When you have a child, your priorities change. This may seem obvious, but it caught me by surprise when I was a new mom.
My career had always brought me a great deal of satisfaction. I had always loved working, so I had no idea how much I’d want to stay home with my baby during those early years.
When my son was four months old, I went to drop him off at childcare to head off to a business meeting. At the childcare center, I rocked him in a rocking chair and suddenly, tears started rolling down my face. I just couldn’t leave him that day. Finally after about 20 minutes, I packed him back up and headed home instead. Right then, I decided my plans needed to change.
Since my husband and I were already saving half of my income, we could pivot so I could stay home at least part time. Our financial situation provided choices. So I made a strategic work move to go part time for a few years to spend more time with my baby and yet not drop completely out of the workforce.
Keeping one foot in the financial planning profession helped me stay current on technology, retain my financial planning clients, and stay connected to my business network. Even though I sometimes had baby slobber stains on the shoulder pads of my suits during those early years, I was still in the game.
Looking back, I am so grateful that I didn’t have high overhead expenses that forced me back to work full time right away. Instead, I got the awesome opportunity to be both a stay-at-home mom and a financial planner.
I’ve seen many couples fall victim to “lifestyle creep,” when living expenses rise as income does. These couples lose the flexibility to make changes as their priorities change — whether it’s to stay home with a new baby, start a new business, change careers, or weather a round of layoffs.
Here is my advice to new couples starting out:
1. Keep your overhead low.
Use the “50-20-30” budget rule to keep fixed expenses low:
50% for necessities (a.k.a. overhead)
20% for financial priorities (aka paying off debt, saving, and investing)
30% for extras (a.k.a. fun)
An affordable starter home may make you much happier than a large home (with a high mortgage) that requires two incomes to maintain.
The lower your overhead, the more flexibility you have. If you can live on one income because you have low fixed expenses, you’ll be in better shape when times get tough or you choose not to work outside the home for a while.
Use this budget calculator from Quicken to check your budget statistics.
2. Track your expenses
Lifestyle creep can sabotage your financial goals. If you feel like your expenses might be rising without your realizing it, start tracking every dollar that flows through your household. Then only spend where it counts the most.
Cut back on expenses that don’t bring your life meaning. For example, going to lunch is not a top priority for my husband and me. So we brown-bag it every day and steer our resources toward purchasing plane tickets to visit our kids or bring the grandkids here.
When you are a new parent, expenses that you’d never dreamed of start to crop up. If baby gets a cold, you’ll need a suction cup because he can’t blow his little nose yet. You’ll also need to purchase baby shoes for kids who can’t even walk yet.
Track every dollar you spend and trim where you can. Buy gently used items where it makes sense, such as play sets, furniture, and bikes. Buy new for items such as car seats and shoes.Put your dollars where they count the most.
3. Open a 529 college savings plan and let the family know
I do an exercise with my financial planning clients to draw out their true priorities. We lay out cards with different goals written on them, and the clients put them in order of importance. I’ve noticed that their grandchildren often make it into the top three.
Grandparents, aunts, and uncles may wish to contribute to your child’s college fund for holidays and birthdays. For example, just recently, since she loves making jewelry, we gave our 7-year-old granddaughter a kit to make little bracelets out of beads and little rubber bands which cost about $20. Then we quietly contributed $100 to her 529 college savings plan. She went crazy over the craft supplies, and her parents appreciated the deposit.
Just remember, when you are first starting out as a couple, plan your financial life with the ability to pivot. By keeping your overhead low, spending where it’s needed and trimming where you can, and allowing others to help, you have flexibility to make changes when life changes.
That way, you’ll never paint yourself into a corner.
This article was posted on Nancy Anderson’s Forbes contributor blog under the title:
Many Couples Make The Same Mistake Before Having Their First Child — Here Are 3 Ways To Avoid It.