Financial Review / Baby Prep

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Topic Author
ucj11
Posts: 5
Joined: Thu Mar 26, 2020 5:53 pm

Financial Review / Baby Prep

Post by ucj11 »

I’ve been a longtime lurker and am very grateful to have stumbled on the Bogle philosophy about 10 years ago when I was starting my career. This forum has been an incredible resource over the years for our personal finances...we’ve paid off $65K of student loans and worked hard to get a solid start on our nest egg.

My wife and I are planning on starting a family soon and are hoping for some perspective from the smart folks on here. We’d love some input on our portfolio and a double-check that we’re thinking about the right things.

Age: 31 / 28

Emergency Fund: 6 months

Debt: $421K mortgage, recently refinanced to 2.625% (30 year). Planning on this being our "forever" home.

Tax Filing Status: MFJ

Tax Rate: 24% federal, 6.35% state

Desired Asset Allocation: 100% equities

Household Income: $230K base + ~$45K bonus/RSUs

Current Portfolio: $465K
Other Assets: $88K (home equity)

Annual Savings:
Max 401k x 2 ($39K + $12K employer match)
Max Backdoor Roth IRA x 2 ($12K)
Max HSA x 2 ($7.1K)
Started investing in taxable over the past year ($400/per month)

Portfolio Breakdown:
401K ($304K): 80% Dryden S&P 500, 20% All World ex-US Stock Index Fund
HSA ($25K): 100% VFIAX
ROTH IRAs ($98K): 100% VTSAX
TAXABLE ($8K): 100% VTSAX

Thoughts/game plan for baby prep:
- Finalize term life coverage within the next month (would like to get this squared away before pregnancy)
- Reassess disability coverage through employers – confirm it’s adequate
- Set up wills and confirm beneficiaries are updated
- Research 529 plan
- Plan is to replacing one of our cars (12 year old Altima) prior to the baby arriving
- Consider/make decision on child care options

Would appreciate any feedback...also curious if there's anything else we should be thinking about.

Thanks for your input!
Last edited by ucj11 on Tue Sep 15, 2020 12:28 pm, edited 1 time in total.
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BolderBoy
Posts: 4983
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Financial Review / Baby Prep

Post by BolderBoy »

Looks like you are pretty well set.

My only other comment would be that if I were you I'd have at least some fixed-income, so at your ages I'd be shooting for 80/20 as an AA. Allows for strategic rebalancing when opportunities arise.

For example, in March I rebalanced from VBTLX -> VTSAX and in April/May I rebalanced again from VTSAX -> VBTLX, locking in some nice gains.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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geerhardusvos
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Joined: Wed Oct 23, 2019 10:20 pm
Location: heavenlies

Re: Financial Review / Baby Prep

Post by geerhardusvos »

ucj11 wrote: Mon Sep 14, 2020 8:10 pm I’ve been a longtime lurker and am very grateful to have stumbled on the Bogle philosophy about 10 years ago when I was starting my career. This forum has been an incredible resource over the years for our personal finances...we’ve paid off $65K of student loans and worked hard to get a solid start on our nest egg.

My wife and I are planning on starting a family soon and are hoping for some perspective from the smart folks on here. We’d love some input on our portfolio and a double-check that we’re thinking about the right things.
You’re looking good. I am a similar age and we are 100% stocks, so don’t let others tell you that this is not advisable. You and only you can know your risk tolerance, so as long as your behavior will be to continue to buy and stay the course, 100% stocks will be your best option over the next 20+ years. Congratulations on your success so far. Continue to max out your retirement accounts. Good for you for having the expectation that you will stay in your current house. That is a good financial decision if you are able to not get the urge to buy a different house 5 to 10 years from now. With your low interest rate, just keep investing instead of paying down the mortgage. Continue to keep your standard of living in check, and enjoy these months ahead of the baby coming. It’s going to be a fun time being parents, but you will not regret going out on a couple more dates or taking a trip ahead time! Getting a will set up and an estate plan is a great idea. Don’t stop investing, and enjoy these next years! They are some of the sweetest. Great work :beer

