Speaker 1 00:00:08 What's up, everyone. Welcome to the finance for physicians podcast. I'm your host, Daniel Raimi. Join me as we dig into what it looks like for physicians to begin using their finances as a tool to live better lives. You can learn more about our
[email protected] let's. Jump into today's episode. What's up guys. Welcome to another show. I have a guest with me today, Heather Livalo. And, uh, we're excited to talk to you today about prepping for having a baby. There's a lot of financial stuff that can go into that and just a lot of planning in general. And so, um, we're going to be covering some of the things kind of like high level to think about as you approach that big time in your life and hopefully hit on some of the things maybe you haven't heard, uh, or at minimum kind of give you, like I said, some of those big things to think of, think about as you approach that point in your life. But, uh, before we jump into that, I was hoping to have Heather kind of give a little quick intro. She's not been on before. Heather is one of the planners at our planning firm. And so she's working in the trenches with us and working with some of the families that we work with day by day. So if you, if you work with us, you probably know Heather already, but, uh, for those that don't know you, Heather, can you give kind of a quick intro and, uh, we can jump into this.
Speaker 2 00:01:28 Yes. Thanks Daniel. It's a pleasure to be joining you today. I have been with run financial planning for a little over a year now, and I first got started as a client service associate and that's how probably most of our listeners who work with our firm would know me. Um, but I am working remotely from Florida and have been enjoying the weather here lately. I have two children, so I am experienced and prepping for baby, uh, with all things financial and otherwise. So happy to talk about this. Uh, cause I know as I was approaching having my first child, especially there was a lot running through my mind, especially with my financial planning background as far as okay, what do we need to do?
Speaker 1 00:02:13 Yeah. And so also Heather is our newest CFP or certified financial planner. So she's, she's also got, she didn't give herself total credit there. She's definitely got some, some, uh, good like technical knowledge to there and, but really, you know, experiences a lot of it. So I guess between the two of us, I have three kids, you have two, so we got five kids there. Uh, and then if you look at our client base, we got like a million kids. So
Speaker 2 00:02:36 Yes, yes. And more on the way.
Speaker 1 00:02:38 Oh yeah. Lots, lots of kiddos. It's funny. We, as financial planners tend to, a lot of times be like the first person that finds out. It's not, I mean, it's like a weekly conversation I get into with people where they're like, do we want, I can tell they were about to tell me, but they're like looking at each of own. Do we do we do, do we want to tell them? And, and then I know what's coming and then they they're like, yeah, we're expecting, but, but like we haven't told anybody yet.
Speaker 2 00:03:01 Right.
Speaker 1 00:03:02 I'm like, okay. You know, I guess, which is, is a kind of a cool spot to be in and they're coming from the right brain place. Cause they're thinking like, you know, many of you guys listening, they want to make sure they're kind of covering their bases, planning wise and thinking about what they need to think about now that they know it's happening. So it's, it's just, uh, there are quite a few things to think about, especially on your first kid. In my experience has been like the, I guess anxiety level or like planning, concern, decreases each child. We have to the point and I'm kinda like a little lower on like the urgency and my wife is much more, um, it's funny for to say this cause I'm a financial planner, but my wife is the planner in our households as well. She has a very high concern.
Speaker 2 00:03:54 It's a very real thing as you are approaching, having a kid. Um, and I, I know, especially with, um, my first, everybody wanted to give me advice on all of the things and that can be a bit overwhelming and a bit confusing and make you feel like you don't know what you're doing. So
Speaker 1 00:04:13 Yeah. So I guess maybe a disclaimer having children is it should not be, or is really kind of not a financial decision. I mean, obviously because you know, children always costs more money. I mean, they're, it's expensive to have its additional mouth to feed. And I mean, so it's going to have an impact, you know, I guess it's going to have a cost impact on your financial affairs. And so every once in a while people are like, when is the right time financially to have children? And I'm like, never, you know, cause it's gonna always cost. So I think it's from a starting point, I think it's better to kind of frame it. Like this is a values-based decision and then we'll kind of make the finances work around it. So there's definitely all kinds of financial things to be thinking about, you know, kind of around it all.
Speaker 1 00:05:02 But at the end of the day, you're having a child and you need to focus on that and like loving the child and the figuring out the parenting thing, because you know, there's not, that's the Bart, uh, that's fun and challenging and exciting and all that sort of thing. So absolutely. So yeah. So what are, maybe we could start with like the, probably the, the most common things that come to mind, um, that people are thinking about, and then we can circle back to some of the things maybe that they they're less likely to, and maybe their financial planner or somebody like us would be, you know, reminding them of. So what do you think are the things that come to mind is like the biggest things or the top things people think about?
Speaker 2 00:05:43 Probably the first few things that comes to mind is planning for education savings, the initial medical expenses. So the cost of having a baby, like actually having a baby and then thinking about all of the stuff that you feel like you need to buy, um, you know, the gear that are kind of big expenses, as well as some ongoing expenses related to maybe childcare, you know, um, if you're gonna both be working outside the home, um, or going back to work after one or both of you is able to take leave if you can. So
Speaker 1 00:06:21 Yeah, so some of the upcoming expenses and then maybe education, I would agree, it seems like education tends to pop up and be a common thing people were thinking about. And they're really thinking about like, do I, the question I is more like, do I need to start saving for education? Like immediately, what is, is that, is that the something we should also be doing? So, and that kind of falls in line with all these expenses that we're talking about. So let's start like sooner or, you know, the most, the first expenses, like I guess that people would be seeing. So like, you know, prepping the furniture or the, you know, the, all the baby stuff and, and then maybe the healthcare expenses, I think for us, it was just more like getting it all on paper, I guess that's how we operate. And sometimes you just don't have enough time to, you kinda just have to make do with things, but ideally you have kind of a list of things that you would like to do and then kind of a priority order list.
