All the participants – mostly members of his extended family – would get together for a celebratory dinner.

During the evening, everyone would give their kuri contribution to the oldest brother, and a name would be drawn from all the contributors.

The winner of the draw received all the money contributed that week – they could pay off an interest-bearing loan, invest in their fledgling business, celebrate a wedding, or help pay their children’s school fees.

Then the next month it would happen all over again. Previous winners were removed from the drawing so everyone was guaranteed a share of the money at least once. And the whole group could make future plans, knowing a larger sum of money was headed their way in just a few months.

Groups like this exist all over the world. In Africa and the Caribbean they’re often called ’susu funds’. In spanish speaking communities they might be known as ’sociedads’. In other parts of India, they can be called ‘chits’. These groups, which are collectively described as “Rotating Savings and Credit Associations” (ROSCAS), have a centuries-long history in Kerala and elsewhere. Women in the world’s poorest households use this strategy by each contributing a handful of rice from the week’s allotment, which can be pooled and sold to create a much-needed source of cash money.

For communities without dependable banks, it makes sense for everyone to pool and quickly use large amounts of savings, rather risk having money stolen from home. Such clubs also continue to form and function in ‘global North’ countries where people have access to interest-bearing savings accounts and bank loans.

Kuris, susus and other ROSCAs don’t pay out interest, and in some groups it’s expected that the organizer will take a small cut of the total pool in return for her time. But what ROSCAs offer instead of interest is peer pressure to keep contributing and saving on a regular basis, in order to keep up with your obligation to the group and avoid having to explain to your friends why you can’t give your share.

This kind of peer pressure and obligation to keep up your good name is called social capital, and it’s what makes ROSCAs successful. By making sure you don’t miss a payment, it’s possible for you to come out ahead of saving in a traditional savings account. How? Well, if you put $200 in a savings account each month for a year, you’d earn about $22 in interest over the year, leaving you with $2422. But if you miss even one monthly contribution, you’ll be left with $2220 at most (the exact amount depends on which month you miss).

On the other hand, you won’t earn any interest from the ROSCA but your family and friends will be there to help and hassle you, keeping you accountable to make the payment. So you’re likely to contribute – and receive – the entire $2400.

It’s up to you to decide whether you can stay accountable to yourself to make regular deposits to a traditional bank, earning interest all the while, or if you’d benefit from the support and social experience a ROSCA can provide.

If you decide to participate in a ROSCA, check out the excellent tips in this article on Susus from Black Voices: And be aware that some people can claim they’re running a ROSCA but really be setting up a scam – it’s always best to participate in a group with people you know and trust.

This is a guest post from financial expert Manisha Thakor.  Manisha is a rising voice in the area of women & money. If you want to get inspired about money management, make sure to visit Manisha’s website where you can sign up for her “Manisha’s Money Musings” blog.  She welcomes reader questions, so don’t hesitate to reach out to her.

Tough economic times have tested the vast majority of Americans – and that includes celebrities.  Lately there have been several high profile individuals from the worlds of sports, entertainment, and the arts who have seen their financial woes hit the front pages.

A money meltdown is right up there with death and divorce as one of life’s most stressful experiences. So let me say straight up that my intent in highlighting these experiences is not to poke fun or make light of their situations.  Rather it is to help others by highlighting common financial pitfall that all of us (myself included) can learn from.

NBA Star Antoine Walker – Broke & In Big Trouble: During a successful career spanning 12 years, Antoine earned over $110 million. Now it’s gone. At age 33, Antoine has creditors chasing after him and is facing felony check fraud charges.  Much has been made of his bling (the cars, watches, entourage).  However, he was also by many accounts extremely generous with friends, family and those in need.  Antoine’s problem was that he spent as if his peak earnings years would repeat every year. He’s not alone. Many people with variable incomes (commission-based sales people, entrepreneurs, etc.) fall into this trap. What we all can learn is if you have a volatile income stream, you should spend based on your average, or even trough, earnings to avoid a cash crunch when leaner times appear.

Bestselling Mystery Novelist Patricia Cornwell – Looking for $40 Million: This prolific, smart, and highly popular writer has suffered losses estimated in the range of $40 million.  She’s suing the money management firm that handled her money, arguing they didn’t heed her instructions to “invest conservatively” and even cut checks for gifts given to people she didn’t know.  Patricia’s problem was that she handed over complete control of her finances to her advisors.  As it frequently takes single-minded devotion to one’s craft to excel, the need for some delegation is understandable.  What we all can learn is when it comes to your money, your motto (to quote President Regan) should be “Trust, but verify.”  Remember, no one will ever care about your money as much as you do. So you must stay involved, even if you have an advisor.

