guardians to be, or you, you can have the courts decide and that's kind of your two options. And in this situation, this, this Catholic couple, one, one of them was a cradle Catholic and the other was a convert.

And the convert was from a family who I was actually against the faith. They were kind of an anti-Catholic family and they thought their, their daughter was crazy for joining the church. And so what ended up. Happening was, this was a situation where the poor child is left in a situation where there's a battle in the court system of the two sides of the family decide, trying to decide who gets to take custody of this child.

When really all of this could have been avoided by the parents outlining what their wishes were for this child right away by having that will in place done properly signed and and up to snuff.

Sean Mullaney: [00:28:58] Yeah. And I think Andy, you know, you, you later [00:29:00] a nightmare scenario and it does happen. It absolutely happens what may happen is, you know, mom and dad died in an accident. And now everybody agrees as to who the guardian is, but now the family is left with legal costs and processing and delays as that's all resolved through the court system.

So even in a situation that's much better than that example, where everybody agrees as to the dis know, as to how everything should be arranged. It's still going to be, it's going to be emotionally upsetting. And very costly to work that through the courts so much better to have, you know, to first of all, have a lawyer on your side, you know, as you're expecting.

And then secondly, to get that all arranged so that if you know, heaven forbid something horrible happens, things are taken care of in advance.

Ben Martinek: [00:29:48] Yeah, that's just also true. Everything that you guys have said here. It's just a year ago, actually, I had the unfortunate experience of seeing my best friend from high school die with his wife in a car wreck you know, to, [00:30:00] to add to it. They were actually celebrating her birthday. Right. Heading into town, out of the country to to go and have a date and start going into all the details they got, where they were in the wrong place at the wrong time, and ended up getting killed.

So very real, very sad, very tragic. Unfortunately, for them, they hadn't done any of this planning that we're actually talking about right now. No estate planning documents in place and no life insurance or the like, and you know, the. Different families were amicable with each other and seem to be in a situation to be able to work through this, work this out.

But yeah, you know, only what brings a couple together or two families together, or mom and dad. And if mom and dad are now gone we still have children who. Brought this union together, but we have got two sides, two families who do large degrees, don't really know each other, but they both share grandchildren together and they have different views or interests or desires of what might happen to those grandchildren.

And you know, they both feel like there's a lot to lose if, if they don't win out. And so it just, [00:31:00] it naturally leads to a very contentious situation that draws things out. It gets ugly. And it can all get really resolved pretty quickly, pretty easily pretty inexpensively by having some basic estate planning documents in place.

So we'll have to leave it at that because we'll tease you with the idea of having another episode on this. There's plenty more to talk about what kind of estate planning documents and what to consider there. But I totally agree with you, Sean. Let's get that, that going. It's not, it's an unlikely event that you'll see this or ever need to have it, you know, let's pray to God that it doesn't, you have no need of it for sure.

But we all know that it does happen. And it's, it's very tragic when it does. So a estate planning documents aside you know, what do you guys think about planning for daycare? You know, it's not uncommon, but we've got to. Mom and dad are both working, you know, it's not a single income, although we could discuss the possibility of what you could do to make a single income household.

But you know, in most of modern day society, we've got a, it's a dual income household and [00:32:00] a good number of folks want to keep it that way or think that's what's best for them to do. You know, when you come up with the challenge or the issue of daycare at least up in our parts here in Bismarck, Bismarck, North Dakota, you know, it's, it's, there's limited supply of daycares. And so if you're. In need of a daycare or that anticipation, or perhaps you're probably well aware of this, but you should, you should get on it.

Don't sit around and wait, you don't want to find out three months before the baby's due that you can't find anybody to, to watch your child. We know plenty of places here that have long waiting lists. And so, but I may not as much as we love our daycare providers and we, we think they take great care of our children and they're very much.