Speaker 2 00:07:23 So when you say put it on paper, do you mean the items that you're buying, like car seat, crib, that kind of thing, like listening it out?
Speaker 1 00:07:29 Yeah. Like a checklist and kind of a ballpark dollar amount or maybe some of it you're hoping to get it like a shower or something like that, or, but kinda like just, uh, like the, the financial planner in me is like, let's get a kind of an inventory of all of it and start to kind of work backwards from there.
Speaker 2 00:07:49 Sure, sure. And you can find some pretty good samplings of checklists online. Um, you know, a lot of companies are happy to provide that for you because they would like to sell you their products. Correct. And of course not everything is needed that you think, uh, is needed, which I, I think it gets back to whenever you have, uh, your second, third and beyond you realize how much stuff you didn't need as what you might've thought the first time around. Um, but that being said, you know, car seat crab, like there are some big purchases that certainly you're going to have to get.
Speaker 1 00:08:26 Yeah. We're, we're probably not going to offer much advice and value around the, you know, these specific categories, a lot of it's personal and, you know, we're kind of focused on, you know, more of the financial aspects beyond this point in time. But I think, you know, the main takeaway is kind of do your best, do your best to get a good inventory. So you kind of have an idea of the impact there and what effect it's going to have on your budget. And I would say the other thing that I would add is ideally you are at a point where you have like a nest egg, you know, like a savings to spend on this is just one additional reason to kind of like start saving money in your savings account to kind of, we call it, we always call it a major purchase savings, but like, ideally you have like a savings account kind of like dedicated to these sorts of like one time bigger purchases.
Speaker 2 00:09:22 Sure. And then this is beyond what you would have in your emergency fund.
Speaker 1 00:09:26 Yeah. Ideally, right. Yeah. You get emergency fund is the unexpected and then this would be the expected stuff. So, so let's talk a little bit about some of the expenses that would happen, um, around, I guess, the medical expenses. Cause there's a little bit of, um, uh, I guess there is, this starts to get into some of the, uh, you know, different vehicles you can use and, um, you know, tax related stuff and, and that sort of thing. So what's a good starting point when we're looking at like the health assets, you know, the, the medical coverage aspect of it.
Speaker 2 00:09:58 Well, one of the main things really is to take a look at what your insurance policy will cover and, and that can vary from situation to situation. And also it might depend on, um, what type of birth you are hoping to do. So for example, I, I did an at home birth and so I paid for that out of pocket. That was not something that my insurance covered. And I know for some, you know, their insurance will cover perhaps a more traditional hospital expenses, but if they want a midwife or a doula, uh, to be present, um, that might be an extra service that insurance isn't gonna cover.
Speaker 1 00:10:35 Yeah. So like in our experience, we went to, you know, more, I guess, the go to the doctor route and hospital and that kind of thing. I know when you go to the, your typical OB GYN is going to have like at their office, a lot of them will kind of like on the front end, set you up with a payment plan kind of thing, where they already run it through your health insurance and can tell you kind of like what the cost is going to be. I think the huge thing about that that sometimes might get overlooked is that they're not considering the ho hospital aspect, which oftentimes is the biggest expense, especially if you end up in like complications or C-section and that kind of stuff, uh, or, you know, NICU, and that's where it really, uh, can rack up. And so I think it's best like Heather was saying is to, uh, look into your health insurance or whatever healthcare costs would be covered and not covered there. And personally, I would air on the high side, I would kind of go, usually this is with our clients. This is typically the first time they max everything out.
Speaker 2 00:11:44 Right. And they're like,
Speaker 1 00:11:45 Oh man knows that high. So I would plan for, or lean towards the higher end of the cost spectrum. Um, because you don't know. And it's, I don't know, I don't know the percentage on this, but I would, I know a ton of people that have had C-sections so sure. Yeah. You know, in our experience, my wife had three C-sections, so they're, they're super expensive.
Speaker 2 00:12:08 Right, right. And sometimes you can, you know, you know, that going in you're planning on doing a C-section. Yeah,
Speaker 1 00:12:14 Yeah, yeah. We did. After, after the first one it was planned, it was once you know that, um, the other thing too, is you can, you gotta keep your eye on these, um, insurance companies. I mean, their insurance companies are, you know, they're, they are what they are, but they're in the business of, um, you know, making money as well. And so there, what I see sometimes happen with the insurance companies is they kind of stick you on these out of network in network things, especially when you get into hospital stays and that kind of thing you, I, I think it's just good in general to get an idea of what you're looking at in terms of like, you know, whether you're going to go to the hospital or have a child at home or whatever what's going to be covered and not covered who's out of network who's in network. And then once it gets, you know, after the fact double-check that, because like I've seen it many times with clients in my own experience, there was multiple expenses that they called out a network that should not have been out of network. Um, and that's a big, huge cost difference. So you got to keep an eye on the insurance company in general. Um, and more information is better always in this example. And it's definitely, I would, I would err on the side of high high costs.
