Building a foundation of financial literacy starting from a young age is key to setting your child up for financial success. The question is how do we do it? Especially if we did not come from a home that taught us to be financially literate.

What is financial literacy? Financial literacy is a skillset founded on knowledge that equips people to make informed decisions about their money. This is not about having the most money or having a confining budget. This is about having a healthy relationship with your finances, creating a fulfilling experience with using your money.

Research suggests that many financial habits are formed by the age of 9. Learning these skills is so formative for helping your child develop positive attitudes and habits towards money. Starting to instill these skills as early as you can is the most psychologically beneficial thing you can do for your kids.

Saving

The first practical tool is teaching your child to save for something they really want. Instilling some “skin in the game” or financial responsibility will teach the child that what you do with your money matters. Help your child plan for how much the item they want costs and how they’re going to achieve saving that amount. Teaching children delayed gratification builds character qualities like patience and learning to be content with what you have. It is important they know that adults also save for items they want, or bigger purchases like a home or a family vacation.

Practicing Managing Money

Hands on experience is always a great way to learn and become confident in that skill. It can be a fun experience for you and your child to go to a coffee shop and have them practice paying for a coffee and treat. You can also set savings goals together, set up a savings account, and teach them to allocate certain portions of their earnings to savings and spending. Practical ways to give agency to your kids is through a weekly allowance as they complete chores or for Christmas or birthday gifts.. It is healthy for a child to learn that earning and saving is linked to work. For children, they can help with the laundry, the dishes, the garden, or even helping neighbors with household tasks.

Be The Example

This last tool might be the most important. Children mirror what they see, and that means they will learn how to handle money and think about money from the perspective of their caretakers. Work on yourself to develop healthy money management and invite your children into open conversations about why certain decisions are made. Involve your children in financial activities, and the process of deciding what to purchase. Teach them about finding discounts, buying secondhand, and comparing prices. For older children, you can begin to teach them about investment accounts and the power of compound interest.

Equipping children with financial literacy is essential for their financial well-being throughout their lives. Nurturing your children financially with tools and dialogue, will help them develop strong money management skills that they can continue to pass on.

Matt’s Corner

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The post A Home of Financial Literacy appeared first on New Century Investments.

Introduction

There is no doubt that starting a family is one of the most radical changes that can happen in a lifetime. Children affect not only your social life, and the flow of your weekly schedule, but they also affect your finances. If you are expecting or desire children, read along to discover some key actions you can take to prepare for a bundle of joy.

Consider Insurance

This may be a good time to investigate purchasing insurance if you have not already. If you have insurance already, review your current plans to decide if you need to adjust for greater coverage. Life insurance is important for protecting your family’s financial situation if you were to pass. Health insurance is also important to consider, because children often have many doctors visits especially in their early years. Disability insurance is another measure of protection if you were to get sick or injured.

Create a Will

This is a good time to review your estate and ensure everything is set up correctly to transfer to your chosen people. This includes wills, potential trusts, powers of attorney for healthcare and property, and a living will. Having a will written is a measure of protection for your partner and children to receive your assets if you were to unexpectedly pass.

Start Saving

Saving and investing your money as early as possible will benefit you so much in the future when you want to pay for your child’s education or travel with your family. Compound interest is your greatest tool when saving for these future costs. Consider investing in a 529 Plan if you desire to fund your children’s education.

Save Your Out-of-Pocket Maximum

Having a baby is an expensive feat when considering medical costs. You should expect that you will hit your insurance deductible and reach your out-of-pocket maximum. To prepare for this, it is a good idea to know your maximum and save that amount. Make sure you know your maximum as listed on your health insurance plan, and research what expenses could come up in labor & delivery.

Research Your Maternity Leave

For my working parents, it is a good idea to research maternity/paternity leave and what that entails. Know how long it is, if you are paid or not, and any other details included by your employer. You and your spouse may need to consider adjusting how much you are spending and saving depending on your leave.

