Are We On Track?

kidlist welcomes Lauren Hunt, CFP® as a guest contributor

on track 2

Do you know your household net worth?
Are you saving enough to cover the cost of college?
What about retirement?

Sometimes as a parent it feels like the list of things we are tracking is never ending. We get busy and it’s easy to set aside some of the less black & white or deadline driven tasks and save them for tomorrow. Unfortunately, for a lot of families, one of these set aside tasks is Financial Planning. Not the day to day management of spending and saving but the long term ‘Are We On Track’ to meet our goals planning. I think most families set aside this planning because they don’t really know where to start or don’t enjoy the deep data dive that’s required but true long term financial planning provides a set of guardrails for families as they navigate the day to day chaos.

My goal with this post is to help families start personal financial planning. Below I’m providing a list of items I believe every family should be reviewing to ensure that they stay on track to meet their financial goals. As a fair warning, the list feels long; partially because I tried to include some guidance on how to start putting together this information and partially because true financial planning is holistic and includes many areas of your financial life. If you work with a financial professional they should help you review these items as requested so don’t feel bad about asking them to do the leg work for you.

I hope this list helps. If you have any questions please feel free to contact me on my office phone: (708) 246-6262 or email lauren@mypinnaclefinancial.com.

Also, if you have any questions or financial topics you would like me to blog about please reach out to me with those suggestions as well.

Lauren Hunt, CFP®

 

Review these items every 1-2 Years:

What Are Our Goals & Have They Changed Over The Last Year?

  • A big portion of personal finance is behavioral. Asking and answering these questions (out loud with your partner or for yourself) every year should help to make sure you are putting your hard earned money to the places that matter most to your family.
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Savings Targets

  • Determine how much you are saving each year, in all accounts, and compare that against your targets and current income levels. This savings calculation should include paying down debt. That is a form of saving.
    • Quick Tip – Families usually have a list of things they are saving for (retirement, college, down payments, etc.). The analysis of if you are on track for each individual goal is very family specific and often depends on what you want to spend later, the inflation rate, tax rates, and investment returns so ask your financial professional to help with this analysis. As a general rule though, I’ve yet to run across a family that thought they saved too much!

Net Worth Statement

  • A Net Worth Statement (a high level summary of all of your assets and debts) is the best way to track how your family is doing financially from year to year.

Emergency Fund

  • The generally accepted ‘rule’ is 3-6 months of living expenses saved in cash. However, this is a very general guideline. After the financial crisis some experts were suggesting 6-12 months of savings for families might be a more appropriate guideline. Particularly if those families had a single income earner, high fixed expenses (such as a house that could not be sold easily), or were a household with varying income.
  • In my opinion this decision is very personal. Some people hate to have too much cash ‘on the sidelines’ considering today’s low interest rates. Others like the comfort of knowing they could get by for a year if a job were lost unexpectedly. No matter which direction you and your family lean you should consider saving at least three months of expenses for an emergency.

Investment Portfolio Allocation / Rebalance

  • You should decide on a ‘risk tolerance’ for your family. In this instance, risk tolerance basically means deciding how much of your portfolio you are comfortable having invested in stocks. This should be a long term target that you don’t adjust unless there are changes to your big picture situation.
  • Once you have a target, you should review your combined portfolio annually (yup that means adding up all of the investment accounts such as 401(k)’s, pensions, brokerage accounts, etc.). The next step is to make sure that your total stock allocation still matches your target.
    • Quick Tip – Don’t forget about international stocks! The United States represents approximately 52% of the world market capitalization.
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Insurance – Disability

  • One of the biggest risks to young families is the income earner(s) not being able to continue to work. Having disability insurance can help replace those lost wages. Most policies will provide 60-65% coverage of current income.
    • Quick Tip – If you have the ability to pay for these policy premiums out of pocket, with after tax dollars, the benefit will be received tax free. If your company is paying the premiums you will be required to pay income tax on any benefit.
    • Quick Tip – Don’t forget about the inflation rider on these policies. It’s extremely likely that the cost of milk and other household items today is less than what the same products will cost in the future.

Insurance – Umbrella Liability

  • This covers personal liability above and beyond what your home and auto policies cover. A general guideline is that your umbrella coverage should match your net worth.

Taxes

  • Taxes are very family specific but here is a brief list of items to consider and discuss with your accountant: maxing out your 401(k) or Roth 401(k), IRA contributions (including those for a non-working spouse), gifting appreciated securities to charity, general charitable deductions, and dependent care credits.

Account Beneficiaries

  • It’s easy to set and forget beneficiary designations. Be sure these match your wishes each year (or sooner if your life situation changes).
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Account Locations & Passwords

  • Often in couples one person is responsible for managing the finances. Make sure everyone knows where all accounts are located and how to access them.

 

Review these items every 3-5 Years:

Insurance – Home & Auto

  • Double check the value of your home against the insured amount keeping in mind this amount represents the house not the value of the land.
  • Double check the personal liability coverage on all of your automobiles & the coverage for underinsured / uninsured motorist coverage
    • Quick Tip – If you have the cash flow you may want to discuss the benefits and risks of a higher deductible policy with your provider.

Insurance – Life

  • There are many types of life insurance policies but the two I hear families discussing most often are Whole Life & Term. Whole Life policies include both an investment and an insurance component. Term life policies provide a set amount of insurance coverage for a specified number of years. Discuss the risks and benefits of each type with your financial professional and/or insurance provider.

Insurance – General

  • If you added something to your Net Worth Statement as an asset (jewelry, art, etc.) it is probably valuable enough to consider insuring. You should discuss these decisions with your property causality provider.

Estate Planning – Wills & Trusts

  • You may not need to update the documents with this frequency but laws change, its best practice to have wills and trusts reviewed every five years or so to make sure your intentions are being properly reflected.

Estate Planning – Powers of Attorney

  • You should consider updating your Powers of Attorney for Health Care & Property every five years. The documents can be considered stale by hospitals or banks if they are too old. The cost to update these documents with an Estate Planning Attorney is usually significantly less than the original plan.

About the Author

Annie Tandy
Annie loves making great memories with her kids and started Kidlist in 2011 so she can help others do the same! Besides finding fun and exciting things to do, Annie, her husband, and their kids enjoy caring for their chickens and hanging out with them in the backyard. Click here to read about Annie's chickens and see pictures! She also finds joy in gardening, home improvement projects, knitting, soap making, and painting along with being active in her community, church, and as a board member of the Western Springs Business Association. Click here to follow Annie on Instagram.

1 Comment on "Are We On Track?"

  1. Definitely check out PBS Frontline’s “The Retirement Gamble”. And if you can’t watch the hour long piece, you can read a wonderful summary here: http://www.forbes.com/sites/stuartrobertson/2013/05/13/pbs-frontlines-the-retirement-gamble-got-401ks-right/#23706f39519a

    A difference in 401k fees could save you hundreds of thousands of dollars by the time you retire.

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