I am very happy today. My best friend Kaitlin just called me up to say that she is expecting. The stork will visit her place in the summer of 2009. When I expected my baby two years ago I was well prepared mentally to welcome my bundle of joy. But experience has taught me that it is equally important to be financially prepared.

So i gave my pearls of wisdom to Kaitlin on how and why it is important to be financially prepared to welcome your new child. Let me share it with you all too.

DELIVERY OF THE CHILD - First things first. The actual birth of the child. Home deliveries are becoming popular. And yes they do work out cheaper. But it requires a lot of preparation in terms of the partner’s willingness to assist in the delivery process. If you or your partner is not sure or if there are medical conditions in the later stages of pregnancy like high BP or gestational diabetes it is strongly adviced that you have the child delivered in hospital with proper medical assistance.

POST CHILD BIRTH EXPENSES – So you just welcomed your new bundle of joy into this world. Apart from giving both partners sleepless nights the baby will also bring in a lot of new expenses . Okay you may hate me for asking you to count and calculate when you should actually be admiring your baby’s little hands and feet and the innocent smile. But trust me, by being prepared financially you will have lesser worries and and have more time to enjoy your baby’s little pranks.

So here I continue. These are the new categories that will find place in your monthly budget with the arrival of a new child.

1. Diapers – You would need these by the dozens everymonth. Ask me about it. You could try alternating between re-usable and use-and-throw diapers.
2. Clothes – This is a recurring expense. Children outgrow their clothes faster than you expect. And then there are winter clothes, summer clothes, booties, body suits and so on.
3. Medical care - There are a lot of vaccinations in the first year of child’s life and a dozen visits to the paediatrician to make sure your baby is growing fine.
4. Food – If you are planning to go for formula feed then you have to factor in those costs. Blogger chieffamilyofficer has some interesting posts here and here on preparing baby food at home that is both healthy and costs much lesser.
5. Toys –The child care product makers in the market have the knack of making us feel guilty of not caring for our child enough. So we end up stacking a lot of pacifiers, baby gym, teethers and rattles. Do not stack up in advance. You will anyways get many such stuff as gifts.

And then there are other utilities for a child like crib/cot, car seat, bath tub and stroller that you have to stack up.

TWO JOBS OR ONE – Financial planning has to be done based on whether both partners will be working after the birth of the child or if the mother will take a maternity break for three/six/twelve months or quit the job. I have been repeating often that traditional wisdom suggests an emergency fund equal to atleast three to six months of ones salary should be maintained by every working individual. If the mother is taking a maternity break she should ensure that the emergency kitty is sufficiently full.

If the mother will resume work in a few months after the baby’s birth then options like leaving the child in a day care centre or hiring a baby sitter would be considered. You can calculate to see if the mother’s pay check is big enough to handle the related expenses and stress arising out of leaving the baby in a day care centre or with a baby sitter. You could try taking help from parents, friends or other family members if they are willing to do so. Works out cheaper and you can also be at peace that the child is in safe hands.

By preparating adequately the first 2-3 years of your child’s growing years will be smooth sailing for you. This blog has more information on financial formalities post baby’s birth. As for preparing for your child’s education, future and stuff, thats a bigger topic. Let me keep it for another day. Ciao.

 

Most of us will buy a house at some point in our lives. It is a dream for many and also the single largest investment that we make in our lives. Having spent so much it is wise to have it safeguarded too, isn’t it. I was speaking to an insurance agent the other day to have my house covered. There is so much to do with housing insurance that many of us might not know or may have ignored. Here is what I gathered from the discussion.

If you have bought a new house on mortgage you do not have a choice but to insure your house because the lender will insist so. Homeowner insurance policies usually cover house structure, personal belongings, additional living expenses, liability protection and medical payments. The premium rates differ depending on what you want to be covered. These are some of the important aspects of home owner insurance.

1.   A housing structure cover will protect your house from damage due to fire, theft, ice and snow, while the personal belongings cover will offer protection for the valuables in your house. What you should remember here is that damage due to floods and earthquakes is not covered in housing policies.
2.   If there is a large repair job required in your house which requires you to move out of the house for a while, the additional living expenses incurred, will be covered.
3.   Assuming that a tree in garden of your house fell due to a storm last night and damaged the neighbor’s compound wall, then the liability protection cover will help compensate your neighbor for the damage caused. It will also pay for the cost of defending you in court in case of a law suit.
4.   If there is a medical expense incurred by your neighbor as a result of this accident, then the insurance company will also compensate for the expenses. What you should note here is however is that, you and your family members will not be covered in this.

We have seen what the insurance company does for a homeowner’s policy. Here is what you should do. You have to make a list of all the valuables in your house and along with their value. This will be required even while you apply for an insurance cover. Valuables may include things like your expensive jewelery, TV, PC, laptop, sofa, cot and so on. If you can shoot pictures of these, still better, as it will make your claim process much easier. Do not think that you are smart by under-estimating the value of your goods so that you can pay a lower premium. When there is a claim, you will be the loser. Also remember to keep updating the list as you add stuff in your house like blogger fivecentnickel suggests here. Having done all this, make 2-3 copies of the list and photographs and store them in any safe place outside your house.

