By Dr. Francis Bayes, WCI ColumnistThe journey to financial independence is like a side quest of our bigger, main journey. Completing the side quest (i.e., becoming financially independent) happens to provide one of the best special powers for the main journey, regardless of the destination. If we complete the side quest a little faster, our main journey might be less stressful even with some hitchhikers (i.e., children).
My wife and I plan to start a family in residency. After we moved from the East Coast to her hometown on the West Coast for my psychiatry residency, our plan is in the back of our mind with each purchase, ranging from a car to dining plates. In fact, our plan has been influencing our decisions related to earning, saving, and spending for the past year. This column is on how we are planning for those hitchhikers.
#1 Move Closer to Family
We now live 20 minutes away by car from my wife’s parents and slightly closer to my parents in East Asia. I have discussed in previous columns on whether my MD/PhD was worth it and how personal finance influenced my residency rank list; I ranked my current program high on my list because of its location. If we were not planning on having a child during residency, the prospect of living in the same metropolitan area as her parents would not have carried as much weight as it did.
#2 Take a Pay Cut for More Flexibility
[AUTHOR'S NOTE: Disclosure: my wife and I wrote this section together.]
Before my Match Day, my wife received a job offer from a nonprofit organization in which all their employees work from home. But as we were waiting for the official contract, we were not 100% certain whether she should sign it.
She expected to take at least a 20% pay cut when she applied for the position. But how much more than 20% would be too much? She has valuable experience and skills from working as a consultant at one of the biggest corporations in the world. As laborious as applying for jobs can be, another employer might pay her what she is worth. We would need every penny that she deserves because having a child is expensive!
Everyone at the nonprofit works fully remotely, but her consulting job would have still provided generous maternity benefits and a possible option to work part-time from home. How much more flexibility would she gain by moving from her big corporation to the small nonprofit? Working from home would not mean that she could take care of our child full-time. We have friends who send their toddler to daycare, even though their parents live with them and one of them works from home. Grandparents want to live their lives, too!
Before we received the contract, we agreed on a salary floor below which she would not accept. As she became more excited about the job with each interview round, we lowered the floor. One of the reasons was the workplace culture; most of the employees were working mothers who set boundaries for work-life balance.
In the end, the nonprofit offered her a salary above our floor. She successfully negotiated for more vacation days. In hindsight, she would have accepted the offer even if the salary was below the floor, but our a priori justification for taking a pay cut (and lowering the floor) is proving to be correct.
More information here:
How to Prepare for Maternity and How It Could Affect Your Family’s Finances
How to Stay Focused When Everyone Else Is Getting Rich
#3 Buy Insurance
We bought term life insurance for each of us. Perhaps we could have purchased the policies after my wife was pregnant. But my OB/GYN rotation made me wonder how anyone (of means) who is trying to have a child could take the risk of not having life insurance. Our $1 million policy for each of us should be more than enough to cover medical and funeral expenses (morbid, I know) and living expenses during bereavement. Also, trying to time the purchase perfectly while I am in the middle of my intern year is not worthwhile considering the relatively low premiums.
We bought disability insurance for myself but not for my wife. In contrast to term life insurance, disability insurance is expensive. Because our financial plan depends on my physician income, mitigating the biggest risk—i.e., permanent damage that I cannot see but can see happening to other people—is a no-brainer. Although the group policy with her employer will be inadequate in replacing my wife’s income, we are comfortable with the risk of her not having an individual policy because of our proximity to her family.
#4 Build a Bigger Cash Fund But Invest Aggressively
We are fortunate to not have any chronic medical conditions, so we can contribute to our Health Savings Account. We consider it as another retirement account. While we are working, we would prefer to pay for medical expenses out of pocket rather than withdrawing from our HSA. We do not want to interrupt tax-free compounding by selling stocks.
Instead, we plan to have more cash savings than before. In addition to an emergency fund that is three months of expenses, we will try to have an additional cash fund that matches the family deductible and eventually the annual out-of-pocket limit. Pregnancy can be expensive!
Meanwhile, we will continue to invest aggressively. We already have a financial independence portfolio that is 98% stocks (and 2% crypto, so maybe I’m investing recklessly?). Not only do we have 20-30 years of an investing time horizon, but also we might be saving for the next generation. We might not need the stocks that we buy now, but decades from now, the stocks might be enough for our child to do anything but not nothing (a la Warren Buffett).