How much do you guys spend per year? Do both of you plan to continue working?
VTSAX and chill
dts_12
Posts: 13
Joined: Mon Feb 03, 2020 5:34 pm

Re: Financial Review / Baby Prep

Post by dts_12 »

Wow your situation is very close to ours, other than we already have the kid (she's now 19 months and we're 33/30 years old) and your balances are slightly higher than ours probably because of my wife's grad school. A couple of other things to think about. We set aside some cash for paying for delivery costs. Not sure how good your insurance is but it can easily cost thousands of dollars if you have a complicated delivery or if you even make eye contact with an anesthesiologist. Also day care is insane. Call as soon as you guys are pregnant and get an idea of wait list and price. Ours had almost a year long waiting list which 40 weeks of pregnancy eats up a lot of. Daycare was also a material change in our monthly P/L. Formula can get out of hand. We were spending hundreds a month on it at one point.

Just some food for thoughts
Topic Author
ucj11
Posts: 5
Joined: Thu Mar 26, 2020 5:53 pm

Re: Financial Review / Baby Prep

Post by ucj11 »

Thanks for the replies so far, much appreciated.
How much do you guys spend per year? Do both of you plan to continue working?
We spend ~$65K-$70K per year (included a lot of initial house expenses, e.g. furnishing/landscaping).

We both will continue working.
Jboglecmu
Posts: 29
Joined: Sun Nov 03, 2019 7:56 am

Re: Financial Review / Baby Prep

Post by Jboglecmu »

Looks like you are doing very well! We opened a 529 in Illinois because of the tax deduction for state residents. It's been inconsistently funded, but once daycare expenses subside in the next couple years, we will catch up. I used to hate the thought of daycare, but it has been the best thing for our kids. Our daycare bill is more than our monthly mortgage and escrow payment, but still with it.

Costco membership for diapers.... drink when no one is looking.
regularguy455
Posts: 217
Joined: Tue Jul 18, 2017 2:08 pm

Re: Financial Review / Baby Prep

Post by regularguy455 »

Even at your income level, daycare may have a material impact on your budget. Make sure you shop around once you are pregnant to get a sense of how much things cost and secure a spot (the earlier, the better).

If you can, see if you have indemnity insurance (AFLAC) through you or your wife’s employer. Some plans pay your wife cash for her time in the hospital BUT she must have had the plan for at least 10 months. Definitely worth a look.

For cars, we have lots of friends who purchased SUVs but we sprung for the minivan. If you can get over the mental hurdle of driving it, it’s an incredibly practical vehicle. DW and I love it.

Good luck to you and your family!
HomeStretch
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Joined: Thu Dec 27, 2018 3:06 pm

Re: Financial Review / Baby Prep

Post by HomeStretch »

Check whether either employer offers a FSA for dependent care that allows you to use pre-tax $ to pay childcare expenses.
ucj11 wrote: Mon Sep 14, 2020 8:10 pm Max Backdoor Roth IRA x 2 ($13K)
Likely a typo, but 2020 IRA contribution limit < age 50 is $6k for a combined $12k.
Topic Author
ucj11
Posts: 5
Joined: Thu Mar 26, 2020 5:53 pm

Re: Financial Review / Baby Prep

Post by ucj11 »

Confirmed that we both have dependent FSAs available - good call out. Will definitely plan to use this.

The other thing I should have mentioned in my original post is we’re thinking of keeping more cash accessible to help ease the spike in expenses (daycare, diapers etc). We’ve talked to some friends with young kids and the cost of daycare is a bit staggering :shock:
runner540
Posts: 1314
Joined: Sun Feb 26, 2017 5:43 pm

Re: Financial Review / Baby Prep

Post by runner540 »

ucj11 wrote: Tue Sep 15, 2020 12:27 pm Confirmed that we both have dependent FSAs available - good call out. Will definitely plan to use this.

