Important aspects of planning for your family
January 6, 2014 12:58 PM Subscribe
Hi all,
Belated Happy New Year everyone!
I am a 32yr old single mother of a beautiful 1yr old, and this year I’ve decided to plan ahead to help me fulfill my parenthood responsibilities to the best. We are a US middle-class family of two. Originally not from this country, I need to research several important aspects of planning for a future here. I hope to get some useful suggestions from those of you who are savvy about these things :-)
My question is quite broad and open-ended:
“What are the important aspects I need to think about for running a family smoothly?”
My current list includes:
1. Choose good healthcare insurance provider. Related: What is HSA and is it useful? Note: I already have insurance for myself for my li’l one, but I just chose the most popular option selected by other colleagues. Going forward, I am looking for a better decision-making process to choose the best plan for me.
2. Get private life-insurance (I currently have one provided by employer; it’s not great because I lose the premium and coverage as soon as I change jobs).
3. Research home-loan rules and regulations in USA: Hopefully I should be able to save enough to buy something in late 2015 or 2016; fingers crossed on that one.
4. Research best ways/places to invest savings in.
5. How much should I put away in a ‘rainy day fund’? Is this separate from the usual family investments?
Did I miss out on anything important? Planning kids’ education is a biggie, and I am doing that separately. Another important decision is to buy the right car, but I may not want one for next few years, so that’s one less thing to worry about.
Many thanks for your suggestions!
My question is quite broad and open-ended:
“What are the important aspects I need to think about for running a family smoothly?”
My current list includes:
1. Choose good healthcare insurance provider. Related: What is HSA and is it useful? Note: I already have insurance for myself for my li’l one, but I just chose the most popular option selected by other colleagues. Going forward, I am looking for a better decision-making process to choose the best plan for me.
2. Get private life-insurance (I currently have one provided by employer; it’s not great because I lose the premium and coverage as soon as I change jobs).
3. Research home-loan rules and regulations in USA: Hopefully I should be able to save enough to buy something in late 2015 or 2016; fingers crossed on that one.
4. Research best ways/places to invest savings in.
5. How much should I put away in a ‘rainy day fund’? Is this separate from the usual family investments?
Did I miss out on anything important? Planning kids’ education is a biggie, and I am doing that separately. Another important decision is to buy the right car, but I may not want one for next few years, so that’s one less thing to worry about.
Many thanks for your suggestions!
Not that any of the things you're suggesting are bad ideas, but they don't really relate specifically to raising a child.
Here are some of my thoughts on the things you've already mentioned:
Health insurance: any insurance is better than no insurance by a long shot. If you have health insurance, you haven't gone too wrong here. You can maybe find better health insurance, especially now that the ACA is in effect, but you might want to drop this down on the list and work on some of the other things.
Life insurance: I have a $1,000,000 30-year term life insurance policy on myself. It costs something like $90/month. The "term" part of this is important because it means that my family only gets the $1,000,000 in the event that I die in the 30 years following taking out the policy. If I live longer than that (which I plan to), then there's no payout. But term life insurance is *MUCH, MUCH CHEAPER* than whole-life insurance.
Another important point on life insurance: I have life insurance on myself. I did not have life insurance on my wife, because I was the primary breadwinner in the house. She died early last year, leaving me a single parent responsible for child care, paying the mortgage, funeral expenses, etc. If you are going to do this, get life insurance on both parents. Even if you get a smaller policy on a stay-at-home parent. Even $50,000 would have made getting through my wife's death financially much easier.
Home loans: Not really about kids, but I see why they're related to you. If you're actually serious about this just call up a real estate agent or mortgage broker. Yes, they want to be able to sell you something, but they can tell you really quickly what you can and can't do and will and won't need.
Savings: 1) Max out any tax-advantaged accounts that have an employer match (i.e., 401ks), then max out any tax advantaged accounts that don't have an employer match (i.e., IRAs), 3) If you get this far you are doing better than 90% of people and can spend some time researching what to do with this extra money (index funds are a low-cost, high-return long-term option).