Speaker 2 00:13:22 Sure. The other thing too is making sure you understand ahead of time, how to add your new baby to the insurance plan, what the process is for that, um, and how quickly you can accomplish that.
Speaker 1 00:13:36 Right. And whose insurance should you add the job if you're married, whose spouse, if they, if you both work, which spouse should you add your child to
Speaker 2 00:13:44 Exactly you might want to reevaluate, um, whose coverage you're under, which persons, perhaps family coverage might be better. And in some cases you might have one person sticking with an individual plan and then the child is covered under the other person's plan.
Speaker 1 00:13:58 Yep. And there's not a one size fits all answer at all here. There's no good rules of thumb. It's gonna always be, you know, personal circumstances and, uh, looking at what you have available. Um, there's also the, um, you know, on top of the health insurance, there's like the, um, tax sheltered healthcare, I guess, healthcare savings type plan, things like the HSA and FSA, right. Or M M S a what's the other one Heather in HR, I get all the acronyms messed up, but HSA F S a H R a is another one, but there's a whole handful of like healthcare, like savings account type things you can put money into. And then you use it for out of pocket costs.
Speaker 2 00:14:44 Yeah. Yeah. The HSA is, seem to be the most common one, um, that, that we see. And, uh, of course when you have family coverage, the amount that you can put towards that increases.
Speaker 1 00:14:57 Yeah. And the FSA, um, is typically for lower deductible plans, you know, on average, it doesn't have to be, but it's most of the time, I think if we're talking big picture, cause every, like I was saying earlier, every plan is going to be different. But if we're talking big picture, I think in general, it's a really good idea to, you know, if we're talking early in the game to be thinking about like, can you fund those types of accounts more aggressively to help cover these higher than normal out-of-pocket expenses? Cause I mean, every once in a while, like, especially for you guys that are working at like academic hospitals, in some cases, it's like the, the, the cost is really high, but like you just have a really good health insurance and you might only be paying like a hundred bucks out of pocket for having a child.
Speaker 1 00:15:45 So there are those kinds of situations, but in most cases it's going to be pretty expensive out-of-pocket. And so ideally you're, uh, you know, getting ahead of that and putting some, starting to save, you know, maybe a little more than normal into one of those healthcare type savings accounts, uh, because the tax benefits are really good on those. It's like, otherwise you're gonna have to pay with like, after tax dollars. And so if you can, those accounts, basically the gist of them is they allow you to pay for those out-of-pocket expenses with pre-tax money, which is, you know, definitely much, much better. So those are some of the kind of one-time medical and other expenses. I think the next thing that might be good to look at is, you know, now that you're, you've had the child, you're, you're leaving the hospital, they're like, okay, you're on your own. And you're like, what the heck? I don't know what I'm doing. That's normally how it goes. That's how it went for me. Yes. I'm like, are you sure I can leave?
Speaker 2 00:16:42 Yeah. It is. Sometimes it's almost like, is this legal for me to be taking care of this tiny human all by myself now?
Speaker 1 00:16:50 Yeah, yeah. Yep. But that's how everybody feels. Everybody
Speaker 2 00:16:55 Feels that way that you can't really prepare for. Right. Got to
Speaker 1 00:16:58 Do it. Yeah. But outside of that, there typically are some like pretty decent expense changes and um, like ongoing expenses or maybe one-time expenses and
Speaker 2 00:17:11 The diapers, diapers, diapers. Yes. Yes. So factoring into your budget for the types of things that are now going to be an ongoing cost, caring for a child, you know,
Speaker 1 00:17:24 Unless you're going to do cloth diapers or something. Well, even,
Speaker 2 00:17:27 Even with that, it's still an expense.
Speaker 1 00:17:31 Do people still
Speaker 2 00:17:31 Do that? I don't hear about that as often, but I know that people still do it. Um, one thing that I have heard from friends that have done it is of course there is a big upfront cost for the supplies. But one thing that you might want to factor in is increased costs for laundering. If you were doing the cloth diapers, so increase in water and energy expenses.
Speaker 1 00:17:53 Yeah. So I guess as a result result of the profession, a lot of you guys listening are in as if, if you're, if you're a physician like in training, those sorts of expenses are gonna be, you know, you'll feel them a little more now in practice. The average physician's income is high enough that, that you're probably not going to feel those like little changes like diapers and food, whatever clothing type things, those will in our experience. A lot of times it's not even, unless you're really watching the money. Um, you know, some of, some of you guys I'm sure like watch your expenses closer than others. And so in that case, you will notice a difference, but just percentage of income wise, when you're in practice, those sorts of things have a much lesser percentage impact. And so a lot of times you can kind of just roll through that and not really feel it. Now, when we start to get into some of the other stuff like nanny, that's a big one or childcare in general that most people, you gotta be making a lot of money to not feel that one.
Speaker 2 00:18:54 Sure, sure. Yeah. You can't just counter that off of, okay. We're not eating out as much because we have this tiny human, so we're staying in more and we just roll it in. Now the childcare expenses tend to take a bite out of the budget.
