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7 Ways to Lower the Cost of Divorce

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As a newlywed, the very last thing on your mind is probably getting divorced. But, unfortunately, divorce is something you may encounter — there were over 813,000 divorces in 2014 alone, according to the latest CDC data, compared to 2.1 million new marriages.

The cost of getting divorced can be just as expensive as getting married. Some estimate the legal fees alone can cost thousands of dollars, not to mention other costs that may be involved in changing your life post-divorce.

The difference is, when you get married you likely had time to prepare your finances. This may not always be the case when you get ready to get divorced.

So, what can you do if you can’t afford to get divorced? Here are some options that may be able to help lower the high cost of divorce.

Shop around for the right attorney

Brette Hankin, a business development manager for S&T Communications in Colby, Kan., says she visited several divorce attorneys to find one that was within her price range.

“The first lawyer I talked to said the retainer fee would be $10,000,” she says. “There was no way I could afford that.”

Eventually, Hankin visited other attorneys in her community and was able to find one who was more affordable.

“The lawyer I chose had a $5,000 retainer fee and was willing to return whatever money was not used for my case,” she says.

Ask friends and family for referrals to good attorneys in your area, or see if your state’s bar association has a way to search for attorneys specializing in divorce/family law.

Work out a “limited scope” arrangement or a payment plan

To help clients who may not be able to pay for their entire legal fees up front, some attorneys may also be willing to take payment plans, or work in a limited scope. Limited scope means they only handle certain parts of your case and you can handle the others.

“In cases where a client cannot afford traditional representation, I will sometimes represent a client in what is referred to as limited scope representation,” says Darlene Wanger, Esq., an attorney based in Los Angeles. “This means that I could represent a client for a single hearing, and then I am no longer the attorney of record.”

To cut costs even more, Wanger says she sometimes acts behind the scenes as a consulting attorney, helping clients fill out paperwork and working through the process without appearing in court.

“Never appearing in court can save a very large expense,” Wanger says.

If you still feel sticker shock at the cost of your legal fees, ask your attorney if you can work out a payment plan. This can help relieve some of the pressure to pay their fees all at once.

Reduce your filing fees

If you’re the spouse filing the divorce petition, ask about the filing fee with your local courthouse. The fee for filing a divorce petition varies based on the state and county in which you live and file your divorce. Filing fees can vary from $70 in Wyoming to $435 in California.

For simple divorces, without children or a large amount of property, you can usually fill out the petition yourself. This can save you from paying attorney fees.

Many individuals who are unable to afford a divorce don’t realize that they can get the divorce petition filing fee waived as well. A judge will review a written affidavit stating your economic hardship so the filing fee can be waived.

Keep things amicable (if possible)

When people think that they can’t afford to get divorced, it’s usually because they’ve heard about long, drawn-out court battles that cost thousands. But if you work with your spouse as much as possible, you can save a lot of money on attorney fees and court costs.

For example, after the filing of a divorce petition, the responding spouse will generally file an answer, even if they agree with everything stated in the petition.

While this can speed up the divorce process, it will cost more money. Any time an answer is filed with the court, it is subject to another filing fee. You could apply for the fee to be waived again, or if you and your spouse are in agreement, the answer could be written as a formality but not filed with the court.

Filing a joint petition for divorce can also save money as neither spouse would have to be served by a sheriff or certified mail.

Get divorced for free

Lizzie Lau, a 47-year-old travel blogger, used as many resources as she could to help her save money during her divorce. She was able to get divorced for free in California, the state with the highest filing fee.

“Initially, I assumed I would have to pay several hundred dollars in filing fees even though I had no income and no support,” Lau says. “But I went to the courthouse and talked to them. I was told that based on my income the fee would be waived, and as long as we didn’t go to court, it would be free. Although, they told me it was pretty rare for a divorce to go through without going to court. I assured them that I was going to be the exception to the rule.”

Lau got the filing fee waived for her petition. Plus, she and her spouse worked together to avoid other costs. Because they were in agreement, he didn’t file a response, and they were able to get divorced without appearing in court, saving them from paying for attorneys and other court costs.

File a pro se divorce

Part of Lau’s strategy included filling out her own legal paperwork and representing herself for her divorce case. This is called a pro se divorce, meaning you represent yourself without an attorney.

This is not a strategy that would work well for divorce cases involving disputes over child custody or property and asset division.

There are a wealth of resources online that can assist people with filing pro se divorces by explaining things in common language.

Prepare for life after divorce

One of the other overlooked costs of getting divorced is the cost to set up a new household. In Hankin’s case, her ex-husband kept the family home while she moved to an apartment.

“He offered to let me stay in the family home, but I couldn’t afford the house payment,” she says. “Instead I got an income-based apartment.”

In other cases, assets may have to be sold if neither party can afford to keep them. Hankin says she got financial help from her parents and did her best to save money and live frugally.

“You don’t think about the costs of setting up a new household until you have to do it,” Hankin says. “Getting pots and pans, furniture, restocking your pantry. All of those things you never think about. We were married for 19 years before we got divorced.”

Hankin shopped at garage sales to save as much as possible. She also got a second job and cashed in her retirement savings. “I felt that it was my only option,” she says. “Now I’m starting from scratch to save for retirement again.”

Kayla Sloan
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Kayla Sloan is a writer at MagnifyMoney. You can email Kayla at Kayla@magnifymoney.com

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Why These 3 Families Chose to Live on a Single Income

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Before they decided to live off only one income, Devra Thomas, 39, and her husband, Clinton Wilkinson, 38, brought in a combined $50,000 annually working in corporate retail. When their daughter, Sophia, was born, they struggled to find ways to juggle their work schedules with child care.

“Since we were both working at the time, we really had to supplement with a lot of funky child care between parents, extended families, after school care, and babysitters,” says Devra.

