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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

New parent financial planning: what you need to know when baby is on the way!

There are a lot of things for a new parent to think about when a baby is on the way, and financial planning is one of the big ones. In this episode we discuss why a new parent shouldn't worrying about some of the most common financial planning concerns and what really IS important to focus on when it comes to being financially prepared for a new baby.

In addition to information for new parents we also include financial planning ideas for grandparents as well!

Here's Bridget Sullivan Mermel's firm website:

John Scherer's firm website:

For advisors around the US:

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John: When a baby is on the way, there's so much to think about. What are the important financial things you need to think about? That's what we're going to talk about in today's episode of Friends Talk Financial Planning. Hi, I'm John Scherer, and I run a fee-only financial planning practice at Middleton Wisconsin.

Bridget: Hey, John, I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois. Before we go any further, we want to mention to please subscribe. That helps us get some respect with YouTube and help more people find us.

So, John, let's talk today about what we tell young parents and parents of these young parents about what's important with their finances. Sometimes it’s people’s first time with adulting, and they've got a lot on their minds. And we want to make sure that people also include on their minds the important financial things.

John: That's right. From our experience with our client base, it's not only the people that are having the baby, but a lot of it is also the grandparents. How do you help your kids think through those things and what's important? And there's so much noise out there and everybody's got an opinion: “You need to do this or that.”

So, what are the important things on the checklist? I'd be interested to hear what do you share with your clients directly? Let's say you have a grandparent and their grandbabies on the way. What do you talk about with them?

Bridget: Well, there're four different topics. There're two topics that I think are the most important, and then there're two topics to address common questions that people have. So, the thing that I think is most vital, number one on my list, is life insurance. And almost all young couples need life insurance.

And I recommend getting term insurance on the Internet. Just term insurance is what you're looking for. You don't think you're going to die, so it's cheap. Nobody thinks you're going to die. It's not expensive. But in the worst-case scenario (and I know people that this has happened to) if someone dies and you don't have life insurance, it really puts your spouse in a bind.

John: So, number one is buying life insurance, and I'm on board with that. What's your number two thing on your checklist for clients?

Bridget: Wills! Make sure you name some guardians, so that if something happens to both of you, you know—there’s no debate. Somebody is going to decide what happens, and I'd rather have it be the parents rather than a judge in some court somewhere.

So, wills are the second thing. And nobody likes thinking about it, but just put something down and you're going to be much happier. Again, we're trying to plan for the worst-case scenarios here.

John: Yeah. You got to protect the downside. So, get your life insurance. Get a will in place. One of the things I hear a lot of questions about is saving for college. How do we do that as soon as the baby's born, right? What's your take on that?

Bridget: It’s a great topic for grandparents. If grandparents know their kids have insurance and have a will, then the third thing they might spend some money on if they want to give some money to their kids or grandkids is college savings. And if people are motivated on college savings, I try to help them out with that. I think there's a lot of information out there about college savings, but I really prioritize getting a will and life insurance over college savings.

John: Yeah. And I'm on the same page with that, that saving for college is important, but those things are less of the new things that need to be done. For example, if there's extra money, that's great, but there're other priorities. And we often talk with clients when their grandchildren are being born about how they want to give money and provide for college.

What about giving money to a will? Because I'm on the same page with you: wills are super important. And it's one of those things that a new parent might think, “Oh, yeah, that's right. I should do that.” But it's usually not at the top of their mind. It's not what's being trumpeted out there, compared to the cost of college, right?

Bridget: Yeah. I think more people are concerned about what color they should paint the nursery, or whether they should get the crib, then whether they should get a will and what the will should say? And people don't have a lot of dread about doing a will. And if you're a young parent, it's just not what you're thinking about most of the time. So, getting people into thinking about a will and some term life insurance, that's what I think is most important.

John: Yeah. I kind of twist those around just a little bit. For me, the will is the most important thing for people. That's number one. But number 1A is definitely getting enough life insurance. And I'll tell you one comment on that. Term insurance, that's the way to go, and people need more than they think they need oftentimes. You think, “Oh, jeez, a million bucks is a lot of money if you win the lottery,” but it's not a lot of money if you're raising a child for the next 20 years as a single parent, right?

The other thing that I hear people being concerned about is the cost. How do we deal with the cost? And this is not so much the grandparents but the actual parents. How do I deal with the cost of having a new person in the house? How do I think about all these things? And I know you mentioned the resource that you share with your clients. I think that is great. But talk a little bit about that. How do you think about the cost of having a kid?

Bridget: Well, the USDA puts out statistics that tells for each region the average cost per age per kid, so you can actually find out about what it costs. When I have talked to clients and I give them a number, I say, “Plan to spend an extra $1,000 a month.” That seems to make everybody curious, but for a lot of people, that just satisfies them. But John, you've got actual experience with this because you've had kids recently, so tell me about the costs.

John: Yeah. It's funny that when I think about the professional side versus the personal side, sometimes they just don't correlate with things. But yeah, I mean, the cost of having kids is significant. In particular, one of the things I have experienced and hear clients talk about is the cost of preschool and daycare in those early years. It's just astronomical. And I can speak from experience with my two boys, who are just a year apart, that when they were both in preschool and daycare, it was effectively the cost of going to UW-Madison for college for one year. It's a pretty significant expense.

But the interesting thing for viewers is to talk to people who have been through this. For example, I ask my clients all the time, “What happened when you had kids? How did you save for preschool?” They respond, “What are you talking about? We didn't save for day care. We just make it work.” Well, a similar thought process for college, and that's where a lot of that part of things come in.

So, as we think about those things we're talking about today, Bridget, it's get enough life insurance, make sure you've got your wills in place, think about college, but not too much, maybe for grandma and grandpa. And then how do we think about our spending on things? How do we prepare for that?

And those last two things that are often on people's checklists, those are often the things in the front of people’s minds: “I've got to pay for college. How do we prepare for these things?” Those in many ways take care of themselves. Not that they're not important, but they're not worth focusing a lot of time on in my experience, both professionally and personally, in that it's those other two is that if you don't do anything, you're going to be able to pay for daycare.

Things will work out, but what you need to do—the two real action items—I think, for new parents is getting your wills in place and getting guardians for the kids and getting enough life insurance that you're protected. That's something that is not going to just work out if you don't do it. So that's sort of my takeaway on two really important things. And some of the things that maybe people hear or feel aren't quite as important, in my mind, are more important for young parents.

Bridget: So, with that, let's wrap it up. I'm, Bridget, Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago. And I'm with John Scherer, who's got a fee-only financial planning practice in Middleton, Wisconsin. And please subscribe! Now John, why don’t you close this out.

John: Sure, Bridget! Bridget and I are both members of the Alliance of Comprehensive Planners, which is a national group of fee-only, tax-focused financial advisors. If you like what you hear on our show, please check out to find an ACP planner in your area. And with that until next time, Bridget.

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