You Don’t Realize How Much Extra Cash You Have Until Becoming a Parent
Every few months I check into the “Your Money” section of the NY Times and catch up on the personal finance articles that have accumulated since my last visit. They have an interesting new feature showing snaphots of people in their twenties, thirties, forties and beyond.
Here is the synopsis of those articles:
- Twenties: lots of student loan debt, doesn’t understand relationship between salary & debtload
- Thirties: paying down debt, having a baby
- Forties: in decent financial shape until a healthcare/personal crisis hit; ran through savings and incurred debt. NO retirement savings.
There is a common trend throughout those pieces, and that is the lack of savings. I have noticed that people don’t think about saving money until they have a child. And by then, frankly, it is too late.
Having a baby is like having another mortgage. Child care costs around $2k/month in the Hoboken area. When you add on your actual mortgage or rent (easily another $2,500/month) plus student loan payments, you are lucky to break even.
The time to save is BEFORE you have children. That is when you have lots of time to work and build your career. I figured out when I was 23 that I was going to need $100k to buy a home in the NYC area ($500k home value, 20% down). Saving that amount became my goal, and I more than succeeded. Every childless person I know bemoans how expensive life is, but I bet if I took a look at their monthly spending I could find lots of fat to cut. And it’s amazing how all of a sudden all those lunches out and spa treatments become superfluous when you are a parent; showering has been a luxury for me for the last 4.5 years.
Have I carried credit card debt? Absolutely. The difference is that I always have enough cash on hand to pay it off in full. And I never, ever pay credit card fees. No balance transfer fees, no interest rate fees. The no transfer fee offers have pretty much dried up, but I recently needed a new MasterCard and opted for a UPromise account that offered 15 months of 0% APR on purchases. So I loaded up the balance, automated the monthly payments so I don’t accidentally miss one, and then put it out of my mind for the next 14 months. When the 0% APR expires, I will pay the balance in full out of savings, from cash that I diverted during the three months it took to fully load up the credit card balance.
The unexpected byproduct of using credit cards like this is it makes my credit score skyrocket because the utilization rate becomes incredibly low once I pay off the balance. I no longer carry credit card debt because of the free interest I earn (hardly worth the effort for the miniscule amount I will earn) but as long as I actually need the credit card, I am not stupid enough to turn down free money. I’ll use the $48 interest to buy my kids a couple of pairs of shoes.