The distractions, responsibilities, and pressures of motherhood can encourage some of our worst financial habits. Here are five of the most common – and avoidable – money mistakes you may be making, plus expert advice on how to sidestep them.
Packing plastic
Credit cards are definitely convenient. No unplanned runs to the bank, no scrabbling in your pocketbook for that extra dollar. It makes sense that busy moms often depend on plastic to get through the day. Unfortunately, this can lead to big problems.
The first is overspending. "Studies have shown that people spend 30 percent more when they use cards instead of cash," says Mary Hunt, a syndicated columnist and author of 16 books on personal finance.
The first is overspending. "Studies have shown that people spend 30 percent more when they use cards instead of cash," says Mary Hunt, a syndicated columnist and author of 16 books on personal finance.
That's true of debit cards as well as credit cards – even though debit cards are linked to your checking account and don't let you spend money you don't have, they're still cards. And when you're using plastic instead of forking over your hard-earned cash, it's easier to ignore how much money you're really burning through.
Cards can not only wreak havoc on our budget but also set a bad example for our kids. As Hunt explains, "We're raising a 'plastic generation.' You go to the store, load up the cart, hand the cashier your card, and then you get it back. You get to keep everything you bought, plus you still get to keep the card!"
Cards can not only wreak havoc on our budget but also set a bad example for our kids. As Hunt explains, "We're raising a 'plastic generation.' You go to the store, load up the cart, hand the cashier your card, and then you get it back. You get to keep everything you bought, plus you still get to keep the card!"
In your child's eyes, you haven't exchanged anything for your purchases. Children need to understand that when we buy something, the money we've spent is actually gone.
What to do: As inconvenient as it is, start using cash for your everyday purchases, advises Hunt. In fact, the inconvenience can be an advantage, serving as a spending deterrent. Hunt suggests leaving your credit card at home, or at least sealing it in an envelope with "Do Not Use" written across it in big letters. You'll find yourself spending less, and your children will get a more realistic picture of how money works.
What to do: As inconvenient as it is, start using cash for your everyday purchases, advises Hunt. In fact, the inconvenience can be an advantage, serving as a spending deterrent. Hunt suggests leaving your credit card at home, or at least sealing it in an envelope with "Do Not Use" written across it in big letters. You'll find yourself spending less, and your children will get a more realistic picture of how money works.
Using paper instead of plastic money also gives you a tangible way to track expenses. If you've spent your available cash and need to reach for your credit card, you know you've gone over budget. "You have to know what you have coming in and going out each month to prevent you from overspending," says Cary Carbonaro, a registered investment advisor and partner with Stonegate Wealth Management, based in Fair Lawn, New Jersey.
Birthday burdens
Presents, cards, and gift wrap seem like innocent purchases. But these happy items can add up to a hefty sum when you consider the multitude of kiddie birthday parties you'll probably attend. Plus, it's easy to go overboard on presents, choosing fancier ones than you can really afford.
"Too often, parents view the gift itself as a message, as if the money they spend reflects something about them – their value as parents or their feelings for the other family," explains personal finance expert Hunt. Her bottom line: "Parents spend too much on birthday presents for their children's friends."
Of course, the money we spend on other children's gifts is a drop in the bucket, compared with what some of us spend on our own children's birthdays. In a poll, more than 20 percent of parents spent more than $500 on their child's first birthday – and the costs tend to rise from that point on. There's even a citizen action group, Birthdays Without Pressure, devoted to reining in out-of-control spending on parties and gifts.
What to do: "Take yourself out of the spending game. Try not to worry about what other people think," Hunt counsels.
Consider homemade gifts. "Make something so special, you can't even put a price on it," says Hunt. There are dozens of presents you and your child can create at home – check out craft websites for ideas on making knitted scarves and hats, jewelry, picture frames, and soap.
You can also cut expenses by using homemade cards. Instead of forking over $4 for a store-bought card, help your child draw or paint his own. And Hunt has a great tip – get your child's homemade card laminated inexpensively at the library or copy store before giving it to the birthday boy or girl.
For the noncrafty, Carbonaro suggests stocking a gift closet. Even if there's no party on the calendar, keep an eye out for great prices on potential presents. Next time your child gets an invitation, you can choose from your bargain stash.
