8 Reasons Why Financial Education is Important

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At The Institute for Families and Nannies we want to empower nannies to be in charge of their financial life.  Here's some good reasons to create a financial plan:

1. To See Where Your Money is Going. Do you have a budget? If not, chances are that you have no idea where your hard earned cash goes, and you may find yourself coming up short before your next paycheck arrives. Creating a budget to track your spending will help you end up keeping more dollars in your pocket.

2. To Get out of Debt. If you find yourself mindlessly reaching for a credit card to make purchases, chances are that your credit card debt is higher that you’d like. Did you know that many people end up spending up to twice as much on the original purchase by the time they have paid interest to the credit card company? It’s time to keep that money for yourself.

3. To Save for Retirement. Many people don’t think twice about saving for retirement, especially if you’re young and retirement seems like a blur in the distant future. By ignoring your retirement savings or relying on social security, you will not have enough to retire comfortably. The Financial Planning for Nannies workshop will help you take your retirement into your own hands.

4. To Help You Through Unforeseen Emergencies. What if the car breaks down or your have an expensive medical bill that you didn’t expect? Putting the expense on your credit card will only make your finances worse. But if you had created a space in your budget for an emergency savings account, there would be no need to stress about unexpected expenses.

5. To Make Sure You’re Paying Your Taxes Correctly. There’s nothing worse financially than to be surprised with a hefty tax bill come April 15th. By educating yourself about your financial situation and how much you need to pay the IRS, there will be no surprises, and you’ll be able to save the appropriate amount from each paycheck.

6. To be a Good Example to Your Kids. Whether you have children now, plan to have children in the future, or want to help the family you work for by being a good example, teaching kids about saving and spending while they’re young can make a big impact on their financial situation as adults.

7. To Understand Why and Where You Should be Investing. Investing can be a scary proposition, but the fact is that in order for your savings to keep up with inflation and support you when you retire, investing is a smart move. Learn more about how it works so when the time comes, you’ll be able to make the move with confidence.

8. To Become Financially Independent. Once you have a budget in place, no credit card debt, an emergency savings account and a retirement fund in place, the fear of not being able to pay your bills because you live paycheck to paycheck will diminish and you’ll be able to focus your energy on the things that matter to you the most in life.

Book Review: Smart Women Finish Rich by David Bach

“Smart Women Finish Rich” is a motivational financial roadmap giving women nine actionable steps to help them achieve financial security and fund their dreams. Read it, or attend Chirp's upcoming Financial Planning for Nannies workshop on June 26th!

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6 Reasons Why Nannies Need an IRA Now

As a Nanny, chances are you have a lot on your plate. You're managing the children and sometimes even the household for your employer, plus your own family and personal life. That doesn't leave a lot of time for financial planning. But the fact is, that no one will plan your retirement out for you, and the sooner you realize that it's time to open an Individual Retirement Account (IRA) the faster your money will grow and the more comfortable you'll be when your golden years come.

Why is an IRA a good choice? Here are 6 reasons:

  1.  IRAs are tax-free. The income you earn from interest isn't taxed, meaning your money has a chance to grow and earn compound interest. Over time, this could become a substantial sum.
  2. Depending on whether you choose a traditional or a Roth IRA, you will either get a tax-credit for the years you contribute or for Roth IRAs, withdraw the money from the account tax-free when you retire.
  3. You're allowed to contribute up to $5,500 per year into an IRA if you're under age 50. This means that your money will multiply over time to give you a healthy nest egg by the time you retire. People over age 50 are eligible to contribute an additional $1,000 per year.
  4. Your employer can choose to add contributions to you IRA as part of your benefits package.
  5. There are penalties involved if you withdraw the money from this type of account before you reach age 59 1/2. This means you'll be less tempted to touch the money for non-emergencies than you would with a regular savings account that can be accessed any time.
  6. There are some instances where you can make withdraws from your IRA without incurring a penalty. These include: paying college expenses for you, your spouse, your children or grandchildren; paying medical expenses greater than 7.5% of your adjusted gross income; up to $10,000 toward a first-time home purchase; and paying for the costs of a sudden disability. 

Watch this space to find out more about our upcoming financial planning workshops for Nannies.

Photo credit: Leandro Müller/flickr

Budgeting Basics: Paying off debt or saving money—which comes first?

It’s the chicken or the egg question for budgeting. Should you pay off your high-interest credit card debt first? Or should you try to establish an emergency savings account first?

While there are arguments for both methods, the best solution is to get a humble savings account established first. It may seem counterintuitive to pay the minimum balance on your credit card while you have a few hundred dollars languishing in the bank.

But think about it like this. Once you have created an emergency fund, the money will be sitting there on hand ready to use when you have a true emergency (think car repairs, unexpected medical bills, or other true emergencies).

Without that little nest egg, you would be putting that true expense directly on your credit card, making the balance grow larger and thereby paying more money in interest over the long run.

We’re not suggesting that you try to accumulate $5,000 before you continue to eliminate your debt wholeheartedly, but a few hundred dollars in your savings account now will take care of those pesky unexpected expenses today which means a lower credit card balance tomorrow.

Want to learn more budgeting basics? Come to The Institute for Families and Nannies' upcoming 2018 workshop, Women, Money, Power: Financial Planning for Nannies.

