12 - Planning for Major Life Events

Life's biggest milestones—getting married, having a baby, buying a home—are also major financial events. Joined by CFO Barron D. Kennedy, IV, we discuss the key financial conversations and action steps for these exciting transitions. Learn how to have the "money talk" with your partner before getting married, the non-negotiable financial steps to take when a child is on the way, and how to avoid being "house poor" by buying what you can comfortably afford, not just what you're approved for.

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Transcript

Episode 12 | Planning for Major Life Events

00:00:00 Daniel Hill: Shanna, let's picture a young couple. They just got engaged, and they're in that wonderful whirlwind of excitement. You know, the honeymoon period.

00:00:09 Shanna Browning: Oh, I remember that time. I remember how excited I was when I got engaged. And so we start thinking about those venues, the guest list, the music, all the fun and emotional parts of planning a wedding.

00:00:19 Daniel Hill: Exactly. But then a few weeks into planning, they sit down to look at the actual costs, and that's when a little bit of panic can set in. They've been so focused on the celebration that they really haven't talked about how their financial lives are about to merge.

00:00:37 Shanna Browning: Oh yeah, and that moment happens with really a lot of major life events. So whether it's getting married, buying that first home, having a child, there's so much emotional attachment, excitement in that fun part. But the financial preparation is truly what gives you that peace of mind.

00:00:54 Daniel Hill: And that's what we want to talk about today. How to prepare for those huge, wonderful milestones with confidence, not panic. Welcome back to making Sense of Your Cents. I am Daniel Hill.

00:01:16 Shanna Browning: And I'm Shanna Browning. And today we're going to look a little ahead into the future. We're going to talk about those financial steps that accompany really some of life's biggest and happiest moments.

00:01:26 Daniel Hill: And to help us navigate this important conversation, we're honored to welcome our Chief Financial Officer, Barron Kennedy. Barron, thanks for being with us.

00:01:36 Barron Kennedy: It's great to be here. These are the moments where sound financial planning can have the most significant and positive impact on a family's future.

00:01:44 Shanna Browning: Well, Barron, and I think that's right. I think that's our goal today. Right. We're going to walk through these three major life events getting married, having a baby, buying a home and really to discuss those key financial conversations and action steps you should take before making each one of those. Because really, nobody likes to talk about money.

00:02:02 Daniel Hill: And let's start with the very first major financial partnership that most people enter. And that's marriage. What is the most important and often most avoided conversation a couple needs to have before they get married?

00:02:18 Barron Kennedy: The most important thing is to have the money talk.

00:02:23 Shanna Browning: Money talk.

00:02:24 Barron Kennedy: And when you have it, have it with complete transparency. It can be awkward, but it's absolutely essential. You need to lay all the cards on the table. That means sharing your income, your debts, student loans, credit cards, car loans and your credit scores.

00:02:38 Shanna Browning: Mhm. That's a lot of stuff to be talking about isn't it. But there's no judging in that. There shouldn't be. It's about getting a clear shared picture of the starting point as really your financial team.

00:02:50 Barron Kennedy: Precisely. You're entering into a financial partnership. You can't create a successful game plan if you don't know what's on the scoreboard. This conversation should also include your financial habits and your philosophies. Are you a natural saver or a spender? What are your long term goals? Do you want to retire early? Travel the world, buy a lake house. Getting aligned on the big picture early on can prevent so much conflict down the road.

00:03:17 Shanna Browning: All of those? Yes, all of those.

00:03:21 Daniel Hill: Once you've had that conversation, what are the first practical steps that a newly married couple should take? Where do they go from there?

00:03:30 Barron Kennedy: Well, Daniel, the first step is to decide how you want to manage your day to day cash flow. There are three common approaches yours, mine and ours.

00:03:39 Shanna Browning: Sure there are.

00:03:42 Barron Kennedy: Some couples merge everything into joint accounts. Others keep their finances completely separate and split the bills. But the method I see work most successfully is probably a hybrid approach.

00:03:54 Shanna Browning: That's interesting. Barron, tell me how that works.

