Financial Baby Steps for Your Baby

Baby Bucks

In the Baby Bucks series, we discuss financial topics where baby and buck collide. The dollar kind, not the animal kind. Got it?

If you haven’t already heard, we had our freaking baby! I’ll probably continue to lead every post that way, because it makes my heart skip a beat every time I read it. You mean that dude who still plays with Lego’s and Brio trains and chooses Reese’s Puffs cereal for breakfast… he’s a dad?! If you say so.

So as we enter this new, crazy phase of life, a recurring theme for the next few months will be parenthood and finances. We’ve already explored a cost analysis of diapers and the cost of our nursery prior to Baby Girl’s arrival. But those are pretty superficial in the grand scheme of finances. So where’s the beef? Here’s where our financial heads will be for the next few months:

Health Insurance

Bye bye “Individual +1” health plan. Hello “Family Plan.” In one of my sleep-deprived trances at the hospital after our baby was born, I actually already enrolled in our new, costlier plan. So for the time being, this is good as done. But I do need to figure out if there’s a way to cover the increased cost without dipping into our savings budget.

Flexible Spending Account Adjustment

To keep more taxable income out of Uncle Sam’s sight, we enrolled in an FSA in 2012. And since our use-it-or-lose-it plan’s end date isn’t until May of this year, we need to analyze our current FSA amount and decide if Baby Girl’s regular checkups necessitate an increase in our monthly contribution.

Life Insurance

I’ve always avoided doing a whole lot of research on life insurance because it’s such a morbid concept. But with another mouth to feed, the time has come to face the dark, depressing, and costly music. Whole, universal, variable, term? How much should I supplement to the plan my employer already provides me? How else can we diversify our “life insurance” (e.g., Joanna getting more schooling, passive income sources, etc.)? I already know the answers to a lot of those questions, but I’ve still got some homework to do.

Writing a Will

If life insurance is the Keanu Reeves of morbidly depressing thoughts, then writing a will is the Nicolas Cage (read: much more depressing). In my naivete, I always assumed wills were a prerecorded video in which every last vintage baseball card and family heirloom were divvied out to family members. And while some of that is loosely based in reality, there are much more pressing motives for crafting a will, like naming a guardian for your child should anything happen to you and your wife. Pretty heavy stuff.

American Girl Doll Savings Account

Based on Joanna’s constant reminders that her childhood was ruined because she never got an American Girl doll for Christmas, it’d probably be in our best interest to start saving for one of those dumb dolls now. I’m only sorta joking about this one.

College Savings

The only thing more frightening than imagining our itsy bitsy Baby Girl as a college-aged young woman (who will still wear turtlenecks all day, every day per Dad’s orders) is how much her tuition will cost. And while we haven’t yet figured out how much (if any) she’ll be expected to contribute to her own education, we’d like to start saving to cover 100% of tuition. That means it’s time to figure out all the specifics of 529 plans and the amount we’ll need to set aside for tuition plus inflation.

And Why It’s All Worth It

Why baby steps are worth it

Most of these topics likely warrant their own posts. And as we cross each bridge, we’ll figure out if there are enough juicy details to document each process.

Is there anything else we’ve missed? How far along are you with your own familial financial planning? Or if you don’t have any children, have you already jumped the gun and started on a few of these? Are babies even worth all this stuff? (Trick question: the answer is “Yes, Johnny. No amount of stinky diapers or wake-the-neighborhood-up-at-4am-with-crying-screaming-fits will ever change that.”)

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  • Reply Brian January 15, 2013 at 8:28 am

    I think you forgot the “shotgun and gun polish” fund for when she starts dating…

    I don’t know your plans on on whether or not Joanna will be returning to work, but daycare is effing expensive!

    If you are looking for a way to help with college savings, you might aswell sign up with Upromise. It will never pay for the whole thing, but every little bit helps. You could also try to talk family members into matching your 529 contributions (heck depending on the state they live in they might even get a tax break, we get a 20% credit here in Indiana).

    Just think, one day you will be able to play Brio and Lego while enjoying your Reese’s puff cereal with your daughter and you’ll be able to say “see I was just training for this day!”

