Amidst nurturing their children and careers, young families are challenged with a variety of obligations. From diapers to first homes to planning for the costs of college and retirement, they’re trying to balance a set of financial demands that increase over time. These responsibilities bring about challenges that require prudent planning to have the savings to meet all these goals. That’s why it’s never too early for young families to sit down and map out a step-by-step financial roadmap that addresses current and future goals. Here are some tools to consider for creating a solid foundation upon which your family can grow.
Identifying Your Goals
A burgeoning family often means accommodating many rising expenses. To keep track of spending, you can begin by identifying your goals. What are your main priorities? What kind of lifestyle do you and your family want to live? By knowing what you’re working toward, you can create a budget designed to meet these specific aspirations. Prioritizing these goals and setting a timetable may also help you stay on track with immediate and long-term costs.
Balancing Your Portfolio
Having a balanced portfolio is critical to helping your assets grow to meet goals and needs. When assessing your portfolio, gauge your risk tolerance and determine how cautious or aggressive you’d like to be with your investments. While stocks and bonds carry different levels of risk and return, consider a mix of the two as a way to diversify your portfolio, which can help hedge against volatility in the markets. Remember to update your portfolio as your objectives change over time. Regularly consulting with a financial advisor can help you manage your assets, determine your risk tolerance, liquidity needs, long-term goals and ensure your portfolio reflects your current situation. Remember that investments are not FDIC-insured, not bank guaranteed and may lose value.
Meeting Your Milestones
With your goals and risk profile established, you can start working toward your major milestones. One of the first for many families is buying that first home. For home-buyers, saving is critical and it’s never too early to start. Key to the process are determining what you’re looking for, establishing what your assets and liabilities are and arriving at a budget. You may also want to look into tax-advantaged programs offered to first-time buyers by the federal government. Consulting with a personal tax advisor can help you understand your options. While saving, it’s important to also have an emergency fund to afford unpredictable situations such as an illness in the family or a spell of unemployment.
Another milestone may be sending your children off to college, which is becoming more burdensome for families. According to the College Board’s 2011 Trends in College Pricing study, in-state tuition increased 5.6 percent per year beyond the rate of inflation from 2001-02 to 2011-12. Luckily, there are different vehicles available that you can explore for assistance, such as tax credits and tax-advantaged investment plans designed to fund education. But you don’t have to drain your retirement savings, as students have more available options for financing than you will have in retirement.
This brings us to the biggest milestone of all – enjoying your golden years. Because of longer life spans, shrinking pension and entitlement programs, and the economic downturn, people of all ages have been forced to reconsider many aspects of retirement. Healthcare is a major expense, especially for retirees, and according to the February 2012 Merrill Lynch Affluent Insights Survey (MLAIS), which discusses the concerns and priorities of affluent Americans, 79 percent of respondents ranked rising healthcare costs as their top concern. Delaying Social Security benefits for a few years can increase the amount you receive each year. By saving and contributing as much as you can to your retirement plan now, you strive to build a nest egg and potentially ease into retirement.
These are just a few things to consider to help you pursue the financial future you envision for yourself and your children. Turn to a trusted financial advisor for advice and guidance in helping to put together the proper strategic plan that aligns with your goals, risk tolerance, liquidity needs and time horizon. Since the future is unpredictable, a well thought out strategy can help position you to meet the world’s challenges head-on while taking advantage of additional opportunities that may come your way. You’ll then likely be more poised to take care of your family and enjoy your golden years when the time comes.
Neither Merrill Lynch nor its advisors provide tax or legal advice.
Diane Bain is a Financial Advisor with Merrill Lynch, Pierce, Fenner & Smith Incorporated, a registered broker-dealer, member SIPC, and a wholly owned subsidiary of Bank of America Corporation. She can be reached at her office in Palm Beach Gardens at (561) 775-8143 or firstname.lastname@example.org.