Talk To Your Partner

This is an important time to talk with your spouse about how your life is going to change.

Discuss:

• How will your financial situation change?
• Will either of your work situations change?
• Will one of you stay at home?
• How long will you be single or partial income?
• How will you make this work in your budget as a single or partial income family?
• What expectations do each of you have? Are you on the same page?

Think Simple

Regarding what you should purchase for your baby, there are many opinions. I believe simplifying and having a “less is more” mindset is less overwhelming for new parents. There are so many creative ways to affordably purchase what your baby needs as well as the special things you may want. Consider buying from secondhand stores, shopping sales, creating a registry that friends and family can purchase from, and making a list of just the basics. It is also important to remember that you can buy what you need as you go into the newborn stage.

Conclusion

There are so many factors to consider in preparing financially for a child. It is wise to consider how your life is going to change and taking the steps to financially prepare. I am no parent yet, but I’ve heard the love and joy is unexplainable. I hope that financially preparing can free up the mental load to allow those first moments with your new baby all the more memorable.

Matt’s Corner

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The post Financially Planning When You’re Expecting appeared first on New Century Investments.

If you are dreaming of buying your dream home, traveling the world, or funding your kids through their education, then how do you even begin to save for all these goals? How do you know what is enough to store away each month? This does require some planning and critical thinking but is worth the effort.

Prioritize

The first step is to write down a list of all the things you want to save for, and how much is needed for each one. It is recommended to keep the list as small as you can. Now, it is time to prioritize your list based on needs, wants, and wishes. There are essential things you should be saving for, including retirement and an emergency fund. Then, you can prioritize buying a home or planning to have a child.

Categorize

Next, sort your goals by the length of time it will take to save. The 1^st category is for your short-term savings goals that you want to achieve in the next 2 years. The 2^nd category is for savings goals that you want to achieve in the next 3 to 10 years. This could be for a down payment on a home or for your child’s wedding. The 3^rd category is for long-term savings goals that will not be touched sooner than 10 years from now. This could be for retirement or education. It is important to categorize this way because it will help you decide how to invest.

Invest

It is important to spend more time in the market than to try and time the market for great returns. For short-term goals it makes more sense to invest in less volatile investments, such as certificates of deposits, money market funds, or cash. This will keep your funds more stable to ensure you have the amount you need. If your goals are 3 to 10 years from now, you can strategize a moderate portfolio. More money can sit in stocks but have a good balance of safer investments to preserve capital. For long-term goals, you can have a riskier portfolio that is invested in aggressive stocks. It is still important to have some measure of safety and to not forget about diversifying. Focus on investing first for the goals that are at the top of your priority list.

Review

Taking quarterly, semi-annual, or annual meetings to re-assess your goals and your investment allocations are vital to keeping you on track. You may need to rebalance your portfolio, like selling some stocks and buying more bonds, if your stocks appreciate above your target allocation. The closer you get to your goals, the safer your portfolio should look. This also gives you the space to change your goals or adjust where needed as you realize you may need to save more for a specific goal. Have the long game in mind when planning your investment strategy to save for your goals. Stick to the plan and thank yourself later.

Matt’s Corner

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The post Saving For Multiple Goals appeared first on New Century Investments.

Research from 2023 concluded that 36% of Americans earning $200k or more and 48% earning $100k or more are living paycheck to paycheck. This begs the question of why the supposed “rich” are experiencing this level of financial strain as well as the general population? A paycheck-to-paycheck lifestyle means that you only have enough income to cover your essential costs, such as housing, utilities, groceries, insurance, healthcare, taxes, and clothing. This lifestyle makes it impossible for a family to save or invest, leaving many feeling a constant strain on their finances and ultimately on their livelihoods.