Speaker 1 00:19:06 Yeah. It's expensive. And so like a nanny, for example, that's, that's all, you know, the higher, the highest, uh, I guess example, I mean, you got to think about it. You're basically employing someone and so they have, have to earn a reasonable wage. And so I think nannies costs maybe 40,000 a year, but as an average, and that's probably some areas might be more than that, or it depends on that. I mean, you don't have to have them full-time or whatever, but a nanny is going to be very expensive. And so that's going to be, I think the, the big thing is just going back to like what I was saying with the inventory. It's like just kind of get all those on paper, what you're thinking you're probably going to be doing and start to estimate, you know, what that might cost in your area, or you can ask around or that sort of thing. The big thing about the childcare or the big thing about the nanny, especially what's what would you say, Heather, um, is the thing that people miss a lot with that
Speaker 2 00:20:07 Ooh, the effect on the taxes making more
Speaker 1 00:20:12 Always. Yeah. And then sometimes I, people maybe kind of know the effect on the taxes and they just it's, it's complicated to do that. And so they just, uh, or they can't find help that won't take cash or whatever, but, um, it definitely has, if you want to follow the rules and we
Speaker 2 00:20:31 Encourage you to do that.
Speaker 1 00:20:33 Correct. Right, right, right. Uh, and always we're talking about tax stuff. So always, we gotta throw out the disclaimers there to refer, to get good tax advice from your accountant. You guys know that, but, uh, it does what happened, what we're basically talking about is, um, household employees, like when you pay someone that sort of wage and they're working for you regular hours, it's really difficult. Or maybe even impossible to argue that they're not an employee of yours. And so a lot of people employ nannies, not employee employee is not the correct word. A lot of people have nannies working for them that are independent contractors. So an independent contractor, you just write checks to, or just give them cash. Like it's their responsibility to do all the other stuff. And if you're just working with an independent contractor, it's, you don't have to worry about all that stuff.
Speaker 1 00:21:27 Like employing stuff. Like the stuff that comes with employing people would be like withholding taxes or making sure social security is funded and all that. There's a law, you know, a list of things that are required. Um, if you're just having an independent contractor, just paying them cash, that's, it's simple. You just write them a check. Um, but the problem is that it's very difficult. Or like I said, maybe impossible to consider, uh, most nannies as an independent contractor. And so that's where the issue is, is a lot of people are paying their household employees or nannies as, um, independent contractors when they clearly should be employees. I taught, we recently got audited. This is like normal audit from unemployment insurance in Kentucky. And I was talking to the editor about it. And he's like, yeah, that's totally like, that's like always something we're dealing with is so many people are not paying their household employees correctly and constantly it's an issue for them to kind of fix most of the con. He says, most of the time, it's, you know, just not knowing this is a thing even in the first place. So if you're, if you are kind of potentially going that direction, ideally you get this right on the front end.
Speaker 2 00:22:41 Yes. And there are agencies that can assist with this. If it's not something that you want to handle yourself and some agencies where you would hire a nanny even are going to be including that as far as like you're basically paying the agency instead of paying the nanny directly. So there are some different ways that, that you can do these things without having to get into all of the intricacies yourself.
Speaker 1 00:23:05 Yeah. Or you can, um, you can handle the hiring and, you know, and then just outsource the payroll aspect. Cause the payroll part is a lot of where that kind of stuff that you gotta deal with comes into play. And then the second, the part two of that is not only you have to pay them as an employee and all the stuff that goes with that, but you also have to include it in your tax return, which is a little confusing. Like it doesn't, it's off the radar of people. Like they're not thinking about that to like include in their tax return. But when you have a household employee, your there's a section in your tax return that you have to fill out and, you know, report on stuff. And so that's, that's kind of like the part two of that is including it in your texture.
Speaker 2 00:23:46 Something else to consider too, um, along these lines is if you're going to be taking either paid or unpaid maternity or paternity leave, as far as thinking about, um, your budget and how that's going to affect your income for that time.
Speaker 1 00:24:02 Yeah. And, and working all that out, there's a lot of, are you going to get so sh uh, uh, short term disability, are there other things that can supplement it? And a lot of times it's just like figuring out what the shortfall is, if there is going to be one, but between what you're expecting to earn and what, you know, you're spending in that, that kind of thing. So what about some of the longer term expenses? Uh, I guess this gets into education funding, but like children in general are expensive. I think they get more expensive. The older they get in my experience.
Speaker 2 00:24:34 Yes. I think generally that is true. The clothing gets bigger and more expensive. That's for sure.
Speaker 1 00:24:40 A whole lot
Speaker 2 00:24:41 Eat a lot more. Yes, yes, absolutely. And then there's extracurricular activities. My goodness. Team sports. Ooh. I can get pricey.
Speaker 1 00:24:50 Yeah. So I guess that's kind of a nice thing about it is in, in my experience, it kind of tends to ease up when we had our first child, like, are some categories of spending went down, actually like eating out was like down. Yeah. And then, um, but some other stuff went up, so they kind of offset, but like, you know, now, uh, our oldest is nine and we got 6, 3, 6, 9 year old and, um, all boys and they're like, they like crazy people and they rip holes in their pants every day. And so it's like, they are way more expensive than when they came into this world. And, uh, and then you start talking about education, funding and education in general can be extremely expensive. That's probably for a lot of our clients, like the number one costs, you know, especially if you're going to think about doing private school, that's something to think about. Just like, it's probably, if you guys haven't had kids and this is your first, like the, these kinds of things may not have been on your radar unless you're like a super planner. And so thinking about what the school districts are, and even where you're going to live and private school versus public school and all those kinds of things that has a big impact on your budget and then education savings. So Heather thoughts on, um, on education savings, and maybe we can kind of talk through what that looks like.
