Strong Financial Foundation in Early ParentingOct 25, 2023
Kids are expensive! Average infant childcare alone in the US is over $12,000/year. The first few years of parenting are a constant state of change, and it’s not easy to feel in control of your finances.
We all have to navigate our own unique set of family or societal pressures (“of course you should do parent-tot swim lessons!”) and career pressures (“will this childcare set-up work for our jobs and goals?”).
Below is Part 1 of the highlights of our conversation with Jamie Hanson, a seasoned behavioral financial advisor at Akamai Advisors and mother of two, where we discussed strategies for setting a strong financial foundation, with tips parents can leverage early on and continue adapting through college & retirement years.
You can check out the full conversation from our events page.
Getting Started - the Basics
1. Look & Understand: 3-6 months of Spending
It’s important to understand your financial flow - whether or not you have kids. Knowing (at a detailed level) where and when your money is spent is critical. I remember feeling stressed about our bi-weekly pay schedule when our large expenses (mortgage & daycare) were due on the first of the month.
Taking a deep dive into spending patterns over at least three months (preferably six), will give you a comprehensive understanding of your financial habits - you’ll be able to see consistent trends, separate from occasional events - birthdays, vacations, etc.
Monitoring expenses from credit or debit cards tends to provide more transparency than cash. By reviewing spending categories on credit card statements, you can better understand specific areas of spending, like dining out. Most of us underestimate our spending until we take a really close look.
And with young kids, you can start to see changing trends - like buying diapers less frequently for your 18 month old compared to your 2 month old.
Some tools to consider:
- An Excel spreadsheet can do a lot :)
- Goodbudget - acts as a digital version of the envelope method - allocating specific amounts to categories like dining out or entertainment, providing a visual representation of remaining funds. (Jamie’s rec)
- YNAB (You Need A Budget) - a budgeting app for zero-based budgeting, helping couples allocate their money to various categories and track spending in real-time. (I’ve used this for a few years)
- EveryDollar - Dave Ramsey’s budgeting app which includes goal setting, paycheck planning, and a financial roadmap.
- Honeydue - designed for couples to see all accounts, bills, and financial goals in one place.
2. Talk through your Goals & Values
As a behavioral financial advisor, Jamie works a lot with clients to develop and align core values, for families and individuals.
For instance, if saving for education is a family core value, and self-care is essential for an individual, finding a balance is key.
3. Check that the little things align with your goals and values
"The Latte Factor" by David Bach emphasizes the impact of seemingly small daily expenses. Many of us have heard this, right? Spending $5 on a daily latte can add up to $60/month or over $1000/year.
The key question is - does that align with your priorities? Or could those funds could be redirected elsewhere, like an emergency fund, retirement or education savings, or a pedicure?
The point is to recognize trade-offs; for instance, foregoing a weekly latte treat might mean redirecting that money toward savings or a different indulgence like a pedicure.
4. Consider Bulk Buying - where it makes sense
Buying in bulk at Costco or Sam's Club may be the most cost-effective option for shelf-stable items like diapers, Kleenex, and toilet paper if you have the storage space.
To know if you’re getting a good value for your money, you should look at the price per unit, shelf life, and most importantly - what you actually use. For perishable goods, will you use the full amount before the expiration?
When it comes to the enormous bottles of ketchup, I know one friend who would…but my family wouldn’t.
5. Consider Spending Distribution across Family Members
How do you decide to spend money across family members?
Jamie recommends identifying what fills each family member's "bucket" and tuning into what your kids value (time with you? Do they appreciate a park as much as the Children’s museum? A special visit to the library with a hot chocolate after?).
With her kids, Jamie has found that by letting them choose their interests, she avoids the stress of figuring out logistics and finances for activities they may not truly enjoy. As a result, their enthusiasm for chosen commitments (basketball) remains high because they're actively making those choices.
And we agree - we are better moms when we are relaxed, fulfilled humans.
It’s ok to let your kids see that a night with girlfriends or some alone time on a Saturday morning are personal priorities that support the family functioning well. Allocating time and priorities in a balanced way doesn’t have to involve more money.
6. Ask for & Accept Help
Expanding on allocating your family time to meet individual self-care needs - it helps a lot when your support network is larger than you and your partner.
Whether it's a nearby family member, a neighbor, or other parents at your daycare, take a look at the community around you and consider who you can pull in for help to win an hour for errands on your own, time to focus on a tricky project, or a lunch with your spouse.
Jamie shared her experience with Mothers of Preschoolers (MOPS) - the immediate connections she made with moms in different stages provided a supportive community and ensured her kids were cared for while she enjoyed a hot meal. The monthly gatherings became a vital source of rejuvenation, a non-negotiable on her calendar.
Getting help with kids doesn't necessarily require a significant financial investment; but it will likely take some effort and courage to connect with other parents, whether at organized groups or the playground.
What to Avoid - Common pitfalls & regrets
Jamie, what are some things that that really we should avoid doing in these first few years of parenting to put ourselves in good financial situation. What doesn't work? What do you see people do that? Then they really regret later, or are trying to dig out of?
1. Be careful about credit card use.
Addressing the idea of using them for points - you may get some dollars here and there, but the amount you spend on a credit card to earn those points is usually not a fair trade.
If you find yourself using a credit card and accruing debt just to get points, it's time to rethink.
Don’t get into debt for the sake of a few points - the interest you end up paying is often hundreds of dollars.
Call and ask if you need a due date that aligns better with your monthly cash flow, so you can pay them off quickly, every month.
2. Beware rationalizing big purchases - don’t touch your retirement money for them!
Jamie shares that she’s heard people say, "I'm going to take some money out of my 401(k) account to get myself out of debt."
But then the piggy bank is cracked open…and the feeling of having extra cash leads to a desired purchase (I’ve always wanted a boat! It will be great for family memories!)
So two significant things occur.
1. You put yourself in a worse financial situation in the long run.
2. Now that you’ve opened the "piggy bank," it becomes easier to rationalize doing it repeatedly.
Breaking into your retirement account (before retirement) should be considered the last resort—only in dire situations where you risk losing your home or facing severe consequences.
Ready to dig in on specific strategies for making the most of your money in the early parenting years?
Check out Part 2: Making the Most of Your Money: https://www.popinsfam.com/blog/making-the-most-of-your-money-in-the-first-years