Finances 101: Big Ticket Items
Experts generally agree that any money you plan to spend over the next 24 months should be kept in a safe and liquid (easily converted into cash-in-hand) savings or investment vehicle. These can be, high-interest savings accounts, government bonds, or certificates of deposits. Any investments in more volatile or speculative investments, such as stocks, can fluctuate in the short-term. This can cause uncertainty and expose you to the potential risk (and stress) that you may not be able to meet capital requirements, such as payments due on a specific date.
In a timely example of the extreme movements that can happen in the stock markets, on March 15, 2020 the S&P 500 (the 500 largest public companies in the United States) fell more than 11% on COVID-19 related fears. And just like that, a $20,000 investment turned into $17,800. Of course, stock markets can go up as well, but it is the uncertainty that we want to protect against in the shorter-term. In general, having a longer term perspective when it comes to investments helps many investors to avoid selling in down markets, which is precisely the opposite of what we would like to do.
Access to Additional Funds
In 2015, the U.S. Department of Agriculture estimated that it costs approximately $12,980 annually to take care of a child, with a significant premium for urban families. Taking into account annual inflation of just less than 2%, that comes out to approximately $14,000 USD annually in 2020. Yes, these are after-tax dollars. If we use an average tax rate of 30% the before-tax equivalent is more like $20,000. That’s a lot of money! Without going into details of the decisions that can impact these costs (that’s for another post), we wanted to highlight the financial resources available to parents.
First, there are an array of government grants and tax incentives depending on the country or state you live in. We are currently working on resources to help you navigate these options. To start here are a couple websites, including personal finance sources and government sources.
Resources Available Through Your Employer
There may also be additional resources available to you through your employer. Some employers offer a parental leave ‘top-up’ and additional childcare services. ‘Top-up’ is the term frequently used to describe the additional employer benefits above the standard government-mandated amount of money and/or time. For example, if the state you live in only has six weeks of compulsory maternity leave, some employers may top this up. In a competitive job market (and there will be a non-COVID-19 world again!) with record low unemployment, companies are keen to retain their top talent, and they’ve found parental benefits a compelling way to do this; we agree! We encourage you to explore options with your employer and plan to write a post on approaching these types of conversations to get the most benefits for you and your family.
Last Words and Personal Finance Tips
We would encourage you to think about your money holistically. What do we mean by this?
Pay down high-interest rate debt, such as credit cards, first and keep excess cash in a high-interest savings account when possible.
Maximize government sponsored savings and investment incentives.
Review your finances and your investment portfolio, if you have one, regularly to ensure that the asset allocation still meets your needs, such as timeline and risk tolerance.
We are working on additional resources, because money matters for future parents (well, for everyone). We hope you found this post useful! Feel free to reach out to us with comments and/or questions.
Disclaimer: all content we provide is written by people who really care, but who are not personal financial planners. We do not claim to provide guidance on your specific situation such as risk capacity, financial returns, financial leverage, etc., etc.
