Rich Girl Roundup: How to Financially Prepare for Children—Before You Have Them

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We’re always told how expensive children are once you have them—but how do you prepare for them financially before they’re here? How should you adapt or shift your budget when it comes to doctor’s visits, insurance policies, TTC tools, and more?

Welcome back to #RichGirlRoundup, Money with Katie’s weekly segment where Katie and MWK’s Executive Producer Henah answer your burning money questions. Each month, we’ll put out a call for questions on her Instagram (@moneywithkatie). New episodes every week.

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Mentioned in the Episode

• How Kids Impact FI episode

• CNBC article on questions to ask before having children

• Hospital indemnity insurance

• FSA/HSA eligible pregnancy and fertility kits

• IVF and the Business of Babies

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Katie:

Welcome back, Rich Girls and Boys to Rich Girl Roundup, the weekly casual convo—because we’re not a regular podcaster, we’re a cool podcaster—version of The Money With Katie Show. I’m your host, Katie Gatti Tassin, and here is a quick message from our sponsors.

Okay. Onto the roundup. Henah, what are we talking about this week?

Henah:

We’re talking about kids.

Katie:

My favorite!

Henah:

Two childless people talking about kids. Lauren B. asked, how can we prepare financially for children? So we have covered the costs of childbirth, and childcare, and how children impact financial independence,  529 accounts, but we’ve never actually talked about preparing for children, which now that you and I are in those childbearing years as our audience also is this question felt especially pertinent. I understand that you met with your CFP and you kind of also asked about this, so I want to hear about that.

Katie:

Yeah, I was curious. So I met with Katy, the CFP that I work with who’s amazing and I wanted her to pencil out a few different income projections for me for the next few years because as a semi self-employed individual, I basically wanted to understand if we are going to be considering buying a house or having kids or any number of changes with our respective incomes. My husband gets out of the military next year too, so there’s a lot of change coming.

I wanted her to show me a range of potential outcomes and what our quote bare minimum was. So in order to break even pay our taxes still save for retirement and support our lifestyle, what would we need to bring in every year? And one of the things that she brought up was kids. So it wasn’t really top of mind for me because we’re not really in that phase yet, but I was curious since she’s been doing this for 15 years and has advised probably thousands of clients at this point about children, what she sees as the averages. So she told me that I should budget $4,000 out of pocket in the lead up to birth, basically outfitting your home, getting things physically ready for a baby, which in my mind I’m thinking crib stroller, all of the diapers that you have, specific baby food, I assume…

Henah:

Specific baby food.

Katie:

Says the woman who’s never raised a child. I’m like, how do I hold it? What do I do? Where do I put my hands?

Henah:

Oh boy. Okay.

Katie:

Yeah, support the head right?

Henah:

Before you continue… Are the numbers that you’re saying kind of averages she’s seen across all lifestyles, all whatever, or is this kind of tailored to being a high earner?

Katie:

She didn’t specify, so I honestly dunno.

Henah:

Okay. I’m just wondering if $4,000 is $4,000 low for some people or is it usually the higher end? But anyway…

Katie:

Oh, dude, I don’t know. I guess it depends on if you get the Bentley of strollers or not. But then she said $4,000 out of pocket for medical costs, so pregnancy, giving birth to doctor’s offices, what have you. And I confirmed with her, this is assuming you have insurance. She was like, yeah, we’re still talking around $4K on average. Again, based on what she’s seen.

And then she told me for cashflow purposes, so what you can expect to have to budget post birth for your monthly income to ongoing costs or to supplement the rest of your spending. She said $2,000 per month until they’re five If you’re doing daycare, $5,000 per month if you’re hiring nannies and babysitters. And then roughly—

Henah:

So $60,000 a year?