Well, I've become much like family to us. And so I think that's, it can be a good solution for a household. What are your guys' thoughts on maybe steps or ideas to be taking? If, if they want to move into a single income situation, what recommendations or considerations would you have in place there?

Andy Flattery: [00:32:58] Yeah, sure. [00:33:00] I'll take this one. Well, I think, I think Elizabeth Warren said it pretty well. The politician who 15 years ago, put out a book called the two income trap. So I'm going to, I'm going to probably make both sides of the aisle mad when I talk about this, but I think, I think she nailed it with that.

Idea and I think kind of the classic financial planning advice of save, save one income. If you're in a two income family is such good advice. Of course, now we're in a situation where if you're pregnant, if, if junior is on the way. And if someone wants to.

Stay at home. If mom wants to stay at home with the child, that's totally possible now because you've been living that way for as long as there's been two incomes in your household.

Sean Mullaney: [00:33:43] And I think now is the time. To be thinking about, well, where do we live? Right. Meaning jobs are becoming a lot more mobile and it may be the case that you don't need to live. You know, six blocks from the office anymore. I already have seen in, in my client base the [00:34:00] situation where, Hey, you know what we have, we work in a big city, but we're going to move out to the Lake and we're just going to keep doing our jobs from the Lake.

So this could be a situation where, Hey, you've got an opportunity now to. Keep doing your job remotely. And then it's like, well, wait a minute. If we could do our job remotely and save money, little state costs, right? Buy a cheaper house, lower property taxes, lower homeowners, insurance, and all that good stuff.

Then maybe we could have one of us leave the workforce or go to a part-time schedule or those sorts of things.

Ben Martinek: [00:34:35] I think you're right, Sean. I mean, one thing to be considering here is really how much has that second job in the household really accomplishing for you? We, we kind of presume that we're just coming out ahead and gaining and making money by having a second job. But you know, there really is just need for careful considerations here all across the board, in terms of all the expenses that are associated with, with that job commuting costs.

Eating out costs time, spent away from home. Obviously, if [00:35:00] you are going to be now have daycare costs, that's going to add to it. You know, so maybe you don't need a second car. Maybe you don't have to spend, obviously the money to commute. You don't have to spend as much time getting ready. You don't have the daycare as I've been suggesting.

You know, these all start to add up that you know, taxes would be another piece to this, you know, what's your marginal tax bracket. I mean, how much are you losing into taxes? Like, are you really actually even coming ahead with the second job once we have the addition of the child and. You know, if both of you still need to work, you know, maybe it's not then No, not having a decision of whether or not we go from a two income to a single income.

We'll stay with a two-income, but yeah. Can we adjust your household, your living situation? You know, one of the benefits of modern society is we can work remotely. And a lot of situations now is COVID is bringing that to clear in a lot of scenarios, but working remotely is a possibility, you know, let's, if you don't have to live in the larger urban area of, it tends to be more expensive.

Let's see if we can't get you into another. Part of the [00:36:00] country or even the part of a world in which the cost of living is considerably less. And we can stretch our dollars further. So there's, you know, the single or dual income household can, can work. We just we have to maybe start to think creatively and find out what what's really needed and what's, what's not needed to make this happen.

Andy Flattery: [00:36:17] You guys may have seen, he studies from time to time that come out that talk about after having children, statistically, a lot of women. Tend to see their incomes fall. And then men tend to seem their 10 tend to see their incomes rise. And we can talk about the various reasons why that probably happens, but I always thought that second part is maybe a little underlooked where a lot of fathers and husbands actually see incomes rise after having children, perhaps it's because they now have more responsibility and there's more focus on it.

Perhaps employers recognize that. You know, men with families deserve a higher income. Whatever the reason is, I always thought that was an interesting [00:37:00] statistic that you tend to see from time to time.

Ben Martinek: [00:37:02] Fascinating. I don't know much about that study, Andy, but it would make me want to check in or look into it more. I mean, it's, you fellas know there, there is a gender gap, you know, in terms of pay between men and women and they're women on fortunately can be penalized in the workforce for having children and the likes.