    • Reply Johnny January 15, 2013 at 12:53 pm

      Touche, Brian. “Boyfriend Intimidation Fund” starts today.

      Joanna works from home, so we should be good on daycare. But we’ve heard similar cost complaints from friends who have looked into it.

      I’d never heard of Upromise. We use eBates, but the rates at Upromise are just as competitive and I love that it drips into a “hands off” account. Thanks for the heads up.

      • Reply MomofTwoPreciousGirls January 16, 2013 at 9:45 am

        If you guys are into the credit game and earning rewards, unpromising also has a credit card where you can get significant cash back. When we had one we earned about $600 to add to our girls’ 529 plans.

    • Reply Brick By Brick Investing | Marvin January 17, 2013 at 11:20 am

      I max this fund out every year! 😉

  • Reply DC @ Young Adult Money January 15, 2013 at 9:04 am

    Beautiful pic of your new baby!

    It sucks that your HSA is “use-it-or-lose-it.” Is there any way to get set up with an HSA that allows you to never lose the money you deposit? I have one through my employer that allows us to keep the money year-over-year, basically incentivizing you to save as much as possible. You also do not lose the account if you leave the company. I believe my sister had something similar that she found on the individual market (not through her employer). I think that would be a valuable thing to have, especially if you have a baby. Then again, I’m not sure what your insurance situation is or what you have available. Also, the market will change drastically in 2014 with health are exchanges so if you do not have it through an employer you will likely have many more options available…

    • Reply Johnny January 15, 2013 at 12:55 pm

      Thanks, DC!

      The use-it-or-lose-it aspect drives me nuts. I hate the idea of having to splurge at the end of the year and hoard up on random HSA-eligible items. I’ve never thought to look into an HSA plan that’s not associated with my employer. I’ll definitely give it a look though. Thanks for the tip.

      • Reply rlk January 15, 2013 at 10:48 pm

        I thought that it was FSAs that are “use-it-or-lose-it,” not HSAs. Maybe it’s a technicality on your choice of wording in this post, but you might want to double-check on your plan and its terms of use.

        • Reply Johnny January 15, 2013 at 11:48 pm

          Yep, you hit the nail on the head. My employer offers FSA because our insurance plan has a $0 deductible. My bad on word choice. I’ve made the appropriate changes to the post to correct it.

          Thanks for the heads up, rlk!

  • Reply Laurie January 15, 2013 at 9:57 am

    There’s SO much to consider, but you’re on the right track. Now’s also the time to open her savings account and consider how you’re going to teach her about money. (it’s never too soon 🙂 ). Even things like allowance will be cause for discussion: does she get allowance “just because” or is it tied to chores? We have chores that our little ones do just because they’re a part of the family, and then others that they get paid for. On payday, they put 10% into a savings acct, 10% into a giving account, and then manage the other 80% however they please.

    We’re hoping that because we established that “work equals money” and are teaching them early how to manage money, that they won’t repeat our money mistakes.

    Now’s also the time to begin thinking about how you’ll contribute to your daughter’s bigger expenses like cars, wedding, etc., so that you’re prepared to prepare her when the time comes for those purchases.

    • Reply Johnny January 15, 2013 at 12:58 pm

      Maybe I’ll start by giving her an allowance for every time she doesn’t pee on me when I change her diaper. 😀

      I think Joanna and I are on the same page with you and teaching “work equals money.” I’d love to empower our little girl from the get-go instead of bumbling through finances like her parents did.

      Thanks for passing along the other considerations!

      • Reply Laurie January 15, 2013 at 7:13 pm

        Amen! Oh, and about that American Girl savings account: as the mother of 3 daughters, I would advise you to start it NOW. One step into that place and even parents are entranced. I swear there’s something in the air. Talk about subliminal messaging. 🙂

  • Reply Grayson @ Debt Roundup January 15, 2013 at 10:59 am

    Great post Johnny! These are the same things that I just went through. I am working with my wife to create a will. I am also trying to figure out how to supplement the life insurance that I get from my employer. I already setup the 529 account, but I haven’t done the HSA and I am on the fence with it because of the use-it-or-lose-it that my employer has as well. Good luck to you and Joanna.