Then Clinton got an opportunity for a raise and a job relocation. The family moved from outside of Chapel Hill, North Carolina, to Morehead City, where their cost of living was lower and Clinton’s work commute was shorter. Devra, who was an arts administrator at the time, initially looked for work when they moved, but when she wasn’t able to find a job in her field in the area, she and Wilkinson changed their plan. They decided Devra would stay home so they could eliminate one significant expense: child care.

For the couple, deciding to live off one income was worth it if it meant they could simplify their lives. Still, choosing to live on a single income didn’t come without its own set of challenges.

Devra and Clinton, along with two other single-earner families, told MagnifyMoney why they chose to budget their lives on a single income and how they make it work. For this article, we define single-earner families as those in which one family member generates 80% or more of the total household’s income used to cover household expenses.

Devra Thomas & Clinton Wilkinson

Morehead City, North Carolina

Annual Income: $70,000 to $80,000

Clinton Wilkinson, 38, Devra Thomas, 39, and daughter, Sophia, 9. Source: Devra Thomas

Their strategy: Zero-based budgeting and constant communication

Devra and Clinton swear by a zero-sum budget.

“Every time we get paid, all of that money has a name,” says Devra. The couple sits together every two weeks to discuss and create their budget and make sure every dollar earned is fulfilling a purpose. They put each dollar they’ve earned in a spending category such as groceries, transportation, subscription services, utilities and savings.

Devra does some light freelance marketing and writing projects on the side, which helps supplement their income to the tune of about $10,000 per year. Any income she brings in from freelance work becomes what they call “play money.” It either gets added to savings or spent on something they want but haven’t been able to fit into their budget, like a date night.

For example, they’ve already earmarked funds for their anniversary in August. Every part of their date night is planned for, with money going into categories for the dinner, babysitter, hotel, someone to watch their dog, and other expenses.

Where they run into obstacles

Thomas and Wilkinson like their single-income lifestyle, but as their daughter, 10, gets older, the pressure to keep up with the Joneses increases.

“There are other things kids in school have that she says I wish I had … or it may even be an experience like going to Disney World,” says Wilkinson. When that happens they explain to her that those things are “not where [they] are choosing to put [their] priorities.”

They also advise their daughter to try making use of her community. If she wants to play with a toy a friend has, for example, she can borrow it from them, or vice versa.

Overall, making all of their financial decisions together has been a crucial element in making their strategy work. “That’s typically when we break our budget. When we weren’t communicating about spending,” says Thomas.

Sage & Emerson Evans

Salt Lake City, Utah

Annual Income: $50,000

Sage, 25, and Emerson Evans, 24. Source: Sage Evans

Salt Lake City, Utah newlyweds Sage and Emerson Evans chose to live on one income while Emerson focuses on applying to medical school. They have learned to manage their lifestyle on Sage’s $50,000 salary in digital marketing and public relations. Their hope is that investing in Emerson’s education will pay off by way of a higher salary later.

Their strategy: deal-hunting and communication

Sage and Emerson, both in their mid-20s, don’t follow a strict budget but they try to add at least $500 to their savings account each month. The couple spends the bulk of their income on things like dinner, cultural events, movies, and travel. But they have no student loan debt and only one car payment to manage.

Emerson says he’s used to pinching pennies because he grew up being frugal. He was able to qualify for the Pell grant and other scholarships to help pay for college. Although he isn’t working full time, he takes odd jobs on the weekend to earn pocket money for minor expenses like gas for his car or lunch outside of home.

“I make it so that Sage never has to send money my way,” says Emerson. “I know I’m not the income and I know I’m not working full time. I try to make sure I’m not a financial burden.” For example, if he doesn’t have money for lunch, he’ll simply skip lunch that day.

“He almost takes it too far,” says Sage, “I had to force him to buy a new pair of shoes.”

Where they run into obstacles

For Sage, adjusting to married life on a single income was tough. “I definitely had to learn to think of money as our money and not just my income,” Sage says about the transition.

“Part of it was just a personal problem that I had to overcome. Realizing that when you get married, me becomes we,”  she adds.

The couple has learned to communicate about things such as what qualifies as a large purchase and whether or not Sage had to inform her husband of what she’s doing with what’s technically ‘her’ income.

Sage imagines their roles will flip once Emerson completes medical school and earns a higher wage than hers or if she elects to stay at home after having children.

“We get by, but it’s definitely not an income I want to spend the rest of my life on,” says Sage.

Matt and Brit Casady

Rancho Cucamonga, California

Income: $60,000 – $70,000

Matt, 28, and Brit Casady, 26, and 1-year-old son. Source: Matt Casady.

Matt, 28, and Brit Casady, 26, decided to live on one income to save on childcare, which doesn’t come cheap in their hometown of Rancho Cucamonga, California. They manage on Matt’s salary as an online marketer for a self storage company, where he makes between $60,000 and $70,000 a year.

“We were scared at first but we knew that we wanted to live on one income because we didn’t want to have to pay for child care,” says Brit, adding she’s always wanted to be a stay at home mom. “That money that I’d be earning from working would be paying just for daycare. So financially, one income makes more sense.”

Their strategy: thrifting and living two paydays ahead

The couple decided to transition to a single-income household when they were expecting their son, now 1. They started by reducing their monthly bills by paying off both of their car loans and cutting back on unnecessary expenses. The couple also got lucky: Within six months of having their son, Matt got a new job that paid a higher salary. But the new job also meant relocating the family from their hometown in Lehi, Utah to Rancho Cucamonga, a vastly more expensive area.

All of the furniture in their new house is either a hand-me-down or was purchased used. The Casadys bargain shop at discount retailers when they want nice, designer clothes.

“We’re very cheap people. We don’t feel like we live a restricted life,” says Matt. The couple also finds deals on things like furniture and decor for their baby’s room by joining yard sale or thrifting groups on Facebook.

They use a Google spreadsheet to keep track of the monthly family budget. When Matt’s paycheck comes in, the couple takes no less than 20 percent of his take-home pay and adds it to their savings. After paying for fixed expenses, they put the remainder of their funds to a spending category. When they spend money, they record the amount, place and description of the purchase in the spreadsheet and subtract it from the limit in the spending category.