So maybe part of the, the, the negative drop is associated. With that, but you know, maybe not needing to go into those issues or to discuss that further you know, we should at least give careful consideration to, you know, whether or not it's even worth having that second job, or are we, are we gaining much of anything from this?

There's obviously a lot of benefit financially financial issues aside to having one of the parents be at home to take care and raise the children. There's you know, in our situation we do both of us work, but I, I work primarily at home, but nonetheless, you know, our, our time, our interaction or even our direction or guidance to our children is, is [00:38:00] much more limited.

I think it can still be useful. I don't necessarily feel like our children are at a loss for it, but yeah, we only have maybe a handful of hours in the evening to spend with them rather than having spent the whole day. And it does change the dynamic to have both of us working for sure. Well, you know, as we start to wrap this up do you gentlemen have anything else that you would like to add?

Any creative strategies perhaps, or other ways to consider these situations? Any other adjustments maybe that our listeners should be thinking about as they begin to prepare for the first child?

Andy Flattery: [00:38:30] You know, the thing that comes up all the time. And I think a lot of parents just assume that this is something that's kind of, their responsibility is the college savings. So, you know, one of the things you can do is for example, open up a college savings account. And I think we could, we should talk about that.

But what I always say is I think it's a good. It a good time to start thinking about education, just in a really holistic sense. How do you want to educate your children in the future? And are there [00:39:00] ways you can start to save for that and plan for it? In a way that's not just put a hundred dollars a month in the college savings account.

What's 10, which tends to be kind of the default solution. So a couple of ideas that I've seen that I've always thought were really cool. Like we're, we're a big music family in this household. And you know, what, if you wanted to start saving a small amount every month for a nice violin for your kid or a guitar or a piano or whatever instrument you see your children, your child learning down the road, or maybe, you know, if you want to teach your child.

Foreign language. It's potentially time to start brushing up on that high school, Spanish, and maybe investing in some sort of course where you can learn, learn it yourself and teach it to your child yourself. So I think there's a, you know, a myriad of, of areas you can invest in your child's education that aren't just put money in the five 29 plan.

Sean Mullaney: [00:39:53] Yeah on the five 29, I think that's one of those things that gets too much attention. And [00:40:00] what do I mean by that? So five 29, you can Google it, right? It's generally a tax advantage account where you put money in for. Your child's college education and you might get a state tax deduction. You don't in my home state of California, but there are some States where you do and the money grows tax free.

And then as long as you take the money out for college education, it's, tax-free in the future. I tend to not to like five 20 nines. I believe the tax advantages are relatively modest and I think it it's. Too inflexible. And this goes back to a point we made earlier, which is. Take care of mom and dad's finances first.

So if you're, you know, you're gung ho you know, my child's going to Notre Dame, right. And we're going to pay for all of it. Well, okay. That's great. If that's your plan, right. And the world changes and who knows if your 18 year old is going to agree with that plan, but let's just say they do what I'd prefer is why not set the money aside in [00:41:00] mutual funds in your own name.

Right. So just grow that money in regular old mutual funds. In your role in your own name, right? Maybe TF, but you know, mutual funds ETFs in mom and dad's name. And then let them grow and you'll pay a little bit of tax on it. But right now the tax environment is such that you don't pay all that much. In terms of interest is particularly dividends.

Most dividends qualify for preferential tax rates. So you let that grow. You pay a little bit of tax on it. And then junior gets to 18 years old and now you have options, right? You can use that money for juniors college education, maybe junior doesn't go to college. Maybe junior goes to trade school or an apprenticeship, or starts his or her own, you know work, you know, and, and does not use it.

Now, mom and dad have that money, or let's say, you know, you get to age 18 and there are other financial considerations in the household. Maybe mom and dad haven't saved enough for retirement. It happens. Right. So now [00:42:00] mom and dad have that flexibility of accessing it for their own health so that they don't become a burden on their adult child and their adult child has, you know, by that time 80 years to figure out their own finances.