The other thing I should have mentioned in my original post is we’re thinking of keeping more cash accessible to help ease the spike in expenses (daycare, diapers etc). We’ve talked to some friends with young kids and the cost of daycare is a bit staggering :shock:
Relatively new parent here, both parents working outside the home, slightly lower total salaries. Feel free to PM me with other questions.
Get life insurance ASAP. A pregnancy complication could affect underwriting.
Day care is expensive. It's incredibly valuable - they are taking care of your child! If you don't do it already, now is the time to start using a budget app (YNAB, etc.) to get data you can use about how to fit it in your budget. Shop around to find a daycare that works for you (style, teachers, location, schedule, etc). We toured a bunch: multiple locations of a chain, and some smaller independent centers. Huge range in cost, that did not correlate with quality. With $230k salary ($19k/month) you can fit it in. While having a cash cushion for medical expenses is fine, I think you should try to cover daycare in your monthly budget, not pulling from savings to do so. It's an ongoing expense for years.

Dep FSA $5k limit is per couple. You can't both defer $5k each. What we do is, budget the full monthly cost of daycare in our monthly budget. Then as we file and receive reimbursements from the FSA, that money goes toward the 529. It's mental math but it keeps the accounting much cleaner.
dts_12
Posts: 13
Joined: Mon Feb 03, 2020 5:34 pm

Re: Financial Review / Baby Prep

Post by dts_12 »

runner540 wrote: Tue Sep 15, 2020 1:35 pm
ucj11 wrote: Tue Sep 15, 2020 12:27 pm Confirmed that we both have dependent FSAs available - good call out. Will definitely plan to use this.

The other thing I should have mentioned in my original post is we’re thinking of keeping more cash accessible to help ease the spike in expenses (daycare, diapers etc). We’ve talked to some friends with young kids and the cost of daycare is a bit staggering :shock:
Relatively new parent here, both parents working outside the home, slightly lower total salaries. Feel free to PM me with other questions.
Get life insurance ASAP. A pregnancy complication could affect underwriting.
Day care is expensive. It's incredibly valuable - they are taking care of your child! If you don't do it already, now is the time to start using a budget app (YNAB, etc.) to get data you can use about how to fit it in your budget. Shop around to find a daycare that works for you (style, teachers, location, schedule, etc). We toured a bunch: multiple locations of a chain, and some smaller independent centers. Huge range in cost, that did not correlate with quality. With $230k salary ($19k/month) you can fit it in. While having a cash cushion for medical expenses is fine, I think you should try to cover daycare in your monthly budget, not pulling from savings to do so. It's an ongoing expense for years.

Dep FSA $5k limit is per couple. You can't both defer $5k each. What we do is, budget the full monthly cost of daycare in our monthly budget. Then as we file and receive reimbursements from the FSA, that money goes toward the 529. It's mental math but it keeps the accounting much cleaner.
When we were looking at daycares I felt like for the 10% higher cost you got 40% better service. It sucks that its so expensive but a good day care is so valuable. This whole covid situation has only made some of those differences more glaring.
runner540
Posts: 1314
Joined: Sun Feb 26, 2017 5:43 pm

Re: Financial Review / Baby Prep

Post by runner540 »

dts_12 wrote: Tue Sep 15, 2020 2:44 pm
runner540 wrote: Tue Sep 15, 2020 1:35 pm
ucj11 wrote: Tue Sep 15, 2020 12:27 pm Confirmed that we both have dependent FSAs available - good call out. Will definitely plan to use this.

The other thing I should have mentioned in my original post is we’re thinking of keeping more cash accessible to help ease the spike in expenses (daycare, diapers etc). We’ve talked to some friends with young kids and the cost of daycare is a bit staggering :shock:
Relatively new parent here, both parents working outside the home, slightly lower total salaries. Feel free to PM me with other questions.
Get life insurance ASAP. A pregnancy complication could affect underwriting.
Day care is expensive. It's incredibly valuable - they are taking care of your child! If you don't do it already, now is the time to start using a budget app (YNAB, etc.) to get data you can use about how to fit it in your budget. Shop around to find a daycare that works for you (style, teachers, location, schedule, etc). We toured a bunch: multiple locations of a chain, and some smaller independent centers. Huge range in cost, that did not correlate with quality. With $230k salary ($19k/month) you can fit it in. While having a cash cushion for medical expenses is fine, I think you should try to cover daycare in your monthly budget, not pulling from savings to do so. It's an ongoing expense for years.

