By Dave Homan
Each day we make small financial choices that reflect our personal spending and savings habits. These habits are formed by our early experiences with money, along with an understanding of the opportunity and consequences of our financial choices. From teenagers to retirees, here’s a simple list of guidelines to help you and your family make smart financial choices:
Teens & early 20s: Patience is a virtue
You can save yourself a lot of financial stress later in life by delaying that urge for instant gratification:
- Don’t spend more than you earn. A common mistake is to assume you can live beyond your means today because you’ll make more money tomorrow.
- Compound interest is a faithful servant. Set a savings goal and put it on auto pilot – Apply a set percentage of your take home pay directly to your savings account.
- Learn about credit. Credit can be your best friend or your worst enemy – Learn how to read, understand, and improve your credit report.
20s and early 30s: It’s not just you anymore
Chances are you are now responsible for the well-being of others: a spouse, children, pets, or all of the above. A few points to consider:
- Prepare for the unexpected. Accumulate a savings reserve of 6 to 12 months to help cover unexpected emergencies. Review your insurance needs: health, property, disability, and life insurance.
- It’s not too early to save for retirement. If offered, participate in your retirement savings plan at work: Many companies offer some form of a company match, so don’t leave free money on the table! Also consider an Individual Retirement Account (IRA) or Roth IRA.
- Young kids… College? The cost of a higher education has been increasing at a higher rate than the prices of our usual goods and services. Get a head start by investing in a tax-advantaged college saving vehicle, such as a 529 plan.
30s and 40s: Find balance
By now, it may feel like there’s not enough time in the day to manage the home, focus on your career and participate in the kid’s or community activities. Step back from the barrage of day-to-day tasks and consider the following:
- You first, then the kids. Ensure your retirement is on track before stretching that commitment to pay 100% of your kid’s education. There are alternatives to funding education in the form of grants, subsidized federal loans, and private education loans.
- Stay healthy. Yes… A commitment to an active and healthy lifestyle with routine medical checkups is a very important financial consideration. Your “human capital” is the most valuable asset you own.
- Review your legal documents & get organized. If you haven’t done so already, create a will/trust to ensure your children are properly cared for and your assets are distributed according to your wishes. You should have established medical directives by now as well. Get your investment and banking accounts organized; know what you own.
50s and 60s: Time for a Pro
At this stage, you may be caught between helping your adult children, planning for your imminent retirement, and caring for your elderly parents. Stay on track with the following:
- Time to shift your savings into high gear. Individuals over 50 are usually in the highest earning years of their career and have the opportunity to benefit from higher savings limits on company and personal retirement plans – Strive to contribute the maximum.
- Time for a pro. A financial professional can help access your financial situation and provide guidance on key decisions like: When to tap Social Security? Do you have enough retirement savings? How should you invest your assets?
- Consider long-term care insurance: Long-term care (LTC) insurance can provide peace of mind knowing your family’s assets are protected in the event you require ongoing care. However, LTC premiums can be costly, requiring a careful analysis of your coverage options: comprehensive, catastrophic, or self-insured.
Retirees: Time to execute
A thoughtful and thorough retirement plan is important, however, your financial success lies in the careful monitoring and execution of that plan. Be sure to:
- Live within your means. Don’t let that retirement nest egg burn a hole in your pocket. Develop a realistic budget and don’t exceed your spending limits.
- Manage your assets. Discipline is the key – Don’t let emotions drive your investment decisions. A financial professional can help you optimize and manage an investment portfolio based on your personal capacity and tolerance for risk.
- Plan for the well-being of your family. Include your adult children and other loved ones in your estate planning discussions: this helps to ensure that your wishes are carried out while maintaining peace in the family.
Dave Homan, CFP, is a certified financial planner at Willow Creek Wealth Management (willowcreekwealth.com, 707-829-1146), Sebastopol, one of the leading wealth management firms in California. Wealth Matters is a monthly column from the firm’s advisers.
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