Join Nikita Wolff & Scott Bennett as they discuss having children and how to financially plan for it. Nikita takes over as host for this episode to give Scott an opportunity to share his first-hand experience as a parent to 2 children.
In this episode, they discuss:
-What they had in place beforehand that made them feel ready
-Saving up ahead of time
-The surprising expenses
-Ways to reduce some of the "expected" costs of growing your family
-Engaging in free services
-529 plans
Resources:
SavingForCollege.com
Vanguard 529 Plan
Join Nikita Wolff & Scott Bennett as they discuss having children and how to financially plan for it. Nikita takes over as host for this episode to give Scott an opportunity to share his first-hand experience as a parent to 2 children.
In this episode, they discuss:
-What they had in place beforehand that made them feel ready
-Saving up ahead of time
-The surprising expenses
-Ways to reduce some of the "expected" costs of growing your family
-Engaging in free services
-529 plans
Resources:
SavingForCollege.com
Vanguard 529 Plan
Welcome to the 3rd Decade podcast. I'm today's host Nikita Wolff, and I'll be joined by Scott Bennett. Switching the seats a bit for this episode, as Scott has firsthand experience with today's topic. We'll be discussing having children and how to financially plan for it as well as a few other questions related. We recognize not everyone has the luxury of planning ahead for the venture of parenthood. So if you're finding yourself on the other side of preparing for a child and your raising one, we do also address some ways to reduce the expenses of children when things are tight, or if you're just trying to make progress on other finance related goals. As a side note, we do love hearing ideas for podcast episodes, and this is meant to serve as an additional resource to the third deck community, especially our alumni. So if there's something you'd like for us to cover, we welcome your suggest and you can send them in to info@3rddecade.org without further ado. Here's our conversation. Thanks for joining us today, Scott.
Scott Bennett:Yeah, this is weird.
Nikita Wolff:<laugh> being on the other end of things?
Scott Bennett:Yeah, I like it.
Nikita Wolff:So one of the things that I think we all hear time and time again, is children are expensive. I think this can make the of planning for children pretty daunting. And I know for myself, I find myself wondering when I'm gonna know that I'm financially ready for it. So when did you know that you were financially ready for it?
Scott Bennett:Yeah, it's a tough question because I, I have two, girls, a three year old and a one yearold that are amazing. And, um, each one was a little bit different. So, in terms of the financial readiness piece and, and just readiness piece as a whole, our, our first one, um, it really came, came down to kind of when we were settled or when we felt settled, uh, my wife and I talked about it quite a lot and we knew, okay, kids is, are definitely something we wanna have. Um, we, we had moved pretty recently from Los Angeles back home to Tucson and knew that that was kinda gonna be home and a big reason for that was to have kids, um, and, be closer to, t o both of our families that are in Tucson. So t he, that was a factor. Um, we had, we both felt pretty secure in our jobs, which was a big thing. I think, uh, before we moved back, I was working in an industry I didn't love and, and couldn't see myself being there for a long time. So just the thought of maybe switching careers and stuff, um, made, made kids seem a little bit daunting as well, felt like a, a much bigger responsibility, uh, than it does now that I feel pretty secure and stuff in my job. And then, uh, we had recently moved into a house as well. So the, it was kind of a, a double whammy in terms of finances. Um, but we knew that we, we, we planned for it a little bit as well. So, you know, that, that was really the first one that we said, okay, it's, it's more around settling. The second one, we had a little bit more of an idea of, of how much it was gonna cost, but we really didn't think about it financially for either of them, if I'm being completely honest, it was more, when's the right time for us as a family. Um, we, we're fortunate enough to say, yeah, the, the finances we planned for some of that stuff and, and we're gonna be okay, regardless for the second one. It was like, Hey, we want them to be pretty close to two years apart. And, uh, and so we ran with it.
Nikita Wolff:Yeah. I can totally understand the importance of having it still ability down first. Um, were there any, did you do any saving up for expenses ahead of time? I know I've heard some ideas, uh, from one of our mentors actually to basically, if you know, you're gonna have children, you can save in advance for the childcare costs that, you know, you're gonna accrue. Is there any advanced, uh, savings you guys did for that?