00:03:57 Barron Kennedy: Well, you maintain your individual checking accounts, but you also open a new joint checking account. You each contribute an agreed upon amount or percentage of your paycheck into this joint account. And this is the account you use to pay all your bills the mortgage, utilities, groceries, that kind of thing. The money that remains in your individual accounts is yours to manage as you see fit for personal spending, hobbies, or individual savings goals.

00:04:24 Daniel Hill: I like... that's interesting.

00:04:26 Shanna Browning: I like that.

00:04:26 Daniel Hill: It promotes teamwork for shared goals, but still allows for individual autonomy and reduces arguments over small personal purchases.

00:04:35 Barron Kennedy: Absolutely. It's a great balance. The other critical steps are to update your beneficiaries on your retirement accounts, any other life insurance policies, and to create or update your wills and other estate planning documents. These aren't necessarily fun topics, but they are an essential part of protecting each other financially.

00:04:54 Shanna Browning: And that's important. All right. So we've we've done the big marriage thing. And so now we're going to move from that milestone to our next one. So having a baby. So let's talk about the financial impact. That can be a really huge source of stress on that. So what's the first financial step when an expectant couple should look at.

00:05:17 Barron Kennedy: Well the first step is to research the cost and create a baby budget. The expenses come in two waves. The first is the one time upfront cost the crib, the car seat, the stroller, and of course, the medical bills associated with the delivery. You need to understand your health insurance policy inside and out. What's your deductible? What's your out-of-pocket maximum? Those sorts of things.

00:05:42 Daniel Hill: So you said it comes in two waves. That's the first one. What's the second wave of cost. Is that the ongoing monthly expense, because we all know kids are expensive.

00:05:51 Barron Kennedy: That's right. No surprises there. But one of the biggest surprises may actually be child care for most families can be a massive new expense, one you may not have thought about. So you need to research the cost in your area long before the baby arrives. Other ongoing costs may seem obvious, but diapers, formula, clothing, increased health care premiums. You have a family coverage now, so you need to adjust your monthly household budget to account for these new recurring expenses.

00:06:23 Shanna Browning: And we're not trying to take the fun out of having this baby in the family. Absolutely not. We just want you to be prepared so beyond ...

00:06:30 Barron Kennedy: Makes it more fun. Well, yeah. When you're prepared, you don't have to stress about the mess.

00:06:34 Shanna Browning: That's right, that's exactly right. So beyond that budgeting piece, what are other critical financial moves that you got to think about when you have a kid?

00:06:42 Barron Kennedy: Well, there are two that are absolutely non-negotiable. The first is life insurance. If you have a child who depends on your income, you need to have adequate term life insurance. This is a crucial safety net that will ensure your family is protected financially if something were to happen to you.

00:06:59 Daniel Hill: And what's that second one?

00:07:02 Barron Kennedy: The second is to create a will and specifically to name a legal guardian for your child. This is the only legal document that allows you to decide who would raise your child if both parents were to pass away. It's a really difficult thing to think about and to talk about, but it's one of the most important and loving things you can do for your child.

00:07:24 Shanna Browning: I'm legal guardian to my brother's six kids. Wow. So we go from no kids to maybe possibly six kids. You just never know. So let's talk about saving for the future. Like college. We all know college is so expensive these days.

00:07:38 Barron Kennedy: Well, the most important thing is to start thinking about it early. Opening a 529 plan is a great first step. These are tax advantaged investment accounts designed specifically for education savings. You can start one with a very small amount, and even small contributions can grow into significant term over eighteen years. The secret sauce there is really consistent giving to this goal.

00:08:05 Daniel Hill: Yeah, that's kind of like the conversation we had with Rob about paying yourself. It's not a huge amount. It's something that you can consistently chip away at over over a period of time.

00:08:17 Barron Kennedy: Absolutely. And you've got eighteen years. So it's something if you start early doesn't have to be a huge burden.

00:08:22 Daniel Hill: Can add up really, really quick.

00:08:24 Shanna Browning: Real quick.

00:08:25 Daniel Hill: Barron. For our last segment, I want to touch on a topic that we covered a few weeks ago. Um, but from your perspective as a CFO - buying a home. When you look at it from a high level, what's the most important financial principle to keep in mind?

