Choices to be made in Financial Planning

I think you'll find that the choices you have in these "lesser areas" offer considerably more opportunity than you might think. A thread a few months ago asked what was your "Latte Factor". You choose whether or not to buy a daily $3 coffee, whether to buy lunch or bring one from home, cook family meals instead of eating out, watch a movie at home instead of the theater, take a walk or go for a run instead of joining a gym, etc. None of these choices negatively impacts quality of life if you think about it, and the saved money could make the difference between actually funding a retirement and going without.

Elizabeth Richardson

One of the greatest financial dangers any young person faces is the possibility of divorce, since about 50% of marriages end that way, and the aftermath almost always means going back to square one financially. So one area with a big payoff would be "getting it right the first time" in matters of courtship and matrimony. I have not seen this discussed much in personal finance books. But it is a huge cloud hovering over every good financial strategy. The way it is now, it's almost as if, after all the right investment decisions are made and good savings and spending habits are acquired, everybody has to flip a coin with the possible outcomes: Heads, continue with your plan, and Tails, Go back and start over.

More and More people live in cities and public transit should be something that more people ought to consider. It'll save on additional car insurance and gas for sure. Carpooling during the week. This is one area I think alot of people are scrafricing retirment planning for: Automobiles.

I don't think we should discount these lesser areas. Food is vital and the cost of food NEVER goes down. Entertainment is vital to your mental well-being. For many perhaps entertainment is reading your favorite books, for others it's 4 nights a week at the Scotch bar. Entertainment when done correctly is supposed to improve your mental well-being.

Which leads me to something very important that should be mentioned. Health. You should be investing in your health at a young age. Who wants to stop working early cause of heart troubles or stress. who wants to spend

25 years in retirement worrying about hospital bills or if you are in the USA medecine bills and precriptions. Investing in your health, proper diet, proper workout, minimal stress, will give you a running start a healthy, and hopefully less expensive retirement.

My observation is that marriages sometimes fail no matter what the intentions of the participants at the outset. How many people get married already convinced that they're making a big mistake? :-P Instead, they all believe that they already *are* going to "get it right the first time" -- even if, in fact, they wind up becoming a divorce statistic a few years down the road.

Perhaps more practical financial advice for young folks contemplating marriage is that it's far better to sock money away for a future home purchase or retirement, than to go into debt so you can spend $50K or more on a wedding that approaches the scale of Princess Diana's.

-Sandra the cynic

Missed a big one, maybe bigger than any of these -- how many children to have. Depending on which study you care to cite, a kid costs $250,000 to raise to age

18, never mind college. This also ignores the opportunity costs. Children are enormously time consuming.

No, I'm not anti-children.

-- Doug

That is true. Big weddings are certainly a financial danger, like big cars. I would hazard a guess that the people who feel the need for them already possess a mind set that is going to make the chances of divorce higher than the average. I think it is important to realize that financial planning does not exist in a vacuum and cannot be separated from other non-financial issues. It is similar to a doctor not being able to insure the health of a patient if that patient continues to smoke, drink, eat too much, etc.

It was once said by someone very wise -- "No worldly success can compensate for failure in the home." While that discussion is not in the scope of this group, it does affect one's finances. If during the courtship and marriage you discuss your goals and plans, and agree on the ones you have in common... it gives both persons something in common to work towards. "Money", however, shouldn't be the primary goal in common. The wealthy often exude a spirit of abundance -- they generously share, and give back -- the very opposite of selfishness. That same attitude, applied in marriages, can prevent marital, and financial fiasco.

Choice of transportation, housing, and community do seem to play a large part in one's financial plan. Some of Generation X seem to have become attached to the standard of living attained by their parents in adulthood, and when they strike out on their own, seem to want to drive the newer cars, live in the newer houses, and put down roots in the more expensive neighborhoods as their parent's do. Some say there has never been a more literally en-debted generation in the US. A healthy dose of living well within one's means would do wonders for them!

Regards,

Fachento

I'm not saying you are wrong or right but I would like to explore this issue further:

Wouldn't the cost of children be factored into the original post across all those budgetary criteria? It seems to me that you would factor to list the cost of children as a single line expense on a budget worksheet for example. The cost of housing, automobiles, plus the other contributions posters have made would be for a family unit, whether it's one person or the brady bunch. That was my view on the original post for this thread.

Children are an extremely complex financial situation. Some children work on the family farm and contribute to the financial health (although those days are disappearing fast), Teenagers often work and bring in their own money for entertainment and school lunch and clothing and cell phones etc.for example. I don't think it's as simple as calculating or listing an up-front cost to raise a child

Also governments often give subsidies and tax breaks to those with children.

And one other note: When you are 78 and your wife is 80, who will help you through those tight economic times when your retirement portfolio runs low? When you become frail or sick?. When the cost of medicines becomes high? If you develop a disability during the coarse of your lifetime? When you lose eyesight and unable to drive? If you lose the ability to maintain your own home? If one spouse dies leaving a funeral expense and the other the unability to maintain a home? Loniness? Grandkids can do amazing things for your entertainment. Do we not need entertainment when older?

There was a previous post on people over 50: something like 50% of that age group having less than $100 000 to retire on. Couldn't you consider children, if raised properly of course, a kinda sorta insurance policy?