Right? The worst thing you can do for your children's financial future is ruined your own financial future, right? Your children, when they're 30 and 40 years old will be thrilled if they don't have to worry about mom and dad's finances. So. Make sure mom and dad's finances are taken care of first. And once that happens, right?

I I've seen, you know, client situations where. The clients are doing very well. And they've got a lot of money. I think at that point when you're doing very, very well, and you're paying a whole lot of taxes because you've built up a significant nest egg in taxable accounts. At that point, it may make sense to do a five 29, but when mom and dad are starting out, they really need to focus on their own finances.

And then the five 29 [00:43:00] can come in later. If things go really well in your own financial life. Just my take on it. I know there are plenty of people out there who love five 20 nines, but I tend to be less fond of them unless mom and dad are very far along in their financial picture.

Ben Martinek: [00:43:18] No, those are words of wisdom there. Sean, I think you're, you're spot on with everything that you just had to say. There really isn't much even even to add to it. You know, if there's anybody who's feeling a sense of a burden, a responsibility obligation, but Hey, I gotta at least do something for my kids.

Let's put five 20 or 25 bucks a month into the five 29. You know, th there's just better uses of that money. And you're not accomplishing a whole lot, but by putting that in there you know, to fully fund college education, if you already use the five 29, or even just to save for it is going to come out to roughly three to $500 a month.

Per child in savings to cover all those costs. And then it could be even higher than that, depending on, on where they're going to school. So, you know, a sense of spending [00:44:00] 25 bucks a month, you know, and setting that aside is it's barely going to move the needle folks. But you know, could we, maybe, as Andy was suggesting fresh enough on maybe a, a language or send the kids off to a, I don't know, A camp or you go on a camp better yet, and a vacation.

And we have some really influential, informative times with the children that you just, you see that as part of their future education, rather than them necessarily having to have to go to college. But us just spending time together and talking about life or really our faith in the future. What, what we think life's all about, how that's going to have a much bigger impact and the fact that you set money aside.

In a five 29, but I would like to add here too, while I'm thinking about it. If you're looking for other ways to save for college even. Ahead of the five 29. This is where that Roth IRA or traditional IRA actually comes back into place rather nicely. And can do double duty for folks now whether or not you can do this is gonna depend on your situation as your income moves up, becomes more [00:45:00] prohibitive, but you can put money into an IRA or a Roth IRA and pull it out for college educated related expenses.

And not have to worry about at least a penalty for pulling it out for that purpose. There may be some taxes as a result, depending on which account you use, but ultimately an IRA has more flexibility to it than a five 29 and has really similar tax attributes. I'd strongly encourage over a five 29.

These on IRA as a potential savings vehicle. Instead, first.

Andy Flattery: [00:45:31] good stuff. I love it, man.

Ben Martinek: [00:45:34] Yeah, Andy, do you have anything else that you want to add? I know I cut you off there, but I was just so eager to comment to Sean. You know, I, I couldn't couldn't wait my turn.

Andy Flattery: [00:45:40] No, you know, the last thing that we've been doing. With some clients. And actually we have one here in the house too, is I have something called the, the read this when I'm gone letter and people have done different iterations of this, but this is kind of, this is kind of the it's in the drawer, in the house or the safe, or the [00:46:00] place that.

You know, if the house goes on fire, you're supposed to grab that box. And it's just, I, I like to put like a list of all your advisors. So have your insurance agent, your attorney, your financial advisor. And their contact info on this letter, a place where all of your accounts are held. Like a lot of times with these digital assets, it can be a little confusing to find out where everything is.

And so, like, I just like to have a central location where we, we always know if God forbid something were to happen to me. My spouse can open this envelope, and this is kind of all the information that they might need to know. So maybe this is something that you do through the estate planning process with your attorney, but it could be just also just something informal.