“It’s more freeing than it is restrictive when you know that the money that you’re spending isn’t going to prevent you from paying rent next month,” Matt says.

Brit earns $2,000 to $3,000 annually freelancing as a graphic designer. She says about 90% of the time, the money she makes is added to the couple’s savings account. If Matt gets a bonus, or the couple receives an influx of funds in a tax return, it’s treated the same way.

Where they run into obstacles

Moving to a more expensive place has presented some challenges. Housing alone costs about 69% more in Rancho Cucamonga than in Lehi, Utah, according to Sperling’s Best Places cost of living calculator.

“It’s definitely been a sticker shock. Rent alone is significantly more money,” says Matt. The couple says they have adjusted to the rise by staying frugal.

“The activities that we do are mostly free, so we can create memories versus [buying] things that cost a lot of money,” says Brit.

The couple also tries to avoid keeping score on things like who has spent more money from the ‘fun’ category in their budgeting. For example, Matt, a fan of USC football, may buy a ticket to a game for $150 and Brit may get her hair done for $90, but she doesn’t try to find another way to spend $60 afterward.

“Just because he spent more doesn’t mean I can spend more,” Brit says. “It helps us to stay in our budget and not compare [who spent what] so we are not constantly trying to level up.”

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Meet 2 Families Who Earn Six Figures and Still Feel Broke

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Although they have lived in the Washington, D.C. metro area all their lives, Lauren Orsini and her husband, John, don’t feel they can raise a family there, despite their six-figure income.

Lauren Orsini and her husband, John, live in Arlington, Va., and both grew up in the greater Washington, D.C. metro area. They attended all levels of schooling here, and their families still live close by. But as the couple looks toward a future with children, they don’t see how they can afford to stay in their hometown — even though they bring in more than $100,000 annually.

“The life that I’m living is unsustainable, and I know it,” says Lauren, 30. “But I’m so deeply rooted here. I can’t imagine living anywhere else, even though I know this won’t last forever.”

Their plight is reflected in the findings of a recent MagnifyMoney report, which analyzed the best and worst cities for a family earning six figures. On the list of 381 metro areas, the Washington, D.C.-Arlington-Alexandria, Va., region is dead last.

“I’m not surprised at all,” Lauren says. Though she and John, a government contractor, make just above $100,000 “it doesn’t go far here even though it sounds like a lot. And you can forget about buying a place.”

The couple shells out $1,700 monthly on their one-bedroom apartment, located in a 1960s building with no thermostat or washing machine. But Lauren loves the life that Arlington affords her, particularly its proximity to D.C. proper.

She takes Japanese lessons at the embassy. Her running club recently took a route to the Lincoln Memorial and back. She can hop on the metro to visit either of her two sisters. And she and John have always enjoyed commutes of less than 20 minutes.

“If you don’t live in Arlington, I can understand how outsiders would say, ‘Well, that’s a selfish decision — you can’t have everything,” Lauren admits. “But my world is here. I’m still close with my high school friends. John’s family is 90 minutes away. We can go see a show in D.C. or watch the fireworks in just a few minutes.”

Six-Figure Incomes and Still in the Red

But the convenience and excitement of D.C. life come with hefty costs, as the MagnifyMoney study showed. The analysis — which factored in basic expenses like taxes, housing, and transportation — was designed to see where a family earning $100,000 has the most wiggle room. The estimates assume a two-income household with two adults and one child, and cities are ranked by worst (least amount of money left over at the end of each month) to best (the most amount of money left over at the end of the month).

After the D.C. area, rounding out the bottom three are Bridgeport-Stamford-Norwalk, Conn., and San Jose-Sunnyvale-Santa Clara, Calif. By contrast, Tennessee is clearly the best state for six-figure households to stretch their dollars: Johnson City, Morristown, and Cleveland are the top three cities on MagnifyMoney’s list.

The differences are stark. In Johnson City, Tenn., total monthly expenses make up just 62% of total post-tax income, leaving a $2,400 surplus. In the D.C. area, expenses come to 105% monthly — meaning households making $100,000 are $315 in the red on average at the end of the month.

“We’re doing just fine for now, but when I think about a baby and buying a house, it’s not going to work,” Lauren says. “I check Redfin every day, as if some magical condo is going to spring up. We go through this cycle of house-hunting where we lower our standards more and more, and we still can’t find anything.”

Lauren and John have found homes they think they can afford: two bedrooms, maybe 980 square feet or so, for about $650,000. But these are often condos and townhouses with high homeowners association fees, which puts the homes far above budget.

It’s frustrating. And it’s why Lauren has seen friends, one by one, scuttle out to the suburbs in search of slightly more affordable real estate and space for a family. But as with the city, the ‘burbs come with a cost: a commute to D.C. of an hour or more. Lauren fears that would be untenable for John.

She wants to see her husband stay happy at his job, where he has worked for seven years. John is also slated for a promotion soon, which could help ease some of their worries. But Lauren doesn’t expect any windfall to solve the deeper barriers of raising a child in her hometown.

“We make six figures, we responsibly put money in savings and retirement, and it’s not enough,” Lauren says with a sigh. “What I think will happen is that we won’t be able to delay having a baby any longer, and life will become about what’s best for them. But for now, it’s hard to swallow any decision that will make our lifestyle worse.”

Finding the Free in Pricey Places

D.C.-area residents like Lauren and John — and city-dwellers all over the nation — are willing to pay sky-high rents because of all that cities have to offer. While some of those offerings are trendy restaurants and pricey shows, cities are also home to loads of free fun like museums, festivals, and block parties.

That’s part of why Shanon Lee, a mother of four living in D.C.-adjacent Alexandria, Va., isn’t “really feeling the crunch with my family. It’s easy to spend money [in the D.C area], of course, but it’s also easy not to, thanks to all of these events.”

