With more families than ever feeling overwhelmed about their
finances, we thought it would be a good time to check in with some
financial planners and experts for advice on key issues parents are
concerned about. The good news is that it’s never too late to start
getting your money matters in order.
CREATING A BUDGET
When creating a family
budget, think of it as a step toward financial freedom rather than a
burden. “Take a positive look at your life and the things around you and
say, ‘These are all of the things that are really important to me; I
can use this opportunity to get rid of the things that aren’t that
important,” says Greg Braca, president of TD Bank’s metro New York
branch.
The first step is to
take a look at your expenses: Assemble paycheck stubs, at least two
months’ worth of bank statements, and two months of credit card
payments. Judy Lawrence, personal finance counselor and author, suggests both parents work together. “You start to see that the kids’ school costs this, the pets cost that—and suddenly it’s not about ‘You spend this’ and ‘I spend that,’” she says. “It’s about, ‘Wow, our lifestyle costs a lot; what can we do as a team to make some adjustments?’” Lawrence recommends organizing expenses into four categories: fixed expenses (anything you pay on a monthly basis, i.e. rent); fixed variable expenses (monthly expenses that vary—i.e. grocery bills); discretionary expenses (i.e. a new cosmetics product, a Starbucks run); and non-recurring expenses (i.e. vacation).
When it comes to saving, “You don’t wait until the end of the month to see if you have any money left,” says Lawrence. Instead, put a certain amount of money into savings each month, and consider this a fixed expense—a good rule of thumb is to save at least 10 percent of your income. Make it a goal to store up what Lawrence calls “real emergency money”— enough to cover 6-8 months of expenses.
Focus on the present, work on steadily erasing any debt, and be realistic. “If the budget doesn’t allow for college savings, don’t feel bad that you’re not funding your child’s education at the moment—you just can’t do it,” Lawrence says. But sometimes, parents can find ways to cut back. “Would you rather fund those birthday parties, or would you rather be putting $100 into a college fund?” she asks. — Theodora Guliadis
STICKING TO A COLLEGE SAVINGS PLAN
Although it might sound intimidating, most financial experts agree that you should start saving for college as soon as—if not before—your child is born. “Regardless of your financial circumstances, time is your greatest asset,” says Kalman Chany, author of “Paying For College Without Going Broke 2010,” who recommends that parents start saving for college nine months before their child is born.
When it comes to creating a successful college savings plan, there are a few key things to keep in mind. First, says Chany, “Find out if you are likely to qualify for aid or not.” Next, you need to consider the various savings options that are available, such as 529 plans.
“The real advantage of the
529 plan is that it extends well beyond undergraduate degrees,” says Ed
Ferko, Senior Manager in Vanguard’s Education Markets Group. “It can be
used for graduate school, community colleges and many technical schools
that participate in the Free Application for Federal Student Aid (FAFSA)
Program.”
Last,
Chany reminds parents to remember “the lesson to be learned from the
market meltdown of 2008: As your child gets older, you want to be
transitioning your asset allocation into more fixed income investments.” —Jean
Halloran-Monaco
HIRING A FINANCIAL ADVISOR
Many New York parents struggle with
the desire to provide their children with the best they can afford
without leaving themselves with a depleted savings account. For families
looking for expert wealth management advice, hiring a financial advisor
or planner is a great starting point. “The earlier you start saving,
the more [time you allow compound interest to go to work],” says Douglas
Famigletti, Chartered Financial Analyst (CFA), partner and managing
director at Griffin Asset Management.
“Parents shouldn’t get intimidated when they hear
what they should
be setting aside for college; doing anything is better than doing
nothing.”
When choosing a financial advisor to work with,
Famigletti believes one should conduct “due diligence like you would for
your family’s healthcare providers.” Often, the best way to connect
with a financial advisor is through a referral from a friend or family
member.
But, how
do you tell if a particular financial advisor is a good match?
First, choose someone whose
personality is a good fit for your family. “Some of the best investment
advisors in the world may not be the best match for a certain family
even though they are highly qualified,” notes Famigletti.
Next, look for these key
traits: 1) Someone who provides a
high level of customer service; 2) credibility with the
advisor’s firm, its people, and history; and 3) transparency of
fees. Lastly, keep in mind your financial plan should be tailored to
you. “The plan’s financial goals and time horizon should be specific to
you and your family,” points out Famigletti. —Kristen Duca
A PRIMER ON LIFE INSURANCE
“When people think of
life insurance, they think of the end,” says Larry Bahr, financial
consultant for AXA Advisors. He recommends that parents ease their
discomfort by thinking of life insurance as “a financial tool that we’re
all using.”
When considering the
amount and type of life insurance that works best for your family, have
an honest conversation with your partner about your family’s
priorities. Beyond discussing immediate needs, such as mortgage payments
and childcare, also discuss goals, such as saving for your children’s
college educations, a retirement fund and donations to charities.
When you’re ready to
choose a plan, know that life insurance can be broken down into two
types—term insurance and permanent insurance. “Term plans typically
cover you for a specific amount of time; we often say it is like
‘renting’ insurance,” explains Scott Berlin, senior vice president of
the Individual Life Department at New York Life Insurance. Typically,
parents purchase term insurance for a 20year period so that their
families can maintain a certain lifestyle until their children are out
of the house. Permanent insurance, on the other hand,
“is designed to provide
death benefit coverage for your entire life and build cash value that
you can borrow against tax-free through loans,” according to Berlin.
Thus, while permanent insurance is more expensive, it offers you an
opportunity to build up “cash value,” which Bahr likens to building up
equity in a home.
When
it comes to choosing an insurance company to work with, Berlin
recommends looking for a long history of stability and strength.
“Remember that you should be planning for the long term, so the company
you choose needs to be able to fulfill its promise to you far into the
future,” he says. —Heather
Peterson
WILL
WRITING 101
“The most important
thing parents can do for their families is have a will, and the sooner
they draft one the better,” says financial journalist and author, Stacey
Bradford. Drafting a will can be as easy as using software like Quicken
Willmaker, but Bradford says that as soon as you acquire assets like
real estate, life insurance, etc., it’s best to bring in a lawyer.
Later, as you have
more children, your financial situation changes or becomes more
complicated, or any other significant life changes occur, your will
should be updated. And instead of locking it away in a bank, a copy
should be kept in a fire-proof box in your house, as well as with your
lawyer.
Most
important, Bradford says, is that “the whole point of having a will when
you have children is because you want the guardian in place. It’s the
only legal way to make your wishes known.”
Last, another component to writing wills that
parents often overlook is the fact that if your spouse passes away and
has independent assets, those assets are split between the surviving
spouse and children—meaning the surviving parent would need to go
through a trustee to get access to the children’s money they need to
raise them. “It can be done, but it’s a hassle—so you really want to
[write] the will so that all of the money goes to the surviving parent,”
says Bradford. —Kate Willard
