The fears we all have about our finances are real. In fact, they are things that happen every day to many people and that’s the part that scares us the most. We never know when we might suffer a shocking natural disaster or some careless transaction in our lives that will cost us money, safety, and pride. There are scam artists and there are some us who are just a little too trusting as well. It doesn’t really matter if you are wealthy or not, no one wants to suffer these financial losses and thus we worry about it.
On Tuesday in Part 1, I covered four huge financial fears and how to cope. Today, in Part 2, let’s look at four more of these financial woes that can happen and what we can do to stop them.
I’m afraid I will have to support my adult kids forever!
The young adults around today are in a very unusual situation. On the one hand, they are entering the most advanced technological society ever, with the everyday use of things like computers and gadgets related to communication, education, and entertainment. They have a far greater ability that any previous generation to expand their minds and then their fortunes. At least it says so on paper.
Why are millennials living a different life than their parents experienced?
The truth is that young people, the millennials out there, are living a very different kind of life than their parents and grandparents did and in ways greater than just technological differences. For one, hard work no longer automatically translates into great jobs. The employment market has seen some jobs shrink here at home and we now compete against a bigger than ever worldwide market of goods, services, and people like we never have before. That has meant that college and advanced degrees are a real necessity today and because of that, there has been a delay for these younger people to get started in a career. When they do, many start out with a huge student debt and that’s a weight around their financial necks.
The effect of huge debt and job scarcity has really hurt millennials financially. It has also caused a delay in their independence so much so that many have returned home to live once again with Mom and Dad, and that’s something that scares an aging population.
More than ever before, adult children can be a burden to a family at a time when the parents may want to downsize. They may be preparing for retirement and want to cut expenses. An adult child living at home in his late 20’s and 30’s is an extra, unplanned, and unprecedented financial burden in the 21st century.
What can you do to ease the pain for your kids and yourself?
To begin with, encourage your child to get part-time work while attending school. This can help limit the amount of loan monies they will need if that is a problem for your family. There are also many schools that are well known that are more moderately priced like your state university.
Make sure you educate your child when they are young about the importance of saving for college and making sure they are responsible with credit. Both of those areas will be important when trying to finance and pay for college.
You, as the parent, should be doing the same as your child in preparing for the cost of higher education. That’s means opening up a 529 account, or educating your children as to what and why sacrifices may be necessary now to achieve longer term goals when they are a bit older.
Upon graduation, both the parents and child may have to begin networking to obtain a good job. Use friends, relatives, teachers, and former employers to help.
When the situation arises and your adult child comes to you with no place to live and no job you want to help them, it’s human nature. One strong piece of advice I can give you is this: make sure that if they move back in with you that you require that they find some kind of interim work to help pay for their share of living expenses.
Even if you take that money and save it for them at some future time, they should feel a responsibility to pay a share of the expenses and keep them in the “market” for an opportunity for career employment. A part-time job in their chosen field as a starter may lead to full-time employment. Their self-esteem will be much higher if they are actually working and being productive, and their success at recovering their independence will occur much faster.
What if I outlive my retirement money?
This worry is always on the minds of people from the time they start working until the day finally comes for retirement. The worries are so great that more than half of all potential retires now feel that they will never be able to retire and live in a comfortable way with the funds they have saved. There are so many “formulas” about how much money you will need to have when you retire that it is confusing and worrisome, plus they’re probably not very accurate to your individual situation.
Are you paying attention to your 401k and IRA?
The first thing you need to do is to start saving for retirement as soon as you can. That means your very first job, even if you are just 18 years old. If your employer offers a 401k plan at work, you should be a participant. In many cases you can get matching funds from a 401k plan and that is “free money” that will grow exponentially over and up to 50 years.
In today’s world, changing your job periodically is more common than ever before. Because of that, you may be faced with moving money from an employer’s retirement plan when you leave a job and move that money to another plan. Here’s a cardinal rule to always remember: never cash out your 401k plan when leaving one employer for another! If you do that you will have given up the advantages that time in saving has made for you, probably have to pay increased taxes, and may even suffer a penalty when doing so. Don’t be tempted to do it, ever!
If you can, also open an additional IRA account, either Roth or Traditional if you are able to afford it. The type you pick will depend a lot on your station in life, your tax bracket, and whether you foresee an advantage for yourself with a specific type. Get some advice from a professional financial advisor if you need it. You can always switch them around later in life if necessary so you will have time to make a final decision at some point before retirement.
