Tarraguña's Blog

As children when we receive money as allowence or cash birthday presents we tended to save enough to buy something we wanted.  We focused on our wants because our needs like food, shelter and clothing were taken care of by our parents.  At least that was the situation for those of us lucky enough to have caretakers that took care of our basic needs.

As we enter High School and develop through our early twenties, we have to start taking on the responsibility of taking care of paying for our own needs with money we earn from a job.  Hopefully by our mid twenties we have figured out how to pay all of our basic needs and also have some idea how to save up for our wants.  Not all of us get to this point. Ever.  Some blame it on the credit card they receive their freshman year of college and others just live paycheck to paycheck regardless of how high their income rises.

Growing up as far as personal finance and money is concerned we tend to figure out the difference between spending money on our wants versus our needs.  What is more subtle and thus harder to realize or figure out is how money, at its best, is a resource.

The most essential resource and the first thing necesary to establish once you start earning money is an EMERGENCY FUND.

How to Start an Emergency Fund

• Look at your spending, determine what is a necessary expense i.e. what you would still have to pay for after you lost your job, and add up those expenses for the month
• Suze Orman recomends that you have 8 months of living expenses saved.  That is definatly a good start in this market.  So say you need about $2,000 a month to live off, just multiply that by 8 and you arrive at $16,000.  And thus you should stash 16,000 in a savings account that you can access easily but you only use for emergencies; like getting laid off.
• Realize that it will take time to save up that initial amount for the emergency fund.  The best advice is that you live on the minimum amount you can, delay buying a new iPhone or computer or anything else unnecesary to survival, and stash everything left over each month into that emergency fund savings account.
• Enjoy the fact that you have established an emergency fund.  You are using money like a resource instead of it working you over.  If you lost your job tomorrow, you would have 8 months to find another source of income.
• Remember to replace any amount of the emergency fund that you use for emergencies.

Once you have established an emergency fund, you should feel that stress and tension leave your body.  You have just given yourself 8 months; time to look for another job, or come up with an alternate plan or develop additional income streams.  Had you not had the emergency fund, and you lost your job, everything you had would come falling down like a house of cards.  Aside from losing all those things you had accumulated, you’d now have to worry about where your next meal would come from.

Do yourself a huge favor and maintain an emergency fund.

As we are expecting our first child in March, we have begun to think about ways to save for our children’s college education.  I would like to be able to help them a great deal if they decide to continue their education.  After doing some research recently I don’t find myself any closer to making what I feel to be an educated decision.  Eventually, of course, I will decide and then start putting money in the account monthly because if you don’t make a decision at all then you won’t save anything.

I do know that there are two options: a 529 prepaid tuition plan and a 529 savings plan.  The prepaid tuition plan allows you to buy future education units at today’s price.  The savings plan allows you to invest money and hopefully watch it grow.

The parts I am not 100% sure on are: the prepaid tuition option only covers state universities and as each 529 account is administered by a state the prepaid units are only good in that state.  Like now we live in Florida and if we opted for the Florida 529 option our child could attend any public university in Florida using those prepaid units. If they went to another state university like Indiana University, they may or may not be able to transfer those prepaid units.  If they went to a private university like Notre Dame those prepaid units may also not be transferable.  But the prepaid option does seem to be the less risky option.

With the 529 savings plan option you could loose everything you invest as you are just investing in the market.  But you could also earn a higher percentage on your investment.  It is also the most transferable option.

So you have to choose either a prepaid option or a savings (investment) option and the the next choice you have to make is what state will administer the 529 account.  Some states are better than others at growing your money.  I did remember reading in one article about how some state have very high fees associated with the accounts.

In 33 states the amount put in the 529 account can be claimed on your tax refund for the state return.  It is currently not able to be claimed on the federal return.

This will definitely not be an easy decision.  I have thought about starting one of each, a 529 prepaid and a 529 savings.  That way I could have both options covered.

On a side note, I have noticed that everyone seems to ask if we know what gender our baby is yet.  When I tell them that we are choosing to be surprised, the majority of them can’t understand why we are not finding out the gender of our unborn child.  To be honest, we had not been that concerned about it.  We had been thinking about preparing for the arrival, buying some necessities, getting life insurance, setting up an effective budget, saving more in the emergency fund, starting to save for the baby’s college, taking care of ourselves physically and emotionally, choosing the right birth plan for us, all while hoping for a healthy baby.  The gender of the baby was actually one of the last things we had thought about.  I mean, they are the gender they are.  It is not something I need to make a decision about or adjust for.  Whatever gender they are, it will be the perfect gender.

So some people seem to be concerned about what gender we are having and think we are crazy for not finding out, but no one seems too concerned with talking about ideas for saving for college: interesting.