Balancing multiple financial priorities and goals is a part of life. In order to cover longer-term goals – particularly retirement and college savings – there are certain things you need to keep in mind.
Life is filled with examples of the power of the most important first step in college and retirement savings: planning. If you want to drive from point A to point B, what do you do? You plan. Punch in the address on your phone or GPS and it will show you a direct route in a matter of seconds.
- When it comes to saving for college or retirement, consider:
- How much do you need (your end goal) and how much have you already saved?
- What level of risk are you willing to take?
- What information will you use to help make an investment decision?
- How will taxes play a role in college and retirement savings?
The answers to these questions will help you know how to get to your savings goals faster, and also understand risk tolerance and taxes associated with it.
Life throws everyone curveballs. As your life changes, your plans need to change as well. Review your investments and update your financial plan at least annually to make sure you are still on pace with your goals.
Make saving for retirement and college automatic; setting up monthly auto-deductions from your paycheck or checking account into a tax-advantaged savings vehicle.
This applies both while the investments are growing and when the money comes back to you in either a lump sum or income during retirement. Research tax codes associated with your retirement and savings accounts, how they will be affected if you take money out early, and how you can take advantage of potential savings and benefits.
Have cash reserves, line of credit, and a good insurance program including life and disability insurance. These back-ups plans can make a huge difference for your family if something were to happen to you. Preparing for the unexpected is key in being able to cope with potential problems in the future.
Did you know that the procrastinator’s conference has been postponed the last two years in a row? People tend to put off savings and investing. Don’t put off saving for college and retirement. I’ve never had clients tell me they regret that they saved as much as they did when the college or retirement years roll around.
There are three types of debt: Good debt (mortgage or in some cases business debts), Necessary debt (advanced education for career goals and reasonable car debt), and bad debt (unnecessary, extravagant purchases that blow up your budget and savings). Getting stuck with “bad debt” has a direct negative impact on your ability to plan and save for college and retirement.
This is the classic mistake of putting all your eggs in one basket. You need to diversify your retirement and college savings in terms of asset, tax and product.
News articles can help for general knowledge and awareness-building about retirement and college savings, but don’t let a television personality give you investment advice. Seek the help of a financial professional who knows your particular situation and can offer customized advice.
Don’t view the investment world only through rose colored eyes. Don’t take on too much risk and assume only bad investment timing and decisions happen to other people. There are ways to control your emotions when investing, including the help of a professional and investment tools such as target date funds for college and retirement that automatically shift to a more conservative asset allocation as the time horizon shortens.
Finding the financial resources to save for retirement and college savings requires careful planning and budgeting. I typically recommend to my clients that retirement savings is the top priority, while college savings is also important, but secondary to retirement.
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