Speaker 2 00:26:12 So I'm probably one of the biggest things is when people think about education savings, they immediately think about college university level. Um, but as you were saying, one consideration to think about earlier than that is for perhaps doing private school before they even get to college or university. And if that's the case, the conversation surrounding education savings, um, will be a bit different. Um, and also it's something that can change over time, as far as maybe you think you're going to start out one way and that ends up changing maybe when they get to middle school or high school, um, you know, and everything that we're talking about related to kids, you know, there is an understanding of things change over time. And that's just part of being a parent is having to be flexible and adapt to unexpected things. Um, but that being said, there are ways to save for private school, uh, prior to even the college and university level.
Speaker 2 00:27:14 But also when you're thinking about education savings, it's something that you and your partner would probably need to have a good grasp on what do we feel like is our responsibility to pay for when they get to college level. And, and this is something that, um, we find a lot of clients have to do some deliberation over, um, because we might have, you know, one spouse who feels like, oh, we should be able to pay for everything. And the other one says, no, it's not really, you know, I was able to do it myself through student loans. And so, you know, our kid can do that too. And so that kind of gets back to some of the, the values, um, incorporating values into the financial plan. And there's no right or wrong answer on this. Um, it's just figuring out what you feel your responsibility would be when you, when you get to that point. And then you start talking about what kinds of education savings vehicles you would want to use, because depending on how much, and or if you are positive that your child is going to go to college, you know, sometimes we
Speaker 1 00:28:19 Not going to get a full ride,
Speaker 2 00:28:21 Uh, right, right. And
Speaker 1 00:28:22 I told them, they're brilliant. And they're of course going to get, you know, everybody sometimes
Speaker 2 00:28:26 Well, and expenses for private versus in-state can vary drastically. Also, it depends on what kind of programs your state might even offer. Um, you know, as far as
Speaker 1 00:28:38 Where you live as fantastic, like what do they call it? Bright futures.
Speaker 2 00:28:42 Yes. A bright, bright scholars. I think it might be now. Yeah. Um, I think they changed the name a few times over the years, but yeah, basically, if, if you are hitting a certain GPA in the state of Florida, you can go to a state school for pretty much free
Speaker 1 00:28:57 Gaia. I went to Florida and my, I was out of state and my buddies all there were getting bright futures or bright scholars or whatever it's called taking care of their tuition costs. Yes. Those kinds of programs exists.
Speaker 2 00:29:09 Right. Well, and then I was that kid growing up in Florida who could have gotten that and then said to my parents, no, I want to go to this private school. And, uh, and, and I did, but I had to get, uh, you know, a scholarship for it. But all that to say, um, you know, it's, it's planning for what options do we want to have available? And then what are the caveats that we want to build into the plan in the event that our child perhaps does go to college, um, you know, might we want to have these funds that we've set aside be available for non education expenses, um, which seems to be growing more and more popular, um, as far as maybe doing a gap year, uh, travel abroad maybe, or just saying straight up, you know, our, our, um, I'm okay. If my child doesn't go to college and maybe he wants to be an entrepreneur, and this is, you know, this, it could be some seed money for a business.
Speaker 1 00:29:59 So if you, if you guys want to dig into some of that more, we talked, I talked with Joe Messinger. He's, he's a, uh, college planner, I guess, is his title, but he, it was a several episodes back, but we, uh, how to help your children maximize their college education was the name of it. But basically he talks about how, like the sticker price of college is not always what you pay actually in reality, and starting, you know, kind of understanding a little bit more about how that works. The unfortunate part about, I guess it's a good thing in general, but a lot of you guys have higher than average incomes. Uh, one of the challenges of that is when you start to go or look into funding your children's college, if you're of that mindset of like, well, I covered the cost of my college, so I'm gonna, you know, have my child cover the cost of their college.
Speaker 1 00:30:50 Um, cause I feel like that was a valuable experience. The problem is if your income is a lot higher than your parents was, you're going to get way less financial aid. And there's only so much loans your child can take out. And the colleges assume the remaining responsibility is on the parents. And so you kind of have to, it's not quite the same, a lot of cases. Like for me, my parents didn't cover my college, but they also had lower incomes. And so I got all kinds of financial aid and I was able to get student loans to cover the gap, which was not very big, but I can't, I'm not going to be able to have the same situation for my children. So you can dig into that more in that episode. Um, we also talk about, are you saving enough for college or for education? That was actually a few episodes back. If you want to dig into, you know, the different vehicles in a little bit more details about what that looks like, but like high level 5 29, that's the number one, right? Heather?
Speaker 2 00:31:47 Absolutely. That's the most common one.
Speaker 1 00:31:50 Yeah. So 5 29 gets a little, the part that gets people confused as there's each state has a different one and it's, you know, there's a ton of different choices there, but maybe talk high level. Um, let's talk about like high level. What, what what's so good about a 5 29? Well,
Speaker 2 00:32:06 The great thing about a 5 29 is even though you're putting in after tax dollars into, um, the account, the growth is tax deferred. And then when you withdraw the money later on, um, it's, tax-free as long as it's being used for specific education expenses. Um, and the good news with that is I think currently it's $10,000 per year, if you wanted to even pay for private education. Um, K through K through 12. Yeah. So for those that are considering, um, private education prior to college, that is a great way, especially if you are saving sooner rather than later, not so great if you know, you're putting in the money now and you're gonna use it two months from now, it's not really gonna have earned enough to make it worth your while, because again, you're putting in after tax dollars, but for the long-term planning, you know, for sure, yes, my CA my kid's gonna go to college and, uh, we want to be able to pay for it. It's a great way to do that without having to pay taxes on what you put in, uh, on the growth of that, of what you put in.
