Who spends the money on kids your family, mom or dad? If you’re like us, it’s the mom who buys the baby what they need. If the mom’s spending the money, why does the dad often make the budget?
Baby Expense Planning
I have a friend who’s expecting a new baby next spring. He has his finances planned down to the minute detail for the next 30 years so this baby has forced him to re-evaluate all his plans. He’s so obsessed about it that we’ve gotten a chuckle at work over this wrench in his plans. However, unlike many worried fathers to be, myself included, he didn’t sit down and work out projected expenses for the new baby.
Instead he asked his wife to do some research and figure out the reoccurring expenses the child would introduce. I like this idea because it gets both family members involved in the planning process and reveals the mother’s financial expectations for baby time. My friend emailed me his wife’s findings:
First 4 months – $72 per month, then after that more like $48 per month.
First 4 months – $70 per month, then after that – $35 per month until they are potty trained so plan on this expense until they are 3 to be on the safe side.
Baby Cereal / Food
This starts at about 4 months- $75 per month.
$25 per visit – We will have to take the baby in at 1 week, 1 month, 2 months, 4 months, 6 months, 9 months and 1 year and for any issues, then once a year after that. Figuring in a couple additional appointments, this is $250 for the first year. We can put this amount plus some for ourselves into the Flexible Spending Account Plan so we don’t have to pay taxes on it.
$500, my friend said she buys clothes at the beginning of the season and after holidays (because relatives will get him/ her clothes).
What do you think? Do the expenses sound accurate? Did she miss anything? Knowing my friend, he’ll go through and validate each one but I think it was a good idea to get both parents involved in the budgeting process.
At a family gathering this weekend I discovered the employer of one relative offers a pension plan. I thought pension plans were a thing of the past but I guess some companies still have them. Not only that, they offer a 401k match and profit sharing. Wow, I’m working at the wrong place : )
We supplement our 401k plan with Roth IRAs since I don’t have a pension and I’m not planning on any help from Social Security in retirement. As a teacher, my wife has contributed to a state employee retirement fund that should be solvent come retirement time so we can look forward to that; but no pension for us : (
Here are some money articles I enjoyed this week, kind of long review this time:
-Bank of America May Have Removed Balance Transfer Fee Cap @ Suns Financial Diary
-Percent Given, Not Amount, is Key to Generosity @ Free Money Finance
-Interest Rates For Dummies @ Money, Matter, & More
-Should You Take That 0% Financing Offer? @ Blueprint for Financial Prosperity
-Invest In The Stock Market Using These Investing Styles @ The Digerati Life
-A Few Good Reasons Why You Should Pay Your Taxes @ Generation X Finance
-Stopping My Prosper Contributions @ Lazy Man & Money
-Refilling a Toothpaste Tube for Fun and Convenience @ Five Cent Nickel
-September 2007 is eBay Month at MyPoints @ Mighty Bargain Hunter
-5 Romantic Outdoor Day Date Ideas Under $30 @ Consumerism
–Discover your money values and financial demons @ Moolanomy
-How to Feed Yourself for $15 a Week @ Get Rich Slowly
–What’s your tipping point? @ Paid Twice
-Getting Out Of A Cell Phone Contract By Giving It Away @ My Money Blog
-The One Hour Project: Build Your Own Net Worth Calculator @ The Simple Dollar
Last but not least, check out last week’s Carnival of Personal Finance at Advanced Personal Finance.
Is your life full of routines? Are they helping or hindering the creation of wealth and happiness for you?
Wealth Building Routine
Investing over a long period of time and leveraging compound growth is a great way to build wealth. You’ve probably heard the saying “pay yourself first”, well a saving and investing routine can enable you to do that. Make putting away money something you don’t have to think about and it’s much more likely to happen.
Setting up an automatic investment routine when we first entered the job market 7 years ago has allowed us to start a nice nest egg; I would definitely recommend starting a saving or investing routine to anyone.