Beyond free events for her kids — who range in ange from 4 to 21 — Shanon herself also scores frequent invitations to outings in her role as a filmmaker, artist, and writer. What’s more, Shanon’s live-in partner works in IT, and he can easily pick up side jobs like refurbishing computers.

“I know we’re lucky that we’re doing well, and he can make $2,000 in a heartbeat by grabbing a quick job if he wants,” Shanon says. “But lots of people I know are living with roommates even when they don’t want to. And in our last neighborhood, a bunch of families packed in grandparents too.”

Still, Shanon says she and her family are “always looking for ways to reduce our expenses.” She opted not to enroll her youngest in a preschool that would have cost $380 weekly, instead balancing her work-at-home life with caring for her child. The family currently pays $2,600 monthly to rent their townhome in Alexandria, though they’re looking to move a few blocks away where homes can rent for $1,900. After that? Unlike Lauren Orsini, Shanon doesn’t feel tied to the D.C. metro.

“It’s a transient area, and I’ve found it can be hard to form lasting relationships,” Shanon explains. “We don’t necessarily feel at home.”

Shanon isn’t sure where her family’s forever home will be, but she plans to choose a spot based on the basics.

“Our primary considerations are factors like cost of living, safety, and good school districts,” Shanon says. “You have to stay focused on the important things.”

Julianne Pepitone
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Julianne Pepitone is a writer at MagnifyMoney. You can email Julianne here

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9 Ways to Spend Less on Childcare

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Wide image - Playing time with babysitter

Whether you’re already a parent or are expecting soon, you’re likely about to encounter what will possibly be the biggest new line item on your family budget: childcare.

Childcare is by far the largest annual household expense for families with young children, averaging $18,000 per year, according to a 2015 Care.com report.

There are all forms of childcare, each carrying its own price. Per week, families spend anywhere from $140 (for in-home daycare) to $477 (for a nanny). In the middle of the spectrum, it costs about $360 per week to hire an au pair and $188 per week for a daycare center.

There are some steps you can take now to reduce the cost of childcare, without jeopardizing the safety or quality of care for you child.

1. Throw out your old budget

To properly prepare for the added expense of childcare, parents have to look closely at their current budget and make adjustments, says Aaron H. Kahn, a certified financial planner at Wealth Management Strategies, Inc. in Pittsburgh, Penn.

“If parents are not acutely aware of exactly how much they need each month for the necessities, it will be impossible to build a budget,” Kahn says.

He tells his expecting clients to track their spending over the last 12 months, using a program like Excel or Mint to divide their spending into categories. Then, compare their spending to their annual take-home pay.  This exercise will give parents a chance to see how much wiggle room they have.

“It’s possible that they may already have enough extra cash flow each month to support childcare for the new baby,” he says.

Of course more often than not the opposite is true. When existing spending habits don’t leave enough room for childcare expenses, it’s time to make cutbacks.

“If possible, I’m always an advocate for a couple living on one salary while saving the other,” he says. “This is a great habit to develop not just for the childcare phase, but for life. Learning to live so far below your income can be a primer for tremendous financial health later in life.”

2. Look out for programs for single-parent households

The thought of covering childcare expenses on one income while also raising a baby can be daunting. To help handle the years before school, though, Kahn suggests seeking out childcare programs specifically catering to single parents. These programs often base fees on financial need. In some cases, if your income is a little too high to be eligible for these programs, Kahn recommends finding ways to reduce your taxable income. For example, you could increase your retirement plan contributions.

Besides saving up ahead of time to help defray some of the cost, there are other steps you can take to cut back on childcare expenses as well. Here are a few to consider.

3. Sign up for a Dependent Care Flex Spending Account

Your or your partner may have access to a Flex Spending Account (FSA) for dependent care through your healthcare provider. FSAs allow you to set aside pre-tax income for certain out-of-pocket healthcare costs, which can include childcare. Contributions made to an FSA are excluded from your gross income, so you don’t pay employment or federal income taxes on them. You can contribute up to $5,000 per year if you’re married and filing jointly or if you are a single parent. The limit is $2,500 per year if you’re married and filing separately. Keep in mind that FSA dollars can’t always be rolled over from year to year, so it’s a good idea to estimate the amount you need carefully. Or else you’ll have to forfeit any leftover money at the end of the year.

4. Make use of the child and dependent care tax credits

A special childcare tax credit provides parents with up to $3,000 in qualifying child care expenses for one child and up to $6,000 for two or more. Important: You can’t max out both your Dependent Care FSA and child care credit at the same time. For example, if you put $5,000 into your FSA for childcare expenses for the year, you’ll only be able to claim $1,000 for the Child and Dependent Care Credit. Find out more about the Child and Dependent Care tax credit stipulations here, and check out this calculator to help you determine the best way for you and your family to make the most out of tax savings on child care.

5. Ask your HR rep about employer-sponsored daycare options or discounts offered

You’ll never know if your company provides employer-sponsored options for childcare — like in-house daycare or discounts on other childcare options — unless you ask. “Especially if parents work for a large organization, or one with an affiliation to childcare products, they are likely entitled to programs designed to help with expenses,” says Kahn.

6. Approach your employer about a more flexible work schedule

If there’s a way to adjust your work schedule so you do not have to pay for a full week of childcare, you could save a bundle. Now, to be fair, having a productive work day at home is nearly impossible with a newborn demanding your attention. Think about inviting a relative or a part-time nanny to drop by at key moments during the day — feeding times, bath times, etc. — so you can focus on work and work alone.

7. Go with in-home daycare

In-home daycare is more affordable than most daycare facilities ($140/week vs. $188/week, according to Care.com). Picking an in-home daycare that feels right for you can be stressful (horror stories abound in the media). Start by asking around for recommendations from family and friends in your area who might have places they like. To save more, you should always ask if there’s a discount for enrolling an additional child, and find out if it’s possible to pay per day rather than monthly or yearly, which again might allow you to take advantage of family and friends nearby who can help out some days. There might also be some ways to cut back on superfluous daycare fees, like if you can pack a lunch for your kid instead of having to pay for the included meal.