Uber-talented photographer Annie Leibovitz – Fighting to Keep Her Home: This American icon has taken some of the most famous photos… ever.  From John Lennon & Yoko Ono (hours before he was shot) to a very pregnant (and very bare) Demi Moore, that was Annie’s work.  In the go-go years Annie’s day rate was rumored to be $250,000. Today she is $24 million in debt and is a single mom of three young children fighting to keep her home. Annie’s problem was spending liberally and borrowing aggressively against the equity in her home to make up the difference. When the credit markets seized up, she found herself in a cash flow crunch, and resorted to putting up her homes and copyrights to her lifetime work up as collateral for a loan.  Now, that collateral may be called in. What we all can learn is that debt really is a four-letter word.  Borrow at your own risk and understand that there will be consequences if you can’t pay it back.

Famed actor Nicholas Cage – Owes over $6 Million in Back Taxes: This super talented actor owes the IRS.  Big time.  Uncle Sam wants over $6 million in back taxes from Nicholas Cage.  The vast majority stems from the $12 million-ish in income he earned in 2007 that apparently he did not pay taxes on.  Nicholas’s problem is that he appears to be cash strapped when it comes to paying those takes. What we all can learn is that if you are self-employed, as so many more of us are these days, it’s vital to set aside money for taxes at the time you earn that income.

Q: What do Walt Disney and credit reports have in common?

A: Both of them may be frozen! One hidden under “The Pirates of the Caribbean,”” and the other with each of the top credit reporting agencies.

OK, Walt Disney probably isn’t frozen, but did you know you can protect yourself from identity theft by freezing your credit report?

Since 2007 consumers in 48 states have slowly but surely earned the right to initiate a security freeze that bars new lenders from seeing their credit history without permission.

A frozen credit report makes it nearly impossible for identity thieves to open new accounts, since most lenders will check it before issuing credit.

It’s a pretty straightforward process in theory: You contact each of the top three credit reporting agencies (TransUnion, Experian and Equifax) and pay a one-time, state regulated fee to make your credit report inaccessible to anyone who tries to view it without your PIN numbers.

When you want to open a new account or apply for credit, you simply “thaw” your report so the agency or business can see it.

Here’s a breakdown of the real-life pros and cons of freezing your credit report:

Pros

• The service could save you the stress and time it takes to clean up a credit mess if your identity is ever stolen
• If you are already a victim of identity theft, the service is free for you in every state. Without a security freeze you’re much more likely to be a repeat victim
• It is also great if you tend to take out credit impulsively. There’s waiting period between requesting a freeze-lift and a new lender gaining access to your report. Most states require the lift to take no longer than 3 or 5 days.  In some states however, this waiting period is required to take less than 15 minutes
• Freezing doesn’t have any effect on your credit score and you can still access your own report
• For two of the three agencies, you can initiate a freeze online (click here for TransUnion and here for Experian). Experian makes you take a little test to confirm your identity, so be on your toes to answer questions about previous credit and loans
• Unlike fraud alerts security freezing doesn’t expire after 90 days. The service lasts until you cancel it
• In some states the fees (for placing and removing  freezes) are as low as $3. In South Carolina they are both free.

Cons

• If an emergency comes up and you need credit fast (and your state doesn’t have a 15-minute freeze lifting law), you may have to wait several days to get approved. On the other hand, if you apply for credit with someone you currently do business with they can access your credit report. It is only hidden to new lenders.
• In order to have effective protection from ID theft, you must have a freeze with all three agencies. That means three times the fees
• Equifax  has a reputation for making a security freeze initiation difficult. It may be best to go the snail-mail route with them. This site has helpful letter templates for each state, under the “Instructions” link
• The credit score freeze won’t do much to stop “pre-approved credit” offers. You have to go here to do that, or call 888-5OPTOUT
• If you’re applying for a job you’ll need to lift your freeze so the potential employer can check your credit. It’s perfectly acceptable to ask which credit reporting agency they use, so you only have to lift one freeze and pay one fee
• There’s debate about whether the risks involved in sending all of your sensitive information (SSN, account numbers) through the mail to initiate or lift a freeze is worth the security of having the freeze in place

Should you freeze your credit report? If you apply for credit often, or are in the midst of job interviews or major purchases, a security freeze may be more hassle than it’s worth. If you don’t think you’ll need to lift it often, and your sensitive information may have been compromised (through things like mail theft or phishy online business), a security freeze is important. For most people it’s a reasonable, affordable precaution–enough to make Ol’ Walt proud.