Katie:

Well, between $24,000 and $60,000 a year is what she said. But yeah, that then she told me after they’re five, basically once they reach school age, roughly $4,000 to $6,000 per year in incremental expenses for we’ll say aftercare or camps or just other supplemental childcare because the school day ends before the workday ends and that’s if you’re not doing private school. She said if you’re going to do private school, this is so crazy. $500 grand for private school K through 12. I was like, holy cannoli.

Henah:

What does that come out to? $500,000 over 13 years. $38,500 a year. Oh my God.

Katie:

That, to me, indicates, I mean, she’s in the Bay Area. Those are private school in San Francisco costs. I bet. I don’t know though. Do you have any intel here? You on the private school subreddits?

Henah:

No, I am a public school baby. My husband’s a public school baby. Our children will be public school babies if we have them. I’m sorry, I’m still shook about the $500,000 number. This kind of reminds me of when we had Farnoosh on the show and how kids impact FI in the sense that yeah, those first couple years are going to be really expensive. And then I think she said after five it comes back down, but that is quite, it’s kind of mind blowing to hear the numbers laid out like that.

Katie:

I agree. And she also mentioned there was an interesting tidbit that I appreciated. She basically said also acknowledging that it’s kind of bleak and a little dystopian what’s about to come out of my mouth. But she said…

Henah:

Good, my notes are also dystopian.

Katie:

Fantastic. She said, if you’re going to do the private school thing, don’t pay for a house in the best school district. Don’t pay for a home in the area where all the other people are trying to put their kids in the best public school. You’re going to overpay for that house. Part of the reason certain areas are the taxes…

Henah:

Oh, taxes.

Katie:

Yeah, because you’re going to pay way higher property taxes and the house itself is going to cost a lot more. But she was like, if you are going to do public school, it’s probably worth it to spend more money on the home to be in the district for the school you want to go to. So hence my comment about how dystopian and bleak that is. But from her perspective, she’s just trying to give practical advice to her clients. So that’s basically what she tells them is like, don’t double up unnecessarily.

Henah:

No, that makes total sense. I would’ve never even thought of that. I mean, again, public school kid right here, but that reminds me of this hi-larious tidbit I saw on our CNBC article about this when I was doing my research and it said, “You can save a lot of money by getting pregnant towards the end of the year. If you get pregnant in October, November or December, then you don’t have to have your first doctor visit until the next year. And then ideally you have the baby within that year, so you only have one year of deductibles related to the baby.” And I thought what a bleak American way to approach having a child doing it in the calendar year strategically for insurance.

Katie:

Deductible purposes. Oh, that is dark. Also, all the conversation about IVF is reminding me how hard it is to get pregnant. It’s not something that you really can control at all. In some cases, people will try and spend tens of thousands of dollars for years to get pregnant at any point in time. So it’d be like, all right, baby November, let’s go. We got a three day window so that we can save $5K on our insurance.

Henah:

Is that not the most American dystopian thing you’ve ever heard?

I did find a couple tips that my friends had told me or other people on Reddit had said that I thought might be helpful here.

So the first is changing your health insurance plan to be more comprehensive or understanding the payments that you’re going to have to go through if you go to a hospital for delivery or any complications that you have so that you can change an open enrollment and say, okay, I want a lower out of pocket max this year. I’m willing to pay a little bit more in premiums, but then that way I’m not super on the hook for $8,000 or something. You can bring that down to $4,000, something like that. So that was one.

Jovanni’s job offers this, which is how I found out about it, but then I read about it a little bit more. So I’ll give you the kind of caveats, but you can also add something called hospital indemnity to your current insurance. And it’s basically a policy that says if you spend X amount of time in the insurance policy will give you straight up cash to pay for $2,000 for the whole year or $200 a day. It depends on the policy that they offer, but these can also cover the costs of childbirth or post childbirth hospital costs. And my understanding is that they’ll pay you in cash so you can file your claim and then do essentially whatever you want with it from deductibles and out-of-network care to transportation costs and groceries. And I read from a couple different places how this helped minimize high hospital bills and people who definitely had the high out of pocket max, but I also read some horror stories from people where they tried to file and it didn’t work. So I will say for this one, read your policy really carefully. They might say, if you try to get this policy when you’re already pregnant, it will count as a preexisting condition so that you can’t use it. Or they might say you have to have this policy, you can’t claim it until 10 months or a year. So you basically sign up a month before you’re going to try to get pregnant, maybe get pregnant right away, and then have the baby and then it’ll count.