Scott Bennett:Sure? Um, not, not in that sense. That's, that's, I would say a level above us. I know which mentor you're talking about who says that, and I will be the first to admit she is a much better budgeter than I am, uh, that is not one of my strengths at all, but for both girls, we did the big expense that we planned for. We we're the medical costs. Um, we were enrolled in high deductible plans with HSAs. And so for each, when we started thinking about around the timing of when we wanted to start trying, and, and hopefully having, having a kid, we started saving into those HSAs and really saying, okay, what, what's our out of pocket maximum. Um, cause really, I think that's important for people to understand there is your deductible in, plans, which is the amount you have to get up to before insurance starts paying. Right.
Nikita Wolff:Right. And we know how expensive hospitals are. So oftentimes it exceeds that.
Scott Bennett:Yep. So, so we were in, uh, a high deductible plan to why we were able to have an HSA, so we knew, okay, we have to get up to that deductible. It's important if you are in a high deductible plan though, you understand that after you reach that deductible insurance only put, pays a certain amount. So for us, we had the deductible and then after that deductible was met, insurance only pays paid 80%. After that, I say only it's a, it's a huge chunk.
Nikita Wolff:Right but when we're thinking thousands of dollars, you know, 20% of that ends up adding up pretty quickly.
Scott Bennett:Very, very true. So what we looked at is we said, okay, absolute worst case scenario, here's our out of pocket max that we're gonna have to do. And
Nikita Wolff:So is that what you saved up in your HSA to help cover?
Scott Bennett:Yeah. Yeah, we did. We saved up as much as we could in the HSA, given the maximums, um, as well as just eyeing some of our other savings. Another thing we did is we stopped investing the HSA that was invested before. Yeah.
Nikita Wolff:Just so that you would kind of minimize the risk of it, you know, potentially going down
Scott Bennett:Exactly. Exactly much. Like when we talk with people are like, oh, I wanna buy a house in a few years. I have all of this money in a brokerage account. What should it be invested in? We say nothing, cuz we don't know what the market's gonna do. Right. And it would've been terrible. My wife and I go to have the kid and all of a sudden boom, um, or the, the market dropped as well. And our, and our HSA was, was cut by a lot. So we saved up those amounts in for our first, uh, daughter Addison. Um, she had some complications. She is great, she's fine. Now spent some time in the NICU. Um, and that really was the striking cord for me, for both saving and having an emergency fund. We had the emergency fund, not thinking we would get to that outof pocket maximum. We did. Uh, and I could not imagine the stress and everything else that went with her being in the NICU you a, a pretty turbulent birth and stuff to then wondering how are we gonna pay for this? It's not a fun check to write, but we've, we consider ourselves so fortunate to be able to write that check and be able to pay for it.
Nikita Wolff:Yeah, definitely. I've, I've heard some statistics about parents paying on the birth of their children for oftentimes years.
Scott Bennett:Yeah. And it's, and it is unfortunate, you know, you think sometimes, uh, I know, I know I did when I first, um, graduated college and was off on my own, um, having insurance from an employer and, and I was actually playing basketball and I rolled my ankle and had to go and, uh, and, and go to a urgent of care. And I remember thinking, oh, I have insurance. This is covered. And then like getting the bill and immediately calling my parents and be like, what's happening?
Nikita Wolff:What, why is this so expensive?
Scott Bennett:Yeah. I thought I had insurance. I thought that's what insurance meant. Uh, so that, that rude awakening prepared me for this. But yeah. So, so it was really, the expenses were really the medical. Um, and, and in having that peace of mind. So I would say save into an HSA. If you have one or have, have a chunk of your emergency account, we, we then spent the next couple years before our next daughter saving and replenishing that account. That's where, where a lot of our, our effort went to when it came to saving, because we knew, okay, here's what could happen. Luckily her, uh, wasn't as turbulent. And she, she was in the hospital for 24 hours and in and out kind of perfect, birth, uh, that we were very lucky to have, but still, we still still had to pay quite a lot for that as well. So learning that lesson and, and saving up for those cuz the stress of having a kid coming home, um, all those emotions that, that run high and then having a, a huge bill on top of that, um, is something that I know a lot of people deal with and it's not fun.
Nikita Wolff:Yeah. Anything you can do to mitigate it. Really. Yeah. So that's very good point. So aside from hospital expenses, what other expenses caught you most by surprise?