The Department of Labor reported last week that new unemployment insurance claims increased by 11,000 – more than analysts expected – to a total of 531,000 new claims. Those numbers suggest that economic times remain difficult, and many people are navigating the unemployment insurance maze for the first time. Help is out there, if you know where to look. A good place to start is at the Department of Labor Web site, which can direct you to your state employment office.

I called my local employment office and after spending 20 minutes on hold, I spoke with a representative who informed me that I could apply for benefits online. I went to the employment department’s Web site and found it simple and straightforward – I entered my personal information, submitted an electronic form and waited for a claims specialist to get back to me.

While I waited, I visited my new county’s Department of Social Services office, where I applied for food stamps (I was unemployed, after all) and a Medicaid program that covers family-planning related care. Again, something I never thought I would do in life, but there comes a time to lose that pride.

Newly unemployed workers should also consider applying for COBRA, which gives workers and their families who lose health benefits the opportunity to continue receiving benefits, with a few stipulations. For more information, find it here.

The Department of Labor says your claim will probably take three weeks to process – some states require a one-week waiting period for claims. A week after I filed my employment claim, a “claims specialist” called me and asked me questions about my job status. I explained that I was not fired, that I moved for my boyfriend’s education and that I was actively looking for work. She told me to keep a log of where I apply for jobs. A few days later, I received a letter informing me that I had been approved and could continue to apply for benefits online each week. I just had to continue looking for ward and keep track of my applications (contacting temp agencies counts).

My experience showed me the wide availability of support programs out there when life throws you a curve ball. The Department of Labor says that unemployment insurance is available to workers who lose their jobs “by no fault of their own,” and meet other criteria.

Another surprise: you can still collect unemployment insurance if you are working part-time. After a month looking for work, I found a few temp jobs through a personnel agency. The employment department Web site explained that I could still receive benefits if my wages were below a certain amount, so I noted them on my next claim. Happily, it didn’t affect my benefits because I was earning well below the threshold. This is true for freelancers as well, but individuals need to check with their state for its rules.

If anything goes wrong with your claim, you’ll hear from the employment department promptly. If they deny your claim, you have the option to appeal.

Most states try to put as much information available online as possible because they are so overwhelmed with phone calls. If you must call, avoid Mondays and Tuesdays – mornings and around lunch time are busy, too.

And remember, being unemployed is not the time to be too proud to ask for government aid – especially ones you have been paying taxes for.

At first glance it seems like the perfect situation: They love you. They’re more likely to sympathize with your need than a bank; and you’ll definitely pay the money back.

But imagine a trip to the mailbox. You mindlessly open the door and pull out a single piece of mail. Shocking you awake, the telltale uniformity of the white and blue business envelope  screams, “You owe me money!”—which is the last thing you need screamed at you today.

The blood that once flowed unnoticed through your veins abruptly invades and warms your face uncomfortably. You huff and stuff the bill away so you can forget about it for a few hours.

Do you know that feeling? It’s not exclusive to paper invoices; this feeling is also the fatal flaw in friendly-lending. What if you felt the same resentful dread every time you looked a friend, or a parent, in the eyes?

Personal loans, unless handled very carefully, have potential to cause destructive rifts and grudges. Before approaching a friend or relative for money, always investigate the alternatives.

Peer to Peer Lending

If you’re tying to avoid the high interest rates bank loans and credit cards entail, or you don’t qualify, look into peer to peer lending (click here for a past post about P2P) for a happy medium. Peer to peer Websites can offer the personal touch and low interest rate of a personal loan, without the latent tension unpaid (un)friendly debt brings to social gatherings.

With P2P lending you can get personal about why you need the loan, which doesn’t matter to a bank but may sway a peer lender to make you an offer. Some sites use your credit score to determine your interest rate, while others like Prosper.com let lenders “bid” on your loan with lower interest rates.

IOU, 401(k)

The jury is out on whether borrowing from your 401(k) is a good idea (click here to read more), but if your need is short-term (meaning you can pay it back in a year) you might consider it. One plus of borrowing from your 401(k) is that you’re essentially not paying interest on the loan. There are interest fees, but they go back into your original nest egg to restore the balance as time goes on.

