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.

 

Yesterday night at about 11PM, when I had finished my dinner, put my baby to sleep and was about to retire for the day, I got an SOS call from my best buddy Agatha. ‘ Hey Cindy I need $3,000 urgently. Can you lend me?’ she asked. My sleepy drowsiness vanished in a minute as I started wondering what was the urgency for her to call me at this time of the day for some cash. ‘The credit card guys are after me and I have a huge debt to pay back’, she said.

Agatha is one of those reckless credit card users who does not mind swiping card for bills as low as $10 and $20. And she has eight such cards spilling over from her wallet. Like Agatha there are thousands of other Americans who misuse their credit cards resulting in the credit card crisis now and card issues resorting to tough measures like cutting credit limit. I have already written on ‘How to free yourself from a credit card debt’.

Let me now state which are the top ten credit card mistakes that many users like Agatha commit.
1. Having a dozen credit cards – Even the most richest people in the world would not require more than two cards. However big a spender you are, one or two cards will be sufficient to meet your needs. If you require more than 2 cards it only means you have to have a relook at your spending pattern.

2. Paying late – Mark the credit card payment date in your calender, or set a reminder in your cell phone or write it in a paper and paste it in front of your bed. Do whatever you have to, to make your credit card bill payment on time. Late payment will lead to a viscious cycle of penalty, service charges, finance charges, interest etc. It also affects your credit score badly. Blogger Millionaire Mommy next door lists 14 ways to improve your credit score.

3.Making only the minimum payment – If you are going to pay only the minimum payment only, everymonth then it will take years for you to settle your credit card dues. If you are not confident of making the payment on time then do not make the purchase. Do not postpone repayment for one or a maximum of two cycles.

4.Using card for small payments – By using credit cards to make small payments you may lose track of all the purchases made using the card. You do not want to end up paying late fee for a toothbrush purchased, do you? 

5.Using the card during overseas trips – Carry adequate cash or travelers check when going abroad and avoid using your card as much as possible. There are additional charges for using your card internationally. But if you are worried about the safety of the cash you are carrying or need a record for the purchase, using credit cards is a good option.

6.Choosing credit cards for wrong reasons – Getting a credit card because it has free airline miles or cash back offers is foolishness. You may end up with a card with high annual fees or exorbitant interest rates.

7.Not checking your monthly statement properly – There could be printing errors or incorrect information on repayment or amount due, which when ignored might pile up into an inflated sum to be repaid. Check your monthly statements properly and follow up with your issuer immediately in case of errors.

8.Read the fine print carefully – Before starting to use your card read carefully the instruction given along with the card, the yearly subscription fees, interest rates, billing cycle and credit period.

9.Exceeding credit limit – Some cards do not allow you to spend beyond your credit limit. But exceeding credit limit may lead to over-the-limit charges, penalty and other charges to be paid.

10.Using card to withdraw cash – Remember your credit card is not a debit card or ATM card. Cash withdrawn using your credit cards will have to be repaid with ridiculously high interest rates.

The Federal Trade Commission has also come out with guidelines on Credit repair and how to help yourself. Try it for more information.

As for Agatha’s debts we spoke to her credit card issuer who promised to reduce the interest rate and also extend the repayment period. I tried to pool in some funds as well to help her and we will settle the debts within 2-3 billing cycles.

 

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.