It could be the you know, the Excel spreadsheet document that you have all these, all these details listed on, but I call it the read, this one I'm gone letter. And that's something that I found to be pretty useful.

Ben Martinek: [00:46:51] Yeah, that legacy box is a great idea. Do you have anything else that you'd like to add like that the Sean to other, you know, maybe something. Loose ends that

[00:47:00] listeners should be thinking about.

Sean Mullaney: [00:47:03] Mentioned is a note of caution. Sometimes you'll hear about getting life insurance for your child. And I generally think that's, you know, I think you're better off saving for your child as opposed to getting life insurance for your child. Remember, life insurance is generally there to protect your income, right?

In the event that you were to die. Now you leave loved ones behind who are dependent on you. No, one's going to be dependent on your minor child. Sometimes people will say, well, what if my child were to die? Right? It would pay for a funeral. I think you're much better off saving, right. And, you know, saving for yourself first and then your child's second and avoiding the child life insurance.

Sometimes people will say, well, what about my child? If I get them child life insurance, now, then they'll be able to have that as an adult. Well, now you're doing financial planning for your potential grandchildren. Most Americans finances are not in a place where they should be doing financial planning for their own potential [00:48:00] grandchildren.

Right. Get yourself ready, you know, get yourself steady in terms of your finances. And then start thinking about, you know, tax breaks or insurance or those sorts of things for the next generation.

Ben Martinek: [00:48:12] Yeah, that's spot on Sean's right on it. He's hitting home, runs out of the park today. Gentlemen, ladies and ladies and gentlemen. I, you know, the few last things I'd like to throw in there, although, I mean, these are all good tidbits and you're, you can do a lot with anything that we suggested today. This has been a great show.

You know, if you have student loans and you're on an income driven repayment plan you know, look to get your loans recertified once once you, once you're eligible having the new dependent, it's going to help lower your student loan payment. Oh, you know, the advantages of that is a whole other conversation, but for those who might be familiar with this, so be sure to get your income certified when you can, a tax withholding would be another piece I'd like to throw out there.

You will likely be getting the benefit of the child tax credit, which will lower your liability. Some. And you know, if we're doing some additional savings into pretax retirement accounts, presuming that's what you choose to do. You know, we all [00:49:00] might be in a situation where you're just withholding too much now.

In taxes on a monthly basis through your paychecks. And we could free up a little bit of cash flow by getting your w four adjusted and get a little more money coming home, too, which which is always nice to see a relevant, having it all. Come back to you in a, in a refund when you file your taxes. And then I'd like to throw out here too.

This would be a fun show, I think to talk about. So we'll have to just earmark this as a future date, but potentially the idea of house hacking is what the term is described. You know, if you haven't bought a house yet, and you're looking at ways maybe to save a little bit of money, you know, this isn't a real conventional method of, for most folks is, are having their first child.

But boy, I would just encourage you to think about maybe going into a rental property. With like a fourplex as an example, and you rent out one of the apartments or you live in one of the apartments and rent out the other three. I've just seen a lot of clients have success with that strategy over the long-term.

And it's a great way to keep your expenses still fairly minimal, early on, have a little bit of room, but also, you know, get acquire an investment that's [00:50:00] producing some cashflow. And so you know, depending on where you're at, maybe you're already kind of locked in and it's just you're too far along to go and change things.

But if you're thinking of ideas of what to do for future housing needs give give a research on some health, health hacking and consider some options there to keep that housing expense less, or at least maybe even profitable. Well, guys, it's been a pleasure. I feel like we covered a lot of good material. It's a, this should be a great podcast episode for everyone who's listening. So yeah, this is we're going to call it a wrap. I think on these first things to be considered and just look forward to more information from the Catholic financial planning network.

That's what we're here to do is to help Catholics make informed decisions on their money so that they can better themselves and better the kingdom of God. [00:53:00] [00:52:00] [00:51:00]