Other pluses: there is no credit check (heck- you’re lending to yourself) or fees involved with 401(k) borrowing, aside from the interest that you put back into it.

The Last Resort: Personal loans

If all else fails and you have to take a personal loan, here are some ways to minimize the awkward tension when love and loans collide:

• When you approach someone close for a loan, keep in mind that your relationship is more important than the transaction. Decide ahead of time that if your friend/relative chooses not to lend you the money, you won’t interpret the refusal as a personal snub. Likewise, if they lend you the money, show that you value the relationship by making payments a priority

• Insist on making a written agreement, a promissory note. It’s significantly easier for you to suggest a formal contract than it is for your BFF to uncomfortably ask you for one. Consider your responsibility to find and pay for notarization

• Make it official with a third party. Virgin Money–the same “Virgin” that puts out Ben Harper’s CD’s– is a quasi-peer-t0-peer lending Website that makes friend/family loans official, formal and structured.They manage the payment process and transfer money from your account when the payment is due. As can be expected, Virgin Money’s service entails service fees and charges for the electronic payment transactions. The biggest perk about using a service like VM is that you can have a formal agreement with your friend/family member lender, and once the agreement is made neither of you have to bring it up again because the service will manage the financial transactions. Thus you avoid payment-reminder phone calls that start with, “so how is your mom?”

• Make very rich friends

Have you ever taken or given a personal loan? How did it turn out? Post your comments below

One of the first forms you will see is your W-4, which tells your employer how many federal income taxes to withhold from your paycheck. The Internal Revenue Service recommends filling a new one out each year as your financial situation changes.

The IRS Web site has instructions on filling out the W-4, including a “withholding calculator” that will estimate how exemptions will affect your tax return.

To get started:

• Collect any past pay stubs or tax forms and visit www.irs.gov. Click on the link to “Check Your Withholding.” It will be in the middle section of the Web page.

• Type in all the information they ask, making estimations where you can’t be exact. Just make sure your guesses are based on reality.

• Once you get the calculation, read all the IRS suggestions. They may suggest that you decrease your amount of exemptions or that you must make up X-dollars before the end of the year. This is your ticket to avoiding big surprises come tax time in the spring. Heed their advice.

• If you haven’t started your job yet, you will have made estimations based on your salary and expected taxes. Remember: you can change your withholding amount multiple times in a year; so don’t feel locked in to the exemptions that you write on your W-4.

• Back at your company’s human-resources department, ask how many times you can change your W-4 exemptions.

• Start on the paperwork: write in the exemptions that work best for you (for example, if you are a single 20-something and living alone with no dependents, one or zero exemptions would be typical).

• The more exemptions you make, the fewer dollars will be withheld from your paycheck, so your paycheck will be bigger. But that also could mean you will owe money at tax time (if you do, and you don’t have that money set-aside for such a purpose, the IRS has repayment plans available). On the other side, if you make too few exemptions, you might find that you can’t live on your remaining wages.

• After a few months of working with those exemptions, reassess your financial situation. Are you living comfortably? Use the withholding calculator again and see where you’re at.

On the road to financial security, financial experts say that making smart steps early in life will save you a lot of money and headache in the future. Understanding how taxes affect you as a professional is just one step. Now, get in the habit of saving a portion of your paycheck each month.

Or maybe you have to giggle when your bank savings account shows a monthly interest payment that’s less than your monthly allowance as a kid.

On the other hand maybe you need a loan but don’t want to deal with bank bureaucracy and fees, or maybe your credit isn’t established enough to get a decent interest rate.

Given the current state of our economy, those of us just starting to enter the world of responsible adult finances are in for a crazy ride. Luckily, we also have some up-and-coming alternatives to traditional bank and investment options. A hot new alternative is Web-based peer to peer lending.

Peer to peer lending is also called social lending and person to person lending (P2P). The principle behind the various forms of P2P lending is that a low-overhead Website makes a better middle-man than a bank or credit card company—allowing borrowers to get lower interest rates and better shots at receiving a loan, while everyday people can “invest” their money as loans that generally have a higher rate of return than a savings account or stock investment.

How does P2P lending work?

The details are slightly different for each company, so here’s a description and breakdown of the two most popular, Prosper.com and Lendingclub.com, as well as a new platform for peer to peer lending specifically for students borrowing to pay for school—People Capital.