There is however a flipside to all this. The insurance agents for homeowner’s policy are known to be extremely picky when selling a policy or fixing the premium rate. You will be asked to fix even the smallest nut and bolt in your house before getting the policy because when there is a claim the outgo is really huge from the insurer. So be prepared to repaint your house, install fire alarms, fix a leaky pipe or repair the garage shutter. After all it is for your good.

Think of it as a protective measure to safeguard your house which is the abode of your fond memories and dreams.

Last evening I was talking with a friend, her plans to buy a new car. While we were discussing models, features, prices, I asked her what her credit score looked like? She stopped and thought about it and realized she didn’t know! I didn’t need to say anything else.  She knew right away that she’d be going into the car dealership at a big disadvantage if she didn’t know what her credit score looked like.

That conversation got me thinking about the importance of maintaining good credit scores and being informed about what is on your credit report.  Here’s a short FAQ about credit scores.

What is a credit score? – A credit score represents a person’s creditworthiness. It is a score calculated by taking into account a person’s credit history, promptness of payment, repayment of debts and loan defaults.

Why is it important? – A credit score becomes immensely important when trying to secure a loan; home mortgage, car loan, credit card or an insurance policy. Credit score not only determines your eligibility for credit, but also the interest rate that you have to pay. The higher your credit rating the less interest you’ll pay.

Who calculates my credit score? – There are three major credit bureaus in the US, Experian, TransUnion and Equifax.  All three secure consumer credit reporting information from the nation’s banks and financial institutions and apply a score based on the FICO score developed by Fair Isaac Corporation and their own VantageScore. FICO scores range between 300 and 850, while VantageScore ranges from 501-990. As an example, a FICO score of 720 and above is usually considered excellent and will qualify for the best interest rates available.

Can I know my credit score? – Yes you can, but at a price. You are entitled to a free credit report from each of the three rating agencies once in a year. Beyond that, you’ll have to pay in the neighborhood of $15 or more for your scores. Many large loan providers calculate the average of the three credit scores before sanctioning a loan. So it is advised that you get your credit scores from all the three agencies before applying for a large loan.

How do I improve my credit score? – While there are many ways to increase your credit score, it all boils down to these four basic rules of thumb.

1. Make your payments on time, even if it means paying only the minimum due amount.
2. Keep your credit account balances below 50% of your total credit limit for each account.
3. Avoid too many credit inquiries in a short period of time.
4. Never default on a loan.

 

Jude called me over for dinner yesterday. After a sumptuous meal, we were lounging and discussing our work in general and our plans for the holiday seasons. I noticed Jude’s partner forcing their son Nick to finish his meal. The ‘finish-it’, ‘I-don’t-like-it’ argument went on for a while. Finally, they had to give in to their son’s demand. Jude ordered a pizza for Nick. And the food on Nick’s platewent straight to the garbage can. At a time like now, when inflation is up, people are losing jobs and grocery bills are hitting the roof, what a waste of food and money.

I spent the night thinking whether we teach our children the value of money. When we insist on children being obedient, polite and good mannered, isn’t it also important to let them know the value of money. Here’s what occurred to me on how we can start doing that.  

1.    Take them out grocery shopping Taking kids out for grocery shopping will help in letting your child know the price of stuff that he dumps. You can explain to them how the price of a jar of mayonnaise that cost lesser last month, has shot up now. Of course, you may have to deal with pester power when you cross the toys section or cookies counter. Be prepared. May be you can tell them that they have a fixed sum, like  $3-4 or for themselves and they can shop for what they want anything. So your child can choose either from buying a box of cookies or a fancy toy.

2.    Gift them a piggy bank This is the oldest, time-tested way to teach children the value of money. Ensure that the kids save the money that they earn or receive as gift in their piggy bank. Let them learn how little cents saved over time pile up to a few dollars. Insist that they should not break it until there is a need to do so.

3.    Give them little incentives for extra work done You can gift them a few cents whenever they help you with an extra errand, whether it is helping you paint the fence or fix the leaking tap. Let them know how much you have saved by doing it yourself. You have to be really careful here. Let the child not believe that he can expect incentives for doing his routine tasks like setting the dinner table or cleaning his room.

4.    Send them for summer jobs Summer jobs are an excellent way to make your child learn the value of money. It may be things as simple as babysitting or running errands at a neighborhood store. It helps the child know that nothing in this world comes for free. Everything has a price. You will certainly see a difference in your child’s attitude.

5.    Take your child to the bankThis will familiarize your child with the basics of banking and financial planning. Let them know how interest rates work when you deposit or borrow money. Show them how money deposited is both safe and grows over time.

It is important to let our children know our financial position. We need not exactly prepare a balance sheet of our income and expenses to show our children. But sitting with the child and explaining that Dad cannot afford that new play station this month or that swanky car that his friend’s father drives, will make them better and more mature adults.