As you move through life, different financial issues will be of primary concern at various stages. Your financial concerns when you start your first job will be very different from your concerns as you approach retirement age. Some tips to consider along the way include:
Your first job
--Establish solid financial habits, since the habits you develop now will set the financial tone for the rest of your life. Start by setting up recordkeeping systems, monitoring your cash flow, and developing a workable budget.
--Before you get used to spending your entire paycheck, start saving at least 10 percent of your gross income. A good place to start is with your 401(k) plan at work. If you can't save the maximum permitted by the plan, at least save enough to take full advantage of any employer match.
--Review all benefits offered by your employer, taking advantage of all that are appropriate for your circumstances. Many benefits are offered free or can be paid with pretax dollars.
--Update documents. Review your estate planning documents, asset ownership, and beneficiary designations to make sure they reflect your wishes for the distribution of your assets to your spouse.
--Track expenses for a month. This will give you an idea of where money is spent, so you can decide how to spend money in the future. It will also highlight areas where the two of you differ regarding finances. You can then set a written budget to guide your spending.
--Decide on joint or separate bank accounts. Some couples prefer pooling all funds, believing it helps create a feeling of unity. Others, however, have difficulty losing their financial autonomy, especially if they have been on their own for many years.
--Split financial responsibilities. One person may be more suited for the tasks due to his or her background or time availability. However, the other spouse should not give up total control. Ideally, both spouses will be actively involved in key financial decisions.
--Name a guardian for your children. If you and your spouse both die without naming one, the courts will appoint a guardian and supervise your children's property.
--Purchase sufficient life insurance to provide for your children until they are adults. Determine how much is needed for living expenses, hobbies, medical expenses, and college. Also ensure that you have adequate disability income insurance, so your family's lifestyle won't be disrupted if you incur an injury or illness.
--Save for college. Many people have difficulty saving the entire amount needed to fund a college education. However, there are other sources available, such as borrowing and financial aid. Thus, your goal may be to accumulate 30 percent, 50 percent, or some other percentage of the total cost. Take a look at education savings accounts such as section 529 plans.
--Teach money basics to your children. In a society that has difficulty managing money, teaching your children good money skills is a lesson that will benefit them for a lifetime.
--Prior to retiring, review your finances carefully to ensure you have adequate funds. If it appears that there will be a shortfall, you may want to consider part-time employment, both to supplement your income and to occupy your time.
--If you retire before age 65, obtain health insurance until you're eligible for Medicare
--Plan for long-term-care needs through the use of insurance or savings.
--Before retirement, make any necessary changes to your debt structure. For instance, you may want to refinance your mortgage, purchase a new car with a loan, or open a home-equity line of credit for future needs.
--Review your estate plan. Consider a living will, health-care proxy, and durable power of attorney.
Roger Wohlner, CFP®, is a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Ill., where he provides advice to individual clients, retirement plan sponsors, foundations, and endowments. Read more about Roger here.
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