Spring is the time of year when we all want to clean out the winter dreariness and usher in the new season. This is also a good time of year to take a look at your financial house and see whether it too needs a little sprucing up.
For the Moms Making a Million Radio Show, I discussed the how-tos and what-fors of that task with a look at retirement planning for the mid-career mom and the savings you may have been doing for your child’s college.
Spring Cleaning for Your Retirement Plan
There is nothing like the feeling of spring. And we should use it to trigger some financial house cleaning. A lot like figuring out what in your closet you should toss or give to charity, using this spring-cleaning feeling to look at your finances can and should become a regular habit.
The toughest thing to do is figuring out where to start. Surprisingly, it doesn’t take that long. None of us goes a day without thinking about where we are in terms of how much money we have, where it is going and how do I get more. So we already know some of the answers to the question: does this old financial plan still fit?
It probably doesn’t. Most of us are mid-career and probably have a house, kids, a job or a business (which is like a job only you get to pick the sixty hours a week you work). Some of us have parents who may or may not live with us. So basically, this spring financial cleaning is a way to reorganize that closet, reprioritizing what your will need to do sooner rather than later.
Start with the Kids
You want them to go to college and you may have even been investing since they were born with the hope that you will have enough to pay for their higher education. Just like your retirement plans, a wide swath of these 529 plans were hit with the economic downturn. This was not part of the plan and rather than blame anyone, we have to find a way to do with what is left.
First: If you don’t have the money or the money you anticipating having, do not tap your retirement account to make up the difference. Speak frankly with your child about this and tell them that either they are going to have to take a larger student loan or they are going to have to pare down their aspirations. You may be able to afford a state college and not the private institution you had hoped for. But it is up to you lay down your parameters. They probably won’t like it and claim, you promised. But don’t cave. A lot of people do.
Although your student won’t appreciate it now but the reasoning behind such tough love is simple: you don’t want to come up short in your retirement and have to move in with them! Think for a moment about that scenario.
Considering Your Retirement
We should consider a retirement plan as a whole. Things may have changed dramatically since the last time you did this (and like that pair of jeans from high school, some things will simply not fit who and what you are anymore). Look at the house you are living in. Is it too big? Will it need some upgrades to make it more sale-able? Or do you plan on spending your golden years there? No matter which one you decide on, and this may change completely in a couple of years, figure out where you are on your mortgage. If you have a thirty-year mortgage and a retirement goal of twenty years, will you be able to continue to pay for the house, the insurances, the upkeep and the taxes with what you have socked away in your 401K?
