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Top Five Financial Resolutions for Parents
By Candice N. Aiston
After the hustle and bustle of the holiday season, you might be thinking about your New Year’s resolutions. While about half of people who make New Year’s resolutions break them, research shows that making resolutions is useful. According to a University of Scranton study, people who explicitly make resolutions are 10 times more likely to attain their goals than people who don’t explicitly make resolutions.
If you’re a parent, you might be thinking about resolutions involving finances, but with so many important financial tasks to accomplish, it can be difficult to choose which are the most important. Read the following guide for the top five financial resolutions parents should make in 2009.
1. Make This the Year You Get Life Insurance
If you don’t have life insurance, make getting it your first resolution. Obtaining life insurance is one of the easiest things you can do that can have a huge impact on your family, should something happen to you unexpectedly. You don’t want your family to have to worry about paying the bills while they’re grieving your loss.
According to Brian Engelhard, a Lake Oswego Financial Representative with Northwestern Mutual Financial Network, a healthy 30-year-old could purchase a 20-year term policy with a $100,000 death benefit for just $125 per year. (That’s just a little over $10 per month.) Engelhard advises people to take several factors into consideration when deciding on a death benefit amount: debt owed, mortgage owed, funeral expenses, income lost, college funding, childcare costs, and special needs. Additionally, it’s important to buy your policy as soon as possible to get the best rates. The older you get, the more expensive your policy will be.
2. Make This the Year You Develop an Estate Plan
Not only should every parent have life insurance, but every parent also needs an estate plan. Yet, over 50 percent of adults do not even have a will!
Parents especially need an estate plan, not only to protect their assets, but also so that they can name a guardian for their children. The book Wear Clean Underwear by Alexis Martin Neely, gives parents a good idea of what would happen to their families if the unthinkable happened today.
Whether you hire an attorney or do it yourself, make sure that your plan will actually be effective. Go to www.candiceaistonlaw.com to download the free report, “The 9 Planning Mistakes That Parents Make,” so that you can be sure your family will be protected by your plan. It may also be a good idea for DIY-ers to have an attorney look over their plan to make sure it will accomplish what was intended. A parent with assets valued over $200,000 should consult an attorney, as should parents who may have complicated family or guardianship issues. Remember that it is a lot easier for you to create an estate plan today than it will be for your loved ones to pick up the pieces after you are gone.
3. Make This the Year You Set a Budget and Get Out of Debt
If debt seems like it is consuming you, make this the year that you take charge of your finances, creating a budget and a plan to get rid of that debt once and for all. With credit rates rising and the current economic uncertainty our nation faces, it makes sense to tackle this beast now.
According to the Wall Street Journal, 70 percent of Americans live paycheck-to-paycheck, and this is largely due to high monthly payments on debt. The Total Money Makeover by Dave Ramsey is a great book to read if you’re serious about getting out of debt. Ramsey walks you through various stages that eventually take you to financial freedom. If you’re waking up at 3 a.m. wondering if you’re going to be able to make your mortgage payment or if your credit card debt is going to consume you, this might be your most important resolution this year.
4. Make This the Year You Get Serious about Retirement
When it comes to saving for retirement, “the sooner you start, the less you have to save,” says Engelhard. Yet, according to Ramsey, “56 percent of Americans do not systematically prepare for retirement age by investing.”
If you use $1,000 (from a tax refund, say) to open a retirement account and pay $100 per month for the next 35 years, your account will have grown to approximately $230,421. But wait another year to start your retirement account and you’re looking at missing out on $28,000. Engelhard advises people to start contributing to their 401(k) now, if they have one. If your employer matches any contributions and you’re not taking advantage of this, you’re throwing away free money.
Then, says Engelhard, “once you’re used to not missing that money, start saving your take-home pay from a minimum of 5-percent working to 10-percent or higher as an optimum range.” (Ramsey recommends setting aside 15-percent for retirement.) Both Engelhard and Ramsey agree that retirement savings should come before college savings. It seems contrary to common sense, since our kids usually go to college before we retire, but college costs a lot less than retirement and we cannot get grants or loans to help us through retirement.
5. Make This the Year You Start Saving for College
Most parents think that college is important, but according to Ramsey, “39-percent of Americans with kids don’t save a dime toward college.” Ramsey advises investing money in an Educational Savings Account (ESA) or 529 Plan, both of which yield high rates of return. There are drawbacks to both types of accounts, and you can find more information at www.savingforcollege.com.
Ramsey advises against prepaid college tuition, simple savings accounts, and “baby life insurance,” because of the low rates of return. To get an idea of what your rate of return will be on any plan you are considering, try using the calculator at the Wealth Building Lessons website:
Take one step at a time when it comes to these financial resolutions. Don’t let them overwhelm you if you can’t do them all this year. The important thing is to get started. Accomplish one of your goals, then move on to the next. For free tools to help you set and keep your resolutions, check out lifehacker.com/336991/free-tools-to-manage-new-years-resolutions
which compiles various resources on one page.
Have a happy and prosperous New Year!
Candice N. Aiston is an Estate Planning Attorney for families in the Portland area. If you would like to attend one of her free January seminars for parents, call 503-235-5150 to reserve a spot or visit www.candiceaistonlaw.com for more information.