72: Financial Checklist for Parents (Current & Future)

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0:30You're about to make a trade. Which you do you listen to? Is it get optioning those options? Or let's do a little research. Learn more at finra.org slash trade smart. Hey everyone, and welcome to the Rich Habits Podcast, a top 10 business podcast on Spotify. My name is Austin Hankwitz, and I'm joined by my co-host, Robert Krook. Now, Robert, before we jump into this episode, we are thrilled to announce that we're going to be hosting a webinar all about angel investing and startup equity. We know that there are countless listeners that have built their base and are ready to begin diversifying into other asset classes, including our favorite, which are angel investments, startups, pre-IPO companies.

1:16Think Shark Tank. Now, Robert and I have invested into dozens of tech, AI, and consumer startups over the last several years for me and now decades for Robert. He actually even has a pretty funny story where he passed on Uber right before their IPO and he left$7 million on the table. We all live and learn. But we're really excited to share everything that we've learned, especially Robert after that story. But everything we've learned about startup investing, becoming advisors, getting advisor share, equity, things of that nature, right? All these insider tips and tricks on how you can begin investing into these potential multi-billion dollar companies once they get acquired or even IPO on the stock market.

1:57And as always, the webinar is completely free. And the people that join us on this webinar will not only be taught about startup investing, but also offer the opportunity to invest in startups alongside us. Think SpaceX, Canva, XAI, Figure AI, Apptronic. You heard us talk about that a lot. Open AI and so many more. We get offered equity in these businesses all the time. And if you join us for the webinar, we'll be able to show you how you can participate as well. So we're super, super excited about this. It's going to be a lot of information for you guys, but we know that so many of you are ready to take that next step into these types of investments.

2:40So register for free using the link in the show notes below. And it's taking place on Thursday, August 8th at 4 p.m. Eastern Standard Time. Cannot wait to see everyone there. We're going to be having a presentation. We'll take some Q &A. And yes, we will show you how you can invest alongside of us into startups, real estate ventures, and everything in between. So we'll see you there. All right, Robert, what are we going to be learning in today's episode? In today's episode of the Rich Habits Podcast, things are going to be a little different. We have compiled an amazing checklist of 10 points that every parent should have at their access to not only set themselves up for financial freedom with children, but also set their children up as well.

3:23I'm so excited about this because over the past year and a half with the Rich Habits podcast, we get asked all the time. We have small children. We have a newborn. What do we do? What are our best ways and strategies? And we're finally doing an episode dedicated to that new parent or that parent that has small children so they know exactly the best strategies to implement for financial freedom, not only for themselves, but for their children to get all those hacks and all those tax breaks and really dial it in. And we're so excited about this episode. If you are a new parent, this episode's for you.

3:58If you're an expecting parent, this episode's for you. If you plan to have children one day, bookmark the episode, save it in your little notes app, whatever, keep it around. So when you do have children, you know what to do. And if you know someone that maybe just had a child or you know someone who has a toddler, something of that nature, do them a favor, send them this episode so they can take advantage of all the tax breaks and all the different hacks and financial strategies that we're going to be sharing in this episode. Now, Robert, first and foremost, right, this episode is going to kind of go in order, right?

4:29Kind of assume, you know, you just took a baby home from the hospital and you're going to kind of approach things one by one here. So as a checklist, the first thing I would be doing is be looking at my health insurance policy, right? I want to make sure that I'm adding my newborn to my health insurance policy. Now, if I have an employer-based health plan, the special enrollment period is at least 30 days after your child's birth or adoption. And if you have a federal or a state marketplace health plan, it's 60 days. But don't worry, no matter when you enroll your child sort of in that window, what matters most is that your child is going to have those medical bills covered by your insurance the day they are born or adopted.

5:06So don't think about, you know, overcomplicating the sort of window to add or whatever it might be. You're going to get covered regardless now. This is also considered a qualifying events. So if you need to change your health plan, this could be a great opportunity to do that. Not having to wait for that open enrollment could be a really cool thing for you. Now, in my opinion, the best thing to do, pick up the phone and talk to your insurance provider. Let them know that you have a newborn and that you need to add them to your plan and that maybe you need to figure out if it's a good idea to switch plans.