Another option to consider is a low-fee annuity. Annuities provide a payout over time for your lifespan, insuring that you don’t run out of money. However, there are drawbacks to annuities, so be sure to get all the information you need and limit only a portion of your retirement savings to an annuity.
Can you count on Social Security?
There are real Social Security issues that we know and are all concerned about in our future. Will it still exist as we know it in 15-20 years or will it change dramatically or even be dissolved?
Social Security was never intended to be your sole support in retirement and unfortunately for so many today, it represents 50% or more of one’s retirement funds. No doubt that Social Security must be modified in some way to continue to exist in the years ahead. That means it’s more important than ever to make your own supplemental retirement 401k or IRA for yourself so that no matter what happens down the road you will be able to support yourself in retirement.
Keep some peace of mind with this thought. You will require “less” in retirement to live on than you did when you were younger and supporting yourself and possibly a family. You can downsize your home and your car, and you will not have to commute or pay for things like a business wardrobe and dry cleaning as well as many other things that are part of being “upwardly mobile”. Some things though will cost more in your life, like medical care and insurances. But the bottom line is this; you can spend less if you need to in order to manage your retirement. Worrying about it can be overcome with a good plan and dedication to funding it from day one, not to mention maximizing the benefits you receive.
What if I become ill or disabled?
If you become disabled and can’t work, you may think you are in a hopeless situation. That isn’t necessarily true if you know what your options are while you are still healthy and working.
First, you need to know that there are disability insurances available, both short term and long term that can provide a majority of your base salary to you when you are disabled. While you may pay a premium for these policies, it can be the one and only way you can make ends meet if you are disabled. There is also Social Security Disability, but it can be difficult to get approved for those benefits, and it only pays a fraction of your previous income.
Of course, there are numerous government programs that may help you with things like utilities and tax credits for being disabled, having a steady income from an insurance policy based on you salary is the best way to have some peace of mind. The odds are you won’t wind up disabled, but taking that as a risk is unadvised. Investigate disability insurances ASAP so you can have the peace of mind that you won’t wind up in a dire situation if and when that kind of misfortune strikes.
I fear I can’t pay off my debts and I never will!
Worrying about paying off your debts is probably the most common worry we all have today. We look at our credit cards as a tool to help us feel good about ourselves and we spend with them so very easily and sometimes thoughtlessly that before we know it, we owe a fortune. The average American has over $8,000 in credit card debt today and many have considerably more than that. Credit cards are just the tip of the iceberg. There are car loans, mortgages, home equity loans and lines of credit as well as personal loans that peple get tied up with. It’s so rampant and surprisingly doesn’t always have to do with someone being a low wage earner or someone who is just down on his luck.
Many people with huge debts are high wage earners and on the surface are very successful. They simply overspend, don’t budget, have a “posse” of friends taking advantage of them or just plain make stupid money decisions never thinking about what will happen when the bills come due.
Do you spend on needs or wants?
Moderation in most things in life is a safe road to travel. In financial situations, moderation insures that you don’t run up you debt to the point of disaster. We all have needs we must spend money on: food, clothing, and shelter. But the question is this: how much is enough? Some people think that only the biggest and most expensive will do, and when they think that way, they are on a troubled road.
Do you buy on impulse?
If you can afford to spend on better quality items and there are “wants” that you can afford without putting your financial future in jeopardy, then there is nothing wrong with doing that. Each of us has a different view on what is a priority in our lives, but overindulgence isn’t a good way to go no matter what your financial situation is like. If you spend and spend without the proper thought, plans, and consideration, you may be risking your well-being and your family’s well-being too. That’s when your worrying becomes your worst fear and reality.
We all worry about money and our financial situation from time to time. Some worry about it every minute of every day and with good reasons. No matter what your personal situation is, worrying isn’t going to cure or solve your problem. The way you do that is with a plan and careful decision-making about everyday things like what you buy and how you spend. Even people who have made millions of dollars in their lifetime can wind up broke and destitute if they don’t have a good plan.
Do you worry about these financial fears? Are there other things that make you lose sleep at night when it comes to you money and you future? What ways do you find that bring you peace of mind about money and help you to stop the worry?