Politics, religion, and finances; the trifecta of things we don’t talk about in polite conversation. But, what if not talking about it is detrimental? We will save the politics and religion for another day, but let’s talk money! In a startling survey, 95 percent of millennials are saving less than the recommended amount. This lack of talking about finances–and learning about them–could have some very unwanted future consequences such as pushing back retirement and reducing standard of living. Think that is a problem for the future? Or that it is too late to start now? Think again!
Early Career Financial Planning
“Take time to hone your career skills,” shares Certified Financial Planner (CFP) Jason Rainier of Rainier Wealth Planning. “It is a lot easier to complete education and certifications before the kids are here, if that is at all possible! While you build your career, build an emergency fund of three-six months of living expenses. If the pandemic has taught us anything, it is to be prepared, even for scenarios that you could never even imagine. Max out your retirement funds right away if you can. It’s a lot easier to save the money you aren’t used to getting than to get a certain amount and then try to cut it back to save, and kids and families make saving a lot more difficult.”
Rainier also urges people with specialized careers to think about the impact that a disability might have on their career. If you perform certain specialized tasks after years of training, what would happen if you couldn’t do that thing anymore? While you are young and healthy, get disability insurance.
Parents of young children have a lot to think about: extra mouths to feed, clothing, childcare and education, healthcare. It can be very easy to become financially overextended. Budgeting can be helpful. Work with your partner to create a budget. Creating a budget is a lot of work and can be hard to stick to, but it’s worth it to meet future goals.
Local mom Amanda D. shares, “We had success using a cash envelope system. We stopped using cards. We kept enough in our checking account for auto draft bill payments (with a small cushion) and set aside a set amount for expenses for the week (gas, groceries, etc.) Any spare money went into savings. When we did this faithfully, we were able to save a few thousand dollars within a few months.”
Sarah I., a local mom of three, adds, “We have a financial planner. He taught us a ton about setting ourselves up for success in the long run. We also got life insurance for both of us once we started having kids, so no matter what, our kids would be taken care of. It’s nice to have peace of mind.”
Hand in hand with planning for your family’s financial future is to have a will. Work with an attorney to decide who would take care of the children should something happen to the parents. Make provisions for the children; you don’t want to put the financial burden on the person taking care of your children.
“Education is very expensive,” points out Rainier. “The cost of higher education has gone up steadily for years. Start planning for higher education early if you want your child to go to college. Build a little nest egg for the kids. Put funds into an account that will grow over time to lessen your out-of-pocket expenses by signing up for a 529 college savings plan. There is potential for tax deferred contributions and Louisiana offers a match on those plans.” Check out StartSaving.la.gov for more information on starting a 529 plan for your child.
Rainier also shares that you’ve got to plan for illness. “Parents get sick. Kids get sick. An HSA, Health Savings Account, or FSA, Flexible Savings Account, allows parents to set aside money pre-tax, to use for medical expenses. ”
“When kids grow up and leave the nest, that is usually the largest pay raise the parents ever get,” shares Rainier. “Parents are at the height of their earning potential, but with less parenting expenses. This is when we strongly suggest considering putting the max in retirement plans, such as a 401k.”
Rainier continues, “Pre-retirement is a good time to work with a CFP to create a financial roadmap. CFPs can offer advice for investment planning, debt management, risk management, retirement planning, estate planning, and tax planning. You may already have an attorney or CPA. Your CFP will coordinate with these professionals to make sure your bases are covered.”
During pre-retirement, you should consider major health events that might require longer term care. These situations can lead to thousands of dollars a month for years. If you don’t plan, it can wipe out your finances. Long-term care insurance is one way to care for that risk, or you can save adequately.
Retirement and Long-Term Planning
“I hear a lot of concerns about running out of money before death,” Rainier shares. “Pensions have become a thing of the past. At this stage, I encourage people to work with a CFP to create a sustainable income plan before retirement so they can know what they are heading into. Options for sustainable retirement include: delaying retirement, working part time during retirement, or starting early and increasing what you are saving.”
Disclaimer: Jason Rainier is a registered representative of Lincoln Financial Advisors, a broker-dealer. Member SIPC.