Scott Bennett:Yeah, I think they're, they're ongoing. They change all the time, depending on where, where the kids are. Right. Um, we, we knew my, my three year old is now in, in daycare a few days a week. And um, that's, that's pretty expensive, but I wouldn't say it caught us by surprise cuz we did our research and stuff on that. We didn't budget like say, okay, we're gonna start saving this as soon as she's born. But we, we worked it into our budget and said, okay, this is gonna be an expense we have to pay. But it is something that, you know, it's a large amount and it varies a lot too. Isn't a other thing in terms of daycare, my sister who lives in Atlanta pays a whole lot more than we do here in Tucson. And they're even, even in the same city, depending on where you go, the type of care you're looking for, it can vary. Um, but the other one that, that always is touches us by surprises. I mean food, you think a baby, they eat a lot. Um, and then formula. So for, my, my wife breastfed as long as she could for both. Um, both of our girls were pretty stubborn and spirited. So, so we had to switch to formula. And um, I mean that, that in itself is very expensive and, and you, you go, what? Like, I I've even, I there's been a, we always try and like, uh, buy a little bit more bargain and stuff, but there's been times where we've, we haven't planned the best and, and ran out and I've had to run up just to the normal grocery store and get it. And both times that that has happened. I've had the person checking me out, comment on how expensive formula is.
Nikita Wolff:It's wild considering it's a necessity. It's not a been like, there's an alternative thing you can use. It's pretty sad that that's the reality. Yeah. And then, I mean, on top of that too, kids are so unpredictable in how much food they eat. So there are some weeks where you might be buying, you know, the same amount of groceries that were consumed last week, but now this week, your child isn't eating the same things or, you know, food is going to waste. And that can definitely pose to be a challenge too.
Scott Bennett:A yeah, it just happened this morning. Right. My daughter, uh, who usually love eggs, decided she didn't want the eggs that, that we cooked for her for breakfast. Uh, and probably tomorrow she'll be asking for them. So yeah.
Nikita Wolff:You just, can't, it's not like adults where you can see, you know, what are the foods we tend to enjoy? Let's keep those around kids are always changing. So I can, I can only imagine. Yeah. Now, as you can imagine, I'm sure some of our listeners might already have children and didn't necessarily have the chance to prepare for it. So I thought it might be helpful to ask you what are some of the creative ways that you've tried to reduce your expenses for your family?
Scott Bennett:Yeah. Um, the, the first one that jumps to mind is how we kind of thought about and approached our cars. So both my wife and I, uh, before kids, we, we drove very small, both had two door, little cars, uh, coops, um, that were pretty old, both paid off. And when we found out my wife was pregnant and, and started planning a car was another thing we, we, we knew we would have to do. So we, we went out and we only bought one bigger car. Um, not a huge one by any means and, and a used one. Uh, we didn't go crazy on it, but we kind of treat our cars as a family car versus the old car. So I still have my little two door and whenever who's ever picking up, dropping off, doing whatever things we need to do with the girls that day, we try and work it out to where they have the quote unquote family car. And I have my old car it's sometimes it happens where I have to take the girls in my little coop and literally climb into the backseat of this thing. It's the worst than the summer and strap them in. Um, but I mean, all things considered. We have two cars, right? We're, we're very, very lucky in that sense, but just, it, it would be easier to have another bigger car, but we kinda said, you know what, well, we're just gonna be strategic about who's driving where and what, what we're driving. And then we're able to, to save in that way, because we didn't want two car payments at the same time. Yeah, definitely. The other thing that this is like coming from such a place of, of privilege and everything else is, uh, childcare. So a reason we moved back to Tucson and we, we loved LA, but a reason we moved back to Tucson is both of our parents are here. Um, and, and we, we not only wanted to be around them, but they both said, Hey, when it's time to have kids, we'd love to help you out as well. Um, so we're really lucky there, it can be, again, this is totally, uh, the, you know, I, I am, I am complaining about something that does not deserve complaining. I, I hope I don't come off as complaining. Uh, in that I drive 45, my parents live about 45 minutes away, uh, each way into Tucson. So when I drop my, my daughter's off, there, there is a 45 minute drive and I'm turning her back around and coming back to work. But it is so much more, uh, we, we saved so much more than if we had to send both to daycare. Uh, and we were able to say, now we can spend my daughter who's three, who goes to daycare a few times a week. That was really a choice. And, and we said, yeah, it's to get a little bit more socialization and stuff, but, but that's another way that, that not everybody has that option, but we kind of said, Hey, if we're gonna be in LA that's, that's an expense we're really gonna have to pay for, because we didn't have family there.
