Spring 2005
Not long after our son Joshua was born, we began saying, "If he had been our first, he would have been our last."
That little boy had more energy and could get into more scrapes than all our other children combined. When he was 18 months old, he stripped down to his diaper, took a plastic sword and chased his four older siblings around the house, thus earning the nickname "Conan, the baby barbarian." By that age, he had also jumped off the top bunk bed (three stitches) and "flew" off our travel trailer (four stitches). Joshua was the reason we purchased a serious first aid kit.
Just as every family needs a good first aid kit for unexpected accidents, you also need a financial first aid kit ' a set of practical ways to help safeguard your financial future. The following basics won't solve every crisis or problem, but they are a good start:
An emergency savings account. This is not an actual investment account; these are funds that are accessed in the event of unemployment, emergency home repairs or unexpected medical bills. The best way to build this account is to establish a family budget. (See Crown.org for a great online budgeting tool.) Consider automatically transferring some money from a paycheck or checking account into an emergency savings account every month. A rule of thumb: Save three months' worth of living expenses for dual income households or six months for a single income family.
Life insurance. You need enough coverage so that your financial dependents could invest the money and live modestly on the proceeds. As you calculate the amount your family needs, be sure to deduct the surviving spouse's salary, dependents' Social Security benefits, and any life insurance provided at work. For military members, one of the best buys is still SGLI, or Servicemember's Group Life Insurance. The military pays a minimum premium for the military member, but you have the option of maxing out the benefit and paying the difference. You can also get family coverage.
A will. Partly because of the nature of his high-risk profession as a fighter pilot, my husband Bob and I have had a will ever since we were married. Without a will, many states permit the surviving spouse to receive only one-third to one-half of assets that were held solely in one person's name. A will also stipulates a guardian for your children. A simple will is free for military members at the Judge Advocate's office. Also make sure that beneficiary designations on any 401(k) plans, IRAs, life insurance and bank accounts are up to date.
A retirement account. A surprising number of people do not take advantage of the terrific tax-deferred accounts offered by their employer, which include 401(k) and 403(b) plans if you are a reservist with another fulltime job. The Thrift Savings Plan (TSP) is a federally sponsored retirement savings and investment plan which offers many of the benefits that many corporations provide their employees through 401(k) plans. The next TSP open season is April 15 through June 30, 2005.
A good credit rating. Here are three ways to help maintain a high credit score: (1) Pay more than the minimum payment. Every little bit helps, even an extra $10 a month. (2) Pay early rather than late. You can set up automatic transfers from your checking account to your credit card company. (3) Never let your available credit fall to less than 50 percent of the total credit available (for example, $2,500 on a $5,000 credit line). For a copy of your credit report, call one of the three national credit bureaus: Experian (888-397-3742), TransUnion (800-888-4213) or Equifax (800-685-1111).
A college fund. Select a college savings account with low fees, an ample selection of investments and a tax break. One of the best buys today is a qualified state tuition plan, often called a 529 plan after the section of the Internal Revenue Code that permits them. Go to SavingForCollege.com to research your state's plans. Contributions will be tax-deferred and may even be tax-deductible from your state income tax (check with a tax specialist). When the money is withdrawn for college, it is taxed at the student's (presumably lower) rate. If the child does not go to college, the money can be designated for another beneficiary or removed at a 10 percent penalty.
An Internet connection. Here's an easy one ' one that you probably already have. As simple as it may sound, Internet access is one of the best financial moves you can make for your family because it allows you to research virtually any financial topic with a few clicks. This helps you find everything from mortgage rates to employment opportunities to money-savings links at EllieKay.com!
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Ellie Kay is a best-selling author, national radio commentator for "Money Matters" and a regular guest on CNBC's "Power Lunch." Her newest book is "Debt Diet." (Bethany House Publishers) She is the wife of a fighter pilot and mother of seven children. For more information, go to EllieKay.com.