New baby? No doubt this new arrival has turned every aspect of your life upside down in the best possible way. Now is the time to make sure your financial house is in order. Here’s a 10-step account and financial checklist to lay the groundwork for your little one’s successful future.
New account checklist for new babies
1. Apply for a Social Security number for the baby: An SSI number is the linchpin to open a bank account in your child’s name, purchase savings bonds, obtain medical coverage and access government benefits.
2. Review your life insurance: If you don’t have life insurance, you should get coverage as soon as possible. If you already have a life insurance policy, check to make sure it’s adequate to cover the needs of the new addition to the family.
3. Pick a guardian: Choose a family member or close friend who is willing and financially able to care for your child, should you or the other parent pass away or become incapacitated before your child turns 18.
4. Set up powers of attorney: Put in writing your legal power of attorney, which sets out who will be responsible for your financial and personal affairs should you be unable to make those decisions for yourself. You also should set up a health care power of attorney that makes your wishes known in the event you become seriously ill and are unable to participate in decisions about your care.
5. Write your will: It’s not just wealthy people who need a will. Every parent should create a document spelling out how his or her estate should be handled. The will may also include or reference legal guardianship and powers of attorney.
6. Open a savings account in the baby’s name: Choose a no-fee, no-minimum balance, online savings account. You can link the savings account to your checking for automatic withdrawals.
7. Set up an emergency fund: You should put aside money from each paycheck into a savings account with the goal of having sufficient funds to cover living expenses for six months.
8. Review your work benefits: Confirm how much paid (and unpaid) maternity leave is offered through the birth mom’s employer, and whether paid leave is available for the other parent. Determine how you will obtain health benefits for the baby, either through an employer or government plan. Consult with your human resources office on flexible spending accounts and other benefits that may apply to your situation as a new parent.
9. Check in with Uncle Sam: You can claim a tax credit of $1,000 for your new baby and take an annual tax deduction of $3,950 for each dependent child. You can also receive tax credits if you adopt a child and/or if you pay for child care. You should review your withholding status, which could mean that more take-home money is available to increase your emergency fund every month, for instance. Single parents may be able to claim head-of-household status.
10. Start saving for college: Set up a 529 savings account, which generally is not subject to federal and state taxes if used to pay for college tuition. (If the funds are used for other purposes, earnings may be subject to a 10 percent federal tax penalty.) Details on fees and other aspects of the 529 plans vary by state, so do your research.
Accumulating money is not a real goal for anyone’s life. Growing wealth is not the point. People don’t work hard because they want to see their bank balance grow; those of us who track our finances and chart our net worth over time aren’t trying to compete in some financial competition.
I imagine there are individuals who do have an approach to money wherein the increase of the bank balance is the ultimate goal. But this approach misses the point. Perhaps these savers and earners haven’t given enough thought to why they want to grow their wealth, other than believing that society dictates that they do so — or they idolize people in the media who flaunt their wealth.
Money exists to be used in some kind of transaction — that’s all. So there’s no point in accumulating money just for money’s sake.
This is a concept I’ve covered on Consumerism Commentary in the past, but I bring it up again because it’s always relevant, and maybe it’s good to have reminders once in a while.
I don’t write about my own business much on this website. My business is based in the act and process of blogging. Consumerism Commentary has been my business. And while I think it would be fun to write about it more, as any business owner would like to write about his own business, I wanted to avoid that. If my business was a store I had planned with a friend, I would write about that here.
Writing about blogging as a business just didn’t seem right for this website, because I’d be “blogging about blogging.” The only people who may be interested in that are other bloggers, and Consumerism Commentary reaches a much wider audience than “other bloggers.”
Therefore I’ve stayed away from writing about how I earned money from my business, how I built that business, and how I eventually sold that business for an amount of money that would be potentially life-changing. And it’s a shame I’ve avoided the topic, because it’s really interesting, and I think other people, both those who consider themselves bloggers and those who don’t, would like to hear more about it.
(For those of you who don’t know, The Plutus Awards is an award ceremony I founded. The awards highlight the best in financial media and products. It was born from my own enjoyment of running awards ceremonies, something that started in college with my creation of awards with superlative and funny awards for members of my university’s marching band, with the ceremony at an annual banquet.)
This epic article was influenced by questions I get all the time from other bloggers who want to find a way to earn consistent income from their websites. Of course I’m happy to answer any questions privately, but I haven’t had an outlet in which I’ve felt comfortable sharing all the details.
And the massive more-than-4,000-word article just touches the surface — I could write a book about what I experienced over the past twelve years with my unintentional business.
I expected to receive some criticism from the article. I wrote about how I focused primarily on this hobby-turned-business and didn’t seek work/life balance between my work and social life. One reader felt sorry for me, as if I had missed out on something in pursuit of the almighty dollar. I probably took more offense to the reader’s remark than I should have.