5:32Maybe you could save some money doing that as well. Yeah, this is a great episode because we're going to dial in all of these important factors so you understand it. And like Austin said, make sure you're sharing it with friends, people that have children, people that have children on the way, so you can really help them out. In case you're a listener and this doesn't apply to you right now, it's still something good to bookmark for later. So let's get into number two, social security numbers and the importance of it. So get the social security number for the child as soon as you can so you can get rolling with the custodial accounts.

6:08Some people choose to apply for a social security number when getting the birth certificate at the hospital. And if you didn't do that, you can always just go to your local social security office and do it that way. Just make sure you bring the necessary paperwork because you want to get this tackled sooner than later to make sure everything is covered. Well, Robert, you said it right then, right? Get it rolling with the custodial accounts, right? The whole reason, of course, you want to have a social security number, but once you've got that social security number, you can now open up a custodial brokerage account, you can use M1 Finance or Fidelity or Schwab, whatever you want, on behalf of your newborn, start contributing$5 ,100,$200 a month toward it, invest it into the ETF and index funds that we talk about.

6:51And this child's now going to have hundreds of thousands, if not millions of dollars in retirement waiting for them because of the eighth wonder of the world. And that is time with compound interest, baby, compound growth. Could you imagine, Robert, if your parents just deposited$1 ,000 for you in an investment account, parked it in the S &P 500, maybe they added 50 bucks a month to it. How many hundreds of thousands, if not millions of dollars you'd have now 50 plus years later? I wish and I hope that over time we can really get this message hammered into the heads of tens and tens of thousands of people, parents especially, because when you let compound interest do its job over decades, it is remarkable how much wealth you can build.

7:35And so many people just don't consider setting their children up early when it's the easiest to do. You look at it from a perspective, it's a newborn, it's a two-year-old, it's a five-year-old, six-year-old. If you start putting that money away now, it costs you a lot less to give them way more later than if you wait until they're 18 or 21 and you want to give them a present of helping them with their down payment on their house or something, so much more efficient for you. And then they will be set up that much better later on. I just love this strategy and I want to talk about it more. Well, Robert, it's actually funny.

8:10I was on Instagram the other day and my friend Sophia has a two or three-year-old child. And she was talking about how whenever her child gets like birthday money or like gifts from the grandparents, things like that. But if it's money, she takes like 50 or 60 % of it and parks it in a high yield savings account, which is awesome. I was excited for her, but I told her, hey, listen, high yield savings accounts are good, but they're tied to the federal funds rate, which means right now you're making about what, 5%, 5.5 % depending on the account. But as the Fed cuts rates, you're going to start making less and less and less.

8:39What you should be doing with the money is open up this custodial taxable brokerage account on Schwab, Fidelity, M1 Finance. It doesn't matter, right? There's no tax advantages here. It's just a taxable brokerage account and take that birthday money or whatever's in this high yield savings and invest it because the markets are going to do 8, 10, 12 % year after year after year on average over a long period of time, which is much more than the 4.5 % or 5 % that's parked in this high-yield savings account. I love this because I grew up from a poor family. My father didn't help me at all. My mother did her very, very best.

9:10And it gives me goosebumps to think of how little money and effort parents can make right now listening to this episode and what they can do to totally transform their children's financial lives when they turn 18 or 21 by doing some of these things in this list. It's incredible. I'm excited to get through this. So our next checkpoint here is called the DCFSA. I'm not sure a lot of people are talking about it, but it's really, really important. This is a savings account that you can contribute to pre-tax, allowing you to write off your contributions against your taxable income, right? And then once you contribute this money into the savings account, right?

9:52You're saving now 20, 30 % in taxes on that contribution. So thousand plus dollars every single year by just using the savings account, you then use that money to pay for things like childcare, summer camps, afterschool programs, and a ton more things that are qualified purchases with this account. So if your child is 13 years or younger, right? Not even a newborn, maybe you're a parent with an eight-year-old right now, you should be paying for your summer camp. You should be paying for the nanny that babysits on Thursdays because you want date nights, right? You should be paying for those things out of a DCFSA.

