November 17, 2011
If you are concerned about the financial health of your children, don’t feel alone. According an August 2011 survey, one of the biggest financial concerns of affluent Americans is teaching their children about financial responsibility.1. The question is, ‘Where do you start?’ So, to help out, we have compiled 6 things you can share with your children to set them on the right track.
#1…A budget is a must…This doesn’t mean that you automatically have to cut spending - it means you have to track spending. No matter what your age, it’s critical to have a clear picture of where you are today financially so that you can better plan for tomorrow: how much you need to save, how much insurance you need to protect your family, etc. Imagine that you are blindfolded and someone takes you into a deep forest and drops you off. You know where your home is—the physical address, the landmarks surrounding it and the smells associated with the area; but could you find it? No, because you don’t know where you are now. Consider a budget as the basis for the roadmap of your entire life plan. Without one, you can’t effectively plan for anything without running a huge risk that you may be headed in the wrong direction.
#2…Make a habit of setting financial goals… Have you ever encountered a time in your life when you questioned, ‘Where did the last year go?’ or worse ‘Where did the last five years go?’ Yogi Berra stated, “If you don’t know where you are going, you’ll end up someplace else.” No matter what part of life - spiritual, mental, physical, family, social, professional or financial - you need to set goals or you’ll end up someplace else. But not just any goals. Establish SMART goals—Specific, Measurable, As-if-now, Relevant, Time-bounded. And each goal needs an action plan. After all, what is the purpose of a goal if a plan toward it never gets implemented?
#3…Protect your family and future…What would happen to your family’s financial situation if you died? Became disabled? Do you know for sure? Did you know that $1 million dollars may at best only provide your family $40,000 per year? What if you t-boned another vehicle and were sued? Or, what if someone slipped and fell on your back porch? Are your assets protected? Is your retirement plan insured?
#4…Know your number…A few years ago ING had a retirement marketing campaign asking future retirees, “What is your number,” meaning “Do you know how much money you will need to retire?” Brilliant campaign! Too many of us assume we have a handle on that type of information. Don’t assume. You need to know. Ask these questions: At what age would you like to retire? What is the budget I will need during retirement? What will be the dollar amount I need adjusted for inflation to achieve that goal? What do I need to be saving to achieve that goal?
#5…Hire a specialist… In a recent survey it was concluded that only 51 percent of pre-retirees have an existing relationship with an advisor.2. There is a preconceived notion that “I’m supposed to be exceptional at my chosen profession as well as the entire field of financial planning.” Simply put, in today’s economic climate the field has become so complex that no one can reasonably expect to be or act as an expert part-time. The need for a specialist has never been more essential.
#6…Start today…There is an old Chinese proverb that asks, “When is the best time to plant a tree?” 20 years ago, right?” So, when is the second best? “Today!” Experience has taught us that most people don’t do anything until they have to. Consider yourself five years from today looking back to today: would you be filled with both regret of the past and worry about your future? Is it really worth it? Make it a priority. Start today!
- Merrill Lynch Affluent Insights Survey. August 8, 2011. http://www.totalmerrill.com/TotalMerrill/Pages/Affluent-Insights-Survey.aspx?referrer=ais-vanity.
- Northstar Research Partners. Research conducted April and May 2011.