There are probably some things that I’ve missed out on in life. I guess I could have spent more time watching movies with friends. I guess I could have tried harder to start a family. But I don’t think my life is any less whole right now.
But for me in the year 2000, earning a tiny salary from a nonprofit and living in one of the most expensive areas of the country, I had to do something about my financial situation. Life wasn’t about the money, but I needed to start paying attention to my finances, and I needed to figure out how to get my life moving in the right direction.
When you have no money and you begin thinking about what the future consequences will be, money starts to plays an important role in your life. The trick is being able to prevent yourself from seeking money above all else. You can prevent that by keeping larger goals in mind, by thinking about what the point of having money is. It’s more than just “freedom.” What would you do with “freedom” if you had it?
For me, it was starting a foundation. In 2000, I knew that if I had enough money, I’d start a foundation that focused on arts education. It might have been a little naive to have that as my plan, but the idea isn’t too far-fetched.
And if you’ve read How I Built a Seven-Figure Blog, you know that I didn’t start a business to reach that goal. I didn’t start a business at all. I focused my blogging, something I had already been doing for years, on a topic I wanted to learn more about — personal finance and money management. All I wanted to do was get better at managing the money I had.
After several years as an adult ignoring my finances, I had to make my life about money, at least a little bit, in order to improve my situation. Having been born into a middle class family in the wealthiest country in the world, I had been failing at maintaining that level. My situation, goals, and needs would have been different had I been born in poverty or to a wealthy family.
Now that I’m in a different financial situation, after seeing that hobby turn into a successful business that I later sold, perhaps it’s easy to say that life isn’t about money. When you have enough in the bank to be secure — you don’t have to rely on income from an employer, for example — it’s easier to focus on the grander goal.
Speaking of which, I’m happy that I’m able to reach some of my bigger goals before the age of forty. Remember that arts foundation I’d dreamed about? Well, I’ve changed my approach, but I’m still in the general vicinity.
I’m establishing a scholarship at my undergraduate university for music interns. Did my music education degree relate to how I’ve built my “career” over the last decade? Not directly, and that’s why it might not make sense to people why I want to give back to my university. But my experiences at my college did shape me and my approach to life.
But more importantly, I was required to take an internship for my minor that got me started with the organization that allowed me to get into a financial mess in the first place. The stipend through my scholarship should help students be able to afford to take the best internship opportunities without having to worry about how they’re going to earn a living while working for little or no money.
This will help level the playing field, so the best internships can go to more than just the wealthiest students who can afford avoiding work for a semester.
In addition, I’m also starting a foundation — but this will be related to financial media, like the Plutus Awards. I’ll be announcing more information about that soon.
So I’ve written quite a bit about the work side of my life, and lest anyone thing I don’t have perfect balance between work and non-work aspects of my time on this planet, there’s been a lot going on. Last month, I mentioned my apartment received storm damage. The landlord is still trying to repair the apartment — this is over a month after the incident — and I decided to exercise a clause in my lease that allows me to leave.
There is a world of choice available to me right now. I could do virtually anything. But, I made a commitment to work with a music group based in Princeton, New Jersey throughout the rest of the summer, so I won’t be leaving. I am signing a seven month lease, moving just over the border to Yardley, Pennsylvania, to an affordable but smaller apartment.
I’m downsizing, getting rid of some furniture and other items I’ve accumulated over the years. The lease will get me through this year’s Plutus Awards, and once that is over, I’ll be ready to think about leaving the area, spending the winter on the west coast with my girlfriend and family, and giving myself the opportunity to travel more.
Of course, I’ll need to “balance” these changes with working on my new projects.
Unless I decide to stop and live off my investments for the rest of my life. I’m just not ready to retire, though.
I can’t claim to be an expert on raising children. In fact, this is one of many, many topics about which I am not an expert. I do not have children of my own, and my observations of my friends and their children are limited. My experience comes from my memory as a child being raised by my parents.
To be honest, I have no idea how my parents managed my development into a somewhat capable adult or what they were thinking at the time, even though I do have a younger brother and had the chance to do a little more observation.
Ron Lieber’s new book, The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money (Harper, on sale February 3, 2015) will serve as the perfect how-to guide for when I do have children of my own. I will want my offspring to have a well-developed sense of self, including financial issues, long before I did. Maybe I can prevent repetition of some of the mistakes that I lived through, all though sometimes mistakes offer the best opportunities for learning.
Lieber uses his book as an opportunity to encourage parents to start discussions with their children and to guide them in those discussions. In many cases, there are no absolute answers or rules that work for every parent, every child, in every situation. That would be an impossible task, as the financial realities of families wildly, as do children’s developmental processes.
