Judy Loy: A Family Affair
I recently had a client request that I meet with his entire family.
The purpose was to convey the many financial priorities that exist. From college tuition to insurance to retirement planning, getting an early start on saving or just keeping the family in the loop can be priceless in the long run.
It is not the first time that I had the conversation or the first time a family member wanted their children to avoid their mistakes or start saving earlier for retirement than they did.
To start, simply showing your child or spouse the checkbook can be an eye opener. Many are not aware of the increasing costs of having a car (insurance, maintenance and gas), having a pet (vet, grooming and food) or even owning a house (mortgage, upkeep and utilities). An annual family meeting is a great way to keep everyone not only informed but educated.
For a spouse, it helps to have the conversation about budget goals and priorities. One may be a saver, the other a spender. Talking through what financial goals the couple may have in the future can help align the family with what steps they should take in budgeting and investing.
A few important goals to consider are when the mortgage should be paid off, any debt outstanding (credit cards, car loans) and when the couple or individual would like to retire. There is no doubt that planning to retire at 65 when you are 40 and taking the steps to do so (more savings, investing and debt pay down) is easier than planning your retirement for 65 when you are 55 years of age. Whenever it occurs, it is necessary to take a hard look at what is possible and what is desired. The two might not be the same, and in that case, changing priorities or investment strategies can be crucial.
Another way to keep your financial plans on track is to have money set aside for emergencies.
This is probably the first step in getting yourself in the right financial condition. An emergency cash reserve is essential to avoid derailing other financial plans and serves as your financial safety net. This money is then readily available when the car breaks down, the heating unit goes or you lose your job.
The amount that a person needs to set aside is dependent upon their circumstances, but most professionals suggest three-to-six months of expenses. If your job is secure, three months may be sufficient. Cash reserves are best kept where they are readily available for use.
Emergencies are unplanned, so when you need the money you should be able to pull from these funds within a week. To get to the right amount, you may need to reduce your discretionary spending for a while (avoid eating out, going to the movies, etc.) until you build up enough in a savings, a money market account or short term CD.
An alternative place to pull from is a Cash Value Life insurance policy. It may be tempting to use a home equity line of credit to rescue you in a time of need. Even with the low interest rates, a line of credit will have to be paid back, so use this strategy sparingly. Get kids in on the act and have them set aside savings in their name by depositing allowances or gifts. Setting up the right habits early can be crucial.
When dealing with teenagers, they should be learning about longer term goals if they are working or earning an allowance. Having them help with their bigger purchases (computer, car or college) can actually help them in the long run learn the right habits and gain discipline.
If possible, get them involved with investing for their college education. This can be beneficial as they learn about investment vehicles such as stocks and bonds. Alternatively, if they enter the workforce right out of high school, suggest the possibility of putting money away for retirement, even a minimal amount each month. It is easier to save in small increments now than to try to catch up later.
The aphorism, “The family that plays together stays together” could carry an addendum, “The family that saves together stays together.” They should all retire comfortably.