At this stage of your life you have a beautiful family and careers that you love. At this point the reality of retirement one day is starting to set in. Are you on track or are you behind? Maybe you don’t have a clue. What do you do next? It’s very important that you lean on professionals at this point to help you maximize all the options that are available to you. Hopefully you’ve already been working with us or another advisor and you know where you stand. If not, let us help!
We’ve outlined some simple concepts and a guideline you can use to help you with these decisions. These are important things you need to understand and some easy-to-follow principles to help you.
Budgets and Debt Management
The first core principle you need to understand is cash flow and how to create a Budget. You can’t truly get ahead and tackle your finances unless you fully understand where your money is coming from and where it is going. There are multiple tools and resources you can leverage to help with budgeting. Simplifi and Rocket Money or options that help you automate the process and sync with your accounts. You can also use a simple Excel spreadsheet or the attached to help track your expenses.
Debt Management is essential in helping your cash flow. Debt increases the demand on your income. Simple concepts such as “leaving within your means” is the best way to manage debt. Simply put, if you can’t pay cash for it, can you really afford it? Taking on debt to buy a home and vehicles is necessary for most people. Credit cards and HELOCs are easy ways to dig holes that seem insurmountable. If you utilize these, understand them and use them wisely.
An Emergency Fund is a must. Typically we recommend at least 3-6 months of expenses set aside in a savings, checking, or money market account. These funds are not there to try to earn interest. It is there to cover expenses in the event something happens to you or your income.
Family Planning and Protections
At this point, people still depend on you and your income. Life Insurance is still a must at this stage. Unfortunately, too many people think the life insurance policy that is provided through their employer is all that they need. In most instances, your employer provides $50,000 or 1x your salary. Some give you the option to purchase additional life insurance. While it may makes sense for some to take advantage of that option, for most, you’re better off purchasing an individual life insurance policy that isn’t attached to your employer. Why? Well, what happens if you change jobs or what if your benefits change with your current job? What do you do then?
The best time to buy a new life insurance policy is yesterday. The longer you wait, the more expensive it becomes. The older you get the more likely you can develop medical issues that leave you uninsurable or a higher risk that makes the insurance unaffordable. If you’ve become uninsurable or it’s too expensive due to your health, max out your employer options. Look into options through your union, credit union, and banks.
The simplest approach to life insurance is to purchase 10x your salary in term insurance to cover you to age 60. So, if you’re 45 you should buy a 15 year term policy. Term insurance is relatively inexpensive and is there to protect you until you’ve accumulated enough assets that your family will be covered when you pass away.
We can provide you with quotes through our providers in a matter of minutes. If you’re curious what to expect a term policy to cost you, use the link below.
Financial and Retirement Planning
Where do you start? Where doesn’t matter as much as when. Start saving for retirement NOW. The biggest asset you have at this point is time. Every contribution you make to an investment now gets the benefit of compounding over the next 10-20 years. Hopefully you’ve already been contributing to your retirement accounts and are on track. If you’re in your 40s and you’re just now getting serious about saving for retirement then we recommend you contribute at least 20% of your gross income to a retirement account. If you’re playing catch-up in your 50s, then you should be contributing at least 25%. We will show you where to invest and educate you on how to maximize your opportunity.
At this point you may have changed jobs and you now have multiple retirement accounts. It may make sense to consolidate all of your old 401K’s and IRAs into 1 account. We can explore those options with you.
Tax strategies become a part of the equation. Should your contributions go entirely into a Roth vehicle? Should you leverage Roth conversions? Are you taking full advantage of your HSA account?
Creating a game plan to help your family plan for the future is crucial in making sure you get there. You can stumble your way there but why not KNOW how to get there. That’s the beauty of a Financial Plan. One of our team members can sit down with you and your spouse to build your game plan tailored just for you. A financial plan can illustrate the power of compounding interest, future cash flows, where you need to catchup, and the impact of inflation. We can even add goals to your plan such as buying a retirement home, traveling, or buying a vacation home.
If you’re ready to create your plan now, please visit the link below.
College Planning
You’re on track for your retirement plans and you want to help your kids with their college tuition. The key point in that statement is you’ve taken care of your plans FIRST. There are a multitude of options for you to consider when trying to help you kids with their college expenses. From simple savings plans, to 529 plans, to UGMA/UTMA, and even traditional brokerage accounts…there are different vehicles to help you accomplish this goal. Understanding the differences and understanding what you are wanting to accomplish is crucial in knowing which plan is best for you and your child.
We’ve outlined more information and details about college planning and student loans here.
Financial Steps
1 - Immediate Savings
2 - Employer Match
3 - High Interest Debt
4 - Emergency Savings
5 - Retirement Savings
6 - College Savings
1 - Immediate Savings
Determine what your highest deductible amount is. Review your home, auto and health insurance policies to learn what your highest deductible amount is. Once you know that amount, save that up in your Emergency Fund and move to the next step.
2 - Employer Match
There’s nothing better than free money when you’re looking at overall financial health. Understand your employer sponsored retirement plan and always contribute at least the full matching. Most employers will match a portion or all of your contribution up to a certain percentage of your salary. Take full advantage of this!
3 - High Interest Debt
Aggressively attack your high interest debt and eliminate it as soon as possible. This could be credit cards, HELOCs, car loan, personal loans and student loans. Eliminating these debts will free up your cash flow to help you invest a portion of your income.
4 - Emergency Savings
Now you’ve eliminated your “bad debt”, you can focus on creating your Emergency Savings. Once you’ve determined what your monthly expenses are, you want to set aside 6x that amount and put it in your savings or a money market account.
5 - Retirement Savings
Your goal should be to try to save 20-25% of your income in your retirement accounts. Whether you are leveraging Roth IRAs, employer sponsored plans or simple brokerage accounts, the quicker you can get to that 20-25% threshold the quicker your money is working for you!
6 - College Savings
After you’ve reached that 20-25% threshold and you’re on your way to building your assets to secure your retirement dreams, THEN you should consider leveraging a 529 plan, UGMA/UTMA, or a general brokerage account for your kids or grandkids.