Routines Can Enable Happiness
The great thing about a routine is that you go through the steps enough times that you can become very efficient in their execution. As your efficiency improves, your routine may take less time, which leaves more time to do the things that make you happy.
Another benefit of a routine is that you know the scope of the steps you need to take and what is expected of you. This advanced knowledge of daily tasks can greatly reduce your stress level. Establishing a routine for our new son helped us adjust to the role of parenthood and meet his needs while still having some time for ourselves.
A Wealth Reducing Routine?
One negative thing about a routine is that it promotes the status quo. You get used to doing things a certain way; a routine does not encourage innovation, research, or change.
Having a plan and sticking to it is good but every now and then you need to revisit that plan and see if it still meets your needs. If you never rebalance your investment portfolio or make adjustments for lifestyle or risk sensitivity changes simply because you’re used to the routine of having it on auto-pilot your returns may suffer.
Routines Can Also Reduce Happiness
If you do something over and over again for years in the same way chances are you will get tired of it. The problem is often that it’s easier to keep doing the same thing than make a change or take a risk. You don’t necessarily enjoy the routine anymore but you’re “stuck in a rut”. You’d like something different but can’t seem to get yourself out of the old routine.
I’m experiencing this in my career right now. I’ve been in the same job for 7 years and although I’ve been advancing regularly I no longer feel interested in or challenged by our projects. I used to enjoy the work I did but it has now become a chore. Of course I’m used to the routine of the same tasks, same people, same commute and it’s easier to stay working there than seek out a new job but it doesn’t necessarily make me happy. I am working on a plan to get out of the rut but the “comfortableness” of the routine makes it mentally more difficult.
Routines, Good or Bad?
As I’ve shown, establishing routines can definitely help you along towards happiness and wealth but over time they can potentially become a drag on both. I think the key is to periodically review your routines and make plans to change any that are no longer beneficial to you.
Aleksandra Todorova from Smart Money magazine put together a list of the top credit cards for students, rewards programs, cash or gas rebates, financial rewards, and low rates. He provides a thorough comparison of the cards considered and explains the benefits of each card recommended. Here are the highlights:
The Citi mtvU Platinum Select Visa Card for College Students offers bonus points for a good GPA, staying current on your bill, staying within your credit limit, and money spent on textbooks.
American Express Membership Rewards – “the oldest and remains one of the most comprehensive programs around.”
Citi ThankYou Network – “offers innovative ways of accumulating points and nearly all of Citibank’s rewards cards are fee-free.”
Cash or Gas Rebates
American Express Blue Cash for aggressive spenders – “5% cash back on purchases at gas stations, supermarkets and drug stores and 1.5% on everything else, once you spend $6,500 in a given year”. Am Ex Blue Cash is the card that we use for almost all our purchases.
The Platinum Discover Gas card is the runner-up, “a favorite among lighter spenders.”
Fidelity Investments 529 College Rewards card – “has the most generous rebate rate — 1.5% of all purchases will be deposited into a 529 Plan”.
There were two runners up, Fidelity Investment Rewards Card, which “converts MBNA’s rewards program points into investment dollars at a generous 1.5% rate” and One from American Express, “1% of your purchases are contributed to a high-yield savings account, which currently earns 5%. The drawback: The annual $35 fee.”
For those that carry a balance it makes sense to go with the lowest rate you can on a card. The winner was Simmons First Visa Platinum “with a 7.25% fixed APR” and the runner-up the Capital One Platinum Prestige card, “7.89% APR, reserved for people with excellent credit”.
There you have it, a card for every need. Of course, if you can’t be responsible with a credit card you probably shouldn’t own one but used correctly a credit card can be a great financial tool.
Here are some tips from my HR department on using your 401k for retirement savings.
Time is on your side. The sooner you start, the longer your money has to grow. It’s never too early to start saving for a secure retirement.
Only you can ensure that you’ll have enough money saved for your retirement.
Know What You’ll Need
Experts estimate that you’ll need at least 70% of your pre-retirement income to maintain the same standard of living once you stop working.