Dep FSA $5k limit is per couple. You can't both defer $5k each. What we do is, budget the full monthly cost of daycare in our monthly budget. Then as we file and receive reimbursements from the FSA, that money goes toward the 529. It's mental math but it keeps the accounting much cleaner.
When we were looking at daycares I felt like for the 10% higher cost you got 40% better service. It sucks that its so expensive but a good day care is so valuable. This whole covid situation has only made some of those differences more glaring.
It's very specific to your kid/family's needs and geography. One independent was 40% cheaper and a lot better. Among the more expensive chain ones (3 locations) 2 were pretty good, one wasn't. YMMV. No substitute for visiting and researching. OP, you might want to pay a deposit/application fee at multiple places to keep options open.
dts_12
Posts: 13
Joined: Mon Feb 03, 2020 5:34 pm

Re: Financial Review / Baby Prep

Post by dts_12 »

runner540 wrote: Tue Sep 15, 2020 3:00 pm
dts_12 wrote: Tue Sep 15, 2020 2:44 pm
runner540 wrote: Tue Sep 15, 2020 1:35 pm
ucj11 wrote: Tue Sep 15, 2020 12:27 pm Confirmed that we both have dependent FSAs available - good call out. Will definitely plan to use this.

The other thing I should have mentioned in my original post is we’re thinking of keeping more cash accessible to help ease the spike in expenses (daycare, diapers etc). We’ve talked to some friends with young kids and the cost of daycare is a bit staggering :shock:
Relatively new parent here, both parents working outside the home, slightly lower total salaries. Feel free to PM me with other questions.
Get life insurance ASAP. A pregnancy complication could affect underwriting.
Day care is expensive. It's incredibly valuable - they are taking care of your child! If you don't do it already, now is the time to start using a budget app (YNAB, etc.) to get data you can use about how to fit it in your budget. Shop around to find a daycare that works for you (style, teachers, location, schedule, etc). We toured a bunch: multiple locations of a chain, and some smaller independent centers. Huge range in cost, that did not correlate with quality. With $230k salary ($19k/month) you can fit it in. While having a cash cushion for medical expenses is fine, I think you should try to cover daycare in your monthly budget, not pulling from savings to do so. It's an ongoing expense for years.

Dep FSA $5k limit is per couple. You can't both defer $5k each. What we do is, budget the full monthly cost of daycare in our monthly budget. Then as we file and receive reimbursements from the FSA, that money goes toward the 529. It's mental math but it keeps the accounting much cleaner.
When we were looking at daycares I felt like for the 10% higher cost you got 40% better service. It sucks that its so expensive but a good day care is so valuable. This whole covid situation has only made some of those differences more glaring.
It's very specific to your kid/family's needs and geography. One independent was 40% cheaper and a lot better. Among the more expensive chain ones (3 locations) 2 were pretty good, one wasn't. YMMV. No substitute for visiting and researching. OP, you might want to pay a deposit/application fee at multiple places to keep options open.
Yeah I mean if you can get better service for cheaper then its a no brainer. I'm just saying that maximizing the quality of care has been worth the marginal cost in my experience. You're spot on though we put money down multiple places so that we had options as it got closer.
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Watty
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Re: Financial Review / Baby Prep

Post by Watty »

ucj11 wrote: Mon Sep 14, 2020 8:10 pm Would appreciate any feedback...also curious if there's anything else we should be thinking about.
It would be good to also run your numbers to figure out how you could make it work if you had to go down to one income for a while. Be sure to do this in after tax dollars since the after tax hit to your budget may not be as much as you might think especially after you deduct things like commuting costs, business wardrobe, lunches, etc.