8. Check out nanny share options

If you’d prefer the one-on-one care of a nanny but really don’t think you can afford the expense, try a nanny share. As the name implies, a nanny share occurs when you share a nanny with other families to help cut down on the costs. Keep in mind that if you’re going the nanny share route, in the eyes of the IRS, all the families that employ the nanny will be considered separate employers, and everyone will need to follow the proper nanny tax process of their state. Check out the HomePay section about nannies on Care.com for more information on nanny taxes. You can also check out the specific going rates for nannies in your area using this Care.com calculator to get a feel for what a share might cost you.

9. Look into publicly-funded daycare options

If none of the other options seem feasible, there are always plenty of reliable, publicly-funded daycare options to look into. For starters, you can check out this site for contact information in your state regarding child care assistance through the Child Care and Development Block Grants program, but be aware that there will likely be strict income and care guidelines if you go this route. Other programs options like Head Start are good places to check, or the National Women’s Law Center has a state-by-state fact sheets page with recent child care assistance policies depending on where you live.

Picking the best childcare options for your kid will be one of the more important decisions you make once your baby is born, but that doesn’t mean it has to cost an arm and a leg. With just a little bit of research and some digging, you’ll likely be able to come up with an option that you’re both comfortable with and won’t drain your bank account.

Cheryl Lock
Cheryl Lock |

Cheryl Lock is a writer at MagnifyMoney. You can email Cheryl at cheryl@magnifymoney.com

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FamZoo Review: a Virtual Family Bank to Teach Kids About Money

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

FamZoo Review

When it comes to banking, most kids learn the hard way just how expensive their mistakes can be — with every sting of an overdraft fee or bounced check. Parents who would rather teach their kids how to manage their money without the risk of fees might consider FamZoo, a virtual family banking program. For a modest subscription fee, FamZoo provides the tools parents need to teach their kids about money management and banking.

Is FamZoo worth the cost?

In this review we cover:

  • What is FamZoo?
  • FamZoo Fees
  • FamZoo Benefits
  • Who Should Consider FamZoo?
  • FamZoo Drawbacks

What is FamZoo?

FamZoo is a “Virtual Family Bank” that allows parents to teach their kids about banking

FamZoo

without requiring kids to pay fees (as a parent, you will pay a monthly subscription fee).

FamZoo has two versions. The first version is a virtual IOU account that formalizes and tracks money flowing between parents and kids, but is not a bank at all. The second version gives prepaid debit cards to parents and kids that can be used anywhere that debit cards are accepted (including ATMs). Both versions cost the same amount for parents.

In addition to basic banking, FamZoo offers family oriented features. For example, family member can request reimbursements from other family members, and parents can offer loans to their kids and teach them to pay back loans in installments. With parent approval, money moves between family accounts instantaneously. FamZoo allows parents to fund allowances, and it helps kids divide their money between saving, spending, loan repayment and giving. As a parent, you can set a parent paid interest rate to encourage savings.

If you opt for prepaid debit cards, the cards will not allow your kids to overdraft, and parents and kids have access to a website to check balances, to review transaction history and more. Kids can also withdraw money fee free from in network ATMs.

FamZoo Fees

Subscription fee: Parents pay $5.99 per month (or $60 for 2 years with pre-payment) for up to four prepaid debit cards including a parent loading card. If you want more than four cards (for example to separate giving, saving and spending accounts, or if you have more kids), you pay a one-time $2 fee per card. If you lose a card, you can receive a replacement card for free.

Aside from the monthly subscription fee and the one-time extra card fee, FamZoo does not assess any fees, even if you manage to overdraft (which is possible if your transaction “settles” for an amount greater than was initially assessed).

Load fees: Depending on which financial products you use, as a parent, you may pay a fee to load your card. If you have access to Wells Fargo Sure Pay, Dwolla or PayPal, you can transfer money to your FamZoo account for free, or you can fund the account for free via direct deposit from your paycheck. Other loading options cost between $.95 and $7.00 per transaction. The institution where you initiate the transaction charges these fees, but FamZoo doesn’t add any extra fees.

ATM fees: FamZoo is part of the MoneyPass ATM network and withdraw cash at no fee. However, FamZoo warns that the other institutions usually charge a fee for out-of-network ATM use, and these fees aren’t reimbursed.

FamZoo Benefits

Parents have control: FamZoo is a stripped down bank that gives parents banking control, but it also has a few mainstream financial benefits. For example, MasterCard Zero Liability Protection backs FamZoo cards which means that they have fraud protection. Like other debit cards, they offer transparency, the ability to freeze an account if the card is lost or stolen, and the ability to track spending. And, each account has its own routing and account number so kids can get their paychecks deposited like it’s a regular bank account.

Helps teach saving and budgeting: The primary benefit of FamZoo is the way helps parents raise financially savvy kids. The software allows you to teach your kids to track expenses, set budgets, and split money into various accounts (a modern version of the envelope system). As a parent, you can add complexity (adding interest, loans, etc.) as your kids mature.

FamZoo Drawbacks

False sense of real-world banking fees: FamZoo puts guardrails in place, so kids don’t get hurt when they fail to manage their money well (they can empty out their bank account, but they won’t pay overdraft charges and they cannot go into debt except to their parents), but parents who use the software also need to teach their kids about banking fees outside of FamZoo. This will be especially important as teens set up their first checking accounts.

Who should use FamZoo?

FamZoo suits parents with kids who don’t yet have jobs or their own bank accounts who want to teach their kids financial principles. FamZoo makes teaching basic finances easy, and if your kids make mistakes, they don’t have to pay outsized fees.

Parents of early elementary through early high school will appreciate the valuable teaching opportunities that FamZoo provides, and parents with older teens and college students can advantage of transferring money with ease.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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Custodial Accounts: Are They an Option for Your Family?