Speaker 1 00:33:13 Yeah. And that's 10,000 per year per child max on K through 12 education costs now. So, but Heather mentioned like the, the real benefits of the 5 29 are when you use it for something really far out from now. Like if the longer you let that money sit there, the better value you're going to get. So we always encourage people to look at like an undergraduate or, you know, the furthest out education expenses first and then kind of work backwards from there. So, you know, if you're thinking about like, I want to get a headstart on saving for my, you know, newborns undergraduate four years, tuition room and board costs, there's all kinds of calculators. You can run online. Or if you're working with us, just, you know, we'll help you figure that out, but go, go on, find one of the online calculators and plug in the numbers and you can really get a pretty good idea of like what you might be saving need to be saving per month into like a 5 29 to be kind of like on track for that. But I'll throw out like a range, cause it's going to be dependent big time on what's going on, but maybe like 200 a month to like 1200 a month per child. And the reason it's so big is because, and this is newborns, I'm talking about the reason it's so big it's cause like Harvard is Stu is very expensive.
Speaker 1 00:34:35 That's going to take a lot of money for a long period of time to save up for that. Uh, so it's a good thing. I mean, you want to get ahead of these sorts of things, but the hard part is prioritizing.
Speaker 2 00:34:48 Yes. But the other thing to consider what the 5 29 is, which is a good thing, is you can roll it to a different beneficiary. Who's a different family member in the event. You, you know, you've, you've set aside money for, you know, Johnny and he's not going to end up going to college, but your second child Sally is, you know, you, you can roll that over to another beneficiary in the family. Yeah,
Speaker 1 00:35:12 Yeah. Right. And it's, it's a, it's definitely flexible. It's not near, it's not super flexible. Like you can't spend it on anything. That's the downside is that it is that it has to be spent on education, but it's, if you, 100% know, you're going to write checks in the future on education, a 5 29 is a home run. It's a fantastic place to kind of park those dollars for like future checks. You get a ride for education.
Speaker 2 00:35:39 Also, you don't have to just contribute to one type of education savings vehicles. So if you say, well, I'm pretty sure that we're going to use probably at least one of our kits is going to go to college. But, uh, we're not 100% sure about all of them going to college or we're not 100% sure that our one child is going to college. We want to have maybe a backup plan as well. You don't have to put everything towards the 5 29. So Danny, you might want to talk about how we advise some of our clients to split the way that they are saving up.
Speaker 1 00:36:11 Yeah. That's a good point. What we find is most people with newborns, they're like, I have no idea what this newborn is going to do 18 years from now. What are you talking about? I can't believe you just asked me about their college funding. That's insane to think about. So it is a little bit nutty to, I mean like 18 years, who knows, but you know, if you really want to get ahead of these things, it does benefit you to kind of start doing things early in life. So what Heather was talking about is oftentimes people don't like the rigidity of the, or the limitations of the 5 29 type vehicle, um, because you have to use it for education. And so we'll kind of like dial up or down the percentage funding. So for example, we can kind of like model what the a hundred percent costs going to be of whatever school we're looking at and then like figure out, um, you know, maybe we only want to target 50% funding through the 5 29 because you know, who knows you have, maybe you have two children and you're, you're confident.
Speaker 1 00:37:09 At least one of them is going to need the full amount, but maybe not both. So maybe we target 50% in the five to nine. And then the other 50%, maybe we use like a much more flexible account, like just an investment account, um, and make that kind of like the other 50% funding aspects. So you're still saving what you need to be on track for a hundred percent, but you're not like a hundred percent all through the 5 29 because you're, you know, and this will depend on the person. So if I'm like, if I have like one child and I'm like, ah, who knows, um, maybe they go to school, maybe they don't. Um, you know, I, haven't not that jazzed about helping them out with it. And you know, I just don't like this whole limitation aspect of the 5 29. We might not use it at all.
Speaker 1 00:37:53 Versus on the other hand, if you're like, I got eight kids and they're going to private school all the way, K through 12, and then we're doing Harvard for undergrad, and then I'm going to cover their medical school. Then we'll be like, let's get aggressive with the 5 29. Cause there's plenty of things you're going to be writing checks for. So that's all the stuff that's, that's, that's a lot of the stuff that probably people are thinking about, but let's get into some of the stuff. People are less likely to think about. Maybe the less fun stuff, I guess
Speaker 2 00:38:25 Like life insurance, nobody wants to talk about life insurance estate planning. It's like
Speaker 1 00:38:31 Morbid.
Speaker 2 00:38:33 Yeah, yeah,
Speaker 1 00:38:34 Yeah. But it's one of those things like deep down, most people are like, yeah, I CA yeah, I get it. I, I do need to do those kinds of things. I know
Speaker 2 00:38:42 What I sense is there's a huge feeling of relief of like, oh, I got it done whenever they, whatever they do get it in place. Um, it's, it's like, okay. I, I feel secure knowing that I I've got peace of mind about what the plan is in the event, the worst case scenario happens.
