How to Prepare for Investing as a Family

Along with daily life, sometimes investing for your family's future can feel like a juggling act. It can easily feel like your focus is divided in many directions-covering your family's living expenses, wanting to save for retirement, wanting to save for a house or pay off the one you have, and saving for children to go to college. If you don't have a plan, the whole process can seem overwhelming. There are a lot of things you can do to get organized however, and I want to discuss them in this article.

1) The first step you need to do before investing is to create a budget for your regular expenses.

This does not have to be a complicated or overly strict process, but you at least need to see what is coming in and going out.

You want to make sure everything seems balanced. In this process, you may spot areas where you're overspending and just didn't realize it. This will also show you how much extra money you have to work with on a monthly basis. Do this for awhile until you have a general pattern on your finances.

2) Pay down your debt before you heavily invest.

If you have consumer debt (non-mortgage debt such as credit card and car payments), you need to realize that it can cancel out the good that investing does for your family.

Not only does paying your debt off cause less money to leave your household in interest payments, but you can also use the extra cash flow (that was all going to payments) to fund your investing as well.

3) Protect having to touch your investments by setting up an emergency fund as a financial buffer.

You don't want to put yourself in a situation where you have to draw out of your investments to pay on a debt or even a major unexpected expense. The penalties for doing this are usually high, both from a tax standpoint and how much money from interest you lose in the process.

This is why you should also have an emergency fund that you can easily access. The amount you need is going to vary by family, but at least a couple of months expenses is a good amount. This would cover most job layoffs, medical bills, or vehicle repairs, which are three common financial situations for families. It may take you a year or more to develop this kind of foundation, but long-term it will make investing an easier process.

4) Begin investing, but do some research first.

Never enter into anything you don't understand. Read some books and talk with several people before making final decisions for your investment plan. Also, don't be afraid to adjust your plan as your family grows and changes.

More Tips:

• Ideally, you want 10-15% of your family income going toward you and your spouse's retirement, which can be in a combination of 401Ks (matching and non-matching by your employer), Roth IRAs (if you qualify), and traditional IRAs. Take the time to research the investments within them to make sure you're getting the best possible return for the least amount of risk.
• College investing such as ESAs (Educational Savings Accounts) and 529 plans can be done as soon as possible, since you want compound interest working your favor while your children are young. You'll need to calculate how much you need, based on college tuition rising roughly 7-8% each year.
• Also based on your budget, you can ramp up extra money for your mortgage as you go along. When you pay your house off, roll the money you were paying into your retirement or additional investing.
• Don't put this process off. The sooner you can start, the better off your family can be financially long-term.

How to Teach Kids About Investing and Business

As a parent, you need to start teaching children about money as soon as possible. The biggest reason for this is that a majority of children are not being taught money management skills in school anymore. In this article, I will share activities for various ages that will help children understand some concepts with money in a fun way.

Things You’ll Need:

• A child
• A small clear container such as a jar.
• Real money (change or dollar bills)
• Play money and small toys
• A calculator

1) With young children, a good first habit to learn about money is delayed gratification.
Take a jar or other large clear container and keep within sight in their room (may have to put it up higher if they're at an age where they like to put things in their mouth).

When they do something good as far as a behavior (pick up toys, sharing, etc.) put some change or dollars (your choice based on your budget) into the container. Once it builds up to a certain point, the money is taken out and the child can spend the money on whatever they choose.

Something that's going to happen after doing this process several times is children figure out that leaving the money in the container longer results in a nicer reward.

2) Another good habit to establish is showing them different ways that money can be made.
Schools usually cover jobs, but very few teach businesses as an option. With elementary school aged children, play money is a fun place to start to learn how businesses work. I had a set when I was younger, and my brother and I used to play "store" and buy each other's toys. At this age you just want to keep it fun and have them recognize the different values (both change and dollars) and that money has value for transactions.

When they reach the point they can understand, you can explain that some business owners buy a lot of things at a cheaper price and make profit by selling it at a higher price.

3) For saving and investing, showing children the example of what a penny doubled over and over again (.02, .04, .08, .16,...) for 30 days is helpful.
You can do this with most calculators. Most people put it in the form of a question of "Which is better, the penny doubled over and over again for 30 days or a million dollars?" This is a great way of easily explaining compound interest on a child's level. You can then explain this is why people invest their money--to get a bigger and bigger return as time passes.

4) Giving is the last habit I want to address.

I think of giving as investing in other people. There is a benefit to it in that you become a better person through the process of giving to others. It also keeps you in balance when it comes to how you handle money.

Give your child a chance to give money at church or your favorite local charity. It's better when it's money they've earned because there's more of an emotional attachment involved.

5) For teens, there is usually a greater opportunity for them to apply the basic principles I've mentioned in the previous steps.

You can help them save for their first car without going into debt (delayed gratification and saving).

If they bring in an income, you can see if they qualify for a Roth IRA. They'll know from learning about compound interest that a few hundred dollars as a teen could mean millions to them by the time they reach retirement.

Lastly, encourage your teen to explore businesses as an option of income. If you're creative, many businesses cost very little money to start, and the learning experience is valuable considering upcoming generations are going to have a lot of career changes during their lifetime compared to previous ones.

More Tips:

• I believe every high school student in America needs to read the books Rich Dad, Poor Dad by Robert Kiyosaki and The Total Money Makeover by Dave Ramsey. I'm not affiliated with either of them, but between the two they provided my husband and I with a solid financial foundation. I wish I had known about them sooner.
• Don't let your child get upset if they come up with a business idea that fails. Unlike what's taught in academics, failure in business is a form of education and is definitely part of the process.
• Don't let your child believe that debt is the way to success. That's really been pushed on my generation (I'm 24), and I've heard stories that it's getting even harder for current students as far as how much debt is marketed to them. As a parent, you need to be there with an alternative point-of-view.