Contribute to the Max
The more money you put in your 401(k) plan, the more you’ll get out – especially for companies that match dollar for dollar up to a certain percentage.
Saving pre-tax gives you more money to invest. Because taxes take a large bite out of each dollar you earn, you have to save more after-tax dollars to get the same impact as pre-tax savings. PLUS, saving pre-tax lowers your taxable income, which means that you’ll pay less to the IRS on April 15.
Pay Yourself First
Out of sight, out of mind. You won’t miss the money you’re saving if it’s deposited straight into your 401(k) Plan account.
Keep Your Hands Off
Don’t touch your retirement savings. You’ll not only avoid tax penalties for using the money early, you’ll also give your investments more time to grow.
“Low-risk” investments usually mean low returns and may put your retirement finances in danger down the line. For successful saving, choose investments that will beat inflation over the long haul.
As the years go by, life changes. So should your retirement savings strategy. Review it annually to ensure it still meets your needs as retirement approaches.
How many books can your kid go through in five minutes? Never wanting to spend more than a few seconds on a page our little guy can speed through his pile of books in no time flat. So what do you do, buy more books to make a bigger stack? No way, use the Internet!
As I checked my email the other night my son pointed to the screen from his perch on my knee and yelled his favorite word, Car! Sure enough, he was eagerly pointing to an ad for the new Honda Accord. His ever first interaction with a computer gave me an idea so I opened up the popular photo sharing site Flickr.
I typed in Honda Accord and was rewarded with another enthusiastic burst of pointing and yelling from my son. I moved on to his favorite animal, he panted frantically and pointed excitedly as a list of puppy pictures popped up. We were on a roll! He and I spent the next 15 minutes on Flickr cruising through all his favorite images with him either saying the name of the object or making its sign.
Save Money on Kids Books
What a cool way to expose a little person to the world and its much cheaper than buying tons of baby books. We have a cat book that’s filled with images of about 30 cats in different poses. Why pay money for a boring book of the same 30 images you see over and over when you can surf the web to find new and interesting pictures every day for free!
Kids aren’t always patient so I looked for a few ways to get the pictures he liked faster. To get better results search for a specific terms instead of generic words. If you look for Honda Accord instead of car or Golden Retriever instead of dog you’re likely to get relevant images. Once you find a picture you’re looking for you can also click on the tags next to the picture, such as accord, that will take you to a grouping of pictures all on that topic.
Welcome to the digital age junior!
Would that headline catch your eye on a piece of mail? It’s a pleasant thought to be 18, footloose and fancy free again. No big projects at work, no mortgage to worry about, and no sense of responsibility keeping you awake at night. Plus to top it off you’re not even broke!
Back to Reality
As I opened the letter my thoughts of being young with money were rudely interrupted by a reminder that my next chance to shed these heavy burdens would likely come when I was old and grey. Ameriprise Financial was inviting “me and my guests for an exclusive dining experience”, which also featured “a private presentation of Retirement: Planning Beyond the Numbers”.
The Ameriprise brochure notes the presentation will explore issues such as:
- Defining your dreams for retirement.
- Envisioning the life you hope to live in retirement.
- Retiring TO something rather than retiring FROM something.
I think it is a good idea to define your financial goals early on in life and retirement is definitely one of them. The brochure says everyone who attends the event will get a copy of the Dream Book guide to help with their retirement planning. A free meal, free book, and a presentation about money do pique my interest but I haven’t called to sign up yet.
Our Ameriprise Financial Experience
When we decided to create our first official financial plan about 5 years ago we had an initial consultation with someone from Ameriprise Financial. He was a nice guy but we decided to go a different route. Our main complaint was that he had no financial experience! He was fresh out of college with just a general Business Administration degree and he wanted to be our financial advisor.
There was a more experienced person sitting in on the consultation but the rookie would be the one creating our plan. I know everyone has to learn somehow but I didn’t want him learning with our money. We ended up hiring a fee only financial planner who was both a CFP and a CPA, and for a cheaper price than Ameriprise!