"Rainy day fund": I like to keep $5,000 in cash on hand. Honestly though, any funds you have anywhere are a "rainy day fund" if you really need them. In the case of a long-term illness or such, you'll drain a rainy day fund first, then other savings in post-tax accounts, then retirement savings, then cash out your house, etc. It matters more that you have money saved *somewhere* than where in specific you have it.
You're right about planning your kid's education. If you want to put him or her in a specific private school (even at the preschool level) get ion the waiting list *now*. Many have years-long waits.
It doesn't matter what car you drive. Really. Buy any car you like and can afford. The future of your family does not depend on it.
You don't have to do anything perfectly. I.e., if you max out a 401k and an IRA and then put some money into a mutual fund when it turns out you should have put the extra money into an index fund, you know what? You're doing a better job of saving than 95% of Americans, so don't worry that you could have done 1% better. Some in all the other categories. There's a point of diminishing returns with everything.
posted by tylerkaraszewski at 1:11 PM on January 6, 2014 [1 favorite]
Here are some of my thoughts on the things you've already mentioned:
Health insurance: any insurance is better than no insurance by a long shot. If you have health insurance, you haven't gone too wrong here. You can maybe find better health insurance, especially now that the ACA is in effect, but you might want to drop this down on the list and work on some of the other things.
Life insurance: I have a $1,000,000 30-year term life insurance policy on myself. It costs something like $90/month. The "term" part of this is important because it means that my family only gets the $1,000,000 in the event that I die in the 30 years following taking out the policy. If I live longer than that (which I plan to), then there's no payout. But term life insurance is *MUCH, MUCH CHEAPER* than whole-life insurance.
Another important point on life insurance: I have life insurance on myself. I did not have life insurance on my wife, because I was the primary breadwinner in the house. She died early last year, leaving me a single parent responsible for child care, paying the mortgage, funeral expenses, etc. If you are going to do this, get life insurance on both parents. Even if you get a smaller policy on a stay-at-home parent. Even $50,000 would have made getting through my wife's death financially much easier.
Home loans: Not really about kids, but I see why they're related to you. If you're actually serious about this just call up a real estate agent or mortgage broker. Yes, they want to be able to sell you something, but they can tell you really quickly what you can and can't do and will and won't need.
Savings: 1) Max out any tax-advantaged accounts that have an employer match (i.e., 401ks), then max out any tax advantaged accounts that don't have an employer match (i.e., IRAs), 3) If you get this far you are doing better than 90% of people and can spend some time researching what to do with this extra money (index funds are a low-cost, high-return long-term option).
"Rainy day fund": I like to keep $5,000 in cash on hand. Honestly though, any funds you have anywhere are a "rainy day fund" if you really need them. In the case of a long-term illness or such, you'll drain a rainy day fund first, then other savings in post-tax accounts, then retirement savings, then cash out your house, etc. It matters more that you have money saved *somewhere* than where in specific you have it.
You're right about planning your kid's education. If you want to put him or her in a specific private school (even at the preschool level) get ion the waiting list *now*. Many have years-long waits.
It doesn't matter what car you drive. Really. Buy any car you like and can afford. The future of your family does not depend on it.
You don't have to do anything perfectly. I.e., if you max out a 401k and an IRA and then put some money into a mutual fund when it turns out you should have put the extra money into an index fund, you know what? You're doing a better job of saving than 95% of Americans, so don't worry that you could have done 1% better. Some in all the other categories. There's a point of diminishing returns with everything.
posted by tylerkaraszewski at 1:11 PM on January 6, 2014 [1 favorite]
I recently learned about GYST through AskMeFi and I think it has a really approachable structure to this type of basic necessity paperwork life planning items. Easy checklists, etc.