Prosper.com, a San Francisco based company, is currently the leader in peer to peer lending after completing a brief “quiet period” while the SEC tried to figure out how to treat them. Prosper performs a credit check on borrowing applicants, and if the applicant has a good credit score score (640+), he or she can create a listing with the loan amount and the maximum interest they’re willing to pay. Lenders can then checkout the borrower’s general credit health and purpose of the loan to decide what interest rate they want to bid.

The really cool thing about Prosper is that lenders have the option of financing a part (as little as $25) of the loan, or many loans, instead of one full loan. This helps spread the investing lender’s risk, should the borrower default. Prosper just combines the lowest-interest lender bids into an unsecured loan (meaning no collateral is involved) that must be paid within three years. If all goes as planned, investors with Prosper see a 7 to 11 percent rate of return—better than most savings accounts.

Borrowers can benefit from the competitive bidding to lower their interest rate, but must pay a processing fee to Prosper of 1 to 3 percent of the loan when the bids are in, as well as a closing fee at the end of payments. A plus is that, unlike many bank loans, Prosper doesn’t charge prepayment fees for an early full payment, and otherwise the monthly balance is automatically deducted from the borrower’s account.

Lending Club differentiates itself by focusing on a more personal connection between lenders and borrowers. Though the identities of both are kept private (to prevent late-payment kneecap busting, no doubt) borrowers can post a great deal of personal info on their profiles. This can influence similar lenders to pick them, or be used to explain unusual circumstances surrounding the loan, which a bank would likely disregard but a living, breathing person might be more sympathetic about.

As on Prosper.com, Lending Club’s unsecured loans must be paid off in three years, and lenders can choose to only contribute part of a loan ($25+). Lending Club has a 1 percent service charge to the lender, in addition to a processing fee of 1.25 percent to 3.75 percent for the borrower. The borrower’s interest is determined by their credit score. Interest can run between 7.05 percent and 21.21 percent for borrowers. Lenders in 2008 got a pretty sweet deal, with an average investment return of 9.05 percent even after accounting for early payments (where less interest can be collected), defaults and the service charge.

Lending Club posts regularly updated performance statistics so you can check the company’s pulse before jumping in, or if you get antsy afterward. Investors can also choose to put their notes up for sale on the website.

People Capital is different because it exclusively matches up student-borrowers with cream-of-the-crop lenders. Since most college students haven’t had time or knowledge to build up good history, People Capital projects a Human Capital Score after dissecting and analyzing GPA’s, standardized test scores, along with the borrower’s college and major to determine their ability to pay the loan back.

Another important difference between People Capital and most other peer to peer sites is that the FDIC insures their lenders up to $25,000. Along with the safety net, lenders face tougher criteria—such as having a net worth of $1 million or annual income of $200,000— to lend on People Capital than with other companies.

Borrowers benefit from People Capital because the unsecured loans are available even if they don’t have a credit history. People Capital also has several payment options so students going in to fields with considerable startup time can have a little slack on finishing payments. Lenders may appreciate the ability to sift through applicants to “sponsor” a student at their old alma mater, or one entering their field.

Have you used peer to peer lending, either as a borrower or lender? Post your experiences below!

This is a guest post from financial expert Manisha Thakor.  Manisha is a rising voice in the area of women & money. If you want to get inspired about money management, make sure to visit

In these recessionary times, millions of Americans have found themselves drowning in one of the most expensive types of debt out there – credit card debt.

Thanks to the Credit Card Act of 2009 however, relief is on its way. Come February 22, 2010 (and potentially as soon as December 1, 2009 ), there will be new consumer protections put in place.

This legislation has something for everyone…

1. ARE YOU UNDER 21? This regulation will help you save yourself from yourself, by restricting your access to credit cards. Gone are the days of free tee-shirts and pizzas in exchange for signing up for a credit card on America’s college campuses.

• Credit card companies will no longer be able to issue credit cards to individuals under the age of 21 unless they either can provide proof that they can repay the money they are borrowing on that card or have a parent (or someone else over age 21) co-sign and agree to be responsible for that debt.

• Right now the average college student is graduating with over $3,000 of credit card debt so having this temptation removed is huge.

2. ARE YOU TRYING TO GET ESTABLISHED?

• This regulation restricts all interest rate hikes during the first year a card has been issued. Unless you have a card with a variable interest rate, card issuers can no longer raise your interest rate in the first year after a new account is opened.