Retirement Seminar Conundrum
Despite our initial experience with Ameriprise I’m still debating whether or not to sign up for the retirement seminar. As I mentioned, it’s hard for a cheap guy like me to pass up a free seafood dinner at a nice restaurant. I do enjoy hearing and learning about ways to invest money so it might be an interesting presentation despite the emphasis I imagine will be placed on Ameriprise products. What do you think, worthwhile educational dinner or a waste of time?
When Forbes recently published its annual mutual fund survey one of the funds on its Honor Roll (top 10 funds) caught my eye. Since I pretty much stick to index funds for our portfolio I’m not invested in any of the top 10 but I’m going to take another look at #3, Mairs & Power Growth (MPGFX).
One thing I liked about the Honor Roll is that it highlighted performance in both up and down markets. Although it has a C performance in up markets,
Mairs & Power Growth has an A rating in down markets. It managed to stay mostly ahead of the S&P during the good markets of the last 5 years and beat it nicely during the last 10 which included some nasty market drops.
Since we have the largest percentage of our portfolio invested in an S&P 500 index fund, an investment in Mairs & Power Growth might help offset losses during rough times in the overall market. A Smart Money article from a few years ago noted that “the Growth fund performs best during — and especially after — a fall in the market.”
The combination of no load, low expenses, and low turnover make it seem attractive as a good buy and hold fund especially if it has historically done well when the market is down. I’ll have to research the fund further but so far it seems like it could be a good fit.
The funds that made the Honor Roll in the Forbes 2007 mutual fund survey are listed below in order:
- Bruce Fund
- Keeley Small Cap Value
- Mairs & Power Growth
- Delafield Fund
- Third Avenue Value
- Stratton Small-Cap Value
- Perritt MicroCap Opportunities
- Value Line Emerging Opportunities
Lending money to high risk borrowers then packaging and re-selling the debt in ways that were supposed to reduce the risk didn’t turn out so well for the financial markets. A recent article in Business Week takes a look at these risky investments and Matthew Goldstein put together a list of the different areas affected by the subprime problem.
-Surging mortgage defaults
-Dropping home prices
-Criticized for not downgrading the risky investments backed by subprime mortgages
-Adjustable rate mortgages are coming due
-Ripple effect of subprime shockwave has hurt the whole stock market
-$1.2 trillion asset-backed market is drying up
-Brokerage stocks have taken a hit since investors are worried about their bond underwriting
-Risk-averse investors have created a credit crunch
-Banks have a $300 billion backlog of deals
-Funds backed by pools of subprime mortgages have lost tremendous value, for example the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund has gone into bankruptcy
I think this ripple effect caused by problems in the mortgage market reinforces the importance of diversifying your investments. If your money is spread over many different types of asset classes and industries it can help soften the blow of a far reaching investment crisis.
I’ll keep this Labor Day weekend review short. I’m out of town and trying to write on an Apple laptop and it’s driving me crazy! None of the keyboard shortcuts I usually use work and I don’t know how to navigate around the operating system. Now I know how a brand new computer user must feel, frustraed! Here are some interesting articles from this week:
-17 Cheap Ways To Keep Cool And Survive A Heat Wave @ The Digerati Life
-A Good Example Why You Shouldn’t Put Too Much Stock Into Investing Newsletters @ Generation X Finance
-What Are Your Money Leaks? @ Money, Matter, & More
-The Credit Card Arbitrage Game: Making Money from Balance Transfer @ Suns Financial Diary
- Save Money on Movies, Music, Television, & Books @ Lazy Man & Money
-10 Easy Ways for Single Parents to Save Money @ Free Money Finance
-Online Banking Roundup: WT Direct vs. HSBC, ING, and Emigrant @ Five Cent Nickel
-5 Ways Paperless Personal Finance Saves You Money @ Blueprint for Financial Prosperity
-Reduce your debt with person to person loans? @ Mighty Bargain Hunter