Speaker 1 00:39:04 Yeah. So the problem, or I guess the, um, issue is, well before you have children, especially if both you and your spouse or if you're married, but if both of you and your spouse are working, um, it's kinda like, you know, if something were to happen to me, um, you know, it would be awful, but like financially it wouldn't be, it'd be okay. I mean, it might, they might have to change stuff or whatever, but it, it would not be like, prob probably wouldn't be life altering, especially if both spouses work. Now, if one doesn't, it can get a little, that's a problem. But two spouses, no children, not nearly as big of a risk. Now, as soon as you introduce dependence in the equation, it's a total game changer because you got a mouth to feed. I mean, you got someone to care for.
Speaker 1 00:39:56 I mean, it's, we are, you're talking about like nanny expenses. Like that's a huge expense because it's a lot of time and money and resources to care for that person and feed them and, you know, bring them up and that sort of thing. So as soon as you introduce like another mouth to feed into the equation or a dependent, then it's like, your income becomes like super important. It's like game time, you know, like that's, that's when it's like, uh, you know, if you hadn't gotten life insurance or thought about it, uh, up to that point, that's when it's like, you gotta get it, like you are doing a disservice to your family, if you don't have it. I think, um, now that's, that's my belief system. Um, you know, there are varying belief systems here. I know I'll, you know, we should clarify that. And so at the end of the day, if you kind of fall in line with what I'm saying, like my belief system, um, that's the time to get it is sometime before you have your first child, um, or at least to kind of like run the numbers and think about it and kind of explore what that might look like. Sure,
Speaker 2 00:40:55 Sure. And another caveat to there is if you're going to be, I'm getting life insurance on mom, sometimes that can be a little tricky to do during pregnancy. So the timing of accomplishing that can, can be sometimes a little bit tricky. Yeah. I know I got life insurance while I was pregnant. So
Speaker 1 00:41:16 I used to sell life insurance back in the day. And so I kind of learned all the objections cause there's many. And, um, the, the, basically we want to make there be as few hurdles as possible because it's so painful to get people to get. And so, um, what made me think of it as you mentioned, like it's more challenging to get in, um, when you're pregnant, which can be true, but I would, I would, uh, if you're in that stage and you're going to have, are, you're not excited about getting it, just pretend like that's not an issue, you know, cause it's gonna make it a little harder. You're it's going to be in the back of your mind. And so, um, I've had plenty of people that were pregnant, be fine in that whole process and get lots of coverage and no issue.
Speaker 1 00:42:01 Um, in fact, the insurance companies, yeah. The insurance companies have told me in the past, like, cause that question was so common that they give them a little leeway, more so on the numbers while they're pregnant, because the numbers are not quite the same. And like on the, not when I say numbers, I mean like the technical underwriting part. Uh, so there's a little bit of leeway even in that process. And so now there are there, are there health conditions that can happen in pregnancy that it does it do cause problems, but, um, I think it's one of those things that you kind of, because it's so challenging, you have to kind of make it as easy as possible, um, on yourself and not, um, and give yourself a pat on the back for getting it done there. The, a big question is like what type or how much.
Speaker 1 00:42:46 And, and that gets into a lot more, it gets complicated quickly. So I would, I would, um, at, at minimum be thinking about it and like make sure you're checking that check box off and term insurance is super simple. So that's always a good starting point. Um, if you're just kind of getting started and um, you know, running the numbers on what that might look like as far as, you know, amount of dollar coverage. And, um, if you're working with us, we can calculate those numbers for you. Kind of like I was talking about with education funding, uh, same thing with that. There's calculators online too, that that will help if you're not working with us to kind of help you figure out a number as far as coverage to think about. And my personal preference is to air high because it's not one of those things that I dunno, it's like my belief is like, if I'm going to pinch pennies, I don't want to pinch it on like that kind of bad scenario, but everybody's different. So as far as life insurance and estate planning, when we start to get into the prioritization, Heather, what are your thoughts on like, you know, pulling all that together. The state planning is kind of in the same camp as life insurance in that it's like the morbid and like worst case scenario. So a lot of times people we work with are like, whoa, what are, I mean, I got a lot of things to do. Like how do I start to like prioritize all this stuff?
Speaker 2 00:44:17 Sure. I feel like the life insurance is probably huge to get done sooner rather than later, as far as what should I attack first? And then, you know, with regards to estate planning, one thing that I, it seems to trip people up on is, is with the estate plan, figuring out who you would name as a guardian for your child, if both parents were to be out of the picture and probably for those that are going to be first-time parents, especially that could be a really difficult thing to figure out. So, so that tends to be what stalls the process in regards to the estate planning that, and you know, it's a relatively large expense that is not fun to pay. Um, but again, once it's in place, it's, it's huge peace of mind, but I would recommend doing the life insurance before the estate plan, if we're picking, which
Speaker 1 00:45:14 Yeah, if you have to pick one, I think that's a good, good cause, you know, get the, so the life insurance is kind of like the funding mechanism, if something happened. And then the state plan is kind of like the logistics or the legal mechanisms. Um, and the big one is guardian. Like you were saying, that's always the hard one for people. They're like, well, there's snow. There's no one in nearly as qualified as I am. Obviously your, your child, you're gonna, it's, it's always a difficult decision because it's not going to be great, but you're kind of forced to pick the best possible candidate and get it on paper so that it's not a mess, uh, if something does happen. And so you can, Heather was talking about the cost associated. So when you, a lot of people hire an attorney to get estate planning, documents drawn up like wills and trust and all those kinds of things. That's the easier route I think personally. Um, and you can kinda, they can help you through the process. Um, it's not like that. A lot of it is just having a human, like a person to kind of walk you through it and make help you to get it done. Because it's really difficult. I would say estate planning documents are the most challenging thing. We see people struggling with getting done of all the things, personal finance.