• The only exceptions are if the card was opened with a clearly stated promotional rate for at least 6 months or if you go more than 60 days without making your minimum monthly payment.

3. ARE YOU JUGGLING EXISTING CARDS? This regulation puts in all kinds of speed bumps you’ll like.

• The interest rate on your existing debt can’t be raised unless, once again it’s a variable interest rate, the end of a promo period, or you are over 60 days late on your minimum payment (for any of these reasons you do not have to be notified).

• On top of this for future debt that you may accrue on fixed rate cards, issuers have to give you 45 days notice on any rate changes. Issuers can no longer charge over-the-limit fees unless you’ve specifically asked to have your account set up to allow transactions over your credit limit.

• Two-cycle billing is now banned.

• And if you boo-boo and are 60 days late on a payment, after 6 months of on time payments the card issuer has to restore your prior interest rate.

4. ARE YOU DIGGING YOURSELF OUT OF DEBT?

• This regulation requires the fair application of payments. In the old days, paying off your credit card debt was akin to eating a layer cake with your fingers while blindfolded. By that I mean you’d send in a payment – but it wasn’t always clear to you which layer of debt was being nibbled away at. More often than not, it was the lowest interest debt that got paid off first when you sent in that payment.

• Under the new rules it will be your highest interest debt that gets paid off first.

5. ARE YOU A GIFT CARD PACK RAT? This regulation will enable you to shop till you drop.It applies to both prepaid cards as well as retailer cards. The two biggest changes are that:

• (1) You get a full five years from time of purchase (or whenever money was last put on the gift card) to use it – so no more surprise expirations and

• (2) As long as you’ve used the card once in the past 12 months, no “inactive” fees can be charged. (After 12 months of no activity you can be hit with 1 fee a month).

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As it turns out, the only thing free about bringing a little one into the world (aside from joy, love and other meaningful things) is getting the process started. Babies, and particularly the first born, bring along expenses you need to be aware of and budgeting for before the little bun gets to baking.

Why the rush to pee on a stick? Patience pays off

Results from a poll by babycenter.com show that 45 percent of women trying to conceive take pregnancy tests without waiting to see if their period comes (here’s another free “pregnancy test”). Why does that matter? It matters because doctors recommend using a test 5 to 10 days after a late period is due. So nearly half of the women polled paid an average of  $12 a test, risking a false negative because pregnancy hormones had so little time to build up. To save money on tests (generic Walmart and Walgreens versions are cheaper, but may give more false results) look for coupons online and fight that curiosity until at least a day after a late period is due.

The preexisting condition in your belly

Applying for coverage after getting pregnant may work against you as it’s considered a “preexisting condition.” Check your health insurance policy before you get pregnant, if possible. You may be surprised. We (I’m not pregnant, mom) were disturbed to realize our considerable coverage actually has nothing for prenatal or maternity care.

Here’s a starting place for maternity insurance and discount programs.

Ah for the days of giving birth in potato fields

Let’s backtrack from the delivery: Doctors recommend about 14 prenatal checkups-increasing in frequency as the trimesters progress- averaging $133 each (without insurance) according to the Agency for Healthcare Research and Quality. Without insurance or discount programs that’s $1,862 over nine months–$206.80 a month before the delivery, not including that awesome 3-D sonogram and bloodwork and tests. It is vital to look into getting coverage, as the costs will carry on well past infant checkups.

Without insurance deliveries range form $6,000 to $15,000 before doctors’ fees. A C-Section with complications and a longer hospital stay is the most expensive situation. Optional medical expenses that bring the price up: epidurals and circumcision for a baby boy.

Look in to purchasing insurance that has a reasonable deductible and low annual out-of-pocket cap, because many insurance companies consider your newborn on its own coverage upon birth. That means you’ll pay double  out-of-pocket-caps and deductibles (for you and the baby). You can ask the hospital you’ll deliver at what your estimated out-of-pocket costs will be when you register with them.

What happens in the hospital doesn’t stay in the hospital

It is illegal to bring your little treasure home without a carseat ($30 to $400), and that’s just first furniture baby will contact. Look to economize with a convertible carseat that will change for your growing infant, or a carseat/stroller combination. The other two primary expenses in the first year are food and diapers. Here’s a really cool cost calculator to give you an estimate of your first year expenses with a baby.