Katie:

Oh, interesting.

Henah:

Yeah. You’re basically having to run the cost benefit analysis as well as a timeline analysis to see if this would make sense to add to your policy. But it could help.

Katie:

I could see—it’s probably cheap, so specific and narrow, but if it’s like $20 or $30 bucks a month…

Henah:

I think it’s like $12 to $15 that I saw. But I don’t know. I mean, again, it really depends because to your point, if I add this to my policy tomorrow thinking, oh, I want to get pregnant in the next year, but then it takes two years to get there, then I’ve basically paid more than that.

Katie:

The amount that they would pay way more. Yeah, yeah. Which is how insurance works. They are profitable and making money because they’re typically taking in more than they’re paying out. But that’s a good point about reading the policy. Yeah, go to whatever the section is to be like, what is the coverage I have for the specificity of this situation of being pregnant or giving birth, what is covered and what isn’t.

Henah:

Some have limits, so they might say we’re only going to pay you up to a $1,000 or $2000 bucks. And not that that’s nothing, but you can play around with your insurance policy because maybe your out-of-pocket max is below that and then you don’t have to worry about getting it in the first place. I don’t know, just something to think about.

Then a couple other things that my friends who are now in this trying to conceive cycle have brought up are things that really add up quickly. So genetic testing, prenatal vitamins, basal body thermometers for temperature tracking, cycle tracking apps, subscriptions, books, classes. They are all, or most of them rather are FSA and HSA eligible, but they add up and it’s still your money that you’re using, you’re just not paying tax on that if you use it. So I think those are other things where now that I’m entering the stage of life, I’m like, oh, I do have to kind of budget for the pre-pregnancy stage. And then obviously you might need to move, you might need more space, you might need to buy a home in a better school district, like you said. Those are other things. And also USA does not have any guaranteed maternity leave, so you’re going to have to figure out how to budget without any income potentially for some job you may have.

Katie:

We had also talked in a previous episode, I want to say it was the IVF episode about how some people have switched jobs to go work for an employer that provided IVF coverage or had good maternity leave or parental leave policies and…

Henah:

I have two friends who are doing that right now.

Katie:

Yeah, if that’s, on its face, it sounds like why would you do that? But when you think about what that equates to compensation wise, you could make a completely lateral move or even a job that has a pay cut and still come out ahead if you’re getting something that costs $20,000 a cycle covered or you’re getting three months of paid leave as opposed to one, it can make a big difference.

Henah:

I have a friend who was really upset that they weren’t getting more than I think their 3% cost of living increase, and I said, well, is it worth looking elsewhere? They said, no, I have five to six months of parental leave, and I said I would take five to six months of parental leave over a 3% to 7% increase any day.

Katie:

A hundred percent.

Henah:

So you are having to weigh those things, and I have a friend also who literally is looking for a new job, has been diagnosed with infertility, so is not applying anywhere that does not offer IVF benefits because they’ve already paid out of pocket twice now. They can’t afford to keep doing it unless it’s covered. So it is something that unfortunately because of how closely tied our jobs are to our healthcare, they have to make those decisions and I don’t blame them for it. Yeah.

Katie:

Well, and I think too, as someone that is, I guess I would say my job is a little unique in the sense that if I just disappeared for six months, there really wouldn’t be a product to sell. It’s a self-employment problem. If you are working for yourself but don’t have something that can continue and happen without you if you stop, there is no revenue coming in. So there’s also the element of well, I could have an AI deep fake, we could experiment with that.

