Family Finances with Katy Song, CFP

Marin Mommies is presents another great guest article by Marin mom and financial planner Katy Song, CFP®.

On August 8, 2011, the S&P lost 6.7% of its value, and most investors are still suffering from whiplash caused by the market’s ups and downs last week. Whether you watched your portfolio plummet, saw the drop as a good time to buy, or sat on the sidelines stunned, I have some advice… take a deep breath and exhale slowly. This is going to be a marathon, not a sprint.

It seems like every time a piece of economic data shows positive signs of a recovery, there is updated “official” economic data saying that the previous quarter is revised downward. Just like the market, if you drop 600 points and go up 400 points the next day, you are still down! So what can you do to better handle this volatility and prepare yourself for a long road ahead? Here are some simple steps:

Know what your money is for. Every account or pot of money you have needs a purpose. If you need it within the next three years, make sure it is liquid. Liquid means that you can quickly and cheaply convert it to cash. While stocks are “liquid”, you run the risk of needing to sell when the market is down.

Marin Mommies is happy to present another great guest article by Marin mom and financial planner Katy Song, CFP®.

Since the market tanked in September 2008, most people feel burned and are hesitant to jump into the market. Even if you are ready to invest the cash you have sitting around, where should you put it? Whose advice can you trust? Do you need to pay someone to tell you the right answers?

Don’t get me wrong, cash is good! But you do not want to keep too much cash on hand without a good reason since it will lose value each year with inflation. For example, $10,000 in cash today will only be worth around $8,600 five years from now assuming 3% inflation. Essentially, you lost $1,400 by doing nothing. Here’s how to make your money work for you:

• Step 1: Determine how much cash to keep on hand for your monthly expenses, emergency fund, and home improvement projects, and then put most of it in a high yield savings account. By moving your money out of a brick and mortar bank, you are going to get a better rate. Some online savings accounts have a 1.4% rate, which is more than four-year CD’s (1.24%). Check out www.bankrate.com and www.moneyrates.com for competitive rates. You want to have access to your money, but having it one step removed from every day spending is good. You are less tempted to make unscheduled transfers to cover a bigger than expected shopping spree. Make sure the bank you select is FDIC insured.

Mill Valley mom and Certified Financial Planner™ Katy Song explains how time really is money. Katy is a regular contributor to Marin Mommies—you can read more of her articles about family finance here.

“Time is money,” is something I say when I am trying to get my 4-year-old daughter to hurry up and do something. Today she asked me what it meant. I paused and thought for a few moments. I told her it meant that we have a lot to do and have to move quickly to get everything done. She seemed happy with this response, but it got me thinking about valuing time.

First, if you are gainfully employed your paycheck likely lists your hourly rate. Is this the value of an hour of your time? Hopefully you have a very high opinion of yourself and think your hourly rate undervalues you. So, why don’t you ask for a raise? In this economy you probably feel like you need to keep quiet to keep your job, but I think this is incorrect. Now is the time to show your value to your employer or clients, and to yourself. Life is short, and if you don’t ask you don’t get. (I heard this from a motivational speaker when I was 23 and it has stuck with me!)