    • Reply Johnny January 15, 2013 at 1:01 pm

      It’s pretty unfair that you’ve got a couple weeks head start on us. 🙂 Sounds like you’ve got the ball rolling. Awesome job.

  • Reply Chris January 15, 2013 at 11:15 am

    For some reason I’m desensitized to talking about life insurance and will making. My dad talks about it quite a bit and how I should do it now that I’m young and healthy so it’ll be cheaper. He always says it’s “betting on your own death”. He has like 30k out on me, and I have some through my employer. I’d be interested in hearing how you “diversified” your life insurance when you get it all figured out. I’ve never thought of it in those terms before. Great post!

    • Reply Johnny January 15, 2013 at 1:04 pm

      Haha. “Betting on your own death.” That’s precisely why it seems like such a morbid conversation to me. But there’s no better descriptor for what life insurance actually is. You’ve got yourself a smart dad.

  • Reply MomofTwoPreciousGirls January 15, 2013 at 12:01 pm

    Your (gorgeous) daughters regular check ups and vaccines should be covered 100% as preventative care. However, babies can get sick a lot n the first year depending on how much exposure they have to the outside world (ie daycare!). Obviously, moving to a family plan allows you to increase to family contributions to the HSA.

    Life insurance term, 20-30 year level term, 10-20 times your annual income. You guys look pretty young and healthy, so it will probably be cheap! As your goals are reached you can decrease coverage…harder to increase it so better to start off high! You would typically lower it once your house gets paid off and after baby goes to college!

    American Girl…we have the big store here in ATL…I’m blessed with two little girls that are blissfully happy to play with My Little Pony, Little People, dinosaurs and daddy’s matchbox cars. They are just starting to get into Barbie, but just dressing and undressing them! They could care LESS about actual dolls. I hope that continues, but it seems like that must be an area that Joanna needs to live vicariously through baby girl!!!

    That photo is spectacular!

    • Reply Johnny January 15, 2013 at 1:13 pm

      We’re on the same page with HSA and life insurance. And you bring up a great point about starting high with life insurance while the rates are low. Thanks for the tip!

      That’s awesome that your girls haven’t gotten sucked into the American Girl cult. I’m praying our little gal will be content playing with cardboard boxes and PlayDoh. 😀 Time will tell.

  • Reply John S @ Frugal Rules January 15, 2013 at 12:16 pm

    Good post and even better pic! Looks like you’ve got a lot of the basics covered. We did our will about three years ago and glad to have it done. It’s horrifying to think of what would happen if something were to happen to my wife and I and what it would cause for our children. I think it’s one of the most loving things a parent can do for the child.

    • Reply Johnny January 15, 2013 at 1:15 pm

      Thanks, John! Joanna’s great with a camera in her hands. But most of the credit goes to our little girl’s perfectly timed smile.

      You mentioned the only reason I’m willing to venture into the world of life insurance and writing a will: “it’s one of the most loving things a parent can do for the child.” Well said.

  • Reply Holly@ClubThrifty January 15, 2013 at 1:39 pm

    Beautiful!!! NAME?

    I advise that you start saving for college as soon as she gets her little social security card. We did and I can’t believe how much our little ones have already. We started by contributing only $25 per month plus birthday/gift money and it has really added up so fast. It’s amazing!


    • Reply Johnny January 15, 2013 at 3:17 pm

      I was just looking into this today at work. I can divert a minimum of $25/month to a 529 from my paycheck. That always works out the best for us because it’s money we never see in the first place. I love the idea of contributing birthday and gift money to it, as well. Heckuva lot better than American Girl dolls. 🙂

      Thanks for the tip!

      • Reply Holly@ClubThrifty January 15, 2013 at 3:21 pm

        Check on the tax laws in your state too. I live in Indiana and my state gives a 20% tax CREDIT on the first $5,000 that I put into my kid’s 529’s. That is an instant 20% back in my pocket!

        Your state may have something similar. Just start saving whatever you do.