And for the record I'm a step-dad of 3 children and none of my own. Simply put: I cover less than 50% of their financial requirements.

Yes, but the cost goes up as the number of people increases. The oft-quoted Scott Burns had an article that indicates the cost goes up roughly with the square root of the number of people. Two people can't live as live as cheaply as one, but they can live as cheaply as 1.4. Three people cost about 1.7 times as much as 1 person and 4 people cost about 2 times 1 person.

All these things may reduce the net cost of a child. It is hard to suggest children become profitable.

The same argument applies to home ownership. Again a cost reduction. A $3,300 exemption could translate to a $495 tax savings for a family in the 15% bracket. There are others, of course.

I went through something like this with my dad. While he was glad of the help, and I was glad to help, the return on investment for him was pretty low.

My grandson is an absolute delight, that I wouldn't trade for anything. But he is an expensive delight for both his parents and me (I get to spoil him, expensively).

Most of the arguments you present are quality of life issues. Nothing wrong with that. A balance must be struck between quality of life and financial issues. All I was saying is that children are a major league financial decision, but rarely viewed as such.

-- Doug

All excellent points. Furthermore, "making a decision" as to how many children to have and implementing it by medical means is a procedure that is approved by some religions and moral codes but not others. So, one could take this whole issue a step further and say that one's religion has an impact on one's financial success. This is another indication that financial advice has to be given in the context of a person's entire life style. If these issues are not considered, that just means they are left to chance.

The religion issue you mention is a entire host that affects more than procreation....

Some religions ask for a "tithe". Sorry still new to English. Is that the word? Something like 10% of estate.

Yes, I believe that is true -- a tithe is 10% of one's earnings (not estate). That is sort of like paying a 10% front-end load to the church before getting on with the business of personal investing and seeing the investments come to fruition. If one both tithes and buys a load fund, that fund better be a real winner if you want to get ahead financially!

This is not the top-ranking savings obstacle. For a quantitative look:

Health crisis and disability is highest problem. People between 50-65 have 50-50 chance of encountering one of the major savings obstacles.

The key point of the article in my view, is the educational level of the individual. Low income and lesser educated folks will always have a more difficult time saving/investing or doing any financial planning. Typically,they might not have medical or disability coverage so of course a major illness or disability would impede any financial planning. This is really a no brainer. Many of my peer group as well as this writer have had major illnesses (cancer) and thanks to private medical/disability those illnesses became merely a bump in the road to our respective financial planning.

I think I read that 80% of all financial assets (non house equity) are held by the top 10% of American income earners-- stocks, bonds, savings accounts, insurance etc.

For most people, their major assets are in order: their pension (if they are still members of a defined benefit scheme), their housing equity. The average 401k has $25k in it I believe (although individuals may have more than 1).

Typically,they might not have medical or disability coverage

It's very hard or impossible (at least in the UK) to insure against the income loss a major disability might inflict. The insurers just won't sell you that level of insurance.

You are correct that lifestyle choices (cars, homes, vacations, number of children, etc.) greatly affect our ability to save for the future.

However, my experience is that appreciating these factors is not the problem.

A typical example is where people under 50 agree to enjoy life now with the understanding that they will work to age 65 to make up for not saving enough now.

Problem: Somewhere around 55ish, nature intervenes in the form of reduced physical energy (slowing down), coupled with a reduced ability to put up with stress and change in the work place. (I wish I had a nickel for each time a 50-something said, "I'm tired up putting up with the crap.")

Those folks begin to insist on early (soon, way before 65) retirement. But they haven't saved enough to do it.

How do we address that?

-HW "Skip" Weldon Columbia, SC

I agree. Low income people typically invest in the wrong type of assets (low risk-adjusted return assets) and get the wrong type of debt (credit card debt). These are the folks who also buy lottery on a regular basis, and waste their (low) income in other non-productive ways. Even many well educated middle class folks don't do the math and prefer to buy a second home (despite the fact that houses have a long term real rate of return of just 1 percent) instead of investing in stocks, which a real rate of return of 6.8 percent (average for

1871-2005).

I don't think that the society- or the government- should do anything. People should face the consequences of their lifestyles: if you don't save or don't save enough, then you should know that this means that you have to work till retirement or even beyond retirement (if the Social Security pension is not enough). For those of us who saved enough and invested relatively well, it would be unfair to pay more taxes to provide for those who didn't follow a prudent lifestyle. We should pay taxes to support those people who don't have (or had) a choice and cannot support themselves -disabled people, for example- but we shouldn't pay for the mistakes of others.

I suggest an additional factor is an economic system that changed "under the feet" of the baby boomers. Being one myself, you didnt think much about saving for retirement before age 40 because (1) pensions were plentiful before 1990 and (2) no one then really thought that much about it. In the 1990s many of the good white and blue collar jobs with benefits disappeared and boomers had to wake up to a different reality. The post-boomers berate the boomers for being shiftless in their youth, which I dont think is fair. On the other hand, the boomers have had an unparalleled era of prosperity- a quarter century- in which set their house straight. I recall the last time there such a long upward period was after the US civil war. If the boomers grabbed hold of just half or 2/3rds of this prosperity period, then they'd be OK. Some did and some didnt.