10:26Now we're going to leave a link in the show notes below to learn more. There's going to be a ton of information on some of these federal websites. Be sure to check it out. There's actually going to be a calculator too that's going to show you how much you can save by paying for these afterschool programs and childcare, things of that nature through this account, right? This is not an investment account. You're not trying to make money here. What you're doing is saving on taxes and this is going to help you save up to$1 ,500 a year on taxes. So let's say, for example, Robert, that you're paying$5 ,000 a year for childcare, summer camps, babysitting, afterschool program, whatever it might be.

10:58$5 ,000 a year, it's about 400 bucks a month or so. I think a lot of people are doing that anyway, but you're now paying for it out of this account, which you just contributed money to. Congrats, you just got a$1 ,500 refund in April when you did your taxes because you paid for these things out of this account. So if you're looking for extra margin in your budget, this can be a really awesome way to find it. And who doesn't like big tax refunds? Yeah, I haven't heard anyone talk about this strategy. And that's why I love flushing out these plans to help people because, you know, you're a parent, you have a newborn, you have kids, you have a job, you have all this.

11:32Our job is financial education. So we get the pleasure of really digging deep through all of our travels with our CPAs and our lawyers and our research and our team to find all of these strategies and give them to you in a meaningful way so you can digest them and implement them into your daily life. And that brings us to number four, planning childcare. So many people I feel don't realize how expensive childcare is and they don't plan for it. They react to it and the need for it. So I think it is very, very important to understand that. And this is likely the largest expense item you'll be adding to your budget.

12:12During the presidential debate last week, they stated that child care costs can be$2 ,600 a month on average for two children. And that is just a ton of money for most people. So something else people forget about is the waiting period to even get into the daycare. That's why we say planning and not reacting, because you might find that your preferred daycare is a year out, six months out, four months out. You don't know. And so this is something very, very important for you to have ahead of the schedule in your checklist. So you're on top of this. So it's not too late. So make sure you're applying to these top-notch daycares ahead of time.

12:51So if there is a wait list, you can get on it ahead of time and make sure you're good to go when the time is ready. And then when you have to pay those childcare bills, you pay them out of your DCFSA savings account, right? So you open up the account, you put the money in there pre-tax, which means you can write it off of your taxable income. You get your first bill for childcare, whatever it is, pay for it out of the account, right? So kind of going into some chronological order here. I really appreciate the call out about planning for childcare. I know my sister, she's got four children now.

13:22I'm super blessed. And she was on a waiting list, I think, for like four months for one of these places in Atlanta where she lives. So it was a pretty big deal. It kind of pushed back her plans there for a little bit. But yeah, I mean, this is something that people should have on their radar and should definitely be thinking of no matter how young your baby is. Yeah, I agree. Now, the next thing here is equally as important, in my opinion, maybe even more important, and that is to open up a term life insurance policy, have a will, right? We can't predict the future. So if something terrible happens to you and someone is depending on if that's your spouse and your child, your income every single month to survive and have a good livelihood, and your income goes away overnight because something tragically happened to you, the last thing that your spouse and children need on their mind is how are we going to pay our rent?

14:13How are we going to buy food? How are we going to pay for the funeral? How are we going to do these things? So by having a term life insurance policy, keyword term life insurance policy in place, if something happens to you, your spouse and children just have the ability to be sad. right? They don't have to now be stressed about money alongside grief. So term life insurance, we can't recommend it enough. What we sort of go for here is eight to 12 times your annual income is how much you should have as a policy. So if you make a hundred thousand a year, you should have a policy of let's call it, you know, 1 million,$1.2 million.

14:45And again, what happens is let's say something bad happened to you, you lost your life. And now this term life insurance policy will pay out a million dollars to your beneficiaries, which in this example, let's say it's your spouse. Your spouse now has this million dollars. They are going to use that to generate income, right? So they're going to invest it in the S &P 500 or some other investment here of an index fund, take off six, seven, 8 % every single year, 60, 70,$80 ,000, and use that to supplement the income they lost because of you. So that's how you should be thinking about term life insurance.