More information here:
The Perspectives of an Older Investor vs. a Younger Investor
#5 Go Even Bigger with Vacations
Until our child is old enough to remember the vacation, we would prefer local trips in which we drive to destinations. We might have to fly to Asia with our child so that our relatives can meet them. But such trips are more of a family obligation anyway. I would not want my vacation to be more stressful and expensive than necessary by flying somewhere with our child.
That's why we went big with our vacations before I started my residency. We went to Japan and Western Europe, two places where we most wanted to visit as a couple. We burned through our credit card points with free flights and nice hotels. Along cliffs and old city walls, we walked more than we ever could with a child on our back or in a stroller. We ate whatever we wanted, ranging from a Michelin-star restaurant in Normandy (with cheese that smells like stinky feet) to egg-salad sandwiches from 7/11 in Japan (with bread that is fluffy as clouds but not soggy). Dining out with a toddler might be harder than flying with a toddler.
We have enough memories to cherish for many years, and thanks to the West Coast’s wealth of natural wonders, we might not miss foreign shores too soon.
#6 Rent a 2-Bedroom Residence with an Option for 3
I hate moving. Moving is expensive! I want to minimize the number of times we move before we buy our primary residence. But we would not buy our home for at least 4-6 years—that is, after four years of residency, plus or minus fellowship, and the first few years as an attending. We do not know our future budget, so we should not predetermine the size of our mortgage.
Renting a two-bedroom apartment was a no-brainer. My wife now works remotely, so we can use the second bedroom as her office and a guest room until we have our first child. Moreover, when we were looking for an apartment, we wanted the property to also have three-bedroom units in case 1) we have multiple children and 2) our children cannot or will not share a room. The option to transfer units within the building somewhat mitigates the cost.
More information here:
Is Renting Better Than Buying? Why We’re Financially Independent and Renting
#7 Be Cheap with Anything That Can Be Damaged
If something can be broken or stained, we are buying it used on Facebook Marketplace, Nextdoor, etc. If necessary, we might browse off-price retailers, such as HomeGoods and T.J. Maxx. But nice, damageable goods can wait until we can hold our child accountable and until we are likely to stop moving.
“Everyone Has a Plan Until They Get Punched in the Mouth”
I imagine that some parents agree with the above quote by Mike Tyson (who is NOT a personal finance or investing expert). Morgan Housel (who definitely IS a personal finance expert) said something similar: “The most important part of a plan is planning on your plan not going according to plan.” We can only plan so much with something as unpredictable as pregnancy or parenthood.
We understand that our plan might not materialize for various reasons. Although some of the above decisions might hurt us financially now or later, they are nowhere near as consequential as having a child. If we start a family, we would regret more that we did not make these decisions.
We will feel anxious throughout the whole process—it is a matter of how often, not if—because so much of it is out of our control. But we can address our anxiety in the present. For now, we can be at peace because we will know (or at least this column will remind us) that we have tried our best with what we can control.
How else should we be preparing financially to have a child? If you're a parent, what was the best move you made before you started a family?
Very wise to make forward-thinking plans. Of all of them, I think living closer to family (especially family excited about the idea of grandkids) is the key. Just about everything else (except moving) could – theoretically – be tweaked on the fly.
As far as moving and bedrooms go, you may have more time than you might think (depending on how you plan the first year of sleeping arrangements to go). We had/have our kids in our bedroom for the first year; if you go that route you wouldn’t necessarily need the second bedroom primarily as a bedroom for the first year after your first kid arrives. Then, you wouldn’t necessarily need to worry about doubling-up kids until a year after the second was born; and depending on the timing between kids you may well be near or past the end of training/ready to look at a more permanent purchase.
The great thing about kids re: bedroom sharing (and a great many other things) is that they will very quickly identify what is ‘normal/acceptable/expected’ within the family and adapt to that. (Of course, to the extent this is reassuring, it is also rather terrifying.) Whatever setup you establish, the kids will roll with for quite awhile just based on inertia. Don’t get me wrong – they will eventually develop very definite opinions about the way they think things ought to be; but you have a few years to get things rolling in your preferred direction.