"Too often, parents view the gift itself as a message, as if the money they spend reflects something about them – their value as parents or their feelings for the other family," explains personal finance expert Hunt. Her bottom line: "Parents spend too much on birthday presents for their children's friends."
Of course, the money we spend on other children's gifts is a drop in the bucket, compared with what some of us spend on our own children's birthdays. In a poll, more than 20 percent of parents spent more than $500 on their child's first birthday – and the costs tend to rise from that point on. There's even a citizen action group, Birthdays Without Pressure, devoted to reining in out-of-control spending on parties and gifts.
What to do: "Take yourself out of the spending game. Try not to worry about what other people think," Hunt counsels.
Consider homemade gifts. "Make something so special, you can't even put a price on it," says Hunt. There are dozens of presents you and your child can create at home – check out craft websites for ideas on making knitted scarves and hats, jewelry, picture frames, and soap.
You can also cut expenses by using homemade cards. Instead of forking over $4 for a store-bought card, help your child draw or paint his own. And Hunt has a great tip – get your child's homemade card laminated inexpensively at the library or copy store before giving it to the birthday boy or girl.
For the noncrafty, Carbonaro suggests stocking a gift closet. Even if there's no party on the calendar, keep an eye out for great prices on potential presents. Next time your child gets an invitation, you can choose from your bargain stash.
Finally, try creative alternatives to store-bought wrapping paper. Hunt suggests using the Sunday comics, for example. Not only is this "gift wrap" original and fun, but it's environmentally friendly, too.
When your own child's day in the sun arrives, you may want to consider hosting a no-gifts birthday party. If your guests balk, suggest that they make a donation to a local charity or give your child a certificate for a special playdate or sleepover instead.
In addition, try to avoid caving in to the birthday party competition blitz. Does your child really need an expensive clown, or could a relative dress up in a silly outfit and entertain everyone with water balloons? There are many fun, low-cost activities that your child and guests will enjoy just as much (if not more) than the high-dollar ones.
When your own child's day in the sun arrives, you may want to consider hosting a no-gifts birthday party. If your guests balk, suggest that they make a donation to a local charity or give your child a certificate for a special playdate or sleepover instead.
In addition, try to avoid caving in to the birthday party competition blitz. Does your child really need an expensive clown, or could a relative dress up in a silly outfit and entertain everyone with water balloons? There are many fun, low-cost activities that your child and guests will enjoy just as much (if not more) than the high-dollar ones.
Living for today... and only today
We parents are often told to focus on the here-and-now to better enjoy the fleeting years of our children's youth. But when it comes to money, being a little less "in the moment" is probably in order.
Matt Pohlman, a financial adviser whose client base includes many families, notes that parents' tendency to neglect saving is rampant – and it cuts across all income groups.
"Parents think, 'We're young, our kids are young, and we have short-term critical needs. We can worry about saving later,'" says Pohlman. "But the reality is, this is the most important time to build a cash reserve. If you get in a pinch, you can dip into your savings. It's a lot better than taking on debt with interest."
Matt Pohlman, a financial adviser whose client base includes many families, notes that parents' tendency to neglect saving is rampant – and it cuts across all income groups.
"Parents think, 'We're young, our kids are young, and we have short-term critical needs. We can worry about saving later,'" says Pohlman. "But the reality is, this is the most important time to build a cash reserve. If you get in a pinch, you can dip into your savings. It's a lot better than taking on debt with interest."
What to do: Make saving a habit. Pohlman advises families to have some of their income automatically deposited into savings – both short term and long term – every month. Even if you can manage only a small amount right now, it will add up.
Aim to build an emergency fund of three to six months' worth of living expenses in cash or cash equivalents, suggests investments advisor Carbonaro.
It helps to be careful and thoughtful about your spending.
It helps to be careful and thoughtful about your spending.
"Try to sort out whether a need is real, or whether you just perceive it as real. If it's the latter, consider allocating the money to savings instead," Pohlman suggests. Does your child really need that smocked dress or another educational toy? Is a state-of-the-art changing table (or a changing table at all) truly necessary?
Pohlman cautions against letting your self-worth as a parent get tied in with what you spend. In other words, don't evaluate your parenting skills based on how well stocked your nursery is.
Mixing up priorities
Many moms and dads also neglect long-term savings, such as retirement and college funds, says financial advisor Pohlman. Waiting until "later" to start these funds is a bad idea, because you want that compounding interest to kick in as early as possible. Saving now can yield a big payoff later.