Nikita Wolff:Yeah. That's really interesting to kind of factor that into your decision of where you
Scott Bennett:Lived. Yeah. Yeah. It's smart. Yeah, it was. And, and also you, they're pretty great grandparents and, and stuff like that too. And we have siblings and stuff here as well. It's just, uh, it became obvious. We miss our, life, miss the beach a lot, but, uh, it's fun to be back here with family. And then the last thing I, I wanted to touch on real quickly is there are so many, like, new because I'm a parent, but I'm sure they've been around o r I'm a new parent, but I'm sure they've been around forever. There are so many like free resources, u h, a nd trials of, of these, you know, different r eally t hese smart people who are coming up with ways to, I say, survive parenthood. My wife is, is a teacher. So she's always on the lookout for these things. But, you know, we do a thing called baby l ed weaning, and there's a, there's a group called feeding littles that my wife found. Um, and they, they talk all about how to, you know, offer and, and get your kid on, on some, um, things other than pures and stuff from the back. Our, our nine month old really, really eats what we eat. Um, as soon as she started getting teeth and everything, we obviously have to cut it up, but, you know, my wife follows them on Instagram and she feels like that's enough to get at kinda some of the things we need out of them. Another thing was a, was a really cool sleep trainer that has this whole program. She follows her on Instagram. They post a lot of resources and stuff for free. You can check out websites that sleep trainer, we ended up saying, Hey, we, we like this so much. We're gonna sign up for the course that she offers to charge. But I would say test out that stuff first, see if it's something that you're actually gonna like, because the first thing I've talked to, a lot of new parents who do they sign up for those classes and, and things like that, that can be great, but make sure it's in line with what you do and there's enough, you know, they put out enough out there in order to get people to come to their sites and stuff that you can get a pretty good feel for it before you actually jump in.
Nikita Wolff:Yeah. It's, it's amazing what social media has done to connect people. And I think it's great that she's even been able to benefit from some of these, uh, I guess, organizations without even necessarily enrolling with them, but just following them. Yeah. Yeah.
Scott Bennett:That's cool. That's cool.
Nikita Wolff:So how do you build the equation of caring for your two girls into your budget?
Scott Bennett:It's like anyone where tracking comes first. Um, it is it, but it's even more so with kids, it's, everything's brand new, especially with your first one and you can plan for the world. Every single person who's ever had a kid before is gonna offer their little piece of, of advice and stuff. Um, which is, is great. Take it all, but know that every situation's different. I always, I always tell new parents as I am one of those parents, how, who offers advice apparently<laugh>, um, but tracking comes first, make sure that, you know, you're getting it and, and, but leave yourself even more of a buffer than you usually do. And I say that because you already touched on it, Nikki kids change all the time. Yeah. And they're growing and they're growing on enormous speeds. I mean, I, I feel like I blink in my, my, uh, youngest is already walking. Right. And it's like, whoa, where did that come from? Guess we have to buy shoes. And, and they're, kids' shoes. That's not something that's a, that's a huge expense or anything, but just, just continue tracking. So you have an idea, but also build in a buffer is kind of what we, what we've always said. Yeah, Hey, we, we can't get this. If you're somebody who wants to get down to the penny, I get it. There's some people like that. And know, it's probably gonna be a little bit harder with kids,
Nikita Wolff:You know, it's, it's also something kind of interesting to consider. I know a lot of parents like getting new things for their children because, you know, we all have that desire to kind of spoil the, uh, children that we love. I, I guess<laugh> spoil our children. We love all of our children<laugh> but, um, the, the cons of buying used at even just like a place like Goodwill or, oh my gosh, you know, different roof shops, kids grow so fast. They spit up on their clothes. They crawl around in dirt and they ruin their clothes so quickly that, you know, paying$15 for a pair of baby pants that are gonna last a month and a half is, uh, you know, know obviously sometimes it would be nice to do that if it's a really cute outfit or something, but at, at the same time, you know, you can definitely cut costs by just getting things secondhand. Yeah.
