Get in Charge of Your Finances
Children learn by example. And so the best way to teach your children about money is to understand your own finances and carry those lessons to your children. Poor financial decisions can bring many life problems from daily stress to divorce. Surely we want our children to avoid these obstacles and rather become responsible financially sound adults. Perhaps we want the same fate.
The following provides an outline of the financial items you should be aware of, tackle and achieve. Then while you're at it, pass on those lessons to your children.
Financial Goals
Having financial goals is the first step in establishing a plan of action for your finances. Some of your goals may be hefty long term goals, but if you start now, you will be surprised by what you can do and how your money will compound over time. Just don't procrastinate because the task seems to be too large. To give you ideas of solid financial goals, here is a brief list:
- No credit card debt
- 6-months of savings (in case you lose your income, you will have a six-month supply of funds readily available to you)
- College (being able to pay for your children's college expenses)
- Retirement (being able to pay for your own retirement)
Consider Your Purchases
We all like to buy things, especially if we can justify the expenses. “It's for my daughter,” “My son really needs this” and the biggest justification of all times: “It's on sale!” With every purchase, ask yourself this question: “Will this purchase help or hurt my financial goals.” It's ok to shop, but live within your means. This is being responsible.
Track Your Spending
Have you ever said: “I have no idea where all our money goes?” Well many people do not have a clue and would be surprised to find out how things add up. Tracking your money is actually really fun to do and very powerful. We recommend using a software program called Quicken. Many businesses use this software as well. The program can do everything from setting up budgets to managing your mortgage. But the most important use is to track your spending. You simply download your bank information into the program and then indicate which expense goes where.
You may be shocked to find out how much you actually spend at the grocery store or at Target or Costco. Print spending reports once a month and review with your family. This is a great way to show your kids where your money is spent. This also helps you see where you can cut back on, so you can save more money. Perhaps if you realize your husband spends $150 a month buying lunch, you'll decide to pack him a lunch to take instead. Then you take that $150 and invest it. $150 a month over twenty years at 9% interest will be worth approximately $100,000 in 20 years. So track and know where all your money goes. This is so important to a ceoMom.
Prepare a Budget
To prepare a budget, first you have to know what your net income is (the amount leftover after you pay taxes). Second, you need to determine what your expenses are (housing, transportation, debt repayment, living expenses, a budget for getting your hair done…). Also, if you are not already saving part of your income, add this in (no arguments). Finally, separate your expenses into the following categories:
- 10% Savings (automatically withdrawn from your account / 6-month supply of cash on hand)
- 35% Housing (mortgage/rent, property taxes, insurance, utility bills)
- 15% Transportation (car payment, insurance, gas, parking passes, public transportation)
- 15% Debt (credit cards, student loans, any other loan)
- 25% Living Expenses (groceries, dining, entertainment, clothing, personal care, diapers…)
Notice the percentages before each category. This is the percentage of your income that should be spent in that category. Because saving is so important, it is on the top of the list.
Automatic Savings
There is a secret to saving. If you do not know the secret or you do not heed the advice, it will be harder (sometimes impossible) to save. But luckily it's easy to do. Whether you are saving for emergencies, your children's education and/or your retirement, the deduction should be set up on automatic withdrawals from your account. This means on a particular day of the month, a pre-determined amount will come out of your account and into the savings account. You can usually set this up online through the savings bank or you can call and set it up. Whatever the steps to get this going, it is worth it.
Higher-Yield Savings
Most local banks offer savings accounts with an interest yield of 1% (or less). That's not very much. There are many online savings accounts that yield 4.2% or higher and FDIC-insured. You can easily transfer money between the savings account and your bank account, so the money is accessible. This is a great way to save your 6-month emergency supply and earn a good rate-of-return. Check out:
Online Banking Services
Most moms are already doing this, but utilizing your bank's online services is a great way to organize and track your day-to-day transactions. Learn to use your bank's website to pay your bills online, set up automatic payments, transfer funds and easily check your balance. More banks are able to send various alerts to your email now too, so in case a big deduction is made, you will know about it. For more information on online banking services, check out:
Debt
We've been hearing about the pitfalls of debt for years and yet many of us are still held captive by it. This is just a note to remind you it's not going away unless you create a plan to release yourself from the burden. Begin by finding out who you owe and the current balances. Keep an emergency credit card, but cut up the rest. Never just make the minimum payment. Always pay as much as you can every month. This goes for car payments and mortgage payments too. If you can pay more toward your car payment or make an extra mortgage payment, you should. If you are in serious debt perils, research this topic and get help. No if, ands or buts about it.