But even forward-thinking savers often make another mistake: building their child's education fund by skimping on their own nest egg. That may seem the logical order – after all, your child will enter college long before you retire – but financial advisors are quick to point out this fact: Your kids can borrow for college, but you can't borrow for retirement.
In fact, if you stash more cash in your nest egg, you may improve your child's eligibility for college loans and scholarships. When calculating need-based financial aid, schools don't count money that's invested in retirement accounts like IRAs and 401(k)s.
What to do: "The goal should be to save at least 10 percent of income for you first. Savings over and above that can go toward the kids," says Erin Baehr, a certified financial planner and owner of Baehr Family Financial in Stroudsburg, Pennsylvania, and Randolph, New Jersey. Her advice: If you or your spouse is eligible for an employer-matched 401(k) retirement plan, invest enough to max out the match – it's like free money.
Next, open Roth IRAs for both parents, even if only one works for pay, Baehr suggests. This retirement savings account can double, if necessary, as a college savings tool. Contributions can be withdrawn tax- and penalty-free to pay for education expenses.
"If parents really want to start saving for their kids before funding their retirement accounts and emergency fund, I recommend investing a little bit, maybe $25 a month, to satisfy that need," says Baehr. "Then encourage grandparents to scale back on gifts like clothing and toys and contribute to a 529 instead." A state-sponsored 529 plan for college savings also offers tax advantages, she adds.
Don't ask, don't get
Working moms aren't getting the salaries they deserve – because they're not asking for them, says Linda Babcock, a professor of economics at Carnegie Mellon University and author of the book Women Don't Ask. She found that while men tend to negotiate for higher starting salaries and promotions, women are likely to just accept whatever they're offered. This leads to significant financial losses over the long term.
Mothers can be particularly susceptible to this tendency, says Babcock, especially if they're returning to the workforce after taking time off to raise their children. "Mothers returning to work often undervalue themselves and their skills," she says. So when they're offered a job, negotiating for more money doesn't occur to them.
"The same is true for mothers who work part time," says Babcock. These moms may be so relieved to find a job with more flexible hours that they don't want to risk anything by asking for more money.
What to do: Recognize that your skills are valuable. "What many mothers don't realize is that even if they've been away from work for a while, they've actually been developing very important skills through child-rearing, from time management to diplomacy. Mothers bring a lot more to the table than they think," says Babcock.
Explore comparable positions and salaries to get a realistic idea of what you should be making. Check out online "salary wizards" on Salary.com or Payscale.com, and search Google for sites tailored to your career – they may include information on salary ranges. If you go into your meeting with a clear idea of what you want in terms of salary and benefits, it will be much easier for you to negotiate effectively.
The starting salary you're offered will probably be on the low end, because your future boss is expecting you to negotiate. "Employers never offer the highest amount they can pay," Babcock explains. When negotiating, refer to your skills and experience, state your case with calm enthusiasm, and project a cooperative "let's work together" attitude.
Mothers can be particularly susceptible to this tendency, says Babcock, especially if they're returning to the workforce after taking time off to raise their children. "Mothers returning to work often undervalue themselves and their skills," she says. So when they're offered a job, negotiating for more money doesn't occur to them.
"The same is true for mothers who work part time," says Babcock. These moms may be so relieved to find a job with more flexible hours that they don't want to risk anything by asking for more money.
What to do: Recognize that your skills are valuable. "What many mothers don't realize is that even if they've been away from work for a while, they've actually been developing very important skills through child-rearing, from time management to diplomacy. Mothers bring a lot more to the table than they think," says Babcock.
Explore comparable positions and salaries to get a realistic idea of what you should be making. Check out online "salary wizards" on Salary.com or Payscale.com, and search Google for sites tailored to your career – they may include information on salary ranges. If you go into your meeting with a clear idea of what you want in terms of salary and benefits, it will be much easier for you to negotiate effectively.
The starting salary you're offered will probably be on the low end, because your future boss is expecting you to negotiate. "Employers never offer the highest amount they can pay," Babcock explains. When negotiating, refer to your skills and experience, state your case with calm enthusiasm, and project a cooperative "let's work together" attitude.
|
Respected Readers:
|
0 comments on "Moms and Money"
Post a Comment