Kel: We're both very analytical and, uh, when we see. Kids, we, we see price tags
Jamie: Meet Kel and his wife, Nat.
Nat: Keldin and I have been together for almost seven years now. This is the time where we're really considering when is the right time to have kids and are we financially ready to have kids?
Jamie: Nat and Kel seem quite confident about their finances.
Kel: It wasn't until just recently, like in the last month that we decided to like join our finances together. So we now only have one bank account.
Jamie: They even did something that most couples shy away from.
Nat: In my business law class. Uh, one of the first lessons I learned was the teacher said, always sign a prenup. Because if we don't get a prenup, we do end up getting one, especially in states like Washington, where everything is considered community property, and that could include debt.
Jamie: Very levelheaded and responsible.
Kel: I feel like the day-to-day bills we don't really have to worry so much about because those are getting paid off. It's more of these like future, uh, events that we want to consider.
Jamie: The big future event is their desire to start a family, the idea of having kids has brought a number of issues to the surface. For one, Nat is a financial influencer on social media and worries that motherhood will negatively impact her career
Nat: That's definitely where I'm concerned because I've heard all of these things that content creators have a shelf life and I know that when we start a family, I'm inevitably gonna have to take time off and I don't know if I am gonna be able to have the same career that I had today.
Jamie: But Nat’s fears run deeper than her career. They’re rooted in her upbringing.
Nat: There's a point where my dad's business was failing and like my mom had to tap into her 401k and you know, some credit card debt, at least my, on my dad's side. And so I feel like I, I saw, like, I saw them fight a lot about money and that's always like made me stressed about it and like, make me not want to, um, not want to like, get into debt or not want to make wrong financial decisions. Um, so everything I, I feel like I'm a, I'm less of a risk taker because of my upbringing.
Jamie: But her parents' problems with money involved more than risky business decisions, especially after they began gambling.
Nat: I think at first some of the motivation was to, kind of get rich quick. But it ended up developing into a, an addiction that kind of damaged our family. And I, I feel like her, our relationship, 'cause you know, there were points where, um, my mom then and dad started asking money from me.
It's a big eye-opener in that I don't wanna make the wrong moves and I, I'm just weary. I'm just weary. I don't wanna develop an addiction and uh, I don't wanna take risks like a lot of risks.
Jamie: And that's where we'll start today. I'm Jamie Rowe and welcome to What Should I Do With My Money? An original podcast from Morgan Stanley. We match real people asking real questions about their money with experienced financial advisors. Here at Morgan Stanley, we work with a range of clients. Some are experienced investors, others are new to working with a financial advisor. On this show, you get a front row seat to hear what these initial conversations are like and get answers to some of the questions you might have yourself.
Nat and Kel are in their late twenties and early thirties and have done a great job so far of saving and planning for their future. They have combined assets of about $800,000 divided up between 401ks, brokerage accounts, health savings accounts, and equity in their condo. But they wanna know what is the magic number? How much money do they need in order to start a family? To help them find out, we have Danelle, a financial advisor at Morgan Stanley. Danelle's relationship with money was formed as a child growing up with a single mom.
Danelle: You know, money was tight in our household and as much as we didn't go without, we knew what it took to make ends meet. I remember starting to help my, um, mother with work every weekend at the age of six. I would start with cleaning the doctor's office that she actually worked at, and so really understanding work ethic and the value of a dollar.
Jamie: Danelle works on a team of all women, most of whom are mothers.
Danelle: Starting a family, becoming a mother. It shifts your mindset, right? It's not all about you. It's not all about you and your spouse. You know, I, I, can't take on, you know, the risk maybe that I once did when it was just, you know, me and my partner and we all kinda reflect on our childhood, and I think a lot of us come with, well, I want my child's childhood to be better than mine. Right?
Jamie: Danelle really sees herself in Kel and Nat. So I thought she was the perfect person to talk to them about family finances
Danelle: So great to meet you.
Nat: Great to meet you
Kel: Nice to meet you too.
Nat: Your story is so inspiring. I can't believe you're have a whole team
Danelle: Thank you. Yes, I'm really excited to meet you guys. Like, it was me and my husband 10 years ago. Like literally. But I hear that that is kind of a pressing question. You're kind of at that stage in life where a lot of exciting things may be happening.