The other side of that coin is that when the kids identify what is ‘normal/acceptable/expected’ within the family, they will absolutely 1) enforce those standards to their benefit, and 2) see just where they can play at the edges, also to their benefit. I cannot but think of the concept of common law from Merrie Olde England in this regard. Whatever you permit once will be demanded a second time; whatever you permit twice will establish precedent; whatever is permitted a third time immediately becomes part of the Ancient and Undoubted Rights and Privileges of Children in your family, the memory of which is undimmed by the passage of time.
Thank you for your advice on both moving/bedrooms and parenting! I agree that children adapt, and many do well with far less space. Hopefully, my wife who’s giving birth this Sept is as amenable to the advice about the former 🙂
I really appreciated this article! It really resonated with me as my wife and I had a few similar things to deal with:
1) Lifestyle Creep: My wife and I were both ED attendings for several years before we had our kid. We travelled business class, we ate out all the time, we easily were able to invest and give. When we had our kid the financial shock made us really take a step back. We cook more, we eat out less, we do drive-to-vacations. Dont get me wrong – we live spectacularly well, but going from business back to economy, eating leftovers, not fun.
2) FIRE: We had hit our FIRE number a couple years ago with our investments covering our monthly expenses and then some. Toss in 5k/month for our kid, that changes things (1k for 529, 3k childcare/school, 1k food/activities) . Do we spend more on our kid that we probably need to? Yes, but we both really enjoy working so it’s certainly managable. I went to public school, so once our kids are school-age we may have less expenses.
3) Fixed Expenses: The pitfall that I regularly see people making – is too much house. At first, I didnt understand – why would you buy a multimillion dollar house that owns you. Now, seeing the devastation left in the wake of my son, I understand it. We have a nice 4 bedroom 1m house in a nice community (that I bought with a 2.2% interest rate at 850k). It’s definitely not fancy for the area (DC/MD). If we werent so debt averse, and had a smaller (but still comparably expensive) house, I can see the desire to get something bigger. Then if you want to be in a good school zone with a bigger house, you’re easily crossing 1 – 1.5 mil. Dont do it!! Your kids will want more time with you over a bigger house.
Thanks for writing this article!
Thanks for sharing your experience! We won’t have similar financial luxuries when my wife gives birth this Sept (God-willing), but we are preparing ourselves in terms of lifestyle (cooking more, local vacations, etc). Hearing stories from friends who’ve had a child has definitely put things in perspective.
This post hit a sore subject for me as my husband and I, in our early 30s, are learning we may never be able to have kids. I hope for your sake that your wife is already pregnant as you write this post.
I hope you take to heart the quote about things not going to plan. Have you discussed what you would do if you are not able to get pregnant? To be honest, I doubt you’ve truly reflected on this if you are buying used furniture specifically because a child might potentially scuff it up. And if your wife contemplated taking a lower-paying work-from-home job assuming that she’ll have more flexibility for a baby… I just hope for your sakes that it works out. You say “pregnancy is expensive!” Infertility is too, and it’s a lot sadder.
My main suggestion would be to not plan your life around something that may not materialize. Don’t hold off on a vacation because you might be pregnant at that time. Don’t be afraid to buy something nice because a child might spill something on it. Don’t buy a 4 bedroom house because you might need all those bedrooms someday. You never know what the future may hold.
Sorry to hear about your challenge. It’s very common among docs and very expensive both financially and emotionally. I hope it works out for you guys.
AR… I’m so sorry. That can be a true tragedy.
If you don’t mind sharing, I’d be interested to hear what you’ve done to manage your challenge. Have you considered ways you can influence the lives of other children, albeit not your own? Nieces/nephew? Community? Church? Do you think you would ever consider adoption? Is surrogate an option? I assume you’ve already looked at IVF.
I can understand why this topic is painful for you, AR.
Thankfully, my wife is pregnant, and we are taking it week by week. Partly because of selection bias, I am not taking anything for granted. She’s happy with her new job (if not happier since), and we’ve gone on nice vacations. I’m still a resident, so buying used furnitures or cheap plates made sense for other reasons.
