Linda Rogers dedicates herself to help young families get on the right financial track, through Planning Within Reach. She took a little time to discuss with us how young families can better keep up their financial future.
What financial issues do you commonly see facing young families?
My typical client knows they should be saving for retirement and their children's college education, but at the same time they may be outgrowing their living situation, their cars, and they are still paying off student loans. They don't know where to start and feel paralyzed.
Before coming to a financial planner, what should the head of a family have in order? What paperwork should they have handy?
I recommend gathering the following:
- Financial statements
- Most recent tax return
- Social security benefit statements
- Insurance declaration pages (life, disability, property & casualty)
- Employee benefits statements
- Estate planning documents (if they have them)
What are some steps any family can take, right now, to have a better financial outlook?
Document your financial goals with the entire family - Including everyone in the goal-setting process makes it more likely that you will have cooperation towards reaching your goals. Planning a Disney cruise? Let your children know it is on the list and you are saving for it. It also gives you a tool to use when they are begging for something they don't need. "We could buy this or we can put it in our Disney fund."
Update your balance sheet - Reviewing your current investments and debts each year is a great way to stay on top of everything. It makes it harder to forget about that small 401(k) you left at your old job or to ignore the credit card balance that doesn't seem to be going down.
Update your spending plan - Review your previous year's spending and agree on where you can make adjustments. Try increasing your savings by a small amount and increasing the payments you are making towards paying down debt. Even an extra $1,000/year ($83/month) will make a difference.
Review all of your insurance policies in detail with your provider or broker - Our lives are always changing, and things we don't think are a big deal could require a change to your policies. Did you start employing a housekeeper? Inherit some jewelry? Your provider can usually provide a checklist for you to complete so they can see if any changes need to be made.
Review your credit report - Review your credit report at least once a year to spot any bogus charges. It's a great way to spot identify theft as well as to make sure you don't have any surprises.
What's the line between saving money and being miserly?
If you are saving enough to meet your goals, you don't have to worry about counting pennies. If you are off track, then it is time to get a better handle on your expenses and see if you can stay within a budget that gets you to a better place.
Where does student debt fit into the picture for young families?
It depends on the specific situation and priorities. For example, let's say there is a couple who are expecting their first child. The one parent feels his/her job is unstable and has student loans with a rate of 7%. I first want to make sure they have a cash reserve for an emergency or if the parent loses their job. I also want to make sure they have adequate life insurance since their needs probably have changed now that they are having a child. If their employer matches 401(k) contributions, we want to at least take advantage of that free money. If all of these things are in place and there is still a cash flow surplus, then I would probably recommend paying down student loans especially if the rate is 7%. If the rate is 1%, there is not as much of a rush so we would continue down the list of goals and priorities.
If you could go back in time and give yourself one piece of financial advice, what would it be?
Learn from your mistakes but don't dwell on them. Focus instead on what you can change.