Money matters always matter, but when kids are part of the picture, dealing with the dollar will be seen from a whole new perspective. From saving to spending, there are certain financial situations that change when you become a parent. Tips that make every dollar count are the ones parents can count on. Here are a few important bits of financial advice any parent can appreciate:
Every dollar countsPexels
Redo Your Budget
If you already keep (and follow) a budget, kudos to you. You're already mindful of your spending and this will prep you for the overhaul you'll need to outline as you raise your child(ren).
As per Kiplinger, "Everyone knows they will spend more [when they have a child], but most people don't realize the increase will be significant. The expense for diapers is one of the best examples. Increase your monthly budget by 10% for the first year to cover these expenses."
If upping the budget is not in the cards, you'll have to cut costs someplace else. Perhaps limit dinners out or be more mindful of your overall utility use.
Work Over Your Will
If you already have a will prepared, you'll need to update it if it was written before you had kids or if you add another child (or more) to the family. As Kiplinger notes, "If a new child is born and it's been several years since a will was written, you may need to update beneficiary designation forms for your 401(k), IRA and life insurance. It's important to note the beneficiary form on file for these accounts."
Nolo adds, "If you leave property to children or young adults, you should choose an adult to manage whatever they inherit. To give that person authority over the child's inheritance, you can make him or her a property guardian, a property custodian under a law called the UTMA, or a trustee."
For help with writing a will, see Nolo's quick checklist and get started.
Create a College Savings Plan
It is never too early to start saving for your child's higher education. College can cost a fortune, and every penny counts. Paying off student loans until one's kid's kids are in school isn't unheard of, so don't let debt loom over you for decades.
As Lincoln Financial Group advises, "Start saving as soon as possible, even before the baby arrives, to gain the benefits of compounding. A 529-college savings account or Coverdell account allows you to invest money that grows tax-free and can be used tax-free for qualifying higher education expenses."
Teach Your Kids the Value of a Buck
Financial education starts at home. Be open and honest about your finances (at an age-appropriate level) and teach your children everything from earning their first buck to opening a bank account.
U.S. News & World Report suggests, "The earlier you can teach children about money, the better. Letting your children take control of their finances in some capacity – no matter how small – can heighten their confidence about using money appropriately. In addition to being a good financial role model yourself, connecting your kids to other people who have a positive relationship with money can strengthen how your children will handle money in adulthood."
Teach your children well youngparents.com.sg
Being financially smart and sound is the best thing for you and your family.
When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.