New Baby, New House, New Job....

Is There a Way to Stay in Financial Control?



Dear Carrie: In the last year, my husband and I bought a new house, had our first child, and he switched jobs. All this change has me in panic mode, and I don't know how to get a handle on our finances. Where should I begin? -A Reader
   
Dear Reader: It's not surprising that you feel a bit panicked by all the changes in your life. Even positive changes such as a new house and a new baby are known to cause anxiety. My first bit of advice is to take a deep breath and realize that things aren't out of control, they're just on a new course. But when it comes to financial management, new doesn't necessarily mean different. In fact, it may mean getting back to basics. And that's just where I'd begin to get a handle on your finances.

START WITH YOUR PERSONAL NET WORTH
The first thing I suggest is to create a personal net worth statement. This is basically a snap shot of what you own (your assets) and what you owe (your liabilities). It will help you understand your current financial situation and provide a reference point for measuring your progress.

Start by adding up your assets. Include checking, savings and money market accounts, CDs, savings bonds and the cash value of any life insurance policies. Add in investment accounts, both taxable brokerage accounts and retirement accounts. If you have ownership in a business, add that in as well. Then estimate your home equity and the value of personal property such as cars, home furnishings, art, and jewelry.

Now look at your liabilities. This includes short-term obligations such as credit card balances and other outstanding bills, as well as long-term debt such as your mortgage or home equity loan, car loans and student loans.

To get your net worth, simply subtract your total liabilities from your total assets. If your net worth is in the plus, great. If it's in the minus, you've got some work to do.

REVIEW YOUR MONTHLY CASH FLOW
Now that you have the big picture, get into the specifics. Are you on top of monthly expenses? A good exercise is to write down your essential expenses such as your mortgage, food, transportation, and loan payments. (I also like to include savings in this list.) Be sure to factor in big-ticket items that come periodically, such as insurance premiums and real estate taxes. Then write down non-essentials-restaurants, entertainment, even clothes. Does your income easily cover all this? If it doesn't, it's time to prioritize.

GET THE RIGHT INSURANCE COVERAGE
It's axiomatic that you need health insurance. But now that you have a child, you should also look into life insurance. A term-life policy can be a practical and affordable way to make sure you have enough coverage to replace your income and provide for your child should something happen to either of you.

SET SOME SAVINGS GOALS
Let's hope you and your husband are already saving for retirement through a company retirement plan and/or an IRA. If not, start now. Being on top of current finances is important, but getting a head start on retirement is equally important. This should be a top savings goal.

Also on your savings list should be an emergency fund to cover at least three months of essential living expenses. Keep these funds in an easily accessible account. This will help keep you out of panic mode should something unexpected happen.

In addition, it's smart to start thinking about college. Costs are only likely to go up. Opening a 529 college savings account is one of the best ways to provide for a child's future education with some tax savings along the way-and grandparents and other family members can contribute as well.

MAKE A WILL
This is also to protect your child. A will not only designates how you want your assets distributed, it lets you appoint a guardian. In fact, in most states, a will is the only way to appoint a legal guardian for your minor children. It's pretty straightforward and inexpensive, and to my mind, essential.

START INVESTING
Once you've accumulated some savings, take advantage of growth potential. Learn more about investing and get started with something like a broad-based mutual fund or exchange-traded fund.

TAKE IT STEP-BY-STEP
As a mother myself, I know how time consuming small children can be, so don't think you have to accomplish all this at once. Perhaps you and your husband could initially go over the big picture and come up with a step-by-step plan. You might even create a checklist based on my suggestions. Then you could make a date to review your financial picture monthly, not only to check your progress and refine your goals, but also to congratulate yourselves for being smart money managers.

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "It Pays to Talk." You can email Carrie at This email address is being protected from spambots. You need JavaScript enabled to view it.. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. COPYRIGHT 2012

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