posted by samthemander at 1:17 PM on January 6, 2014 [1 favorite]
posted by samthemander at 1:17 PM on January 6, 2014 [1 favorite]
The general point of a rainy day fund is to provide quick, easy access to cash if, say, your house explodes or you unexpectedly lose your job. Any liquid account can be used as a rainy day fund (ie, checking, savings, high-yield savings, etc) - the difference between this and, say, a stock market account or IRA is that you prioritize quick access over earnings. My rainy day fund is in a savings account that earns basically no money, but if I need it then I can access it today, not in 5 days when the funds transfer. I'm targeting 3-6 months of living expenses in my rainy day fund, to cover an unexpected job search.
posted by muddgirl at 1:21 PM on January 6, 2014
posted by muddgirl at 1:21 PM on January 6, 2014
(Forgot to mention that a rainy-day fund should be low-risk, as well - wouldn't want to get fired at the bottom of the market with the fund wiped out by a bad stock market.)
Have you considered talking to a financial planner? I think they could help you sort through a lot of these options, including the different kinds of savings options, life insurance options, and even HSAs.
posted by muddgirl at 1:24 PM on January 6, 2014
Have you considered talking to a financial planner? I think they could help you sort through a lot of these options, including the different kinds of savings options, life insurance options, and even HSAs.
posted by muddgirl at 1:24 PM on January 6, 2014
I can explain HSA to you, I've had one for a few years. It's currently the only option we have.
A HSA health insurance plan is a High Deductible plan. You can save PRE-Tax dollars in a special Health Savings Account (HSA) that can grow over the years, and earn interest tax free. You can only use this money for healthcare related purchases.
The healthcare provider will negotiate special rates for services provided under their plan, so you'll be paying less than you would on the open market. So you still pay premiums for the plan, and it is WORTH IT!
So, let's say your deductible is $5,000 (pretty typical for a family plan) You get pre-tax dollars added to your Health Savings Account from your paycheck each pay period. I do $100 per check. So I save about $2,400 annually in my account. Not bad, not great.
In the year I get one Well-Woman visit with my GYN, a mammogram, a colonoscopy, a annual physical with my GP that includes all lab work. I pay NOTHING for this, it's included in my plan.
I also have a prescription plan, so I will pay negotiated rates for my prescription drugs out of my HSA, with those charges going towards my annual deductible.
If I have a normal year, I'm saving about $1,000 over and above any random expenses. (Drugs, a new pair of glasses, extra money I pay to get 3D imaging for Mammography, etc.)
Year before last I developed a pre-cancerous lesion, and all bets were off. I had about half of the money I needed for my deductible in my HSA and I had to use my savings to cover the rest, but once I met my deductible, my insurance covered the remaining costs of my surgery. This is how it broke out.
Total Cost of Bill: $18,000
Amount I paid out of HSA: $2,000
Amount I paid out of pocket: $3,000
Amount Paid by insurance: $13,000
So, I'm not complaining, it worked out fine. I'm more aggressive about saving just in case I have another year where I'm hit with extraordinary bills.
You can do the math. I did last year, and it still worked out to be less expensive than a traditional PPO plan.
I'm a big advocate of doing the math.
posted by Ruthless Bunny at 1:37 PM on January 6, 2014
A HSA health insurance plan is a High Deductible plan. You can save PRE-Tax dollars in a special Health Savings Account (HSA) that can grow over the years, and earn interest tax free. You can only use this money for healthcare related purchases.
The healthcare provider will negotiate special rates for services provided under their plan, so you'll be paying less than you would on the open market. So you still pay premiums for the plan, and it is WORTH IT!
So, let's say your deductible is $5,000 (pretty typical for a family plan) You get pre-tax dollars added to your Health Savings Account from your paycheck each pay period. I do $100 per check. So I save about $2,400 annually in my account. Not bad, not great.
In the year I get one Well-Woman visit with my GYN, a mammogram, a colonoscopy, a annual physical with my GP that includes all lab work. I pay NOTHING for this, it's included in my plan.
I also have a prescription plan, so I will pay negotiated rates for my prescription drugs out of my HSA, with those charges going towards my annual deductible.
