Saturday, March 17, 2012

Six Key Financial Decisions for Young Families


Daniela Baker

Although financial decisions may seem like they’re something only “grown-ups” do, as a young family now is the time to start making some of those decisions.  The choices you make now will affect not only your lives, but also the lives of your children.  By educating yourself and making the best choice you can make for your particular situation, you’ll put yourself in the position to be in charge of your own financial future.  

Daniela Baker from the  CreditDonkey shares six common decisions to get you started.

To save or not to save, that is the question  
Whether or not ‘tis nobler in the minds of a young family to suffer the slings and arrows of unexpected misfortune, or to spend money as if they’ll never face a sea of troubles… Who knew Hamlet was actually about financial planning? Life does have a way of throwing “slings and arrows” at unexpected times.  A safety net that isn’t labeled “Mom and Dad” on the speed dial is thus potentially a good thing.  How much to save for a rainy day is a very important decision.

Life insurance: how much do you need and what kind do you need?  
When you were single and your liabilities consisted of your car payment and your rent, you probably didn’t need life insurance.  Now that you’re a family, it’s time to take out an insurance policy.  In this decision, you’re going to need some help.

A Google search for “life insurance” brings up about 3,700,000 results, and 7 of the first 10 entries are companies trying to sell you life insurance.  Not so fast!  Start with educating yourself as to what kinds of insurance are out there.  A good place to start is the Minnesota Department of Commerce's website, which is a nice entry-level primer to the topic.

Only after you know what you want, how much you want, and why, only then should you look for an agent.  Be wary of signing up for more than you need, and never, ever sign or agree to anything that you don’t understand.  Reputable agents won’t press you, and they won’t mind a bit if you take some time to look things over.  Want to know if your agent is reputable?  Your state’s Secretary of State’s office is a good place to start looking.

Save for college?  
You might already have kids, or they may be on the way.  Chances are, in about 18 years, you’re going to be just about ready for them to move out and on with their life.  You’ll probably want them to follow their dreams, and all this may involve college.  And it doesn’t appear that the cost will be going down in the next two decades.  

Do you want your kids to rely completely on scholarships and loans, or will you contribute?  Eighteen years may seem like a long time, but it will be here before you know it.  Now is the time to decide your college payment strategy.  Incidentally, the weekly “Mega Millions” drawing is a strategy, but perhaps not your best one…

Investing: is it for you?  
Perhaps you’re comfortable with stocks, bonds, and futures.  Perhaps your financial experience runs more to a ceramic pig behind an old copy of Little Women.  In either case, now is the time to decide if you want to invest, and how.  Realistically, if you have a simple savings account you are an investor.  You just aren’t getting a good rate of return.  Historically, nothing beats the rate of return on stocks.  That doesn’t mean stocks are your best choice, however.

If you’re unsure of how to invest your money in a way that works for you, why not talk to Certified Financial Planner?  You can find one that charges only a fee, and therefore doesn’t stand to make or lose money no matter what you do.  Educate yourself, decide what risk you’re willing to take and what return you want, and then make it happen.

New car or used car or no car?  
Who doesn’t love new car smell?  Sadly, new car smell is perhaps the most expensive perfume on the market.  It’s tempting to decide a new family situation requires a new car, but does it?  How will a new car payment fit into your budget?  Would a used car work?  If you decide on a used car, what will the maintenance be?  Can you get by with only one car?  Do you live in a place where you can make no car (and membership in a scheme like CityCarShare) work for you?  Think long and hard before you let that intoxicating scent reel you in – you will probably be paying for the decision for several years.

Yours, Mine, or Ours?  
When you said “I do,” or more precisely just before you said “I do,” the priest/rabbi/ship’s captain/Elvis impersonator probably mentioned something about the two becoming one.  They meant your lives, but what about your assets and bank accounts?  Do you keep one account and put the other assets in one place, do you get a brand new account and both contribute, or do you keep your funds separate?  

Come tax time will you file separately or jointly?  Will one of you “do” the financial stuff while the other one “does” something else?  The answers to these questions may be obvious, but they may not.  If you didn’t talk about these things before you tied the knot, perhaps now is a good time.

As you make decisions, remember to choose what is best for your family.  There is rarely a “one size fits all” answer to these types of questions.  Seek advice when you need to, but remember: no one cares about your finances more than you do.  Educate yourself and you’ll be on the way to being in control of your family’s financial future.  


Daniela Baker















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