Scott Bennett:And think about another thing. That's such a good point because we've, we've benefited so much from this. We have siblings, older sibling who have kids first are nieces and nephews and have received literal bags of clothes.
Nikita Wolff:Yeah. And they're, I know a lot of people,
Scott Bennett:Oh my goodness. I mean, our, we, we joke because our, our, our second kid it's like, oh man, she, she doesn't have any new clothes. Now granted my wife, uh, especially she'll admit I'm, I'm not throwing her under the bus here. She'll go to target and walk through the baby section and be like, Nope, that's too cute to leave here. I'm gonna get it.
Nikita Wolff:I know if I ever have children, that's, I'll do the same thing. But you know, not as the sole way I provide clothes. Yeah.
Scott Bennett:You hit it on the head. I mean, it's crazy. Even wait, those pants just fit last week and now you're telling me they don't fit anymore. So yeah, I, it would be really frustrating if we were buying everything brand new in that sense,
Nikita Wolff:For sure. So the last topic that I wanted to address today is about 529 plans. Mm-hmm<affirmative>. So when do you suggest beginning to save into these for children and for anybody who doesn't know, uh, 529 plans are an investment vehicle, the, it can be used for education and other related expenses for children.
Scott Bennett:Yeah. So in terms of when, um, as soon as possible is really the thing, a as soon as you can, to, if you're a, a parent who wants to provide any sort of resource for education, you should really start thinking about it as soon as that kid is born, or as soon as you can, as soon as you can work it into your budget, cause much like retirement saving, the more time you have the better. So not only the case and again, like retirement saving, if you didn't do it right when the child is born, the second best time is right now. Um, so I would think of it as getting, getting things in there. Um, you know, making sure you have your emergency fund built up first, making sure, uh, that, you're having a conversation. If you're having to maybe pause some of t he, your retirement savings, I wouldn't pause all of them, but say, i f y ou, if you're down to the dollar and you say, okay, w e m ay need to p ause s ome o f our retirement having that conversation, doing that math. U m, but as soon as possible.
Nikita Wolff:Yeah. So why would you say it's, it's so important too?
Scott Bennett:Yeah. I mean the accounts themselves are 529 plans are, are like Roth IRAs. You know, we talk about the magic of a Roth in, in class that you get tax free growth and, uh, five 20 nines are the same way that, uh, it's an account that you establish and you can contribute to, and then invest. It's, it's important that when you are in a 529 and that your kid is little you're investing, and investing it pretty aggressively much because you have 18 years until until school, right. Another reason to start early, but then you, you get the, the tax free, um, your, your earnings are tax free on all the growth in that, as long as you use it for education purposes, and those purposes are pretty broad. Um, so you have an account and, and, and it goes up another reason it's so important is college inflation rates have been around 5% in the past 10 years. Now that that might not seem like a lot, but it's, it's, it adds up a lot compared to us what inflation has been in the past 10 years, especially, which has been, you know, really, really, uh, close to flat, uh, especially when you compare it the last, so a college inflation rate continues to go up, um, and, and they do offer some flexibility. So I I've heard people say, oh man, I don't know. I it seems really.to say, my kids are gonna go to college in 18 years.
Nikita Wolff:Yeah. Can it be used for trade school?
Scott Bennett:It can. Yeah, it definitely can. The other thing is, you know, or I hear sometimes in my, you know, what, if my kid gets a scholarship, great. So 529 can either be transferred to another family member. Um, so let's say you wanna go back to school yourself in, in 20 years, there you go. You can use your 529, uh, and, and, or, or you wanna help out a niece or a nephew cuz your kid got a scholarship. Great.
Nikita Wolff:So does it work similarly to an HSA where you don't pay taxes on it now or later? Or is it like a Roth where you pay now so that you don't pay
Scott Bennett:Later? So it's similar. Uh you're you're gonna usually fund it with with tax money because this is money outside of an employer plan. Right,
Nikita Wolff:Right. That makes sense. Yep. Interesting. Yeah. You know, going back to something you had said about kind of really loading the money in while they're young, especially I hadn't thought of that. I've always kind of in my head had a, a figure, like, let's say a hundred dollars a month that you just contribute for your child's entire first, 18 years. Mm-hmm<affirmative>. But to think that it would almost be better to, you know, make that 400 a month earlier on and then maybe be a little smaller later down the road because of that effect of time mm-hmm<affirmative> and having more of the money in it, uh, for longer mm-hmm<affirmative>, that's, I've never thought of, uh, the advantages of that. So that's, that's kind of cool.