If I have a normal year, I'm saving about $1,000 over and above any random expenses. (Drugs, a new pair of glasses, extra money I pay to get 3D imaging for Mammography, etc.)
Year before last I developed a pre-cancerous lesion, and all bets were off. I had about half of the money I needed for my deductible in my HSA and I had to use my savings to cover the rest, but once I met my deductible, my insurance covered the remaining costs of my surgery. This is how it broke out.
Total Cost of Bill: $18,000
Amount I paid out of HSA: $2,000
Amount I paid out of pocket: $3,000
Amount Paid by insurance: $13,000
So, I'm not complaining, it worked out fine. I'm more aggressive about saving just in case I have another year where I'm hit with extraordinary bills.
You can do the math. I did last year, and it still worked out to be less expensive than a traditional PPO plan.
I'm a big advocate of doing the math.
posted by Ruthless Bunny at 1:37 PM on January 6, 2014
On the home buying front, you don't need to become an expert on relevant rules and regulations. Instead, I think what you want is to become generally familiar with how the process works in this country as opposed to your country of origin. When you do decide to buy, a real estate agent will be your guides to that world. However, I understand wanting to know some of the basics so you have a basis for choosing an agent and evaluating the advice he or she gives you, particularly if things are done differently back home. I would suggest getting and reading Home Buying for Dummies or a similar title, perhaps from your local library.
I also agree with bondcliff that your will is an important document. You should think about who you would want to be your child's guardian in the event of your death and then make that designation in your will. (Obviously, discuss this with the potential guardian.)
Like tylerkaraszewski, I also bought a 30-year term life policy for a million dollars. It was cheaper than whole life insurance and the term is long enough to provide financial security for my family if I die during the period when the kids are minors or in their undergraduate years.
posted by Area Man at 1:41 PM on January 6, 2014
I also agree with bondcliff that your will is an important document. You should think about who you would want to be your child's guardian in the event of your death and then make that designation in your will. (Obviously, discuss this with the potential guardian.)
Like tylerkaraszewski, I also bought a 30-year term life policy for a million dollars. It was cheaper than whole life insurance and the term is long enough to provide financial security for my family if I die during the period when the kids are minors or in their undergraduate years.
posted by Area Man at 1:41 PM on January 6, 2014
If you're interested in buying a home be sure to check out FHA loans, they don't require a big downpayment and they won't let you buy a house unless it passes their fairly rigorous inspection for safety, etc. It's a federal program, I think you only need 3.5% down. When you start looking for a house make sure you learn about local school districts so that you can send your child to the best possible school.
posted by rudd135 at 2:07 PM on January 6, 2014
posted by rudd135 at 2:07 PM on January 6, 2014
bondcliff made an important point about getting your will in order. Your will not only determines who gets what of your resources (so that money you've set aside for your little one goes directly to her and not the state) but who will take care of/raise your child if anything were to happen to you and who will oversee directing how your money will be spent. (These can be the same person -- but need not be.)
You must also consider having a Power of Attorney for financial activities and one for medical decisions. If you were incapacitated, someone else would need to be able to make important decisions for you. The same attorney who helps you put together your will can handle these.
"Good" insurance depends on your situation. For years, I felt like I was overpaying my premiums, spending a lot on premiums and having nothing except Well-Woman visits and flu shots; then I very unexpectedly found myself hospitalized six times in 2009 and was relieved that I'd spent more on monthly premiums because it meant I had only a $3500 out-of-pocked expenditure in a year when my (pre-insurance) medical bills were over $100,000. The new ACA laws mean that whatever insurance you pick will likely cover the bulk of what you need in a "healthy" year as standard; it's the unhealthy years that are rough. Try to tuck away money to cover at least your annual deductible; once you've done that, tuck away enough for your annual out-of-pocket limit. When you've saved that much, hopefully you'll be able to carry it over to the next year, and so on, without having to continue to save (unless you have to spend down that account), and you'll be at ease knowing that the medical part of your rainy-day fund is handled.
