What Financial Questions Should New Families be Asking?

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It seems to me that young adults are getting pushed out of the nest later and later in life. The college decision after graduating high school has become, for many, a way to push back important financial decisions. However, once young adults morph into young family, those decisions can catch up with you.

Think about all financial decisions you make in your twenties:

  • What career will you go into?
  • Are you going to grad school?
  • How will you save and how much?
  • Do you buy or rent?
  • Is one parent going stay home or are you sending your children into day care?
  • Are you saving for your child’s education and how much are you going to put away?

They seem like basic questions, but how decide to answer those questions have serious, long-term implications.

Where’s the best place to start answering financial questions? At the beginning of course! That’s why today’s interview is with Hank Coleman from Money Q and A.

Hank Coleman is a freelance finance writer who has written extensively for many financial websites and publications such as Fool.com, Fox Business, Five Cent Nickel, and others in addition to his own blog, Money Q&A. Hank holds a Master’s Degree in Finance and is currently studying to take the Certified Financial Planner exam later this year.

(Me) What should families be asking when first starting out and where can they find answers to those questions?

(Hank) I think that young or new families should first be asking, “Where do we stand financially? And, where do we need to go from here?” when they are starting out. There are tons of places to find the answers to these questions.

Of course, I think that reading blogs like Money Q&A and Smart Family Finance is a great place to start. I’m a big fan of reading every personal finance book I can get my hand on. I also think that young families shouldn’t hesitate to seek professional help from a qualified financial planner if you feel like you are stuck spinning your wheels and do not know where to go from here.

A recent study from the Financial Planning Standards Council found that 83% of people who have some type of financial plan feel in control of their finances and 61% said that they have peace of mind about their financial situation and outlook thanks to having a plan. There are unmistakable benefits to having some type of financial plan; whether it is a formal plan developed by a financial planner or something you researched yourself.

(Me)  Which question do you feel is the most important? Why?

(Hank) I think that both questions are very important. But, if you had to pin me down, I guess the most important question is, “Where are you at currently with your finances?”. I’m a big fan of tracking your net worth. I have an MS Excel spreadsheet that I use to track my family’s assets, debts, and our net worth every month. How can you know where you need to go if you don’t know where you currently are at financially? Are you saving enough for your financial goals? For retirement or your children’s college educations? Where are you in your debt snowball? Far too many people simply do not know where they stand financially, and not knowing where you are currently is then a big hindrance to figuring out where to go next.

(Me)  How can families learn to come up with good financial questions and who are the right people to ask about them?

(Hank) I think that we all know deep down inside of ourselves the good financial questions to ask. It isn’t hard to come up with them. Which is better:

  • Term life insurance or whole life insurance?
  • How much do I need to save for retirement each month?
  • How big of an emergency fund do I need?
  • And, the list goes on and on.

The tricky part is finding the answers. I think that young families need to be careful, though, with respect to who they turn to help them find the answers to those questions.

I have always joked that you should pick your financial planner like you pick a tattoo artist. If you walk into a tattoo parlor and the artist doesn’t have sleeves of tattoos covering his or her arms and a vast majority of the rest of their bodies, then you should run, not walk out of there. The same is true for financial advice. This is not the time to look for a financial planner in the yellow pages or trust your friend at the office water cooler. If you need help, you should not hesitate to get professional advice from someone with the educational background and experience to give quality advice. I highly recommend using a fee based certified financial planner that has the responsibility to put your best interests first.

(Me) What do new families need to know about investing? Should each individual in the couple manage their own money? Is it better to have one strategy?

(Hank) New families need to understand that they need to start investing yesterday. Far too many are waiting until they think they can afford to invest before they begin. The problem is that you cannot afford to wait!

It is like saying you are going to wait to have kids until you can afford it. If you did that, you’d never have them. Time is the best asset a young investor has on his or her side thanks to the power of compounding interest. The longer you wait to start investing, the less money you will have available in retirement.

As for managing your money, I think that everyone’s situation is different. I know people who combine everything and do extremely well. There are others who separate everything. My wife and I have combined investments but keep separate bank accounts. We have a unified plan to invest for retirement even though we have separate checking accounts. Our investments complement each other.

(Me) What are some big financial hurdles that young families will face down the road? What should families know about them?

(Hank) I think that down the road young families will face the same challenges that we have always felt throughout the years. How do we get ahead, save, and invest in a society that is always bombarded constantly to spend and borrow? It is always a struggle.

Many young families are faced with the challenge of needing to save for their financial goals and invest for retirement, but they are living paycheck to paycheck. It is tough to start investing when you can barely afford things like a roof over your head or food on the table, but that is exactly what young families need to do. Time is the best asset that they have on their side. Now is the time to start investing for retirement, their children’s’ educations, a down payment on a home, and other goals. You have to make it a priority. You have to make room for it in the budget. You will never get out of the paycheck to paycheck blues if you don’t.

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