  • Reply Rob January 15, 2013 at 2:43 pm

    As you may recall (but perhaps not – lol) from one of my earlier comments to another of your previous blog posts, while saving for our first house, we saved my salary and lived off my wife’s salary. After we eventually bought our house and started our family with the arrival of our first child, we reversed things and my wife stayed home while we lived solely off my salary. In doing that we decided to take out (cheap) term personal life insurance on myself, along with having my company-paid employee life / health family insurance coverage. Here in Canada we have gov’t health insurance so that helped out a lot as well. We didn’t insure my wife nor either of our kids because it was the insuring of my income that was of importance back then in case anything bad should happen to me. That was our insurance strategy and we figured that it worked out well for us.

    • Reply Johnny January 15, 2013 at 3:25 pm

      I definitely remember, Rob. We always enjoy reading your personal experiences and feeding off your wisdom. We like having you around here. 🙂

      Despite not being able to enjoy government health insurance, we’re on the same page as far as term life insurance as a supplement to what my employer provides. God forbid anything ever happened, our top priority would be that my income would be “insured” for at least 10 years.

    • Reply MomofTwoPreciousGirls January 16, 2013 at 9:58 am

      You shouldn’t count out covering your spouse because they don’t make an income. You need to cover what you SAVE by having the spouse stay home. How would you cover daycare expenses, cleaning services etc etc. I have seen articles that show if you add up the salaries of all the jobs stay at home parents cover, they should make 250k a year!!! You probably don’t need to cover that much but certainly some coverage.

      • Reply Johnny January 16, 2013 at 11:50 am

        Excellent point you bring up. $250k is probably short changing STH parents, too.

        I’ll probably add another 5-10 years to my current minimum of 10 years to factor in a lot of those intangibles, as well as inflation, future children, etc.

  • Reply Savvy Scot January 15, 2013 at 4:46 pm

    Mrs Scot and I are (possibly) a couple of years off… but when it comes, I really won’t care too much about the costs involved… as you say – it is worth it 🙂 Congrats guys

    • Reply Johnny January 16, 2013 at 12:34 am

      The last few weeks definitely dampened my intensity toward money stuff. Baby trumps all.

      Also, you win avatar icon of the month. I actually just made that contest up on the spot for you because your avatar is great. There’s no prize or anything, just a pat on the back from yours truly.

  • Reply Mrs. Pop @ Planting Our Pennies January 15, 2013 at 8:33 pm

    Hmmm… might be worth double checking with your employer. I have a FSA (flex savings account) and Mr. PoP has a HSA (health savings account), and mine is the only one that’s “use it or lose it”. His rolls over into S&P500 ETF shares if he doesn’t use it by the end of the year.

    • Reply Johnny January 16, 2013 at 12:38 am

      I was using the terms interchangeably when I only meant to refer to an FSA. My understanding is that with my employer’s current insurance coverage with a $0 deductible, we’re disqualified from contributing to an HSA. So use-it-or-lose-it it is.

      Thanks for the heads up!

  • Reply Jrm January 15, 2013 at 11:45 pm

    I love your views on finance but excuse me while I say …. Sweet baby girl!

    • Reply Johnny January 16, 2013 at 12:40 am

      You’re excused. But only this once! This is a serious blog written by serious people and we can’t have any of this cute business going on around here. 🙂

      Thanks, Jrm.

  • Reply Brick By Brick Investing | Marvin January 17, 2013 at 11:32 am

    All great topics! As for the health plan a good friend told me a long time ago, “There are two things I don’t go cheap on medical and Mexican food. The result can be hazardous to your health”

    As for life insurance we went with term insurance. We did a complex calculation in order to come up with “our number” but in short here it is:

    [The amount we owed on our mortgage + (Yearly Expenses * 18) ] + additional 25%

    For lack of a better word I would say we both feel comfortable with this number, but as you stated it is one morbid thing that we definitely planned for but hate to think about.

    • Reply Johnny January 18, 2013 at 1:21 am

      Haha. That quote’s pure awesome truth. Now I’m hungry.

      I think I’d feel pretty good about the number produced from that equation. But I’d much rather err on the side of being overly cautious when it comes to life insurance.

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