I think having kids is the most wonderful thing in the world – I absolutely, positively love being a parent. The only regret I have about parenthood is that I wish we’d started planning and budgeting for it a few years ahead of becoming parents.
Several people said things like, ‘When the time comes, you’ll just find the money.’ Hmm … ultimately that’s been true, but it’s not the best way to set yourself up for budgetary success.
If I could go back in time, I would give Carolyn of five years ago a few kernels of wisdom. It leads me to wonder whether I could apply some of the lessons of parenthood to retirement.
(1) Budget like you already have kids for a couple years before you actually have kids.
Since you’re planning to take time away from work when you have kids: When you buy a house and cars and make other commitments, do so with only one salary in mind.
For young people who are finally living adult lives and earning a salary, it’s tempting to go a little wild spending money. I say do what you need to do, within reason. But start planning for a child before you actually have a child. Even though you’ll probably find a way to make enough money after having a baby, it’s a time in life that’s more enjoyable if your budget isn’t a stressor.
Similarly, if you’ve created a retirement strategy wherein you plan to receive a retirement income that’s 70% of your current income, try living off 70% of your current income for a year or two prior to retirement. Take your strategy for a test drive.
(2) With pregnancy and kids, always expect the unexpected and budget for it.
There will be two heartbeats. You never, ever considered that possibility. Twins. Pregnancy bed rest. Two cribs, two car seats, double stroller, twice the clothes, two swings, two exersaucers and two bouncy chairs. Diapers for two. And later daycare for two; and still later preschool for two. Did I mention that one little guy will have a milk protein allergy and require the most exorbitantly expensive formula possible?
Most people won’t have twins or a child who requires ridiculously expensive formula, but there will be other things you didn’t expect and couldn’t have imagined. There is little you can control in the arena of pregnancy and having babies, so just be ready for unexpected expenses.
In retirement, there will also be an array of unexpected issues. Maybe you’ll have health problems, maybe your children will need financial assistance, maybe your house will get flooded, maybe someone will steal your car. The possibilities are practically infinite, so it makes sense to plan (and budget) to be surprised.
(3) Don’t assume you know how you’ll feel after you have kids.
You’ll want to go back to work a year after having kids.
I thought I’d stay home for five or six years with my kids, but I wanted to go back to work sooner. I have a friend who thought she’d want to work after having kids but decided to become a stay-at-home-parent for several years. Another friend decided he wanted to be a stay-at-home-parent for one year and ended up freelancing from home for several years. Keep your foot on the accelerator in your career until the moment you have a child – that will make it easier to return to the workplace or freelance if you choose. It’s all about leaving your options open.
You might also change your mind about employment during retirement. Maybe you’ll decide you want to get a part-time job, freelance, take contract work or do some consulting. For that matter, you might unexpectedly find that you need to work during retirement for extra money. Don’t wind down your career during the years leading to retirement. Keep your foot on the accelerator.
If there’s one thing that’s frustrating, it’s making the same mistake over and over. So I’m looking at financial mistakes I’ve made, and I’m applying the lessons learned to my retirement planning. It’s the best way to turn mistakes into positive events.
Smart401k Financial Communication Specialist
Smart401k is a web-based investment advisory service providing unbiased recommendations to help people invest in employer-sponsored retirement plans. Smart401k provides service to nearly 11,000 clients who collectively have more than $2 billion in assets. Plan participants receive personalized, fund-specific investment recommendations and the support of professional investment advisers available to discuss all investment questions. Based in Overland Park, KS, Smart401k is online at Smart401k.com.