3 weeks ago, I welcomed my first child into the world. A baby girl named Charlee. We didn’t know if it would be a boy or a girl. I assumed boy, but when I saw my baby girl for the first time, I never felt instant love like I did seeing her… except for my wife 😉 (Hi babe…). Becoming a father changes everything. Holding my newborn daughter for the first time, I felt shockingly in control, like I could do this, but a surge of joy quickly followed by a sense of anxious responsibility unlike any I’d ever known. As I cradled her abnormally strong hand, I vowed to do everything possible to give her a future filled with opportunity and security. Yet, I quickly realized this goal required more than heartfelt promises; it demanded a commitment to both quality time and financial planning, both somewhat competing responsibilities!
Like many new parents, I initially worried that spending time strategizing over finances might take away from precious bonding moments. And it did to be fair. But I knew that laying a financial foundation for my daughter’s future would be one of the greatest ways I could show my love and provide her with long-term security, so I started with certain elements before she was born, and quickly adopted other methods when she napped (every 2 hours).
The first step I took 6 months before she was born was to create and hyper-invest in a college savings account, specifically a 529 plan. With the cost of higher education rising, starting early made sense. Also knowing that by month 5 I’d be paying absorbently high daycare costs ($1800+) I decided to get used to that budget before daycare began. While even small, consistent contributions have the potential to grow over time, I tried to maximize the effects of compound interest, paired with the high contribution limits of a 529 plan to front-load as much as I could. I set up $2000 monthly payments into a state-run fund that had low fees and an S&P 500-like investment option. Setting up automatic monthly deposits not only simplified the process, it also ensured that I consistently invested in her future, even during busy months.
Additionally, as soon as my wife told me she was pregnant, I made sure to update my life insurance policy. Although it’s uncomfortable to think about, ensuring my daughter would be financially protected if anything happened to me was a priority. Life insurance provides a sense of security that goes beyond finances; it’s a way to know that she would still have resources to fall back on, even if I weren’t here to provide them. While some people promote the idea of a Universal Whole Life Insurance policy, I favor the standard tried and true term life insurance policy. I like keeping my investments separate from my insurance. I also spend a little time working for a “Financial Planning” company, that seemed to only sell Whole Life Insurance policies… which never sat well with me. Term life insurance is actually an incredible deal when you think about it. It’s a fixed price over 10-30 years. It cost me $80 a month as a 36-year-old to insure $1.6 million! That’s $960 a year to insure a $1.6 million house (I am the house in this analogy). Does your physical home insurance charge that little? Dads, life insurance is the most important when you are a young father and you are building your wealth. If you follow The Steady Investor mantra, you will have many millions of dollars by the age of 50+. But when you are in your late 20’s and 30’s and you are just starting a family, you are financially exposed. Life insurance is meant to bridge that gap! Pro Tip: don’t cheap out on it!
Another step I took was to set up a custodial account, which allows me to invest on her behalf. It’s a long-term account, and she won’t have access to it until she’s an adult (either 18 or 21 years old), but it will give her a head start for significant expenses, whether that’s buying her first home or pursuing an entrepreneurial venture. Contributing a little each month now could make a substantial difference for her when she’s older. It also has some tax benefits… not as many as a 529 plan, but it provides more flexibility in how the funds are used, that’s the trade-off. For example, the first $1250 of earnings from dividends, interest, or capital gains are tax-free. Also, the next $1250 in earnings are taxed at your child’s tax rate, which is often lower than my tax rate. This account is also a good way to transfer wealth to your child over time, as you can contribute up to $17,000 per year, per child without having to pay a federal gift tax. Finally, there are no limits to these accounts. You can contribute as much as you’d like. That being said, a custodial account has some drawbacks, specifically for college financial aid eligibility, since the funds in a custodial account are owned by the child, not the parents.
I’ve even considered how I could start a custodial ROTH IRA for her, which I’d love to do, but would require her to earn income. And while at some point she will do chores and earn income, I’m not ready to have her be a baby model (though I think she could) or take a part in a movie. But when she does start working, you can bet your a** that I will be matching her income into a custodial Roth IRA for her.
As I’ve navigated this financial planning process, one of the most crucial things I still struggle a bit with is the value of balance. My time with her—those moments reading her favorite books or rocking her to sleep—holds a value that can’t be measured in dollars or investment accounts. Most would agree that her personal development is the biggest investment of all. Sometimes, it feels like time spent at my desk reviewing financial plans is time lost, but I’ve come to see this as part of my role as her father. My financial diligence now will enable us to create meaningful memories without the shadow of financial stress hanging over us.
To other new fathers, I recommend finding the balance that feels right for you. Start small, but start early, whether it’s a college savings plan or updating your insurance. The earlier you start, the less you’ll pay. Take an afternoon to sit down and assess what steps you can take to make your child’s future more secure. It doesn’t have to be perfect or overly complicated; it just has to start. And above all, make time to look at your baby, talk to her, sway her, swaddle her (I’ve become quite the swaddler). At the end of the day, my daughter may never know about the hours I spent planning for her future, but she’ll feel the stability and freedom those efforts afford her, and she’ll feel the love and support knowing that I was there to hold her, kiss her, and change her (I hope).
Being a new dad is about presence—being there to witness her first words, her first steps, and one day, her first big dreams. And if finance can help make those big dreams easier to achieve, then I know I did something right.
Stay steady,
Ricky – The Steady Investor