00:08:43 Barron Kennedy: I think the most important thing is to buy what you can comfortably afford, not what the bank says you can borrow. The pre-approved amount a lender gives you is the absolute maximum they believe you can handle, and is often a much, much larger number than you than would allow you to live comfortably and still meet all your other financial goals like saving for retirement, traveling, buying that lake house you talked about.

00:09:08 Shanna Browning: All the things. So we did talk about that. Like, you know, we talk about that as a bank or as a lender that we want you to be able to have that American dream, right. And that's our goal. So we're going to give you the best of the best. But what you're saying right here is that we as consumers need to create our own budget and not rely on what the bank is telling you.

00:09:32 Barron Kennedy: Absolutely. Because you're going to be the one that has to pay it and it will affect, you know, all the other things that you want to do in your life. So really look at your budget and decide what monthly payment you're truly comfortable with, including taxes, insurance potential maintenance costs, and then you work backwards from that number to determine your realistic home price range. Don't become house poor where so much of your income is tied up in your house that you can't afford to do anything else.

00:10:04 Daniel Hill: Mhm.

00:10:04 Shanna Browning: That's right.

00:10:05 Daniel Hill: Wow. What other long term financial considerations should people think about when buying a home?

00:10:12 Barron Kennedy: Well, one is to make sure you don't drain all your savings on the down payment and closing costs. You really need to hold back a healthy emergency fund. A new home comes with the risk of new, unexpected expenses, right? The water heater could go out, the roof could leak, the HVAC goes down in the summertime, and you need to have a cash buffer to handle those without going into debt.

00:10:36 Shanna Browning: Oh, yeah. The house. That's great. Great. Great advice. So don't exhaust your safety net just to get into the house, is what I'm hearing you say.

00:10:44 Barron Kennedy: That's right. And then the final piece of advice is to just think about the loan itself. While a thirty year mortgage is the most common, if your budget allows for it, look at a fifteen year mortgage. The monthly payment will be higher, but you will pay it off in half the time and save an enormous amount of money and interest over the life of the loan.

00:11:04 Daniel Hill: Barron. This has been an incredibly insightful tour through some of life's biggest financial moments. And we appreciate you walking us through that. But now it's time for this week's actionable tip.

00:11:20 Shanna Browning: All right, gang, we've got you an action item for this week and it's to dream and document. You need to have this conversation. We want you to think about your next major life event and take one small, tangible step to prepare for it.

00:11:35 Daniel Hill: If you're in a relationship At any point. This is your prompt to have the money talk we discussed. Set aside an hour this week. Share your goals, your habits, and your numbers. Don't just talk about the wedding. Talk about the financial partnership that comes after.

00:11:53 Shanna Browning: And we get it. I mean, we get it. It's hard conversations to have, but you got to have them because eventually you're going to have them. So if you're thinking about buying a home in the next few years, your action item here is to open a new dedicated savings account just specifically for the house. Then you set up a small automatic recurring transfer to get it started.

00:12:14 Daniel Hill: And if you have a child, your action is to research and write down the names of the person you would want to be their legal guardian. You don't have to hire a lawyer this week, but the act of having the conversation and documenting your choice is the most important first step in protecting your child's future.

00:12:33 Shanna Browning: So your goal is basically to turn your idea and your plan into a concrete present action.

00:12:41 Daniel Hill: Absolutely, Barron, thank you so much for joining us and sharing such valuable insights.

00:12:46 Barron Kennedy: You bet. It was my honor. Thanks for having me.

00:12:48 Shanna Browning: It's great having you here, Barron. These are really big conversations that are milestones for people's lives. So thank you very, very much. And a thank you to our listeners for joining us again. We hope this helps you have some conversations about preparing for your next big adventure, and to do it with confidence.

00:13:06 Daniel Hill: And the learning continues next week as we tackle a topic everyone should understand how to pull and read your own credit report line by line. Until then, I'm Daniel Hill.

00:13:18 Shanna Browning: Hey, and I'm Shanna Browning. Go and make Sense of Your Cents.