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Custodial Accounts

When you want to set up a savings account for your child, you take them to your financial institution and have them open an account. Heck, in this day and age, you might just mosey on over to its website to get things set up.

But what about when you want to something more advanced? If you are trying to invest in the market or put real estate in their name, you’re likely to run up against the idea of custodial accounts.

Custodial accounts are like a lite version of trusts. Trusts are complicated to set up so they usually involve a fair amount of legal fees. Custodial accounts have parameters dictated by your state, so getting them set up is comparably simple and less expensive. Doing so usually involves little more than talking with someone at your financial institution.

Types of Custodial Accounts

There are two types of custodial accounts: Uniform Gift to Minors Act (UGMA) accounts, and Uniform Transfer to Minors Act (UTMA) accounts.

UGMAs are good for investing in securities, and are typically transferred exclusively to the minor at age 18, though this age does vary from state to state.

UTMAs are also for securities, but can be used for property such as real estate, too. The typical age for transfer on these accounts is 21, but you should consult state law, as this will vary geographically.

With all custodial accounts, there are three parties: the donor, the custodian, and the minor. The person putting money into the account is the donor. There can be multiple donors to the account, but each donor can only contribute up to $14,000 per year before incurring a gift tax.

The donor and custodian can be the same person. If you are setting up this account for your own child, it’s likely that you will be both. As the custodian you manage the investments, and are even allowed to withdraw money, but only if that money is used to provide for the child. You can’t go out and buy a new set of wheels with it.

When Not to Use a Custodial Account

Custodial accounts are cheaper to set up than trusts, but there are some instances where you will want to think twice before going this route.

  • You’re trying to lessen your tax burden. At one point in time, custodial accounts allowed parents to dodge part of their tax burden if they played their cards right. Legislation has come to pass that now disallows that advantage. In fact, if your child’s account makes money beyond capital gains on securities, you will have to file an additional 1040 in their name. In many instances, children actually have a higher tax burden than a single adult would on this type of income.
  • You’re contributing a lot of money. Sizable gifts, especially those that are five figures or larger, will often get more favorable tax treatment if they’re made via a trust rather than a custodial account.
  • You die before your child turns 18/21. If you are the custodian of your child’s account and you pass away before he or she has reached the age to claim the account, UGMAs and UTMAs become a part of your estate. Before they can be passed on, they’ll incur an estate tax. While very few young parents can predict a tragedy of this magnitude happening, it is something to consider.
  • You think your child will be on the cusp of qualifying for financial aid. If you make a lot of money, your child probably won’t qualify for federal financial aid. If you’re a low- to middle-income family, though, it’s important to keep in mind that the money in custodial accounts will be counted as your child’s assets. When they’re filling out the FAFSA, their own assets will count more heavily than your own, potentially limiting their eligibility for certain types of aid.
  • You’re trying to be fair. If you have or are planning on having more than one child and want to split things up equitably, custodial accounts can be problematic. Once the account is set up in one child’s name, the funds cannot be used or given to another. Let’s say one of your investments does really well, and then four years later you have another child. You may not be able to contribute enough catch up money to make things fair and balanced. Even if you could, it would be a complicated balancing act over the course of 18 to 21 years. Unless you are going to open the accounts for a set of twins at the same time with identical contributions and investments, trusts are a better vehicle to split things up evenly.

When to Consider Custodial Accounts

If you don’t have the assets to justify the fees of opening up a trust fund, you don’t mind things being unequal among siblings, and you still want to give your children assets that can grow and be accessible by age 18, 21, or whatever your state’s age requirement may be, a custodial account could be a good option for you. There are no take backs though once it’s in, so even if your child seems unable to manage money well, he or she is still going to be able to make decisions about the custodial account. As you’re making your decision, sit down with an accountant to talk about the tax implications in your state, and a lawyer to talk about legal fees and ramifications of whichever route you choose to pursue.

Brynne Conroy
Brynne Conroy |

Brynne Conroy is a writer at MagnifyMoney. You can email Brynne at brynne@magnifymoney.com

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7 Subtle Ways to Teach Your Kids About Money

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Way to Teach Your Kids About Money

As my husband and I prepare to have our first child, something I’ve been doing a lot of thinking about is how to financially prepare her for the future (along with how to prepare her emotionally, and in every other way a parent needs to prepare her child, as well). As a financial writer who has spent her career surrounded by smart, savvy financial people, I feel I’m somewhat at an advantage — but that doesn’t make the task any less daunting.

Teaching our kids to be financially savvy begins at an early age, even if at the ripe old age of 2 there isn’t much they’re doing other than playing with toy cash registers (hey, it’s a start!). Over the course of my career writing about parenting and finances, here are some of the pieces of advice I’ve picked up along the way that might help me to subtly teach my own daughter how to handle her finances. Maybe they’ll help you, too.

Idea 1: Keep a family money jar for coins

 

What it teaches: Every little bit of savings counts.

I will never forget the big, wooden coin jar we had in our family kitchen the entire time I was growing up (and it’s still there to this day). I remember being amazed at how much money could actually fit into that jar every time we counted it (who knew coins could amount to hundreds of dollars?). The point of the coin jar is to show your kids how even the smallest amount of change can add up, and if you can put that money towards something fun for the whole family, a new game for game night or ice cream out, for example. You can show your kids that it’s possible to save up for fun things without having to dip into savings or put it on a credit card.

Idea 2: Shop with lists

 

What it teaches: How to avoid impulse spending.

This is a small one, but since kids notice everything, it’s not surprising they would pick up on this concept, as well. Taking a little time to put together a list with your kid before shopping will teach them the importance of planning and cutting down on waste, and you’ll be less likely to make impulse purchases along the way, as well, which helps teach the concept of budgeting. 

Idea 3: Make charitable giving a family effort

 

What it teaches: The ability to make donating a priority.

