Navigating Parenthood and Finances in Your 40s: A Guide to Later-in-Life Parent
By: Laurie Allen, CFPR
Not everyone gets to pick when they’ll become a parent. Some people choose to wait
until their thirties or forties when they finally feel financially and emotionally ready for
the challenge. Or perhaps you might be in my situation - someone who started having
kids in their 20s and then decided to try it again in their 40s. Exciting, right?
But let's be real - parenthood comes with its own set of financial considerations. Many
of us find ourselves caught in the middle of looking after our aging parents while also
trying to raise our own children. It can be a real struggle!
While we can’t go back in time and redo life in the quintessential, textbook order, there
are several things we can do for ourselves to make money one less thing to worry
about. Here are six tips for gaining control of your finances if you have kids later in life.
1. Kick Debt to the Curb
Children are a new chapter in life. And as everyone knows, you can’t start a new one
until the chapter before is finished.
Before baby bliss kicks in or you commit to becoming a parent, it's time to get your
financial affairs in order and leave debt behind.
To do this right, you’re going to need a good game strategy such as the debt snowball
method (1). This is done by ranking your debts by amount size and ignoring the interest
rate. Focus all your attention on the ones with the smallest amount first, and then work
your way down the list until each one has been erased.
At the same time, avoid getting into any new debt. Those baby-related items at the store
are nice! But don't be tempted to whip out those high-interest credit cards. Create a list,
stick to a budget, and remember that overspending can land you in serious trouble, even
if the things you’re buying are for the kiddos. Keep it real and financially savvy right from
the get-go.
2. Protect Your Family with Life Insurance and an Estate Plan
Life insurance might not have been on your radar while you were busy building your life
and career. However, now is the time to start thinking about how you can financially
shelter your family if tragedy were to occur.
My recommendation: Start with a term life insurance policy – at least until the kiddos
are all grown up. It will be the cheapest and easiest type of coverage to buy.
Even if you’ve already got life insurance through your employer or a professional group,
you’ll want to have a policy of your own. That way it will stay with you, even if you switch
jobs. Plus, you’ll have an easier time making changes such as adjusting the death
benefit to fit your new family dynamic. If you need more info on how to determine how
much coverage is enough, you can check out our life insurance guide HERE.
You may be thinking, we don't need an estate plan yet - we’re far from that stage of life!
However, if you’re married, own a home, or have children, then it would be a good idea to
give some serious consideration to creating an estate plan. You can begin by focusing
on the following documents:
● A will
● Trust
● Advance directive / durable power of attorney
● Who will take guardianship of your minor children
Word to the wise: Don’t try to do this alone or using an online service. Find a trusted
professional who can walk you through the ins and outs of each document and help you
make informed decisions. They’ll also be able to help ensure that all of your designed
beneficiaries align with these documents.
3. Budget for Both the Baby and You
Striking a balance between childcare costs and all your other financial goals can be
tricky, to say the least. In California, infant care costs can be astronomical – we're
talking $14,000 to $20,000 a year. (2) Even if you earn great money, that may not leave
much left to go around.
The best way to prepare is to start budgeting as soon as possible. Don’t worry about
being perfect. What’s important is to start getting into the habit as soon as possible.
This will help you to become conscious of how you spend your money and catch any
red flags before actually doing any damage.
4. Home Sweet (and Sensible) Home
One of the largest and most expensive things you’ll ever purchase in life will be a house.
It’s tempting to overspend on a dream home or justify buying more than you can afford
in the name of the right school district. However, once you are saddled with a large
mortgage and high property taxes, it may be particularly challenging for you to save
towards your other goals.
For these reasons, a better approach will be to instead purchase a more modest and
practical home. This will allow you to accommodate your growing family’s needs while
also still allowing you to save for retirement and childcare-related costs - all without that
aching feeling of being house-poor or stretched to the limit. Plus, with a manageable
price tag, you’ll be more likely to become mortgage-free by the time you’re ready to
retire.
5. Smart Saving for College Days
College might seem like it's lightyears away. But trust me, it's coming - and the cost will
be huge! A good way to start getting prepared is to open a College Savings account.
This is similar to a retirement account, but the funds get used for your children’s college
expenses instead.
If your budget is already stretched thin, start saving something modest - $50 or $100
per month. You can also fund it with birthday gifts from family. Additionally, each time
your baby’s daycare/nanny expenses drop (as they age), make an active effort to add
that amount to a college savings plan instead.
Remember: Half the battle is just opening the account. If you start now while they’re still
infants, you could potentially have tens of thousands ready to go when they turn 18.
Thanks, mom and dad!
6. Get Aggressive With Those Retirement Savings
Thinking about retiring in your 60s or maybe even sooner? For the best odds of making
that into a reality, you’re going to need a concrete plan. It’s not enough to just throw 15%
of your paycheck in any old retirement account and hope that there will be enough
inside when you’re ready to part ways with your employer.
Your retirement strategy should address specific goals, consider tax implications,
evaluate risk tolerance, and cater to your desired lifestyle. This isn't a one-size-fits-all
situation. It's about tailoring your retirement nest egg to suit your individual needs and
aspirations.
If you’re ever forced between choosing to save for your children to go to college and
retirement, I have to side with retirement. Even though this can be a hard pill for parents
to swallow, it's important to remember - there’s always financial aid for education, but
not for your golden years.
The Bottom Line
Late-in-life parenthood is an adventure that’s becoming much more common in
American households. However, by taking the appropriate steps, you may not have to
stress so much about the financial aspects. Make a budget, eliminate your debt, and
start allocating what you can to college savings and retirement accounts. If any of it
ever gets too confusing or overwhelming, consider reaching out to one of the
knowledgeable team members at LA Wealth Management.
Sources:
1) https://www.ramseysolutions.com/debt/how-the-debt-snowball-method-works
2) https://www.kidsdata.org/topic/1849/child-care-
cost/table#fmt=3094&loc=127,347,1763,331,348,336,171,321,345,357,332,324,3
69,358,362,360,337,327,364,356,217,353,328,354,323,352,320,339,334,365,343,3
30,367,344,355,366,368,265,349,361,4,273,59,370,326,333,322,341,338,350,342,3
29,325,359,351,363,340,335&tf=141&ch=984,985,222,223