Credit Card Benefits
Credit cards can work to your benefit if you are responsible and motivated. Many credit cards now offer perks such as cash back or flight benefits. The cash back cards give you points for every dollar spent at places such as the grocery store, gas and general shopping. The trick is to use your credit card to pay for everything you can (even cell phone and utility bills) and pay your card off EVERY month. (Note: If you can't pay your card off in full every month, do not even attempt this.) Typically you will get your cash back bonus as a credit on your card around the holidays. This credit can pay for your holiday gifts and shopping. If you choose another card that offers flight benefits, you can earn free tickets. Just be sure to weigh the cost of the ticket with the potential cash back earning and do whichever is greater (because you can always buy a plane ticket with your cash back credit). Consider the following credit cards:
Saving for Retirement
Saving for your retirement is something you need to be doing right now. But it can be a scary thing if you don't know where to start. We have some advice that might just put you at ease and take action.
Education Savings Funds
Establishing an education savings fund for each of your children is important for three reasons. 1. It saves money typically in an investment form, so you are better able to send your children to college when the time comes. 2. It sets a precedence and expectation for your children that they will attend college. 3. It allows you to teach your children about saving their money as you expect them to contribute to their own education funds when they come of age to earn money, when they receive money from relatives in lieu of gifts or even from their piggy banks.
Contributing to an education fund can be anywhere from $25 a month and up – just depending on what you can afford to do now. The trick is to do something every month that is automatically deducted from your banking account. Some moms ask for donations to their children's accounts instead of Christmas or birthday gifts. This is a great idea. It shows you are committed to your child's future education.
There are many choices for saving for college. There are college savings funds through banks, investment firms and state educational savings plans. Typically you do not need to be a resident of the state to apply, although you should check and see what your particular state offers. New York, Nevada, Iowa, Oregon, Utah, Wisconsin, Virginia and other states have 529 plans offered through Vanguard, which provides investing flexibility, high contribution limits and tax advantages. For more information on 529 plans, education savings accounts and more, check out:
Make Your Own Extra Money
To pay off debt, increase your savings or fund your personal budget, find a way to earn a little extra cash every month. Make sure your children stay your number one priority if you add work to your plate. But earning money to add to your family's cause of financial stability can help your goals and be fun. There are many ways to work from home from making homemade crafts to sell at boutiques to finding opportunities through the internet. First find what you love to do and then figure out a way to make money doing it when your children are napping or at school.
Life Insurance
One of the top reasons for fear in moms is what would happen if something were to happen to (well, we won't even say it because it's an awful thought). But it still needs to be discussed, especially if the result can help you release stress. Life insurance is insurance that is supposed to cover your family's expenses should you or your partner pass away. You certainly wouldn't want to leave or be left with such a burden to your family, so this is a very responsible action. If you or your spouse has life insurance through their work, be sure to check out the amount. It may only cover a small amount. Plus, if that job is ever terminated for one reason or another, you may lose that benefit. Maintaining a private policy, on the other hand, will give you more options.
There are many options for private policies. Two options are term and whole/universal life insurance. Whole/universal life insurance typically attaches a savings benefit to the policy, but these policies are typically expensive and not recommended by financial experts.
Term life insurance policies are typically more affordable and recommended by experts. These policies cover you for a set time (10, 20 years for example) for when your children are young and you do not want to worry about what could happen. After that time period ends, you could get another term policy or be sufficiently established through your own savings. Make sure your children are named as beneficiaries with a guardian should anything happen to the both of you.
To determine how much life insurance to purchase, consider how much money you would need to maintain your current standard of living until your children are raised. Nowadays, you may need 1 million (or more) for the main bread winner and at least half that for the other spouse. Your rate will be determined by factors such as your age and your health. To get quotes on life insurance, check out:
Will and Beneficiaries
Again, not a fun subject, but one that needs to be discussed for the sake of your family. In case something were to happen to both of you, the parents, have a legally drafted will prepared that states what should happen to your estate. If you do not have a will, the State will determine who gets your property and a judge will determine who gets your children.
First decide who would be the best choice to raise your children if something were to happen to you. Then make decisions concerning your estate. Typically you would name your children as equal beneficiaries. Be sure to list a guardian until they become of age. Some parents say the age is “18,” while others select a more mature age such as “21” or “25.” The guardian would make sure they are taken care of until they become of age. Be sure to select a responsible guardian. For all your financial documents where you can, list your children and the guardian as beneficiaries.
Note: We are mothers who have taken charge of our finances and want to pass on this information to you. We are providing general information. You should consult with your own financial advisor before making major financial decisions. ceoMom, LLC is not responsible for any losses, damages or claims that may result from any and all of your financial decisions.