Kids who grow up with families who donate will be more likely to make charitable giving a part of their future, as well. It’s always easy to say we don’t make enough money, there are too many other expenses or we’re busy saving for something else. Instead of putting it off for the future, if you can show your kids that budgeting for charity makes it easier to donate — and get your kids in on the action of picking the charity your family donates to — then they’ll be more likely to get excited about the idea and stick with it into the future.

Idea 4: Provide daily allowances for kids while on vacation

 

What it teaches: The importance of financial planning.

Vacations can be a landmine of spending for families, or it can be a great opportunity to teach fiscal responsibility. Rather than deal with kids who get excited every single time they pass a souvenir store or ice cream shop, try doling out daily allowances at the beginning of each vacation day and having your kids use that money as they chose. When the money runs out, they won’t be getting any more to spend. This is also a great way to teach kids the value of saving up for things they really want. For example, if your child spots a more expensive item at the beginning of the trip that he’d like, that’s a great opportunity to sit down with him an explain exactly how many days he’d have to save up his daily allowance to be able to afford the item, and then he can decide on his own if he’s patient enough to do so.

Idea 5: Match your kid’s savings

 

What it teaches: How some retirement plans work.

Whether it takes a little added incentive to get your child interested in saving or not, the idea of matching your child’s savings contributions (up to a certain amount, if you’d like), will help prepare him for the real world, as well. If your kid has grown up with the concept of savings matches, she’ll be more likely to do everything she can at her future job to get that retirement match, assuming it’s still being offered.

Idea 6: Include your child when you monitor your credit score

 

What it teaches: How to access credit scores, how credit cards work and why it’s important.

For most young kids, material possessions appear from out of nowhere, as if they’re free to whoever wants them. Of course we as adults know this isn’t the case, and it’s our duty to teach our kids how buying and using credit actually works. To do so, include your child on the practice of checking in on your own credit report and credit score (find the best free credit score sites for each bureau here), and explain to him how your credit score helped you attain the things your family enjoys, like your car and house, and how your behavior with credit cards and loans impact the score.

Idea 7: Set them up with different savings accounts early on

 

What it teaches: The importance of divvying up their money.

If you have a 529 for your children, involve them in your monthly (or however often you make them) payments, and explain to them the concept of compound interest and how this will help them be able to better afford an education down the road. (Don’t have a 529 set up yet? Check out this piece for the five best 529 savings plans anyone can use.) Set them up with a savings account and checking account as well, and help them determine how to best divide up their allowances and/or earned incomes into these two accounts so that they have money to save for emergencies, as well as to spend on fun things. If your family partakes in Idea No. 3 (charitable giving), have your kid contribute a portion of her allowance and/or earnings towards your family goal of donating to a charity, as well.

Cheryl Lock
Cheryl Lock |

Cheryl Lock is a writer at MagnifyMoney. You can email Cheryl at cheryl@magnifymoney.com

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Why You Need a Will if You Have Kids: Here’s How to Deal With it On a Budget

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

how to deal with it on a budget

There are a few important steps in building your financial foundation that aren’t much fun to talk about.

Writing a will is right at the top of that list.

It’s obviously a morbid topic, and it’s also a step that can force you to have some difficult conversations with family members. No one likes thinking about what would happen if they die.

But it’s important precisely because it’s such a tough topic. If you don’t handle it now, all of those difficult and confusing decisions are going to be left up to other people. That could not only result in outcomes you wouldn’t want, but it may cause your family members a lot of stress and conflict.

So in this post we’ll talk about why you want a will, even if you don’t have a lot of money, how to get it handled, and how to have some of those difficult conversations with your loved ones.

The Benefits of Having a Will

The popular perception of a will is that it allows you to determine who gets all of your money and possessions when you die.

And while that is a part of what it’s for, there are other benefits to having a will that have nothing to do with money. That’s especially true if you have children.

Here are four major reasons you want to have a will in place.

1. Naming Guardians

For parents, the biggest reason to create a will is to name guardians for your children if you pass away. You can name primary, secondary, and even tertiary guardians just to make sure that you have all your bases covered.

Without a will, this decision would be made by the courts. Better to take it into your own hands to make sure that your children are always in the best situation possible.

2. Naming Custodians

A will also allows you to name custodians for your children. These are the people who would be in charge of whatever money is left to your children up until they reach adulthood (typically age 18 or 21).

The custodians are often the same as the guardians, but they don’t have to be. In any case, this is another important decision that you’ll want to be in charge of just to make sure that your children’s best interests are considered.

3. Passing Property

Of course, a will also allows you to decide who gets things like money within your savings and investment accounts, your house, and any other personal possessions you’ll be passing along.

4. Keeping the Peace

Without a will in place, all of these decisions would be left to your surviving family members. That’s not only a lot of work to put on their shoulders, but it could be the cause of fighting if people aren’t in 100% agreement about what should happen.

Talking to your family about these decisions ahead of time and being very specific in your will makes the process much easier for everyone when the time comes.

How to Get a Will in Place

There a couple of different ways you can create your will.

One option is to find an estate planning attorney in your area who can walk you through the entire process and get everything in place. Most attorneys will likely charge a couple of hundred dollars for this, though you may be able to get a discount through your employee benefits program.

There are two big reasons to consider using an attorney:

  1. If your situation is relatively complicated, such as having significant savings and investments, owning businesses, owning multiple houses, or having gone through a divorce, a lawyer can make sure that all of that is accounted for correctly.
  2. A good attorney will not only understand the law, but will take the time to ask about your personal situation and goals, clearly explain all of your options, and help you make the best decisions possible. That kind of guidance and the peace of mind it provides can be worth paying for.

The alternative is to use one of many DIY tools out there, like Nolo, LegalZoom , and Rocket Lawyer. This is the less expensive option, and it may be a good choice if:

  • Your needs are very basic, or
  • You’ll be moving to a new state in the near future, meaning you’ll need to get a new will done soon anyways. In that case it may make sense to get it done inexpensively now and pay for an attorney once you’re in the new state.