This variety is skillfully woven throughout the book to give readers enough examples and counterexamples to spur reflection and consideration among parents who may not have given money discussions with children much thought. Many of the examples come from Ron Lieber’s community of readers through his column and blog in The New York Times and on Facebook. The author spent a year meeting with many of the families who contacted him to share their experiences, challenges, and decisions.
One anecdote that stuck with me came in a section in which Lieber shared discussions about children who work. I had jobs when I was a teenager, including one retail, but mostly office jobs. These jobs helped me earn a little bit of money, but didn’t really instill much about responsibility. My jobs came during school breaks for the most part, as I believed, as I think my parents did, that education was my priority, and that my “job” was to do well in school.
The author shared a story about a family of nine in Lewiston, Utah, raising 1,800 cows on the family farm. Unlike my life growing up, the children in this family have no time for extracurricular activities.
There is a presumption that [youngest family member Zeb] will work, that his family members will teach him how, and that he will be good at it, quickly. And while none of the boys is a great scholar or a star athlete, their parents operate under the assumption that the ability to perform basic labor is something within every child’s grasp. They know that every boy will grow up to work in the family business, but they’re confident that none of them will be afraid of the effort it takes to succeed someplace else.
The idea of this hard work leads to a discussion elsewhere in the book about the quality of “grit.” Measurements of grit, or how well someone persists, particularly through obstacles, correlates more tightly with direct measures of success than other types of aptitude, like IQ. Allowing children to develop grit through work gives them the ability to handle much more of life as an adult.
An important section of The Opposite of Spoiled focuses on instilling gratitude. Spoiled children show no gratitude for the advantages they have. Lieber offers specific suggestions for dealing with the observations kids have even at an unexpectedly young age. How do you explain socio-economic status to kids who are aware of being rich or being poor through their own observations?
The author points to this research:
[A researcher...] showed 3-year-olds a series of photographs and distinguished between the haves and have-nots. Only half of her subjects thought that the rich and poor people would be friends with each other. Other research has shown that 6-year-olds keep score of which kids have what sorts of possessions and begin to make judgments accordingly. By 11 or so, they’re beginning to assume that social class is related to ambition. Around age 14, they begin to wonder if there is a larger economic system at work that may constrain movement between classes.
It’s safe to say we all know some adults whose attitudes may be stuck at the development level between the ages of 11 and 14. But the book offers great suggestions for addressing issues of class without instilling pity or jealousy.
Lieber also addresses some of the more controversial aspects of child development pertaining to money, allowance and charitable giving.
I don’t read many personal finance books. After a decade of reading some of the best and some of the most laughable, I’ve been kind of burned out by the genre. For the last year, I’ve been selecting my reading carefully. I was initially excited about the opportunity to read Lieber’s latest because I am a fan of his columns in The New York Times, and his articles have often served as inspiration for the topics I’ve covered on Consumerism Commentary.
I’m glad that The Opposite of Spoiled didn’t disappoint. While many readers of Consumerism Commentary have shared their own stories over the years, the concise collection of advice found within The Opposite of Spoiled has offered me new perspectives for raising my future children to be empathetic, understanding, generous, and smart.
Pre-order The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money by Ron Lieber now, in hardcover or Kindle edition.
The self-help industry continues to produce hundreds of new books every year, explaining how people can live their lives, improve their identities, and build wealth towards financial independence. There’s nothing wrong with this approach, in particular. You never know when you’ll find an author, a blogger, or a friend who will put words in the right order, and the result is a connection that can change your life.
I know this from experience. Over the last decade, readers have contacted me privately to thank them for the information and the stories I’ve provided here, whether it’s a warning about a company you might not want to work with, or sharing my past mistakes in an effort to prevent others from making those same mistakes. When I realized I needed to make changes in my life, it wasn’t a guru, author, or blogger, or friend who opened my eyes. It was my own bad situation — the loss of a job, car, girlfriend, and apartment in a short time span. I had to make changes and then I found the Motley Fool’s “Living Below Your Means” message board.
The messages there, with thoughts from real people, not experts selling books or trying to attract pageviews, helped me come to terms with some changes I needed to make.
I already knew about the self-help industry. My first major job after college was with a company whose executive director lived and breathed life gurus and expensive brainwashing seminars. I never wanted any part of that.
The gurus of today owe a lot to philosophers of the past, Socrates and Plato in particular.
In fact, Socrates might have been considered a guru in his day. At least through the eyes of his student Plato, Socrates was a teacher. He placed a high importance of knowledge over ignorance, and knowledge even over winning an argument. This philosophy would prevent him from succeeding well within the media environment in the United States today, but his teachings have stood the test of time.
Because much of we know about Socrates comes from the writings of his protege Plato, it’s hard to know how much of of what we know about the philosophies of Socrates is filtered through Plato’s own philosophies. Keep that in mind as I continue to look through some specific examples of how Socrates and Plato have paved the way for modern thoughts about life and money.
