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Sensible Scenarios: Financial Planning for a Future Family

by
Laura Williams
CFP®, ChSNC® - Senior Financial Advisor

October 28, 2020

Sean and Elise have spent about ten years building successful careers. Sean works in tech and Elise in finance. Their dedication to their careers has resulted in substantial income growth. They have resisted the temptation to increase their living standard as their increased earnings would have allowed. After all, their future income is uncertain, and Sean’s income can vary from year to year. What if they couldn’t sustain their current level of earnings? What if one of them became unemployed for an extended time? How might their lives change once they have children? They knew increasing their living standard now was risky without understanding the impact of future changes of income on their lives.

What will earning less mean for our family?

Now, they are thinking about the next phase of their life — starting a family. They wonder what options they have for work, careers, and childcare. The couple felt pretty certain if they continued to earn at their current levels, they would have sufficient assets to maintain their living standard throughout their lives, hire a nanny to provide childcare, and provide their children with quality education. They felt less certain about how their financial lives would look if they were unable or unwilling to earn as much as they have. Having a family may shift their priorities. They may want to spend more time with their children, and less time on their careers.

They asked Sensible Financial to help them assess their current situation and other possible options.

  • Could they afford to hire a full-time nanny while working at their current rates?
  • Would a full-time nanny be feasible if they earned less or took less challenging/lower paying jobs?
  • Could one of them stop working outside the home to care for the children?
  • What level of earnings would the other spouse need to support the family?

Their savings gave the couple options

  • They could both reduce their current income and still hire a full-time nanny.
  • One of them could leave work entirely and provide childcare while the other maintained 60% of their family earnings.

A financial plan is more complex than just looking at one year’s cash flow (income and expenses). Sensible Financial’s plans construct a lifetime of cash flows. A family’s income in one year may be enough to pay for childcare from a cash flow perspective but still not be affordable from a lifetime perspective. On the other hand, family income in a particular year may not cover childcare (requiring draws from savings), but it can be affordable from a lifetime perspective. This was the case for Sean and Elise.  

As with many families, Sean and Elise’s human capital is a very valuable asset that needs protection. Sensible Financial recommended life and disability insurance to protect against a potential loss of future income. By purchasing this insurance, the couple could relax, knowing they were protecting their family’s living standard.

Sean and Elise’s focus on savings has provided them with flexibility for their future. With their Sensible Financial plan in hand, they can confidently make decisions about their careers and their family and understand the financial impacts associated with those different life paths.

The article listed above summarizes a hypothetical scenario developed to illustrate the kind of people we help and the problems we solve.

More articles by Laura Williams Filed Under: Investments Tagged With: childcare, client stories, financial planning

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