Nat: Keldin and I have been together for almost seven years now. So he's 32. I'm gonna be 27. This is the time where we're really considering when is the right time to have kids and are we financially ready to have kids?
Danelle: I think the biggest factor for you, Natalie, is if I were to stop working, right, which is going to be the case for my maternity, how does that look like? For their financial responsibility to solely be on den, then how does that look? Is that possible? Are we gonna make ends meet?
Nat: Yeah, so I think for, you know, right now, um, the short term goals is definitely that, that baby fund the initial funds with the hospital and all that. And actually Keldin and I were planning this year to save 20k for that.
Danelle: Okay.
Nat: We don't know if that's enough, especially 'cause that doesn't really consider the caretaking thing, which we should probably include in the, in the equation. And then that kind of makes me scared that, okay, maybe we should save more than 20 K for that. We also have our emergency fund. We have, that I think it's six months of emergency fund for both of us. The long term, we both don't really see it, uh, because it gets deducted out of our payroll. Um, so Keldin gets, he has his…
Kel: 12% of my paycheck, uh, goes towards my 401k and then, um, and then every year I get a bonus, and during the bonus time I get like, it's like $10,000 worth of stock that goes into my account. Plus I have the ES or was it ESPP or where it's like…
Danelle: The employee stock purchase, fill in. Yes.
Kel: So I am, I would say every month I'm always investing passively into the markets. Natalie, on the other hand, it's a little bit harder because since she's self-employed, she has to, uh, fork over the cash herself. Um.
Nat: No, 401k match for me 'cause I'm, I'm my employer.
Danelle: You are the employer.
Nat: Yeah. So I like, I in like, I follow a different method for mine where, at the end of the month, I just try to max it out with whatever extra. Like I take a, my business is set up as an S corp, so I just pay myself with distribution and I do make sure that I max out my solo 401k, the employee side, which is 23.5k, and we do have like a backdoor Roth IRA where we max that out.
Kel: Hey babe, I got a question on that.
Nat: What?
Kel: You're, you're currently just doing it yourself. Would it make more sense since now that our money is together that the portion that you would take out of your put into stocks, we just do into my 401k and then we get like that percentage from the employer to help pay for it?
Danelle: Just to be clear, so I think what you're saying is, is if you opted to increase your contribution to your 401k, the reduction that you would receive in your paycheck would then be compensated from Natalie and where she is currently saving in her respective investments. Am I understanding?
Kel: Yeah.
Danelle: Okay. We are big proponents of, of saving, um, into a 401k and at least receiving the match to the best of your ability. So in this case, you certainly could do that and I would encourage you to do that. That’s leaving money on the table. But it is only in your name, right? So at the end of the day, if something were to happen, um, this is your money. However, you know, there is the thought that Natalie could also be saving to her respective retirement account too, right?
So at least making sure that you are getting the match in your particular plan. But then Natalie, could be maxing out to her, you know, beneficial interest into a respective 401k, and then it would be more of a 50/50 kind of split to the same goal, right, of retirement.
Jamie: What this boils down to is a trade-off between maximizing Kel's company match to his 401k contribution and the shortfall in his take home pay, which would have to be made up from Nat to cover their day-to-day expenses, which could mean that Nat would have less to contribute to her retirement or brokerage accounts in her own name. So that's just something they'll need to decide on together. Something else Nat and Kel are trying to plan for but are struggling with a bit is their next step in home ownership. Danelle dives right in.
Danelle: Have you guys given any more thought to that on what direction you wanna take?
Nat: very stubborn, and he does not wanna sell the condo
Kel: I've done lots of research on this place and,, I think the area that we're in is like a really good spot to be. Um, it's at our price limit at the moment. Um, and I don't wanna sell this place. So what if we rent the place and we move somewhere a little bit cheaper or something like that. That's, um, potentially closer to my family because my, my mother mentioned that, uh, she loves kids and she would be more than happy to help be a nanny.
Nat: her, she specifically says, if you don't buy a home before you have a kid, I'm not driving to you guys. That's specifically what she says.
Kel: It was a joke…
Nat: So there's some pressure there.
Kel: yeah.
Danelle: But I mean that's, that's really, you know, that is a big help. And from a financial perspective, that's a big help as well.