Scott Bennett:Yeah. And I know, I, I have talked to people, um, who have said, you know, oh my, uh, my grand parent offered to pay for college when, when they turn 18. And my response is always, well, have them put that money into 529 now and invest it. So that, that they get that benefit don't yeah. Don't just think about, oh yeah. When they turn 18. Cause who knows what policy gonna look like. Right.
Nikita Wolff:So would you say there's a general rule of thumb for how much someone should contribute to cover the cost of future tuition and other expenses? Um,
Scott Bennett:So no, I don't personally think there is because everybody's different. Right. You talk to some people who have the means to provide a hundred percent for college. Um, and, but there there's so like, Nope, I, I would, I want my kid to have some skin in the game and, and maybe not pay at all or, or only pay for a portion. So I think it, it, it depends on, on each person. I would say though, um, savingforcollege.com, uh, has a called savings calculator. I think it's actually called the world's easiest college savings calculator, where you can just type in basic information. How old's your kid, what's your combined income, you know, uh, what type of school do you want that kid to go to, et cetera, et cetera. And I actually did that, uh, for my one year old, pretty recently, um, or, or my daughter who's about to turn one and, uh, they project. So I picked, I said she would, she was born, uh, in 2020, she's gonna go to school in around 18 years. And we, wanna plan to try and fund for an in-state school in 18 years. Uh, their projection based on college inflation rate cost of living and things like that to put somebody through four years of school at an in-state institution was around$172,000. Um,
Nikita Wolff:Wow. So yeah, that is a lot of money.
Scott Bennett:It is a lot of money. Uh, and, and so, and, and I put in, you know, um, if starting now, if we save$250 a month, uh, and it came, you know, up until they're 18 and invest that money and it, you know, just based on the growth projections and stuff like that, it said, you know, 172,000 is a total cost around 30,000. We'll save for scholarships and grants will be taken off of that. And then even saving$250 a month. Um, you're still probably gonna be short around 20K or$30,000.
Nikita Wolff:Oh my goodness.
Scott Bennett:So, you know, yeah. It's pretty daunting. Um, but uh, at the day, you know, you, you can just do the best you can,
Nikita Wolff:Right. And 20,000,$30,000 is still so significantly better than 174,000. Right. Exactly. That's, that's graduating with a mortgage. Yeah. And having no house to show for it, you know? Yep. Wow.
Scott Bennett:Yeah. So it is up to, you how much you save. What young person just starting out and, and having kids can afford$250 a month right off the bat. Right. It's, that's a very, very daunting, daunting task. Um, so just do what you can and, and I think start there and, and know that you're putting your best foot forward.
Nikita Wolff:Yeah, definitely. Well, that pretty much covers everything that I had wanted to address today. Uh, was there anything else that, that you had wanted to add Scott?
Scott Bennett:No, I, I know I, uh, joke about my kids quite a lot, but they're the best things ever. And, and we, I
Nikita Wolff:Know I, wasn't gonna throw you into the bus
Scott Bennett:Yeah, yeah. They, they, uh, they're too little to fight back, so they get the brunt of my jokes right now. Um, but no, we're, we're talking about the expenses of kids and, and at the, Iswear I have a smile on my face unless the whole time I'm talking about it. So yeah. Expensive. You're the most expensive thing you're get, but every single thing you hear about kids is true. So,
Nikita Wolff:Yeah. Well, I very much appreciate you sharing your perspective on today's episode.
Scott Bennett:Yeah. Thank you. And thanks for, uh, it's fun to be on this end of it, and pretend to be an expert on something.
Nikita Wolff:Thanks, Scott.
Scott Bennett:Thanks Nikki
Nikita Wolff:Thanks for joining us us on today's episode, I hope you found some of it helpful and maybe even send it along to a friend that you think could benefit from it. If you like the 3rd Decade podcast, please consider writing review on apple, Spotify, or Google podcasts. We hope you're all having a fantastic start to the new year. And we look forward to talking again in two weeks.