Living a Financially Healthy Life
Is your physical health related to your financial health? Recent studies suggest—and experts increasingly agree—that those with less financial stress live healthier longer lives.
We believe that being prepared for major life events can help you minimize financial stress. To help you prepare, we will take a brief look at a few of the more common life events and how to manage them from a financial perspective.
We have relied on a few great sources of information, which you can check out for more details and information.
- The National Endowment for Financial Education’s Smart About Money
- The Financial Planning Association’s Planning for Life Events
Marriage has huge emotional benefits—and financial advantages. Married couples filing a joint tax return may pay less in taxes. In addition, if you both have employee benefits, you may be able to choose the best benefits.
Experts suggest that couples begin talking about finances early on in the relationship, once things get serious:
- Start talking
Share your financial details, dreams, and concerns.
- Open up
Be honest about debts or other uncomfortable details.
- Start a plan
How will you pay bills, split expenses, combine your accounts, and so on?
- Build credit
Maintain your individual credit histories, read “Borrowing Smart”
Retirement may be a long way off, but it is never too early to plan for it.
As a rule of thumb, you will need about 80% of your pre-retirement salary in retirement. A more precise number will depend on your specific plans for retirement—where you will live, what you will do, and so on.
As with saving for anything, the sooner you start saving for retirement, the better off you will be.
- Experts suggest you save 10% percent of your income each year from your 20s to your 40s, and then double that in your 50s and 60s.
- Seek advice on your retirement investment strategy. If you can earn a higher return, you can reduce your savings rate or retire earlier. Nevertheless, higher returns carry higher risk.
- If your company offers a retirement plan, enroll. Automatic deductions make savings easier for most people. In addition, if your employer offers matching contributions, try making the maximum matched contribution.
- Look for other amounts to save. Directing “found” money such as raises, bonuses, and tax refunds into your savings can feel less like a sacrifice. If a spouse starts working, save some or all of that income. Most people have far more control over how much they save than over how much they earn on investments.
- Max out your ability to open more Individual Retirement Accounts (IRAs)—e.g., on behalf of your spouse.
We tend to think of wills as something that older people have. Anyone who has assets should have a will—and that includes even the youngest adults among us. Without a will, you have no say in how your assets are distributed, or even the guardianship of your children, when you die.
It is inexpensive to make out a simple will. You can do it yourself with online resources such as Nolo Press or Legal Zoom.
An attorney will cost more but may charge a fixed fee. In return, you simply supply all your documentation, and the attorney does the rest.
Either way, you will want to:
- Choose an executor, who files your will with the court and ensures the terms of your will followed. This could be a family member, friend, or a professional fiduciary (a bank trust department or lawyer).
- Choose a guardian, who will take care of any children under age 18
- Inventory your assets and accounts, and keep this list updated, helping you and your executor manage your estate. Include all financial accounts and co-owned assets.
- Keep your beneficiary designations up-to-date on retirement accounts, life insurance policies, and other accounts. These take precedent over what you designate in your will.
- Keep all your paperwork in a safe or safety deposit box and let your executor know its location.
- Update your will over time to reflect new assets, changed relationships and economic circumstances, and changes in tax laws.
As you begin planning for a family, consider these steps recommended by financial planners:
- Establish an emergency fund in an interest-bearing savings account that can cover three to six months of living expenses.
- Start a separate savings account for gifts. You could spend up to $1,000 for baby-related items.
- Find out what healthcare expenses your healthcare plan covers and set aside money for what you will pay out of pocket.
- Explore whether your finances can support a spouse’s going to part-time employment or taking time off during your child’s first year or so.
- If you are not covered already, get insurance.
- Cover all the bases and draw up a will, durable power of attorney, medical directives. Specify your child’s guardian and how your estate should be handled.
- Start funding a college savings plan or Coverdell Educational Savings Account.
- If you are not already, consider working with a financial professional, who can help you handle the changed financial situation that a new child creates.
Raising financially literate children is one of the best legacies you can provide your children, read “Financial Parenting”.
When our children leave the nest and when they leave the household budget are not necessarily the same moment. Over half of all parents financially support their adult children. A few pointers on getting them out of this second nest:
- Have a talk
By understanding your child’s situation, you can better decide whether to help and how to best help.
- Look at your finances
There is a reason airlines ask us to put the air mask on ourselves before we put them on our children. If helping your child puts you in financial jeopardy—now or down the road—it does neither of you any good.
- Plan it out
Consider creating a written contract that states what you will both commit to. If you are lending money, consider terms such as charging a low interest rate to encourage your child to take it seriously.
- Set terms
If your child is moving back in, decide together on how long your child will stay. Assign them household responsibilities. Consider charging a low rent.
Of course, the best teaching method is to lead by example. By living a financially responsible life, you will be showing them how to live responsibly.
Over half of adults would rather talk to their kids about sex than to their parents about aging. Even when parents are still in great shape, and particularly when they show signs of slowing down, it is a good time to talk.
In person. These sensitive conversations are best had face-to-face—perhaps mentioned beforehand by phone if you are travelling to visit parents. Keep the discussion non-threatening by serving it up as a conversation about your financial plans, parts of which involve them.
Caring demeanor. Naturally, remain respectful and positive, and keep your statements free of judgment, particularly if you encounter resistance. Keep collected, even if your parents seem hesitant to talk. Make your conversation a joint exploration in making your lives more manageable.
Baby steps. If you sense reluctance, take it one-step at a time over a series of conversations. For example, start by asking where you can access their documents.
Be the organizer. Just as you have done for yourself in creating a will, create a to-do list the information you will need to help your parents that can guide your discussion, including:
- The location of key documents (a will, powers of attorney, insurance policies, medical health directives, military records, property titles, etc.).
- Contact info (phone and emails) for attorneys, financial advisors, life insurance agents, and so on.
- The location and contents of any safe deposit boxes.
- Health insurance information from Medicare and Medicaid.
- Contact info for doctors, with medication and prescription ordering details.
- Living expenses and plans for paying unexpected medical expenses
- Caregiving options, including relocation to a retirement community or assisted living facility, and any savings or insurance that will cover the costs.
Living well means living a healthy life. By keeping yourself financially healthy, you will be that much closer to living the life you want.