Um, a couple things that just come to mind when it comes to, you know, your current condo, and the only thing else I also stress on is do you wanna be a landlord or do you wanna employ some sort of property management? 'Cause that does come at an additional cost, whether it's from a physical standpoint or from just an extra overhead for costs, right? Um, the second thing is, is I wanted to ask about your current mortgage because you said you purchased it in 2020, which I think relatively interest rates were low. Am I not mistaken?
Kel: They were pretty low.
Nat: We have sub three, just under sub 3%, so…
Danelle: Mm-hmm. See that is historically low mortgage rates. So when I think of that, I approach debt in a couple different ways. And there is good debt, and there is bad debt. And usually when it comes to a mortgage, you often can consider that a good debt because let's face it, you're always gonna need a place to live, and it tends to be one of your biggest costs in life, right?
And it would be hard to justify, you know, closing that part of it, paying it off, getting a mortgage that's probably closer to five, 6% with a higher debt obligation, right? Because then you're losing that again, asset value in that condo.
Nat: Absolutely.
Danelle: Because let's face it, if that pays for itself, then you're paying into an asset, right? You're shifting somewhat of your savings into fulfilling that asset, right? You're paying off that asset. Because you're gonna need a place to live. So your income is gonna take care of where you, you know, tend to go in the future. So whether that's buying another property or renting at that point, that's something that you can run the numbers for as well.
I think that that's actually one of the biggest projects that we do with my clients is we run what's called a financial plan or a retirement analysis. So this is somewhat of a road that makes sure that you're on the path to where your goals will eventually be. So in your case, starting as a young couple, it would be so fun to run numbers to see, okay, am I actually on the trajectory of meeting these, you know, potential milestones in life? And that starts with, okay, ideally I wanna be retiring at this age, but before retirement being one of my goals, I also want to start a family.
And perhaps this is what, you know, when that would take place. This is how much I've had saved towards it, is that, you know, a safe assumption. Um, I wanna factor in the fact, you know, buying a second home, keep maintaining the condo, um, being able to forecast what that looks like. If we eventually were to have that in retirement, that could be income along the way.
Um, you know, and may or may not adjusting for, you know, Natalie starting a family and how that impacts, you know, your projection of savings and towards those goals and what flexibility you do have, you know, with taking time away for that and whether or not it is important for you to go back to work or not.
I think that would be a really good resource to may make sure that you're on that path to achieving your goals.
Nat: We would love that. I think that would give us greater peace of mind, like seeing the numbers and actually forecasting if we're gonna be able to meet these goals or not.
Danelle: Yeah. Yeah. So I know that, um, I think the biggest part of, you know, us coming together was really just understanding that magic number, right. So that magic number of starting a family, I'm just gonna say that there's, there's honestly no magic number. It's sticking with the plan and working out the numbers that way.
Nat: We, we were actually curious about whether we should be investing for our future kids college education or their, I guess. A trade school, like we, we don't, we've heard about the 529 plan, but we don't know if that's something we should open or if we should just open a individual investment account.
Danelle: A 529 is a very powerful account for educational savings, and the biggest, um, advantage to a 529 plan, is the tax deferred growth.
So similar to a Roth IRA, your contributions. Grow on a tax deferred basis and upon qualified distributions, which would be for educational purposes are tax free to you. So, , where that's different in just a normal custodial account, um, can be used for anything of course, but you are paying essentially taxes on it as it grows each year, it's not tax deferred.
So the 5, 2 9 is, is a very streamlined, , approach to, you know, have funds earmarked for a potential purpose. And as of late they've opened and expanded what's considered a qualified event for educational expenses.
So you had mentioned maybe a trade school, if they don't wanna go to a traditional school,
if you're wondering if you're saving too much into the 529 plan, you can even convert it to a Roth after the case. So there's just a variety of benefits. Um, there's some great resources online that I would suggest reading up on, because there has been even some, as of late again, changes. But I will say I don't love putting the cart before the horse, without actually having, you know, a physiKel being there. But for example, my boys, I opened one up being pregnant, starting to contribute without even having a social security number. So the only thing that I hesitate is, is if you were to start, you know.
If you were to open one and heaven forbid, maybe a family not be in the cards right, or whatever that case may be, then you've opened an account that really is irrelevant at this point. So I would just assume have at least known beneficiary in play, um, to start. Yeah.
