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Dear Deborah

Expert Financial Advice

Dear Deborah,

My husband and I have two preschoolers. I stay home and take care of our children, which I hope to continue doing. What can we do to help prevent any big money hassles in the future?

We can never know for sure what our future may bring. A car may need to be replaced or there may be cutbacks at work. There are three important things you can do to plan for your family’s wellbeing:

Buy life insurance. This protects the family income and net worth upon the passing of income providers. Consider buying life insurance equal to five to 10 times your family’s annual income. Your husband may already have employee coverage. Get more low-cost term insurance, which usually offers the best benefit for your premium. Look for a reputable insurance company with good-quality ratings. Insurers generally have ratings from A.M. Best, Standard & Poor’s, or Moody’s.

Write a will. You and your husband need security if one of you dies. A will prevents the state you live in from making decisions about your assets, protecting your assets. You can designate a guardian for your minor children and name an executor.

Build an emergency fund. Set aside three months’ worth of expenses so you don’t need to borrow when you’re faced with some tough financial circumstances. Couples who haven’t done this have turned to their credit cards for living expenses, making it harder to manage their financial responsibilities.

Dear Deborah,

I’m a single 24-year-old college student and full-time employee. I’ve heard about mutual funds, but what are they and how do I go about investing in one?

Mutual funds offer a great way to grow your money for the long-term. If your company has a retirement-savings plan, take advantage of it. You can invest in mutual funds, with your contribution avoiding current taxes, accumulating tax-deferred. What’s better, your company may match your contribution, $1 for every $2 you invest.

Mutual funds pool the money from thousands of investors, buying a larger quantity and variety of investments than a single investor could pay. Investors receive capital gains and dividends after expense and management charges are deducted.

With thousands of these funds on the market, you need to know their investment objectives. In general, they consist of company stocks, bonds, and money market funds. Before investing in a mutual fund, read the fund’s prospectus with information such as the fund objective, its risks, charges, and expenses.

Mutual funds offer the ability to invest with relatively small amounts needed to get in, and make it easier to diversify, with a bigger variety of funds. Some funds charge a “load” or a sales commission usually paid up front when you invest. The money goes to a stockbroker or sales agent.

“No-load” funds don’t charge sales commissions. You purchase them directly from the fund company or a discount brokerage firm offering mutual funds. Consider investment-management firms such as Vanguard (800-662-7447), Fidelity (800-544-8888), and T. Rowe Price (800-638-5660) which offer lower-cost managed funds. Use the free asset-allocation suggestions they provide.

These no-load fund companies offer lower transaction costs and annual expenses, saving you more money. If you want to save even more, buy some index funds, cutting annual fees by a third to a half. Index funds don’t require regular monitoring as managed funds do.

Start saving now while you are young. The earlier you begin, the more you’ll save. Time is on your side.

Deborah Nayrocker writes on personal money management topics, showing others how to take control of their financial future. An award-winning writer, she is a regular guest contributor to CBN.com and the author of The Art of Debt-Free Living and Living a Balanced Financial Life.
Learn more about her work at www.artofdebt-freeliving.com