Speaker 2 00:46:29 Yeah. Yeah. The jargon associated with it. It's very antiquated too. It can be our to go through those documents and even understand what it's asking.
Speaker 1 00:46:38 Yeah. I was talking about the life insurance and how there's so many, it's, there's so many reasons not to do it. Like there's so many hurdles and you know, we want to try to remove their hurdles. Like estate planning is like even worse. There's just, it's just like countless hurdles are reasons. You're going to tell yourself not to do it. It's like, I'm not going to die. It's going to cost money. It's I don't know who the guardian is. Well, I'll wait till after I have a child I'm going to procrastinate. You know, there's a, I don't need that complicated of a plan. Oh, well there's online services that do it. Uh, okay. I'm going to look at legal zoom. It's cheap. And then I'll do that later. And then you go on legal zoom finally. And then you're like, this is complicated. I'll do it later.
Speaker 1 00:47:23 And then remind, it's just like, once you get into it, it's not always as forward. And then you start to read the documents. You're like, I got to review the documents. Um, but you never reviewed the documents because they're painful to read. And then you're like, I finally got all this done and then they're going to say, I got to do other stuff like change beneficiaries. Oh my goodness. This is the most painful process that there ever was. They don't, that process is not really smooth. It's not to be easier on you. And on top of that, you're like in the back of your head, you're like, I'm not going to die. There's no chance I'm going to die. It's unlikely or not even thinking about it. So those are all the reasons not to do.
Speaker 1 00:48:04 But then you gotta remind yourself, like the, the reason you still need to do it, despite all of that is like, you don't know, like that's all we're easing. You're doing in the first place. You don't know, you never know what's going to happen. And you have to kind of go onto this, remind yourself that tomorrow is not guaranteed. You don't know what could happen. So you gotta bring like the urgency back into play, um, and remind, you know, remind yourself that you never know what could happen. And we gotta kind of plan like tomorrow is not guaranteed. And that will get you kinda moving again on this stuff.
Speaker 2 00:48:35 Right. Right. And with regards to the estate planning too, I mean, no matter what, I feel like most people who are earning money, like to have a say in what is happening with the money. And one way to frame that estate planning is you're making sure that you are stating what you want done with all of that money that you have taken the time and effort to earn. So
Speaker 1 00:48:59 Yeah. Yep. It's a huge deal. Um, but can't tell you how many people, I mean like tons of people, the majority of people I talked to agree that it's a big deal, but have not gotten it done. So it's challenging. But um, if you've done it already, give yourself a pat on the back you're ahead of the game and that's great. Um, if you haven't done it yet, like make it a priority and put it on the calendar, you know, do something that you can start making, taken some action on it. So that's a lot of stuff. Um, I know we hit on and you know, there's a lot of, even more stuff on top of it. If you want to start getting into the weeds of it, but we kind of wanted to hit more of the high points today, just to kind of give you some things to think about. Um, Heather, can you think of any other like biggies that we, we either missed or stuff we want to throw out in closing?
Speaker 2 00:49:49 A couple of things come to mind. One of them getting back to the life insurance policies, sometimes people might ask the question, should I get coverage for my new child, which is, you know, something that you can easily attach a writer to your own life insurance policy. Um, if you're wanting to just consider from the start, you know, if there were to be funeral expenses that God forbid you have to consider for the child and then, you know, going forward, do I want to get coverage that could be transferred over to the child when they get older, the option for them to be insured. So, so that's something else that might be a consideration. And then also getting back to taxes, there are some credits that one does get whenever you have a kid. Um, so, uh, that's something else too to consider. Yeah.
Speaker 1 00:50:39 At T I guess that's one of the only financially speaking, we're only talking about finances right now. Uh, one of the only positive aspects of having a child would be that they're not for everyone. If your income's up to a certain point, you get kind of phased out of all this, but there are some tax perks too, and those have gotten more generous, especially lately. There's some credits that you get and basically they, you know, your tax bill is lower when you have kids. So sure, sure. That's a nice perk on time. All right. Well, Heather, thanks for sitting down and talking through this with me and, um, I appreciate you coming on. Thank you. And any of you guys, if you have questions or you want us to dig into one of these topics more, feel free to reach out and we'd love to do it as always.
Speaker 1 00:51:30 Thank you so much for joining us today. If you found this valuable, please give us a review on iTunes and share with a friend. Also check out our website at finance, for physicians.co for all sorts of additional content. See you. Next time. Finance for physicians is not an investment tax legal or financial advisor. All content included in this podcast is for informational purposes only and should not be considered financial tax or legal advice. Material presented. It is believed to be from reliable sources and no representations are made by finance for physicians as to another party's informational accuracy or completeness, all information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. You don't have an advisor or like a second opinion. Feel free to check out our website for recommended advisors.
