Financial planning is not about meeting every goal you have. Instead it’s about setting priorities to achieve the ones that are most important to you. Every financial decision requires a cost versus benefit analysis. Most people simply can’t afford to do EVERYTHING on their goal list. One of our jobs as financial planners is to help clients assess their priorities. We advise them about the rank order of their priorities and if they have left important items off their list.
We often find that new clients are making large contributions to college savings accounts. As a general rule, we like to see this. But it becomes a problem when these same clients fail to save sufficiently for retirement, insure themselves properly, or pay off high interest debt. Investors shouldn’t ignore long-term goals in favor of funding shorter-term goals. Like I said earlier, it’s all about priorities.
In a perfect world you would be able to fund each of your goals and meet every objective. But that isn’t the world most of us live in. When we address the issue of prioritizing retirement vs. education with our clients, we typically steer the focus to retirement. But why would we suggest that?
You can finance college. You cannot finance retirement.
Student loans are something that most everyone should avoid if possible, but there are so many other ways to pay for education. Grants, financial aid, part-time employment, work programs and scholarships are available to all students. They can significantly reduce the out of pocket cost of college for many students.
You can’t say that about your retirement needs. Employer pensions are scarce these days. Concerns abound that Social Security will fall further and further from meeting the needs of retirees. The only source of income that you can truly rely on for your retirement is your own savings.
Planning for your future ensures you will not need to rely on your children for financial help in the future.
The best gift you can give your children is your own financial independence. You will provide more peace of mind and long-term security for your child by supporting yourself during your retirement years than by paying for their education. The cost of college is small compared to the cost of a 30-year retirement. Think of it like the oxygen mask on an airplane. Every flight attendant suggests that you secure your own mask before your child’s. Why? Because if you are struggling, you won’t be able to take care of anyone else.
Financial security allows you to help your children while they are in school, or even after graduation.
Saving for your child’s education is important. It should be prioritized in relation to your other short-term and long-term financial goals. First, get your retirement savings on track. Then, once you have additional cash flow, you’ll be ready to help your children fund their education. Take advantage of 529 plans, pre-paid tuition, Coverdell accounts or taxable savings. But, as a financial planner, I must insist that you secure your own mask first.
If you need to make decisions about which financial goals should be prioritized, I’d love to help. I help residents of McKinney, Frisco, Allen and the surrounding areas in North Texas solve just those types of problems. Please get in touch so we can get to work on your peaceful financial future.
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