Since you are a single parent, tylerkaraszewski's life insurance comments don't fit your situation perfectly, but are a good starting point. You need enough life insurance to cover everything it would cost to take care of your child -- that is, to "replace" you -- if you were gone and the guardian you select were in your place. A good way to wrap your head around this is to start with your actual annual expenditures (financial tracking programs/apps, like Mint, can be helpful), cull the parts that are you-specific, and then add in things that your child would need in your absence and will be needing in the future (educational costs, money for activities, etc.) One-year-olds have pretty set costs, but predicting for a 14-year-old is tougher; but at least this is a start.
You should be applauded for thinking ahead like this.
posted by The Wrong Kind of Cheese at 4:52 PM on January 6, 2014
You must also consider having a Power of Attorney for financial activities and one for medical decisions. If you were incapacitated, someone else would need to be able to make important decisions for you. The same attorney who helps you put together your will can handle these.
"Good" insurance depends on your situation. For years, I felt like I was overpaying my premiums, spending a lot on premiums and having nothing except Well-Woman visits and flu shots; then I very unexpectedly found myself hospitalized six times in 2009 and was relieved that I'd spent more on monthly premiums because it meant I had only a $3500 out-of-pocked expenditure in a year when my (pre-insurance) medical bills were over $100,000. The new ACA laws mean that whatever insurance you pick will likely cover the bulk of what you need in a "healthy" year as standard; it's the unhealthy years that are rough. Try to tuck away money to cover at least your annual deductible; once you've done that, tuck away enough for your annual out-of-pocket limit. When you've saved that much, hopefully you'll be able to carry it over to the next year, and so on, without having to continue to save (unless you have to spend down that account), and you'll be at ease knowing that the medical part of your rainy-day fund is handled.
Since you are a single parent, tylerkaraszewski's life insurance comments don't fit your situation perfectly, but are a good starting point. You need enough life insurance to cover everything it would cost to take care of your child -- that is, to "replace" you -- if you were gone and the guardian you select were in your place. A good way to wrap your head around this is to start with your actual annual expenditures (financial tracking programs/apps, like Mint, can be helpful), cull the parts that are you-specific, and then add in things that your child would need in your absence and will be needing in the future (educational costs, money for activities, etc.) One-year-olds have pretty set costs, but predicting for a 14-year-old is tougher; but at least this is a start.
You should be applauded for thinking ahead like this.
posted by The Wrong Kind of Cheese at 4:52 PM on January 6, 2014
Personal Finance for Dummies is the perfect book for you. It covers all your questions here plus others you haven't thought of yet.
posted by Jacqueline at 8:32 PM on January 6, 2014 [1 favorite]
posted by Jacqueline at 8:32 PM on January 6, 2014 [1 favorite]
Consider getting disability insurance and long term care insurance if you can afford them.
posted by Dansaman at 10:21 PM on January 6, 2014
posted by Dansaman at 10:21 PM on January 6, 2014
I think you should also consider your social capital, especially as a single mother. Build a network of friends/neighbors/family who can help you in situations like injuries, emergency babysitter, sick days, borrow a few eggs, etc. Of course, building that network means that you are able to give sometimes when they need it, too.
It doesn't mean that you meet people with the intention of "what can I get from this person later?", but that you build a community of people who you love and who love you and your child.
posted by CathyG at 5:35 AM on January 7, 2014
It doesn't mean that you meet people with the intention of "what can I get from this person later?", but that you build a community of people who you love and who love you and your child.
posted by CathyG at 5:35 AM on January 7, 2014
You might consider opening a 529 account to start saving for your child's college expenses.
posted by pizzazz at 7:17 PM on January 7, 2014
posted by pizzazz at 7:17 PM on January 7, 2014
Response by poster: Thank you everyone for the very helpful comments!
posted by Spice_and_Ice at 11:26 AM on January 11, 2014
posted by Spice_and_Ice at 11:26 AM on January 11, 2014
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posted by bondcliff at 1:05 PM on January 6, 2014 [1 favorite]