If you are pregnant, you've probably started to think differently about your
finances. How much will it cost to raise a child? Can I stay home, or will I have
to keep working? What about sports, proms, college, weddings and grandkids?
Here are 6 issues you can start thinking about now that can help you financially
as you travel down the marvelous road of raising children.
1. Life Insurance
Although money will not replace a lost parent or spouse, every parent should
be insured for the sake of the surviving dependents. Contact a reputable insurance
agent for help with determining the correct amount and type of life insurance
and the kind of coverage, beneficiaries and contingent beneficiaries available.
There are two basic kinds of life insurance: term life and whole life. Both are
similar to your auto policy in that if you don't pay the premium, the coverage
expires.
Term life policies are only good for a certain term, such as 10 years. Whole
life policies never expire (unless you stop paying the premium). The difference
may seem subtle, but it is important. A term policy is fairly cheap for a 20-year-old
non-smoker, but when it expires, the insured is 10 years older and has to apply
for a new policy. At some point in a person's life, term insurance can be prohibitively
expensive or even unavailable.
Whole life policies are best obtained when the insured is relatively young. The
premiums can be affordable, and there are variations of whole life, such as universal
life, that build up a cash value as premiums are invested. Some policies allow
cash values to be borrowed against or perhaps cashed out before death, and sometimes
the cash value and investment earnings can even be used to offset the premium
payments.
2. Debt
When it comes to debt, get out and stay out. Pay off all consumer debt as quickly
as possible, and try to eliminate any debt that is not secured by income-producing
property.
Kids crave love and attention more than toys and doodads. The more debt you have,
the more you will work and worry and the less time and attention you will have
for your children.
3. Savings and Charity
Pay yourself first. Take 10 percent right off the top of your gross monthly income
and set it aside for investing in income-producing property. Set another 10 percent
aside for charity. Flow is established by circulation, not by stinginess. For
a brief review of this principle, read A Christmas Carol by Charles Dickens.
4. Investing
There are two major categories of investing: (1) stocks and bonds and (2) real
estate. Robert Kiyosaki, world-renowned millionaire and author of Rich Dad, Poor Dad (Warner Business Books, 2000), predicts that we will see another great stock
market crash within the next 10 to 15 years as retiring baby boomers begin to
rapidly draw out what is left of their 401(k) investments. Although investors
are still stinging from the aftermath of September 11 and corporate shakedowns
like Enron, the recent stock market slump is not unprecedented, nor will it be
the last. Investing in securities requires expertise and wisdom, even when you
are investing in mutual funds.
Investing in income-producing real estate is investing in hard assets, and although
most people consider it more risky and complicated than investing in the stock
market, that is more myth than reality. In his book Multiple Streams of Income (Wiley, 2004), Robert Allen suggests a diversified approach to investing, including
real estate, stocks and even business ventures and royalties.
5. Wills and Living Trusts
During the past 20 years, there has been a movement away from wills and toward
living trusts. A will is subject to probate by the courts, whereas the terms of
a living trust are established during your life. That means that you have more
control over how your estate is managed even after your death. In addition, living
trusts have some tax advantages.
In either a will or a living trust, some provision should be made for guardianship
of the children, especially in case both parents die at the same time. Although
that kind of event is not common, it does happen. If you don't use a will or living
trust to stipulate who will take custody of your children, the courts will decide
in an often drawn-out process.
Consult a competent attorney and make sure you understand all the issues related
to wills and trusts. The point is, have one or the other to protect your surviving
spouse and children.
6. Home-based Business
There is no such thing as job security anymore. Both Kiyosaki and Allen recommend
establishing multiple streams of income in order to ensure financial stability.
Besides investing in income-producing assets, consider starting your own business.
This may sound ridiculous to someone about to have a baby, but it is all in your
attitude. Either you always have an excuse for why the time is not right, or you
just do it and make it work regardless of what else life is offering you.
For anyone just starting out in business, Kiyosaki recommends network marketing
for several reasons: building business skills, training, support and its part-time
nature. There are many good network marketing companies, but it pays to shop wisely.
Look for a company that offers excellent training, has a wide variety of high-demand,
cutting-edge products that do not compete with general consumer items found in
stores and is focused on retailing rather than recruiting. Any business venture,
whether it be a franchise, independent or network business, should be evaluated
carefully.
