By Dr. Francis Bayes, WCI Columnist

The 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

(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

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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.

starting a family

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? Comment below!