Francis congrats man on being pregnant! dude, you will do awesome with the forethought you guys have put in regards to financial planning. I was financially illiterate when I had my 2 kids- was pretty painful having 2 kids with expensive house and funding a stupid whole life policy. Looks like you will avoid the arguments and financial angst that characterized being financially dumb with me and my wife and you are starting your family off with a lot of future happiness without serious financial worry!
Congratulations on the pregnancy! We have five children: one in medical school, one in residency, one in fellowship, another in a second fellowship, and one as a first-year attending. My husband is the physician, and I’m a non-physician. He completed his training two years ago so we’re new to seeing a positive balance in the bank account haha! Reflecting on the past, there was negativity regarding us having that many kids during his training, but we wouldn’t have had it any other way. We are a very happy family, and overcoming the challenges strengthened our bond and helped us appreciate what we have every day.
I believe one major oversight among physicians, as you mentioned, is not obtaining own-occupation disability insurance early. Disability is a risk more likely to occur than death. Female physicians must absolutely secure it BEFORE becoming pregnant because even a diagnosis like gestational diabetes can significantly increase rates or make it impossible to buy later on.
Aside from that, everyone in our social circle who has children makes sacrifices such as opting for domestic/camping trips over flying, having siblings share rooms, buying smaller homes, and scouring Facebook Marketplace. If they can manage it, so can physician families, and often with money to spare. For us, children bring blessings into our lives; love multiplies, it doesn’t divide. Money works itself out.
Another crucial aspect not to overlook is your neighborhood. I believe your zip code has the most significant impact on your child’s upbringing. We live in an area with lots of young families and kids of all ages. It’s wonderful. We even carpool to extracurricular activities together. Our home has become the go-to spot for hanging out and for snacks, allowing us to get to know our kids’ friends well. This is a non-financial but immensely valuable benefit that makes childhood “rich.” Your realtor can guide you to the right neighborhood for your family.
Great job planning out your professional and personal journey. For our less forward thinking colleagues, I would share the following encouragement:
Life is not meant to be a neatly packaged Ikea project with detailed instructions. I spent 28 years in the military right out of high school. Along the way I got a BS and MS, got married, then went to med school at age 35, and had 4 children with my wife. Two of the kids were born during my med school education. Together I moved more than 10 times, six of which with a family in tow. We have a predictably low but adequate single salary, as most military spouses are penalized by the lack of job opportunities (who wants to hire you, knowing that you will move in 3 years). Do we want stability and predictability in life? Yes. Do we fear the lack of such luxuries? Often. I deployed to the middle east two days after our eldest children was born. So much for being prepared per our Family Care Plan for just such an occasion. Most of the time, we don’t know where we are moving to next until six months before our move. Preparation for parenthood? We read a few books, took some labor and new parent classes; then we “fake it until we make it”. Twenty years into the marriage, so far so good. Later this year our teenager with start driving. OMG. The important thing is to stay focused, at least 6 to 12 months into the future. Take a deep breath, as this Ikea package called life only comes with partial instructions, and we are our own chief writer, editor, and reading all at once.
One comment on term life – it can be harder to get if you are currently pregnant, especially towards the end of pregnancy. I got term life before trying to become pregnant, and I am glad I did I as I had some minor complications with pregnancy that might impact insurance costs (despite being a low risk candidate beforehand).
Totally agree with that. Get the insurance before getting pregnant.
This is only indirectly financially relevant: be careful in planning out your ideal work schedule/mix before having kids. My wife (physician) and I (not) planned before having a child that she would keep working full-time while I would transition to stay-at-home parent + working a more flexible job.
It turned out that my wife really wished she could have more time at home with our daughter and I wished I could spend a bit more time working! I think it’s worth keeping in mind that you may be surprised by who likes (or doesn’t like!) childcare and have the financial flexibility to adjust. Of course, the constraints of your training are likely more important than purely financial constraints in the near term.
There is a reason the “traditional” way is the traditional way. There are differences between men and women and while every person and every family is unique, we shouldn’t be surprised by findings like what your family experienced.
To gently push back, there are also plenty of instances of women who plan to stay home and realize they’d rather work and send their kids to daycare. Taking care of kids, while enormously rewarding, is hard work for anyone, male or female.
I just spent a week with my kids for Spring Break. I’m ready to go to work. So I totally understand that. But I’m not going to pretend that men and women are exactly the same creatures and it wouldn’t surprise me if on average this varies by gender.