Nat: That makes sense.
Jamie: Now that Danelle has given Nat and Kel a vision of what their future could look like when it comes to saving for a child and buying a new home, all that's left to talk about is Nat's concern that motherhood could end her career.
Danelle: What comes to mind with, with your particular industry? I was actually quite fascinated being an influencer and then also having that financial, you know, literacy background a little bit is why not take that content on being a new mom and that work life balance and making that more of your subject and where you wanna take off. Like, what is going on in my life? Having that, being able to have that realism and perspective for other moms would be huge and it would be ever evolving because you're ever evolving in each stage of life, right?
I now have young kids. I'm balancing the work, like, am I gonna go back to work? Am I not like, these are the questions that I'm asking myself? Is there not, this is how I'm navigating my financial, you know, picture at this point. People wanna hear that, people wanna know that and have that support system.
Nat: I love everything you said. I mean it, it just feels like it's a more expansive point of view than what I was thinking. I really thought that I'd really have to take a pause. I didn't really think I could share that journey, but that is actually enlightening and that that's something that people would be interested in. I think that there's a lot of like, um, unknowns about parenthood in general. I've, you're, you've given me so much to think about, Danelle.
Danelle: Oh, you're so welcome. It was truly a pleasure to get to know you both. Um, excited to hear where you guys end up and, um, best of luck to you.
Jamie: You covered a lot of topics with Danelle. How was that and was there anything surprising or particularly useful that you think you're gonna take away?
Nat: Our mind was completely blown. Um, I think that in the beginning of this episode, we came in, or at least I came in with a bunch of limiting mindsets and beliefs and, and Danelle has like done a really good job at like showing us how adaptive and expansive parenthood could be and that there is no magic number. This, this whole thing about having a number is probably arbitrary in the grand scheme of things. And knowing that if we're ready, like we will, has given me a lot of peace of mind and we've learned a lot about different financial tools and resources that me and Kel would, would definitely wanna look into after, after this show. Because it will help our, like, it will help like create like safety for us.
Kel: I think, uh, we have a better understanding of how we can potentially, like pay for or take care of a, like a child fund and not have to worry so much about are we both gonna have to. Uh, if all of us are gonna be on one career or if Natalie's gonna be able to consider afterwards, I feel like those questions have been answered and I, um, I think we together have a better understanding of like, maybe this won't be as big of an issue as we originally expected. So, um, yeah.
Nat: I think going in, yeah, we had a bunch of scarcity mindset and limiting belief, but now I'm like, I'm excited to get off this call and, and look into the 529 plan.
Kel: She has a whole bunch of video ideas she wants now.
Jamie: Wow.
Nat: That too.
Jamie: What has this conversation done for your mental state around all these things?
Kel: Um, it gets us one step closer to having a child. So my baby fever is increasing. Uh, but, uh, my wife on the other hand, it's more, I think one of the biggest limiting factors is I want my wife to be a, uh, a mindset where she is comfortable having a kid because she's the one doing all the hard labor first off, and, uh, her career is at stake. And hearing, um, this interview or from this interview, I've heard lots of great things and it sounds like, um, maybe Natalie won't be like, yeah, it's gonna be hard having a kid, but I think her future isn't as gray as she originally believed it was. And I'm happy to hear about that.
Nat: Yeah, it's given me a lot of comfort for sure, because I sort of went in thinking like I might have to sacrifice my career. But Danelle like just being a living testimony that her and a bunch of the ladies she works with are all mothers. And, and like I could still have that identity afterward and I can actually think of ways to, to include this next step of my life into my career. That's, that's pretty, like, that's pretty game changing because I, I never thought of it like that.
Jamie: Well, I can toss my hat into that ring too. I'm a mom of two and careers and motherhood look different for everyone, but where there's a will, there's a way and you can make it work for you, whatever that might look like.
Kel: Mm-hmm.
Nat: I love that.
Jamie: If you'd like a deeper dive on what was discussed today, or if you are interested in having a financial plan done for you, come see us at morganstanley dot com slash my money. I'm Jamie Roo. Talk to you soon.
DISCLAIMER: This material has been prepared for general reference and educational purposes only. It does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Please see our show notes for a full disclaimer on the information provided.