Henah:

I was just going to say, I was going to say, we’re trading off our childbirth cycle so that I will deep fake you while you’re out and then you could do the same.

Katie:

So there’s also the element of, it didn’t come up in the conversation with Katy that I had, but if you’re needing to provide your own paid leave so that you have income to take off from a business that you run and the fact that you would have to, then there’s a ramp up period. Again, it’s not like you just turn the faucet back on. It’s not just the time you’re out. Right? There is a wind down and a ramp up that’s going to probably take some additional mental accounting. I don’t know though. I know some podcasters that’ll record literally three months of episodes in advance and then go dark.

Henah:

That’s what I’m going to make you do. Don’t worry. On that same note of mental and emotional bandwidth is, I have friends who are trying to go to couples therapy before they have kids so that they can build these solid relationships before that becomes an issue. Or the fourth trimester is the very real thing for a lot of people. Postpartum is really hard for a lot of people and budgeting and extra resources for therapy or mental health support also, there’s all sorts of things that can come up that aren’t talked about. If you have a miscarriage and you have to go get a DNC, two friends of mine have had to do that cost thousands of dollars that they weren’t prepared for. If your child has lactation, their tongue is twisted, those kinds of things, you have to pay for a consultant to come in and help you. You might need to get surgery for your child.

There are just so many things that, it’s interesting, when I was trying to prepare for this episode and I was googling, how do you prepare for a baby? Everybody’s like, okay, then go buy your crib and then blah, blah, blah. But I’m like, no one talks about this pre pre-pregnancy period of time where you can really think critically about what are all the costs that could come up and how can I best prepare? So I’m really glad that we’re talking about this and that Lauren asked the question.

Katie:

Yeah, so thank you Lauren for asking us two childless women how to best the faith that you have in our ability to strategically Google is just, it is the honor and privilege of my life.

Henah:

I do feel like I brought some real life stories.

Katie:

You did. You really did. Henah’s bringing the heat. I’m just here. Well, I don’t know.

Henah:

Sure. That sounds right. Okay. Crazy money story time. Okay. So for this week’s wild money story, my best friend is a photographer and a wedding photographer, lifestyle photographer, and they’re in a lot of different Facebook groups and they’ve been seeing a lot of people who work for themselves or maybe freelancers planning a wedding and then trying to write off the costs of their wedding where they will hire a vendor and then be like, please fill out this W-9 form so I can write this off for tax purposes.

Katie:

Oh my God.

Henah:

And I don’t really understand how that works, but I wanted to get your thoughts, Katie, as someone who’s also self-employed to be like, could you write off your wedding?

Katie:

No, I mean, unless you’re like on The Bachelor and it’s being televised, this is giving “is this tax fraud…”

Henah:

Tax fraud.

Katie:

Yes. Almost decidedly. But I mean, yeah, I really, I’m coming up blank on what potential angle you could put on this. Maybe I could see lifestyle influencers who are going to—

Henah:

That was the only one I could think of.

Katie:

Yeah. Who are going to post the entire thing and have a lot of it sponsored, but even then also how dark bleak my sponsored wedding?

Henah:

I mean, did you ever watch Search Party?

Katie:

No.

Henah:

Oh my gosh. Okay. It’s such a funny show. But basically they had two wannabe influencers try to get married and have a sponsored wedding, and so they would have Klondike bar, stupid ass shit that they served because it would be like, and now a raffle for the welcome party from Klondike. And they were trying to livestream the whole, it was so funny. But that was the only case where I was like, okay, maybe a lifestyle person.

Katie:

I didn’t watch that, but I did watch the American royal wedding. AKA Kim Kardashian and Chris Humphries.

Henah:

The 72, 72 days?

Katie:

72 days.

Henah:

Wow. Well, I don’t think that this is possible, but I mean maybe we gave some creative inspiration to some of you. I have no idea.

Katie:

Props to you for trying; the lengths people will go to not pay taxes. That is all for this week’s Rich Girl Roundup. We will see you on Wednesday.