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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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