Getting Started in the Business of Family Child Care - Part 5
I’ve created a new publication for new family child care providers. It describes the most important aspects of becoming a successful family child care business. You are free to distribute this to anyone.
I will be posting sections of the publication over the next five weeks.
Getting Started in the Business of Family Child Care
Congratulations on becoming a family child care provider! You are among a special group of individuals who have chosen the profession of caring for young children. You have chosen this work because you love children. You also have an opportunity to earn money to support your family. Each year thousands of providers have successfully set up their businesses, and we welcome you to this caring profession.
This publication introduces the most important topics that every family child care provider needs to know about to run a successful business.
Introduction: How to Begin
How to Promote Your Business
How to Create Contracts and Policies
How to Keep Records
How to Reduce the Risks of Running a Business
How to Manage Your Money and Plan for Retirement
How to Manage Your Money and Plan for Retirement
Learning to manage your money is a vital skill. You will need at least 70% of your current income when you retire to maintain your current standard of living. Social Security will generate less than half of this amount. You need to save money through your own retirement investments. You can expect to live approximately one-fourth of your life in retirement. Planning ahead will make a difference.
Educate yourself about money. Two excellent books are Personal Finance for Dummies, by Eric Tyson, and Making the Most of Your Money, by Jane Bryant Quinn. Learn more by attending classes and workshops in your community.
Know what you spend your money on. For at least two months, track every dollar your family spends. Put your spending in categories under two headings: fixed expenses and flexible expenses. Examples of fixed expenses include mortgage, utilities, insurance, and loans. Examples of flexible expenses include food, clothing, entertainment, vacations, and so on. To make savings a top priority, set aside a savings amount at the beginning of the month as a fixed expense. Cut something under flexible spending if you are short at the end of the month.
Pay off all credit card debt. If you can’t afford to fully pay off credit card bills at the end of each month, this is a sign of overspending. The money saved from paying interest on credit cards can be used towards your retirement.
Pay cash for all purchases. The only exceptions to this rule are the purchase of a house, home improvements, and a college education. Try to set aside money each month in a car replacement fund so that you can make a bigger down payment for your next car.
Start saving in small amounts. Some providers set aside the amount of a payment for one child as their retirement savings.
Time is money. The sooner you begin saving the better. This example illustrates this point. Susan and Rich are twins. Susan starts saving for her retirement at age 35. She saves $2,000 a year for ten years and earns 8% interest each year. At age 65 she will have $151,000. Rich waits to start saving until he is age 45. He saves $2,000 a year for 20 years and earns 8% interest each year. At age 65 he will have $99,000. Although he saved twice as much money as his sister Susan, he has a third less money because he waited 10 more years before he started to save.
Purchase insurance to protect yourself against major disasters.
Planning for retirement is a long-term goal. Before making long-term goals, make sure you have a plan to meet your short-term goals (one to five years). Short-terms goals can include buying a car, making a down payment on a house, and so on.
Set up a plan to meet your regular monthly expenses if you become disabled or out of work for three to six months. You don’t want a short-term emergency to wipe out your retirement savings.
Target at least 10% of your net income (income minus business expenses) for retirement savings. If you are over 40 years old, then 20% is better!
Don’t wait until the end of the year to put money into a retirement account. Start investing a small amount each month.
If you don’t know where to invest your money, put your retirement savings into a money market account. This is a safe starting point. Then start educating yourself and seek out advice about where to put your money. Don’t invest in stocks or bonds until you understand their risks and rewards.
Depending on your household and business income, you may be eligible to participate in several retirement plans. These include a Traditional IRA, Roth IRA, SIMPLE IRA and SEP IRA.
Saving money and planning for retirement is not simple. But you can educate yourself about finances. And doing so will give you more control over your financial future. For more information see my Family Child Care Money Management and Retirement Guide from Redleaf Press.
Tom Copeland - www.tomcopelandblog.com
