In honor of our team member Ariana Alisjahbana welcoming her first child this week, we are rerunning an article from June 2022 that highlights financial considerations to keep in mind as you celebrate this next phase of life. Congratulations to Ariana and her growing family!
Few things in life are as simultaneously exciting and scary as expecting your first child. Children reorder our priorities and mark a new phase in our day-to-day lives. We know our lives will be transformed, but we can’t know exactly how until it happens.
Beyond the generalized anxiety of the well-worn “Am I ready for this?” and “Will I be a good parent?”, there are countless practical questions and concerns to address. This can be both exhilarating and overwhelming. What will we name our child? Will we be happy raising her in our current home, or in our current neighborhood and local schools? Will we – or can we – take time off? What does it look like if one of us decides not to return to work? There are also longer-term issues. How will we pay for college? What if we decide to have more children?
When navigating the transition to this new phase of life, many questions arise that blend financial impacts and personal values. Stress about our finances can crowd out our ability to engage with and enjoy all the other elements of loving and raising a child. Naming your child can be fun, and thinking about her future is exciting, but if you’re stressing about the cost of private preschool, everything else can feel overwhelming, too.
Visualizing the Path Ahead
Our work with clients is intended to create mental space to make informed financial decisions so they can dream freely about the future. One of the key tools we use to do that is long-term cash flow planning.
When developing a cash flow plan with first-time parents, we begin by gathering information about their current and future income, expenses, assets, and liabilities. This gives us – and them – a sense of their current financial landscape. Using this data, we look at their financial trajectory over time to understand how sustainable, and flexible, the path is for their growing family. Once this is done, we collaboratively explore different scenarios to better understand the impact of various spending and earning decisions.
The final phase of the process is when we get to see the long-term financial tradeoffs of various decisions, which in turn helps clarify priorities. For new parents, this might include decisions about housing, careers, or savings plans for future tuition. Are they willing to downsize their space to be in a neighborhood with better public schools? Are they willing to work more, or cut back on vacations, to save aggressively for college? Knowing the trade-offs can make it easier to choose among competing needs. Cash flow planning doesn’t give a “right” answer, instead, it provides a framework for making a decision in your specific circumstance.
Creating Breathing Room
At its core, cash flow planning helps to organize our financial life into something comprehensible, which allows us to look into the future and understand the range of potential outcomes. When we quantify the tradeoffs and guide conversation about potential paths forward, it allows clients to develop realistic expectations for their own circumstances. When you know that you are financially secure, it gives you permission to splurge more often on a babysitter or submit the private preschool application. Conversely, when the initial outcomes aren’t what we hoped, cash flow planning provides direction for areas where you can make progress.
Although we’ve focused on first-time parents, life transitions always involve a blend of financial factors and personal priorities. Whether you’re changing jobs, getting married, navigating divorce or the loss of a spouse, receiving a windfall, or retiring from full-time work, you face a variety of considerations related to the change. In each of these circumstances, cash flow planning with a trusted partner can be a valuable tool to organize and contain the financial elements of your life, freeing you to make better and more satisfying decisions.
 | About Sam Wood-Bednarz, CFP®Sam Wood-Bednarz is a Partner, Senior Advisor, and Director of Advisory Services. He provides clients with a sense of confidence and security in their financial lives. |
This commentary on this website reflects the personal opinions, viewpoints, and analyses of the North Berkeley Wealth Management (“North Berkeley”) employees providing such comments, and should not be regarded as a description of advisory services provided by North Berkeley or performance returns of any North Berkeley client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. North Berkeley manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.