Trent from The Simple Dollar figured up that breastfeeding can save $1,733.75 versus formula in the first year. This doesn’t factor in the cost of a breast-pump (why does it feel creepy to type that?), which runs about $250, but a savings of even $1,400 in the first year makes breastfeeding look like a good idea. If breastfeeding isn’t possible in your situation, here are some moms’ breakdowns on the cost of different formulas. Their average is a little lower that Trent’s estimate, at $1,284 a year.

Once your baby is on to semi-solid foods, you can save about $4 a day over baby food jars (which can average $4.50 a day) by steaming and pureeing your own vegetables and cooked meats. Here’s a site with recipes and ideas for economical and nutritional baby foods.

Babies can go through 5-8 diaper changes a day– that’s 1,825 to 2,920 in the first year! If you use disposable diapers you can expect to pay $1,600 to $2,300 for them by the time your baby is potty-trained. According to the research I did no one has a solid fiscal argument for using disposable diapers.  In fact cloth diapers can save you big. The cost of using cloth diapers, which can range from a super-simple cloth to having more features than your minivan, is between $800 and $1,100 if you wash them yourself. Gross as it may sound right now, there are loads of helpful tips online for making cloth diapers easy, and they’ll help you save for the expenses of the next 18 years of your child’s life!

All told, your baby will be priceless. But choosing to be frugal with the necessities, and having adequate medical coverage, can make the experience that much more enjoyable.

This is a guest post from financial expert Manisha Thakor.  Manisha is a rising voice in the area of women & money. If you want to get inspired about money management, make sure to visit Manisha’s website where you can sign up for her “Manisha’s Money Musings” blog.  She welcomes reader questions, so don’t hesitate to reach out to her.

Meet The 5 Items that Consume >50% of Your Lifetime Income

In these recessionary times, financial tips are flowing fast and furious about how to save money and stick to a budget. Facing a sea of information many people are asking, “Where do I start?”   For most of us, five areas of spending will consume over 50% of the money we earn during our lifetime, so that’s the best place to begin.  The five areas are:  Home, Car, Kids, Education, and Retirement.  Here’s what you need to know about each:

1.    Don’t bite off more HOME than you can chew.

How much house can you comfortably afford? For most people the answer is a house with a purchase price of no more than 3x their annual household income. Rationale:  the cost of a home includes much more than the monthly mortgage payment.

It’s also property tax, insurance, upkeep, etc.  Typically these costs run 2%-3% of the price of your home each year.

Assuming a 20% down payment, a 30-year fixed rate mortgage, and interests rates in the 5%-6% rate, the 3x your income rule of thumb will translate into total housing costs of roughly 30% of your gross income.

2.     Don’t let your CAR drive you to the poor house.

The same logic applies to your car. Most people can comfortably afford a car that is 1/3rd of their annual income. If you make $60,000 you can comfortably afford a car that costs $20,000.  If that seems low – now you know why so many Americans are in financial trouble.  They are driving it.

A car has many other costs than simply the monthly payment.  There’s insurance, gas, parking, maintenance, etc.  If you follow this rule of thumb,  your total transportation costs should be 10% or less of your gross income.

3. Don’t let your KIDS kick you in the wallet.

Kids are expensive.  From a purely clinical standpoint the Dept. of Agriculture estimates it will cost $220,000 to raise a child born in 2008 from diapers to age 18.

And that figure is before you add in the cost of college!  Deciding to be a parent is a major financial obligation.  Don’t make it worse by over-indulging your love bundles.

4. Don’t forget to ask “How high is too high for higher EDUCATION?”

It used to be good debt was defined as mortgage and student loan debt… and bad debt was everything else.  Not any more.  We’ve now learned that too much of a good thing can indeed be bad.

Rough rule of thumb, don’t take on more in total education debt than you think you are going to earn on average annually during your first 10 years after graduating (from college or grad school).

In plain English, if you think you’ll make $50,000 a year, don’t take out more than $50,000 in loans. The logic behind this is that if it takes you more than 10 years of paying 10% of your income a year in student loan repayments, it’s going to be tough to meet your other financial obligations.

5. Don’t underestimate the need to feed your RETIREMENT nest egg.

How much will you need to retire? A simple rule of thumb is to multiply your current income by 25.

So if you make $50,000 a year and want to maintain that standard of living in retirement, you’ll need a nest egg of at least $1,250,000.  Understanding as early on in your working life as you can what “your number” is will help you see how important it is to plan for this savings goal.

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