Monday, December 29, 2008

To do: get financially fit - make a budget for babies

Times are tight and a bit scary right now, let's be honest. Being pregnant with twins I'm especially money conscious and full of questions - how can we afford rent? What happens when we get hosed on taxes again? How can we afford daycare?

When I first started thinking about the financial side of mommy-hood I freaked a bit. Then, we sat down, made a budget, and did some research. Here are the highlights:

Know your #:
As soon as we found out we were pregnant, we looked around our little 1-bedroom SF abode and thought "how the heck are we going to fit more in here." It was about this time that we started thinking of our 2009 taxes and financial standing, too, and it came to us - become homeowners! As if being pregnant weren't enough to think about ... then again, with this down economy and mortgage rates plummeting it might just be the time. We learned in CA first time homeowners can get a 5.5% interest loan at 30-years fixed with as little as 3.5% down - WHOA! But I won't go into adventures in real estate - if you'd like to know more, email me. The truly important thing we did learn, though, is the first step to looking at houses is know what you can afford and a lot of what you can afford is based on your credit score.

Most credit unions give a free trial or let you find out your score for free. Watch out, though, because during the process of getting that score you might unknowingly sign-up for a subscription. Here are the top sites for getting your score:
  • - the little commercial might be stuck in your head (it's in mine) but this one is good because you can get scores from all 3 credit agencies
  • Equifax - gives a free trial and FICO monitoring
  • Transunion - gives a free trial
  • Experian - gives a free trial
It's important to remember, when you sign up for an in-store card or when someone asks to do a credit check on you, it does effect your score. On the flip side, the more good credit you have, the better your score should be.

Personal budget:

A personal budget is key. In the past we've tried penciling out a budget, but there's something about actually logging expenses and income in a spreadsheet that makes it more real and, more importantly, easier to stick to. Here are a few budget spreadsheets I like:

Get a pulse on taxes:
Last year we were considered DINKs (double income, no kids) and because we had no dependencies and no investments (like a home), we really got a surprise come tax time. This year we both claimed 0 on our W2s but after a test tax run we're still going to have a bitter April. It took a while, but here are some lessons learned:
  • Practice your taxes early and often - get a pulse on your standing - you can practice right on the IRS site without submitting your taxes
  • Take advantage of your companies' 401k - if there's no matching (like at my company) or the options that you can invest in aren't good, look at setting up another type of retirement account
  • Invest the maximum in an IRA or Roth IRA (with the tax rates being so low, right now it's probably best to invest in Roth if you qualify - pay taxes now at a lower rate and when it comes time to retire, withdraw your money and don't worry about taxes! With an IRA you invest pre-tax money but pay when you withdraw)
  • When precious ones do come, they are a $1,000 deduction each on tax returns (it's horrible looking at babies as deductions, but it's good to know)
The beauty of IRAs and Roth IRAs is contributions for the year count through April whereas contributions to a 401k only count through December 31st. In the past month I upped my 401k contributions and am maxing out my Roth IRA contributions (by maxing out I mean I'm automatically depositing money into my Roth from each paycheck to make sure I hit the max by April).

Saving for baby:

As soon as I found out I was pregnant I opened an ING "baby" account (really just a savings account that I named "baby"). Every paycheck I invest $50 - doesn't sound like much, but by the time the twins are ready for college it'll be a good cushion for them to get going.

As soon as the kids are born I'll open a Fidelity 529 account. The 529 account is a "tax advantages" account - in other words, all investments grow tax differed and qualified withdrawals (like college) are federal and California state tax free.

Paper over plastic:

You likely chose it at the market when asked what kind of bag, use the same phrase and choice for how you pay. This is the hardest one for me - pay cash, not credit. If you don't have enough in checking to buy something in cash you likely don't really really need it. If you have to pay with a credit card, make sure you can pay it off come end of month.

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