15:18If you now have a newborn in your life, right? It's one thing to be married, but now you have a child, right? And so that means you should really be thinking about wills, life insurance, beneficiaries, all these different things to make sure that if something happens to you, there's a plan in place, giving these people a little bit of flexibility and a tragic, tragic time of their lives. This is definitely eye-opening to me as you were talking through that point. And we really need to do an upcoming episode about how to put together the plan aside from this checklist of the things you should be thinking about doing for the long term leading up to your will, how you structure your trust, how you protect your property and your assets.

15:58So we will definitely get back to that because I think about when my father passed away, just by him not updating his will to properly reflect his current life situation, it ended up being an absolute nightmare. And this is for another episode of what happened to me, his first son, and why I got the shaft in the whole deal. So it's very, very important. And this is something I want to get back to later. And remember, if you're shopping for term life insurance and you're alerted now and you find the importance like we do, you can always use our friends and get a quote from Shurience. There is a link in the show notes below.

16:36they do a great job for a lot of our followers and clients. So check it out. Okay. So let's get into our next point, guardians and godparents and not to be morbid, but staying on the topic of death. If something happens to you and your spouse, your child or children need a plan. This can be written contractually or be arranged in some other way, but don't go through life without a plan for your children. If you and your spouse are no longer around, this is so important. People always put it off. It's a taboo subject. You don't want to talk about something that's 20 years, 30 years, 40 years in the making, you hope, but you should talk about it as early as you can to get a plan in place for the children.

17:20Yeah. I mean, I don't know if you guys watch Suits, but it reminds me of Suits. You know, Mike in the show lost both his parents to a drunk driver, right? Fingers crossed. None of that happens to us or any of our listeners here. But like, that's the type of stuff we're trying to make sure that you kind of keep in the back of your mind is like, you know, that was out of their control. I don't know, right? I'm not trying to say anything that could happen or knock on wood here. But long story short, have a plan, figure out guardians, godparents, things like that, where if something does happen, your child has a clear plan until they are of adult age, 18, 22, 30, whatever it might be.

17:52Now moving on from some morbid topics, let's talk about money. Let's talk about budgeting, specifically budgeting for a 529 plan. Now, as you guys know, the 529 plan is my favorite because I'm actually doing this myself for my nephews and nieces. I've got four of them and I'm really excited about that. I've got over$5 ,700 in a Vanguard 529 account and it's up 37 % all time since I started contributing to it monthly only 12 months ago. Now, this account is to pay for college, right? So let's say, for example, all the money I contribute goes up to, it should be around$90 ,000 in value over the next, call it 15 to 18 years, just depending on what the stock market does.

18:34And let's say all four of my nieces and nephews want to go to college, all four of them can use this$90 ,000 and all the profits that came with these investments, right, to pay for college. And I'm not having to pay taxes on those profits because it's paying for their college. Now, if they don't want to go to college, that money can then be rolled over into a Roth individual retirement up to$35 ,000 per child. And then you take that$35 ,000, invest it in the S &P 500 on their behalf, make sure they do not touch it until they're 65. And assuming 8%, 10%, 12 % annual returns over their entire lifetime, which I can't even begin to predict what the United States or the stock market's going to be by 2100.

19:13But once we get there, fingers crossed, right? Then they should have well over a million dollars now adjusted for inflation, about 3%, 3.5 % per year in that account for them to enjoy in retirement, right? When we talk about generational wealth, this is how generational wealth is created. And Robert did a great job in the beginning here talking about how not only to set up yourself for these little financial tips and tricks, but also your children. And the 529 plan is the best way to do that in our humble opinion. Something else that people forget about. They say, wait a second. So let's say I've got 90 ,000 in this account, but my kid's got all these scholarships.

