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pregnant lady and piggy bank

We've got baby fever at Whitaker-Myers Wealth Managers! Our excellent Financial Coach, Lindsey Curry, and her husband, Chris, welcomed their second baby girl into the world this last week. I lobbied for the naming of Jenny-Mark, after their favorite Smartvestor Pro; however, they made a more logical choice. Fidelity recently did a study that said the cost to raise a child in today's world is $233,610. Yikes! Sometimes I get frustrated with those surveys because I'm sure it scares people away from having kids (or more kids), which, as many of you know, are a tremendous blessing!

Fidelity's study states that your child's housing expense towards the aggregate $233,610 is $67,747. I don't know about you, but I live in my house regardless of the child. You might say, "don't you buy a larger house because of your family?" Some people might, but not me – I'll make our housing situation fit our children! My father-in-law grew up with five siblings in a three-bedroom house. You can make it work, friends! My friend on a national radio show has a larger home than most churches, and his kids are all grown. The point is that the financial side of raising children is not that much of a burden, if you're following the Baby Steps. It just requires excellent planning. So, in honor of our fantastic coach Lindsey, who helps many of our clients, let's walk through the five financial moves you should make when having a child.

Get Term Life Insurance

If you've been putting it off for whatever reason, now is the time to get this wrapped up. Term life insurance is extremely cheap and will provide your family with the financial security they'll need if you're gone. You'll probably need about a thirty-day window to get this put in place, so don't wait until the baby is born to make this happen. Additionally, we recommend you get ten times your income in life insurance. Suppose your income is around $50,000; you should buy about $500,000 of term life insurance. You also need to pick how long you'll have this life insurance. If you're having your last child, a 20-year policy may work, but if you're having your first child, you should consider a 30-year policy. Additionally, have your Financial Planner run your retirement projections because perhaps you'll be self-insured in 20 years, which may play into your decision.

Get Your Will / Trust Completed

I try not and get sentimental too often; however, when I held our firstborn daughter for the first time, I couldn't help but tear up. My wife and I had brought this wonderful blessing into the world, and now she's our responsibility. However, we serve a sovereign God; sometimes, His plans don't intersect with our projections. Therefore, if my wife or I are not going to be able to care for this child unless I draft a will or trust, the state will decide who cares for this child. Depending on family dynamics, there may not be a wrong choice, but family infighting can happen when one side of the family wants to care for the child while another side has the same thoughts. Be specific and make sure, if you have great relationships on both sides of the family to give the family, not providing daily care to the child, particular abilities to take them on family vacations and other fun trips, just as they would have done if you were still alive. Did you know: your Financial Advisor can help you get your will done with our national attorney partners.

Budget Update Time

If you're strong financially because you're in Baby Steps 4, 5 & 6, and you've been slacking on the budget, it may be time to bust out the pen and paper or EveryDollar and begin looking at how your budget may change. Especially considering inflationary trends that have rocked the "baby market," this is especially prudent in 2022. Fidelity, in their study stated, over the child’s lifetime you’ll need to prepare for the following expenses in the following amounts: Food - $42,050, Child Care & Education - $37,378, Travel - $35.042, Health Care - $21,025, Clothing - $14,017 and Entertainment - $16,353. Many of these numbers can be outright eliminated based on your situation; for example, if you're going to stay at home with the child, I would argue childcare becomes negligible; basically, your only childcare may be date night events. However, you'll have new expenses with the child, and it's a good idea to get them on paper, on purpose! Did you know as a client of Whitaker-Myers Wealth Managers, you have access to EveryDollar for free? Contact your Financial Advisor today!

Decide on Childs Investment Vehicle

Starting to save for your child as early as possible will help you win the compound interest game. Saving less early is easier than saving more later. For example, if I start saving $100 / month when the child is born, then by the time they're 18, with a 10% return, we'd estimate them to have around $60,000. However, wait until they're six years old (not even half the time til they are 18, which of course, would be 9), and the expected savings amount more than doubles to $217 / month to achieve the same $60,000. Save early!

There are three types of accounts you can utilize to save for your child, and below is a brief description of each.

UTMA (Uniform Transfer to Minors Account)

This type of account has no limit to how much you put into it, but when money is put into this account, it is considered the child's, even though you still control it, and thus you must follow the gift tax laws, meaning you can only gift $16,000 / per year, per person. If you're married, you could give $32,000 to each child each year. The UTMA has no tax breaks on contributions; however, you get $1,100 of tax-free growth each year and then $1,100 of growth taxed at the child's tax rate, each year. Additionally, you can use the money for any reason, at any time, as long as it's used for the child's benefit. At age 21, in most states, the money, if any is left, you'll stop being in control of the funds, and the child now retains control.

529 Plan

Each state has a different 529 plan, and each plan has its nuances; however, if you're in a state that has state income taxes, you should check to see if your state gives you a tax break, on your state return, for 529 contributions. For example, Ohio and Georgia allow you to deduct $4,000 per beneficiary yearly from your state return for monies put into the 529 plan. South Carolina allows a full deduction based on what dollars are contributed to the 529 plan. Florida and Texas don't have tax deduction benefits because they don't tax income in the state. All 529 plans allow the funds to grow tax-free and be withdrawn tax-free as long as they are used for qualified educational expenses. One drawback to the 529 plans is their limited investment options, which is not the case in the UTMA and ESA.

Educational Savings Account (ESA)

This one is a little more tricky because your income needs to be below a threshold of $110,000 if you're single and $220,000 if you're married. You are limited to saving $2,000 per year, which works itself out to $166 each month (see the example above how much that can grow to), and the money grows tax-free and can be withdrawn tax-free if used for qualified educational expenses. An ESA's investment options are unlimited, providing one significant benefit over the 529. However, you don't receive a state income tax deduction as you do with a 529. Someone in Texas, Florida, or Tennessee, may lean towards the ESA if they qualify. In contrast, someone in Ohio, Georgia, South Carolina, or any other state with an income tax must review their situation to determine if they should use a 529, ESA, or UTMA.

Check Your Employer Benefits

This may be an excellent time to review your employer's benefits. Things that were not valuable to you in the past may now be precious. Such as either a health or dependent care Flexible Spending Account. You'll be making extra trips to the doctor, even with a healthy baby, so you may consider using the FSA account for those additional doctor visits. If you're going to have someone watch your child, you should consider using the Childcare FSA to pay your childcare expenses. Further, if your health insurance provides you with a Health Savings Account, that is an even superior solution to the health FSA because you can roll the funds over yearly. Additionally, your employer may offer you disability and life insurance benefits that, while they probably shouldn't be your primary option, are certainly better than nothing and typically require no medical checks or exams.

Get Your Whitaker-Myers Wealth Managers Swag

We love when our clients have children. It certainly creates some unique planning opportunities, but it may be one of your most important jobs while on Earth: being a parent! We love to come alongside and help parents be great stewards of teaching their children about money. While they are under the age of three, there may not be much teaching, so let's at least help them look cool while they're that young. That's why we'd ask you to let us know when you have a baby. We'll send you two fantastic parenting gifts. The first is a copy of Dave Ramey's and Rachel Cruze's Book, Smart Money, Smart Kids, so when they do become old enough, you can help them become a Financial Peace Baby. The second is this awesome shirt (size: six-month-old) titled "We Love Small Caps," an excellent play on small companies we invest in and small kids!

t shirt design


September 4, 2022

John-Mark Young

Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm.  The information presented is for educational purposes only and intended for a broad audience.  The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed.  Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

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