Addressing the financial concerns specific to Nannies, this workshop will teach other important budgeting tips, the basics of retirement savings accounts, how to plan for emergencies, how much to save for taxes and more.

The workshop is open to all Nannies and their friends, and the cost is $20 per person. 

Photo credit: Simon Blackley/flickr

Nanny Knowledge: Four Steps Towards Planning for the Future

In a nutshell, nannies need to take responsibility for their own futures, and make saving for retirement a top priority.

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Nanny Knowledge: Saving for Emergencies

Talking about and planning for emergencies is never pleasant, but as we all know, bad times can strike at a moment’s notice. Those bad times have a way of turning to worse if you realize too late that there’s not enough in your savings account to help you ride out the emergency. Whether it’s an unforeseen job loss, auto repair, health problem or family emergency, having an emergency stash will ensure that you’re ready to face anything life throws your way.

But how much money should you have in an emergency savings account?

Sheila Schroeder, financial expert, parent and nanny employer, in her workshop “Women, Money, Power” recommends that nannies budget 10-15% of their income into a savings account to cover emergencies and retirement. It’s impossible to know how much that means for you if you don’t have a workable budget in place. (If you need a refresher, take a look at her worksheet, “Balancing Your Budget” and our Nanny Knowledge: Budgeting Basics blog post.)

Once your budget is in place, make a few adjustments so that 10-15% of your monthly income is funneled straight into your emergency savings account, and keep saving monthly until you’ve reached the three to six months savings goal—more if it makes you feel more secure. After that, you may consider channeling that portion of savings into an IRA or other retirement account instead.

The most important thing to remember with an emergency savings account is just that—it’s for emergencies only. Once you’ve deposited money into that account, consider it strictly off limits unless a true emergency arises. A shoe sale at Nordstrom’s or a last minute bachelorette weekend for a friend is not a true emergency, but buying a flight home to attend a sick parent or being out of work between families is.

Of course we all hope that an emergency never happens, but consider your emergency savings like an insurance policy against the unknown.

Nanny Knowledge: Budgeting Basics

Budgeting can be tricky for anyone, but for nannies, it can be downright daunting. Whether figuring out for the first time how much you will pay each week in taxes or having enough money to pay for essentials between jobs, nannies often worry whether they will ever have “enough.”

Budgeting for taxes, emergencies, retirement and day-to-day living expenses—not to mention setting aside funds for some much needed R&R—can seem overwhelming if you’ve never done it before. But the fact is, budgeting is a helpful and necessary tool to get you where you want to go financially, both now and in the future.

Step 1: Estimate Expenses

At the beginning of the month, sit down and calculate how much money you may spend over the course of the month. Write down all your fixed expenses such as rent and cell phone, and estimate for expenses such as food and gas.

Step 2: Track Spending

As you whip out your wallet during the month, try to write down every penny you spend. Tedious? Yes, but it’s the only way to determine where your budget busting pitfalls are. Use an old-fashioned pen and paper, or a free smartphone app like Best Budget to jot down figures on the go. At the end of the month, calculate whether your actual spending is anything near your estimated spending. Most people find that they spend a lot more than they think they do, but this revelation is the key to making smart changes to your spending habits.

Step 3: Cut Down Expenses

If you spend more than you make, you’re not alone. According to a study by the Federal Reserve Board, 43% of Americans spend more than they earn. But you’re creating this budget to stop that bad habit and start saving for your future. Pore over your spending from last month, and try to determine what can be eliminated or cut back on. Call insurance companies to find a lower rate, cut back on your caffeine intake, try to save a few dollars wherever you can.

Step 4: Set Savings Goals

Once you’ve scaled back on spending, determine what you need to save for. Taxes, retirement and emergencies are the big three, but don’t forget the smaller savings goals like a vacation or a down payment on a car. The percentage of savings allocated to each savings goal will vary widely for each individual.

Step 5: Get Professional Help

To help you determine how much you need to save for the big three—taxes, retirement and emergencies— you may want to attend The Institute for Families and Nannies  Financial Planning Workshop for Nannies in 2018. Financial Professional Sheila Schroeder will be on hand to give nannies and their friends a crash course in financial education.

 

From Children to Checkbooks: Financial Planning for Nannies

Nannies spend so much time looking after other people that their own needs can often go neglected. But if there’s one thing that nannies need to look out for, it’s their finances.

Creating a livable budget, planning for emergencies and saving for retirement are crucial aspects of financial planning for nannies. Being employed at a large company often means tax payments are automatically deducted and benefits like a 401k or other type of retirement savings plan are built into your employment package. But that situation may not be the case with individual families you work for.

It’s your responsibility to take charge of your financial future.

Nannies face special challenges in the financial realm.

  • As children outgrow the need for childcare, nannies move to new families. This can create gaps in employment and wages. Having emergency savings in place will create a smoother transition between families.
  • Retirement savings is the nanny’s responsibility. Many nannies are unsure about what type of retirement savings plan is best for them and instead avoid saving for retirement or save in the wrong type of account.
  • Nannies receive gross wages, with no deductions taken out for taxes. If a nanny doesn’t budget correctly throughout the year, a surprise tax bill can be a shock come April 15.

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