1 smart finances for young families 11 steps to give new parents control of their financial destiny...
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Smart Finances for Young Families11 steps to give new parents control of their financial destiny
David PortAuthor, Caveman’s Guide to Baby’s First Year
& Caveman’s Pregnancy Companion
Financial writer/editor
Husband, father of two July 21, 2010
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Why PLAN TODAY for the future?
• Financial advisors now put the magic retirement savings number for Generations X and Y at $2 million-$3 million.
• By 2025, four years of college will cost anywhere from $170,000 (in-state public) to $350,000 (private). And these are conservative estimates!
• 4 in 5 Americans expected to fall short of meeting financial needs in retirement unless they change saving habits now.
• More Americans are being forced to work longer and delay retirement because they didn’t adequately plan or save.
• Social Security destined for insolvency by 2037, leaving you and your kids without a key source of retirement income.
WOULD YOU BELIEVE?
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Phase 1: CRAWLING
1. Establish a HOUSEHOLD BUDGET• Track, calculate average monthly income and outflow
(spending)• What’s leftover after necessities (food, shelter,
transportation, childcare, etc.) are covered? This is discretionary income.
• So, how to use that leftover dough?
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Phase 1: CRAWLING
2. CONSOLIDATE & SIMPLIFY ACCOUNTS• Checking, savings, CDs, money market accounts, credit
cards, etc.• Joint accounts for ease of tracking, management,
leverage (higher interest rates, lower fees), accountability to one another.
• Key question: maintain separate accounts too?
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Phase 1: CRAWLING
3. DEBT: Reduce It, Control It• How much do you owe as a family [credit cards, loans
(school, cars, etc.)]?• Consider consolidating debt at a lower rate (today’s low
rates favor such a move)• Move out of higher-interest debt (refinance a mortgage,
move money into lower-interest-rate credit card)• Pay down debt
• Control the urge to use plastic
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Phase 1: CRAWLING
4. Establish an EMERGENCY FUND• Easily accessible (liquid) funds to cover unexpected
expenses (medical emergency, etc.)• Find an interest-bearing vehicle—not one that restricts
access (like a longer-term CD)
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Phase 2: STANDING & WALKING
5. Draft a WILL• No fun envisioning your own demise, but…• Explicit instructions on what happens with your children,
your assets, etc., when you and/or your spouse die• To be updated as your family and assets grow,
circumstances change
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Phase 2: STANDING & WALKING
6. INSURE Yourselves!• Life insurance (permanent or term) to protect surviving
spouse and children• Disability insurance to replace lost income• Health insurance, so all healthcare costs don’t come
out-of-pocket
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Phase 2: STANDING & WALKING
7. Establish, fund a RETIREMENT ACCOUNT• If you don’t have one, set one up through employer or
yourself (if self-employed).• If you have one already, FUND IT!• New baby? Time to update beneficiaries.
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Phase 3: IN FULL STRIDE
8. Establish a COLLEGE SAVINGS PLAN• 529 plan most widely used—solid tax
advantages• All states have 529 plans. Some offer tax
breaks for using home state plan.
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Phase 3: IN FULL STRIDE
9. Become a HOMEOWNER• Low mortgage rates, lagging real estate prices make it a
good time to buy• Use your home to build equity, assets instead of paying
rent
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Phase 3: IN FULL STRIDE
10. Seize control of your TAX SITUATION• Tax breaks are plentiful (deductions for home
ownership, home office, childcare etc). It’s your job to capitalize on them.
• Due diligence: Keep abreast of tax code changes. Hire an accountant or do it yourself
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Phase 3: IN FULL STRIDE
11. Draft a big-picture FINANCIAL PLAN• Encompasses all the aforementioned elements:
investments, retirement account(s), insurance• Multipurpose: build assets; protect assets; save for
specific purposes; accumulate enough to last a lifetime; leave legacy for heirs, charity
• Find an advisor you trust
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Get Busy!
• Draft a prioritized to-do list of responsibilities.• Divide & conquer: Run through items on the to-do list
with your spouse, with each of you taking on those you’re most comfortable doing. (Keep in mind, some are best accomplished jointly.)
• For those neither of you are comfortable (or capable of) tackling, find an expert advisor to help (insurance broker, financial planner, accountant, etc.)
• Don’t wait — the more items you cross off the to-do list, the better you’ll sleep!
• Don’t let it stress you out! Tackle responsibilities at your own pace; don’t let it become a source of strife.
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The information contained herein represents the opinions of the presenter and does not necessarily reflect the opinions of MetLife.
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