19:44What you can do is, let's say your kid is really, they're a great athlete and they get a full ride to college. And so what that does is you can take whatever they would have paid in tuition and you can actually pull that money out tax-free and put it in a checking account and not pay any taxes on it. But it has to be exactly with what that scholarship was. So if they get a$5 ,000 scholarship, great. Pull$5 ,000 out of the 529, tax-free, profits, everything, and enjoy it. Maybe buy him a new car. Austin loves him the 529 plan. And I just think it's great because it's just another tool in the tool shed to help you really crush it throughout your child's early years and set them up and set yourself up along the way.

20:25I love this. Now, Robert, speaking of budgeting, as you know, my girlfriend and I are on this personal finance journey together. And I still believe she is a better budgeter than me. Something she recently started doing that leveled up her budgeting was figuring out the specific days of the month that her subscriptions are supposed to hit her checking account so she can get ahead of them from a spending perspective. Yeah, that reminds me of the Monarch Money app. And they're an all-in-one personal finance app that not only has a built-in manager for your recurring subscription expenses, but they help you easily track your net worth, keep tabs on your spending.

21:00And there's even a cashflow forecaster that will show you what you spent during the month and how that might impact next month's savings. Love this app. Yeah, Robert, as you know, before we started filming, I logged into my Monarch Money account. I was showing you how I was using the cashflow tracker, the net worth tracker. It's pretty cool. So Monarch is a top rated all-in-one personal finance app. It gives you a comprehensive view of all of your investment accounts, right? You just sync them all up and there it all is like a bird's eye view of everything. Shows you your investments, your transactions, and you can even create custom budgets, track progress toward financial goals, and even collaborate with your spouse.

21:35So now that you have a newborn, maybe it's time to actually sit down, make a budget, collaborate together, and figure things out. And now you can get an extended 30-day free trial when you go to monarchmoney.com slash habits. There's going to be a link in the show notes below. I think the free trial for everyone else is just seven days, but because you use our code habits, you get a 30-day free trial. We always say how important it is to be tracking your investments and it's never been easier with Monarch money. Investments, budgeting, cashflow, subscriptions, and everything in between. There's a huge amount of people that use Monarch money to manage their finances, even as couples too.

22:13My friend Jeff is saving for a car and with a significant other through Monarch. And it's also great for saving for a house, larger investments, or whatever you're building towards. So check them out at monarchmoney.com slash habits. That's M-O-N-A-R-C-H-M-O-N-E-Y.com slash habits for your extended 30-day free trial. Major shout out to Monarch Money for supporting the podcast. We very much appreciate you guys. Now, checklist number eight is a pretty important one because as we begin to have more and more children, the house or apartment that we're living in begins to feel smaller and smaller. So my sister now has four children and she just bought a five bedroom house to help her raise these children in just outside of Atlanta here.

23:01So I guess the thing of, you know, consider your housing and how that might expand as you begin to grow a family is a really, really important thing when you're kind of building out your checklist here. So, Robert, what do you think about this point? I think it's a very slippery slope and I'm really glad we're covering it. Here's why. Let's say you've got the newborn or you've got two small children under five years old and you want to have more kids. So you're looking at housing and you're going, you know what? Let's just buy the four bedroom or the five bedroom house now and we'll grow into it.

23:34The problem I have with that is there's many reasons. But the first one is you're going to be house broke while you grow into that house in many situations. And so then what happens is it pushes the can, kicks the can down the road further for you to be putting away a reasonable amount of money every single month towards retirement and towards your base and building your financial freedom. So I would rather see people start with a reasonably sized and priced home in the beginning, and then they can always upgrade down the road and live a little bit below their house needs in the beginning, at least for a few years, because it gives them that better opportunity to not be so strapped for too much house, which might end up being for three, four, five or longer years to catch up for how much house they really need.

24:26Because I see it all the time where people want to buy the dream home right out of the gate when they first get their first child or two children. And I don't think it's necessary. Buy a house that works in the right neighborhood, maybe the right school district, and then worry about the dream home later when you're done building the family and you're really set up financially. I love that playbook. It reminds me, again, what my sister kind of did. I think she was living in a three-bedroom house outside of Atlanta. And she started renting the house when she had her one son, and then she had her daughter.