If household CFO has been added to your list of titles, there are a few things moms should keep in mind if they find themselves making a home’s major financial decisions.
Working Mom as Household CFO
Many working moms have become the chief financial officers of their households. Whether single or married, being in charge of a household’s finances, while raising kids and holding down a job, can be as cumbersome as procuring a third, full-time job. Nevertheless, it is an important job, and there are a few things moms should keep in mind if they find themselves in the position of making a home’s major financial decisions.
Smart Ways for Moms to Budget
It is important to keep an eye on your finances, and if you are the CFO of the household, you are probably already doing your best to manage the money, expenses, and bills for everyone under the roof. Most budgets revolve around things such as utilities, childcare, transportation, debt repayment, and food.
There is of course entertainment and other extracurricular activities, but if you want to better manage your money you may need to make a few sacrifices. Breaking your expenses down into percentages of total income can allow you to easily see what most of your income is being spent on. Keeping a written record of everything you buy is a great way to become more conscious of your spending habits.
Coffee every morning at Starbucks or any other small purchases during the day can add up over time, so make sure everything is accounted for in your household’s budget. This is especially necessary if you are also trying to pay off debts— you will be able to get out of debt much faster if you put spending limits into place. You can look at the written record you are keeping, and if you feel that you are wasting money on something, determine what you think may be a better spending limit for it.
Having a spending limit in addition to cutting out unnecessary expenses is one of the more effective methods of budgeting.
How to Save Money
Saving money can be difficult when you don’t have excess cash available, but in addition to budgeting for expenses, it is also important that you set a guideline for savings. Like the CFO of any company, it is recommended that you try to at least save 5 percent to 10 percent of your monthly income to ensure you have something substantial in the event of an emergency. One good option is having an interest-bearing savings account, such as a money market account or Certificate of Deposit (CD). Money market accounts usually have higher interest rates and sometimes having returns twice as much as CDs offer. However, money market accounts require higher minimum balances, which can be as much as $17,000 for a high interest yielding account.
Making the Most of Tax Credits and 401(k)s
Tax credits can easily be overlooked when attempting to reduce the amount of taxes you have to pay to the state or federal government. Tax credits are designed to award behavior that is beneficial to the community or larger economy, and can be useful when attempting to save money to put toward other things (like emergency funds or paying off debt). It is quite different than tax deductions, and some people often make the mistake of confusing the two.
Tax deductions only deduct from the amount of income you get that is taxable, whereas tax credits directly reduce the amount of taxes you have to pay. For example: if you meet the requirements to get a $2,000 tax credit, and you owe $2,000 in taxes, you can use the tax credit to bring the amount taxes you owe down to zero. Some tax credits are refundable, meaning you can get the money that will be left over if the tax credit covers the taxes you owe. If a household owed $1,000 in tax, but claim a $2,000 earned income credit, you will receive a $1,000 refund.
There are also different types of tax credits. One type is in which the government offers a tax credit for purchasing products that use alternative energy, such as solar panels to power your home, or other credits for having a small business. Many businesses offer 401(k) programs, and when taken advantage of, is essentially a way to get free money from your employer. Employees simply deduct a small percent of their paycheck every month and that money is saved for you later, tax-deferred. This means that you would not have to pay taxes on that money until you decide to withdraw it from a 401(k) account.
Some companies will offer to match for example, $0.50 for every dollar you put in for the first 5 percent of the total amount you plan to invest. However, sometimes your company may require you to have been employed at that company for a certain amount of years before you can quality for the program.
Making the most of the income your family generates is not easy. For working moms who are raising children, there must be enough quiet time set aside during the day or evening so that mom can get all the finances straight. Once an established system is put in place, moms will rest easier knowing exactly what to expect when it comes to their household’s financial destiny.
Having this type of control and oversight is remarkably empowering, and is a great way for moms to keep tabs on things, while they work and raise their little ones to be successful with their own finances one day.
Angie Picardo is a staff writer for NerdWallet. Her mission is to help moms stay financially savvy and save money with NerdWallet’s best CD rates.