One issue is that if your kid has even temporary and minor health issues then using daycare may not desirable or even possible option so you may need to go down to one income for a while.

It is also not uncommon for people who plan on using daycare to actually get to the point where they would need to drop off a very young infant at daycare then change their minds and have a stay at home parent for a few years instead.

Another factor is that with the pandemic it will be a long time, at best, until things get back to normal. If the COVID situation is the same as it is now then I would feel real uncomfortable with dropping a kid off at daycare.

You would need to cut back on your retirement savings some but I would think that having a stay at home parent would be very doable for you.

Of course being a stay at home parent can be some of the hardest work you will ever do and it will drive some people up the wall so also look at the numbers to see what it would cost to have a nanny come in to your house to do daycare while you have an infant.

If you have more than one kid (including having twins :shock: ) then the numbers for having a stay at home parent work even better since daycare for multiple kids can get real expensive.

It would also be good to figure out a plan for how you would pay for fertility treatments or adoption costs if you need to.
perceptionist
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Joined: Tue Mar 29, 2011 10:58 pm

Re: Financial Review / Baby Prep

Post by perceptionist »

I think you guys are doing well, have a great salary and our covering your basis. There are many good 529 plans these days. We chose the Utah 529 plan. How much that impacts you will depend on how much you decide to contribute. We only put a modest $500/month total for both kids, but luckily my parents put a nice lump sum when they were born. Daycare can get expensive, but shop around. In my area (Northern California) the prices vary significantly. Our oldest is now in kindergarten and decided to put him in a private school so his preschool tuition is now a wash. Actually it's a little more expensive then preschool, but it would have been nice to pocket that extra cash for more taxable investments. Same goes with our youngest who is only 2. Financially it would be nice if they both end up in public schools, but if not we can handle the cost of 2 children in private school and still max out retirement and save/invest in taxable accounts. On the otherhand it would be nice to invest another $16-18k/year. Luckily their private school is not ridiculous in price. It would definitely ramp up our net work in the next 10+ years if we invested that money instead.
beachairs
Posts: 20
Joined: Mon Jul 13, 2020 2:43 pm

Re: Financial Review / Baby Prep

Post by beachairs »

runner540 wrote: Tue Sep 15, 2020 1:35 pm
Get life insurance ASAP. A pregnancy complication could affect underwriting.
We made this mistake, signing up for term insurance while I was pregnant. Definitely do it before pregnancy.

For 529, we waited until kid started kindergarten since daycare was costing us $2000/month. I have no regrets.

It has been our experience that people LOVE to get rid of baby stuff. Take advantage! You may think you need a brand new crib that matches the decor of the nursery (we were not those people) but really, any (safe) crib will do. Lots of ways to not throw away $$$ on baby stuff that is only used for short time period. Spend on new where necessary like car seats.
Topic Author
ucj11
Posts: 5
Joined: Thu Mar 26, 2020 5:53 pm

Re: Financial Review / Baby Prep

Post by ucj11 »

We'll definitely prioritize locking in the life insurance in the event of any pregnancy complications. In regards to daycare, we have a couple options identified based on proximity/recommendations but we'll make sure to start the process early.
It would be good to also run your numbers to figure out how you could make it work if you had to go down to one income for a while. Be sure to do this in after tax dollars since the after tax hit to your budget may not be as much as you might think especially after you deduct things like commuting costs, business wardrobe, lunches, etc.
I hadn't considered this but will certainly do the analysis and see where we land.
It has been our experience that people LOVE to get rid of baby stuff. Take advantage! You may think you need a brand new crib that matches the decor of the nursery (we were not those people) but really, any (safe) crib will do. Lots of ways to not throw away $$$ on baby stuff that is only used for short time period. Spend on new where necessary like car seats.
Love this idea and echoes what I've heard in the past. Thanks for the reminder.
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