How to Talk About a Will with Your Loved Ones

Creating a will can bring up some tough conversations with your family members.

If you’re creating your own will, you may have to talk to a spouse about who you would want caring for your children, and there may be some disagreement there. You’ll also have to ask the people you want to be guardians whether they’re willing to do it, and you may run the risk of hurting feelings by not choosing people who would like to be in that position.

But it’s not just your will you need to consider. Many adult children are put into tough situations when their parents either never created a will, never updated it to reflect their changing circumstances over time, or simply never talked about their wishes with their family. That could leave you with the significant responsibility of figuring it all out after the fact, and it could also put you in the tough position of negotiating or arguing with your other family members about what should b done.

So it’s a good idea to talk to your parents about their wills too, just so the entire family can get on the same page and have a plan in place.

Here are some things to keep in mind when you have any of these conversations, to make sure they’re as positive and productive as possible:

  • Many people are uncomfortable talking about this subject, for a variety of different reasons. It may take several tries before you’re able to have a meaningful conversation, so expect that going in and be patient.
  • Start by asking the other person what they want, rather than talking about what you There’s plenty of time for you to have your say, and in the meantime you can make sure they have the chance to be heard.
  • When writing your own will, keep the feelings of your family members in mind but make sure to put the interests of your spouse and/or children first. Putting them in the best position possible is the top priority.
  • When talking to your parents about their wills, make sure to get all siblings and other family members involved. Otherwise there could be fights later on because someone feels like decisions were made behind their back.
  • Be willing to compromise, especially when it comes to who gets money and/or possessions. These are difficult decisions and it’s better to stay on good terms with the people you love than to get everything you think you’re entitled to.

Creating a will isn’t an easy topic, but it’s an important one for you to address head on both for yourself and with your parents. You will be much better off for having the conversations and for getting things in place.

Matt Becker
Matt Becker |

Matt Becker is a writer at MagnifyMoney. You can email Matt at matt@magnifymoney.com

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Staying Traditional with Women Breadwinners

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Wedding

“Bringing home the bacon,” is still a popular phrase used today in reference to bringing money into the household, and this phrase has typically been linked to the male breadwinners of the family. As we all know, the classic household dynamic has evolved over the years, and more and more women are either also bringing in their fair share of income or – as is such the case with 4 in 10 women – supplying the primary or sole source of household income for the family.

The changing family dynamics with income brings a necessary evolution in the socio-familial structure as well. The ‘manly’ roles of the family are now blurred as women take over some of the traditional income generation that, at one point, was left solely to the man of the house. Budgeting and paying for bills is still the end-game of it all, but the shift in who supplies the funds for these tasks could potentially threaten the traditional family structure, especially if the man of the house values his position as ‘breadwinner’ for the family.

If you find yourself in this shifting situation – a situation that is more than likely to continue to become more popular as the years progress – then it may be worth taking extra considerations before issues arise. Here are some tips to keeping the social and emotional family dynamics of your household at ease while the income-related dynamics take a shift towards women becoming the breadwinners in marriage.

Budget Your Bills

Depending on how you and your spouse have decided to split the bills (split accounts, shared accounts, or otherwise), you may have to do a little math to figure out the best route of coping with a shift in income. The good part is that if you had come to an agreement beforehand when the woman made less income, then those agreements should still hold true as the woman increases her salary. Typically those with split bank accounts fall into the following categories:

  • Split Bills: Split accounts means that it’s more difficult to share the bills, so many will opt to split the bills in a way that is equal for both parties. This typically means that while one party pays for, say, utilities, the other party would pay for rent.
  • Shared Bills: In this setup, those with split accounts put an equal amount of money for each bill into a shared account wherein the bills are paid from. Everything is shared evenly.

If the woman had made less before and the couple maintained separate accounts, then the shift in earnings shouldn’t change how bills are paid. For couples that share an account, the income all ends up in the same place, and bills can still be paid in the same fashion.

But budgeting boils down to more than just the bills for the house. This is where we get into ‘spending’, which can pose more of a threat than the budgeting itself.

Budgeting can involve how one budgets for groceries, activities, and so on…and in this regard, we shift towards more of the ‘spending’ aspect of money management. When one spends their money, they typically do so in a fashion wherein the essentials are paid first, and then the expenses trickle down to the least necessary items. When working on a tight income – regardless of whether the woman or the man makes more salary – spending can get tricky.

If you’re operating under the ‘split accounts’ setup, then the man of the house may feel a little threatened when the woman is now able to cover more of the family bills and luxuries. For instance, after one pays the bills and the necessities, the leftover money can be spent on more enjoyable activities. When the woman begins to bring in more income into a split account, they’re left with a larger sum to spend on extras. Whether these extras are items that the man would ever want is not of importance; it’s the fact that the woman has the money available to spend in the first place while the man is left with little to no extra money on enjoyment.

To overcome this potential obstacle, it’s important for the breadwinning woman to consider not spending her extra money if the man also cannot do so and vice versa. Instead, consider lumping some of the extra towards a family-oriented goal (such as home improvements or a family vacation). When doing fun activities together than would involve this ‘extra money’, it may be worth it to open up a joint account for either party to utilize in family situations. While both parties should contribute to this joint account, it’s not necessarily important to see who is contributing more. But in instances of, say, a fancy dinner out together, the man (who may have not been able to contribute enough on his own to afford the expense) is able to use his card connected to the joint account to perform the task of paying for the meal, preserving his feelings of being a provider.

Preserving Tradition if It’s a Value

As women start bringing home more of the bacon, it’s important to retain many of the traditional socio-familial dynamics that many men (and even women!) value. Spend the time to spend your money in a thoughtful way, just as your partner would do.

Stephanie Mialki
Stephanie Mialki |

Stephanie Mialki is a writer at MagnifyMoney. You can email Stephanie at stephanie@magnifymoney.com

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