When I was a financial advisor, I would see parents ignore their financial problems until it was too late. They would ignore their credit card debt until bankruptcy was the only option. They would ignore college savings until their children were 18 (a little late to start unless your plan is to win the lottery). They would ignore retirement planning until 55!
The overwhelming problem is avoiding these conversations. If you are in this situation then you should probably check out Derek & Carrie where they discuss better conversations on money and marriage.
In the meantime, here are five conversations all parents should have regarding their finances.
Insurance and Wills
Personally, I think the most important conversation parents can have is a discussion about insurance and Wills. This discussion should include:
- How much money do each of you need if one passes away.
- What do you want paid off? (i.e. mortgage, future college education, ect)
- Do you want to give your children an inheritance? What age should they receive the money?
- Who you want to take care of the children if you both pass away.
These aren’t fun conversations, but they are necessary. Take advantage of inexpensive insurance at work and you can create your own Will on sites like Legal Zoom! Ensure your family is taken care of whether you are here or not!
Many parents have debt! I am not here to judge because my wife and I recently paid off a ridiculously large amount of debt last year. The problem with debt isn’t necessarily the debt..it’s ignoring the debt.
When you ignore debt, then you incur more debt. Your interest rates start to compound. Then you apply for more credit cards to keep up with your lifestyle. Until finally you discover you have $30,000 in unsecured debt! It’s a vicious-endless cycle that I have seen over and over again.
The best way to overcome debt is to discuss it with your spouse and create a plan. If you are unsure how to tackle the debt then check out Dave Ramsey or David Bach who have great ways to pay off debt.
Personally, I don’t budget. Yes…I said it…I don’t budget. However, if you find yourself in a massive amount of debt then you should figure out how much you make and how much you are spending.
Sit down with your spouse and look at the following:
- After tax monthly income
- Credit card statements and bank statements for two months
- All bills (car payments, student loans, mortgages, ect
Compare how much is coming in to how much is going out. Look at things you can cut out (i.e. $20 lunches, $5 coffees, $4 energy drinks, ect). Usually it just comes down to getting your expenses under control.
I believe it is ok to have some luxuries (mine is coffee and wine). You only live life once, you should enjoy the things you really, really like! Just cut out things you kinda of enjoy! Some luxuries are ok…all the luxuries are not!
Have this conversation…it’s important!
Probably one of the most ignored topics in my opinion. I say this because less than a third of people have more than $30,000 saved for retirement.
- You should talk to your spouse and answer these following questions:
- How much do we have saved for retirement?
- When do we want to retire?
- How much will we need for retirement?
- How much can we automatically invest in our retirement accounts now?
- Do we have a company match at work?
The best thing you can do is automatically start investing 3% of your pre-tax income every month (a little is better than nothing). If you make $50,000 a year and invest 3% in a company 401(k) plan that matches 100% on the first 3% then in 30 years you will have about $367,000 assuming an 8% return.
That won’t be enough to retire, but at least it’s a start. I suggest you sit down every quarter and see if you can increase that contribution!
College Education for Your Children
I’m going to keep this simple. Only discuss college savings accounts if you are debt free, are contributing at least 15% of your income to retirement, and have three months of income in a savings account.
The reason is because there are ways to help your children get through college, but you can’t borrow money to get you through retirement!
If you have these money conversations and stop ignoring them; you will have a better marriage and less stress. Oh…and your finances will start to improve.