The examined life.
In Apology, Socrates discusses self-knowledge. Self-knowledge, self-awareness, the examined life — these are all different ways of saying that in order to become a functional human being, you have to know who you are right now and accept who you are today before you can move forward.
This is a good way to sum up the initial purpose of Consumerism Commentary, and how I approached my finances in the two years or so leading up to starting this website, from about the year 2001. One of the first steps to improving your finances is taking an inventory of what you own and owe — your assets and liabilities. That gives you knowledge of your financial self, at least in one snapshot of time.
But beyond the dollars and cents, you also have to know who you are. Identify the habits you have and why you have them. Identify your core beliefs about money and wealth, especially if they are holding you back. Take some time to think about your values and what kind of life is important to you. Think about your history and whether you might have been subject to any biases as you were forming your values.
Only with a full understanding, after examining your life as it is today, will you be able to make the best decisions about where to go, how to behave, and who to be.
Learn from others’ writings.
Again, this represents my core approach to Consumerism Commesntary. It’s such a difficult lesson, though. The best teacher is often experience. Someone could tell you a hundred times not to stick a pair of scissors in an electrical socket. You could know that it’s probably a bad idea. But, you still do it anyway, and the result is you’re thrown across the room. Yes, that is a mistake I made when I was a child. Perhaps it explains much about me. Or perhaps it just shows that sometimes you often can’t comprehend consequences until you face them yourself.
People in the developed world know that being in debt is bad. They know that spending more than one has in income will cause major problems in life after a while. They understand that negative net worth is bad, and they understand the basic arithmetic that quantifies that result. But this knowledge generally doesn’t prevent people from finding themselves in uncontrollable debt due to overspending. The reasons people spend money often outweigh the potential for negative outcomes in the future.
So this is why writers try to warn others about the dangers of debt. They tell their own stories in the hopes that they will connect with someone and prevent them from learning the “hard way.” Socrates wants people to learn from others, just like bloggers do.
Socrates on contentment.
Happiness was an important part of the philosophy of Socrates. And over the last few years, one idea of his started to become popular again, especially as a series of different academic studies set out to prove similar theories. There is a relationship between money and happiness. One survey pinned a happiness plateau on a certain annual salary, and claimed that increases in income above that identified salary did not have a strong effect on happiness. Another survey showed that your happiness with your financial situation has more correlation with how you perceive your situation when compared to your friends and colleagues.
The increase in popularity for a frugal lifestyle, including downsizing living arrangements, adopting the minimalist culture, and spending money on experiences rather than objects, has been partially amplified by the latest major recession and, in many cases, borne out of a need (a lack of financial resources).
Socrates — or perhaps Plato — is likely smiling in his grave. Socrates is quoted: “He is richest who is content with the least, for content is the wealth of nature.” How many writers and bloggers, including myself, have said something similar? If you can be content with less, you will not maintain a constant desire for more.
Socrates also found fault with both wealth and poverty, through Plato’s illumination of his teaching in the latter’s Republic. Both destroy someone’s ability to produce good. As one becomes wealthy and doesn’t need to work for money, he can become lazy in his endeavors and work and other contributions to the world suffer due to a lack of financial motivation; poverty, on the other hand, deprives one from the resources necessary in order to do the best work.
“Wealth, I said, and poverty; the one is the parent of luxury and indolence, and the other of meanness and viciousness, and both of discontent.”
Morality is more important than wealth.
The desire for wealth pulls people away from moral imperatives. I’ve seen this personally. With money on the line, people will often lie, cheat, steal, and extort if they’re in a position to do so. We encourage entrepreneurs and CEOs to be greedy, not just because Wall Street and large institutional investors require it of them, but because today’s society places such a large importance on financial success. The heroes in the media are not those doing the most good (though it is often argued that providing jobs for many is doing good for the world), but a small percentage of athletes, a small percentage of performing artists, and politicians.
You can see that just by looking at your social media feed. How many of your friends mourn the passing of celebrities, or consider it a great tragedy when a “beloved” actor or athlete passes? An unknown solider, a child born in poverty, the many thousands of young women sold into sex slavery — very few mourn these tragedies. But a famous actor dies and it’s the saddest thing in 65.5 million years.
We see greed as a positive attribute, and claim that success is impossible without a strong desire for not just success but its specific symbols, primarily money in the bank.
Most importantly for Socrates, morality leads to happiness. Wealth, and the desire for wealth, leads away from morality. So where does that leave us who want to strive for financial independence? Do we need to put our financial desires aside to be happy? Or can we still aim for financial independence without desiring anything beyond what we need to pursue the moral lives we would like to live without the burden of financial distress?
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