Family Money Advice You Can Bank On (page 5 of 8)

Parenthood: The Balancing Act

Save for retirement first, then college. Nancy Tang of Dublin, California, has two boys, ages two and four, and is eager to figure out how much she and her husband should be saving for their college education. It's a question asked by many parents. The answer? According to the experts, retirement comes first. "You can always borrow for college," says Mackey McNeill, a Kentucky-based certified public accountant and financial planner. "You can't borrow for retirement." This is especially critical now that retirement savings have to last longer than in the past, since many of us will live into our 90s.

Get life and disability insurance. You need to provide your kids with financial security if something should happen to you or your spouse. The least expensive way: term life insurance. It covers you for a certain period, during which time the insurance company will give your beneficiaries a specified amount of money if you die; as a general rule, try to get enough to replace your income until your children are financially independent. To shop for the best deal, go to sites like term4sale.com. Make sure you purchase disability insurance, too, enough to replace 60 to 70 percent of your income if you are unable to work for any reason. (You may already have this coverage through your job, but you can't take it with you if you leave.)

Look into buying a home. It's a bittersweet side effect of the housing crisis, but first-time buyers may qualify for a tax credit -- up to $8,000 (details at www.irs.gov). And mortgage rates are near an all-time low right now (around 5 percent) for families with good credit and money to put down on a house. If that doesn't describe you, now's the time to build a record of managing credit responsibly and to save up for that down payment so you can buy in a few years. Get a free copy of your credit reports at annualcreditreport.com; for your credit scores, go to myfico.com and spend $16 each for scores from two rating agencies.

Even if you have the 720 credit score that qualifies you for the best mortgage rate, you'll still have to come up with a bigger down payment than you might have needed a few years ago. "Shoot for 20 percent down because that's what lenders want," says financial planner Jeff Kostis. But even if you have only 3.5 percent, you can still qualify for a Federal Housing Administration loan (portal.hud.gov).

Write a will. You need a will to make sure your kids are taken care of and that your assets are distributed to your loved ones according to your wishes. Consider filling out a medical power of attorney statement as well. Make sure you both know where these and other important documents are filed, whether that's at home in a fireproof box or safe or a secure e-mail account.

QUICK TIP: Nancy Tang

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Before she had kids, Nancy Tang, 36, religiously socked away the maximum in her 401(k) at the telecom company where she was an account manager. But when she became pregnant with her first child, she left to become a stay-at-home mom (her boys are two and four now). Her retirement savings, still with her old company, have dropped 50 percent. Tang's husband contributes the maximum to his company 401(k). They are young, Tang says, and feel confident they can ride out the ups and downs of the market over many years. They own their home and have saved three months of emergency living expenses.

Savings Advice: The Tangs save about $200 a year by keeping their electric costs low. "We unplug appliances we aren't using," says Tang, "and we keep the TV on a power strip. That way, it doesn't keep draining power when it's turned off."

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