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Getting All Your Ducks in a Row


6 Ways to Financially Prepare for Your New Baby
By Joe Cooke, CPA, MT, JD


If you are pregnant, or even if you are still in the contemplation stage, you've probably started to think differently about your finances. How much will it cost to raise a child? Can I stay home, or will I have to keep working? What about sports, proms, college, weddings and grandkids?

Here are six things you can start thinking about now that can help you financially as you travel down the marvelous road of raising children.

1. Life Insurance
Although money will not replace a lost parent or spouse, every parent should be insured for the sake of the surviving dependents. Contact a reputable insurance agent for help with determining the correct amount and type of life insurance, as well as the kind of coverage, beneficiaries and contingent beneficiaries.

There are two basic kinds of life insurance: term life and whole life. Both are similar to your auto policy in that if you don't pay the premium, the coverage expires.

Term life policies are only good for a certain term, such as 10 years. Whole life policies never expire (unless you stop paying the premium). The difference may seem subtle, but it is important. A term policy is fairly cheap for a 20-year-old non-smoker, but when it expires, the insured is 10 years older and has to apply for a new policy. At some point in a person's life, term insurance can be prohibitively expensive or even unavailable.

Whole life policies are best obtained when the insured is relatively young. The premiums can be affordable, and there are variations of whole life, such as universal life, that build up a cash value as premiums are invested. Some policies allow cash values to be borrowed against or perhaps cashed out before death, and sometimes the cash value and investment earnings can even be used to offset the premium payments.

2. Debt – Don’t!
When it comes to debt, get out and stay out. Pay off all consumer debt as quickly as possible, and try to eliminate any debt that is not secured by income-producing property. Kids aren't as impressed with toys and doo-dads as we adults are. They crave love and attention and play. The more debt you have, the more you will work and worry, and the less time and attention you will have for your children.

3. Savings and Charity
Pay yourself first. Take 10 percent right off the top of your gross monthly income, and set it aside for investing in income-producing property. Set another 10 percent aside for charity. Flow is established by circulation, not by stinginess. For a brief review of this principle, read A Christmas Carol by Charles Dickens.

4. Investing
There are two major categories of investing: stocks and bonds, and real estate.

Robert Kiyosaki, world-renowned millionaire and author of Rich Dad, Poor Dad (Warner Books, 2000), predicts that we will see another great stock market crash within the next 10 to 15 years as retiring baby boomers begin to rapidly draw out what is left of their 401(k) investments. Although investors are still stinging from the aftermath of 9/11 and corporate shakedowns like Enron, the recent stock market slump is not unprecedented, nor will it be the last. Investing in securities requires expertise and wisdom, even when investing in mutual funds.

Investing in income-producing real estate is investing in hard assets, and although most people consider it more risky and complicated than investing in the stock market, that is more myth than reality. In his book, Multiple Streams of Income (John Wiley & Sons, 2002), Robert Allen suggests a diversified approach to investing, including real estate, stocks and even business ventures and royalties.

5. Wills and Living Trusts
During the past 20 years, there has been a movement away from wills and toward living trusts. A will is subject to probate by the courts, whereas the terms of a living trust are established during your life. That means that you have more control over how your estate is managed, even after your death. In addition, living trusts have some tax advantages.

In either a will or a living trust, some provision should be made for guardianship of the children, especially in case both parents die at the same time. Although that kind of event is not common, it does happen. If you don't use a will or living trust to stipulate who will take custody of your children, the courts will decide in an often drawn-out process.

Consult a competent attorney, and make sure you understand all the issues related to wills and trusts. The point is, have one or the other to protect your surviving spouse and children.

6. Home-Based Business
There is no such thing as job security anymore. Both Kiyosaki and Allen recommend establishing multiple streams of income in order to ensure financial stability. Therefore, besides investing in income-producing assets, consider starting your own business.

This may sound ridiculous to someone about to have a baby, but it is all in your attitude. Either you always have an excuse for why the time is not right, or you just do it and make it work, regardless of what else life is offering you.

For anyone just starting out in business, Kiyosaki recommends network marketing for several reasons: building business skills, training, support and the part-time nature. There are many good network-marketing companies, but it pays to shop wisely. Look for a company that: (a) offers excellent training, (b) has a wide variety of high-demand, cutting-edge products that do not compete with general consumer items found in stores and (c) is focused on retailing rather than recruiting. Any business venture, whether it be a franchise, independent or network business, should be evaluated carefully.

Time for Baby
There are a host of other financial concerns that expectant parents share, and it might appear wise to postpone children until all the little financial rubber ducks are perfectly lined up, but the real bottom line is this: Don't wait until all your ducks are in a row to have children.

When my wife, JoAnn, and I started talking about children, we were both working full-time jobs that kept each of us busy more than 60 hours a week. We were living in a nice apartment, but it was way too small for a family. In addition, we were still paying off our student loans and an extravagant but beautiful wedding and honeymoon that we had financed with a credit card.

Although we were both longing for children, our logical, business-trained minds told us that it would be best to wait until all our debt was paid off. JoAnn wanted to stay home, but we just couldn't get the budget to pencil out.

To make a long story short, we didn't wait. We leapt into parenthood with both feet. We now have two beautiful children that fill our lives with wonder and joy. JoAnn works part time out of our home, and we are still working away at our financial independence. I'll never regret that we didn't have all the ducks in a row before we started.

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About the Author: Joe Cooke is a Certified Public Accountant, attorney and Oregon-based freelance writer. He is the father of two.


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