Lifestyle inflation, also known as lifestyle creep, is a phenomenon explaining that as your income increases over time, so does your spending. When you get a raise, instead of putting that money into a savings account or emergency fund, you spend it on a vacation or a high-end wardrobe. Lifestyle inflation seems to happen unconsciously based on the assumption that increased income always translates to a higher standard of living. This experience is natural, but if not managed can lead you far away from where you want to be and what your financial goals are. A sign that lifestyle creep may be present in your life is a stagnant savings account, due to limited ability to save. You may notice decreased financial flexibility when emergency expenses, such as auto maintenance or medical expenses, inevitably arise. When you are constantly funneling your finances towards maintaining a higher lifestyle, you lose vision of your financial goals, because you are trapped trying to make ends meet. If lifestyle creep is prevalent, you probably do not keep a budget and you have a general sense that you are out of control of your finances. The majority believe that the reasons for living paycheck to paycheck include high monthly bills, lack of budgeting and planning, unexpected emergencies, and increased cost of living. Genuine growth is possible if we begin to see these factors as not something that is happening to us, but as something we can change.

What could it look like to combat and prevent lifestyle inflation? I think a great first step is creating a simple budget. Visualizing your financial situation through a budget can be very powerful in seeing what needs to change, what you value, and how you can move forward to financial stability. Budgeting is effective in managing debt accumulation, saving for future goals, and building a cushion for unexpected events of life. Another step towards living within your means is automating savings. Technology allows you to set up automatic transfers into your savings or investment accounts. This is a proactive step you can take that makes your life easier. Another step you can take is living below your means. We must actively choose to not upgrade our lifestyle with every pay increase. Setting financial goals is another proactive step to take, helping you to align your long-term dreams with your current spending and saving patterns. These goals will serve as a reminder for why you are living within your means, saving money, and integrating financial disciplines into your life. Lastly, mindful spending is a great practice to learn for financial peace. Mindful spending consists of intentionally considering every purchase and comparing them to your financial goals.

Lifestyle creep does not only happen to those making six figures, but it can happen to anyone. Financial health requires sacrifice, whether that looks like cutting back on your coffee budget or moving to a less expensive neighborhood. But no matter who you are or what you do, it is not about how much money you make that deems you successful, but how you manage what you are entrusted with.

Matt’s Corner

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The post The Quiet Rise Of Lifestyle Creep appeared first on New Century Investments.

Choosing between retirement accounts is a decision that affects your financial future, even though it may seem like no one gives much thought to the choice. Understanding the key differences between retirement accounts can be beneficial for making an informed decision and caring for your future self. A Roth IRA (Roth) allows you to contribute after-tax dollars today with the benefit of tax-free withdrawals in retirement.  A Traditional IRA (IRA) offers tax-deferred contributions meaning you pay taxes on withdrawals in the future. The advantage of an IRA is that you can go tax-free today. This decision can be made strategically, influenced by your tax bracket, future income expectations, and retirement goals.

For example, there is a postgraduate individual working for a civil engineering firm. The company comes ready to set up a retirement account and asks to choose an IRA or a Roth. Assume that the individual desires to retire at the age of 65 and does not plan on withdrawing distributions from their retirement account until they are officially retired. At that point, their tax bracket drops significantly, because they go from c-suite positions at their civil firm to a lower income. This would make them a good candidate for a Traditional IRA, because they will experience tax advantages in their retirement, even though they will still be paying taxes. The advantage lies in the fact that they are in a lower tax bracket at the age of 65 than when they were in their early 20s just starting their career.

Now, let’s explore a situation where we might choose a Roth IRA. Some people anticipate that pension income, taxable investments, rental income, or part-time work could place them in a higher tax bracket than during their primary earning years. This could be a situation where they might be a good candidate for a Roth IRA. They will pay their taxes up front while they are still in that lower tax bracket. Assuming their income continues to grow into retirement they will then be able to pull from their accounts tax-free.

The interesting news is that Roth conversions are possible, meaning you can convert your Traditional IRA into a Roth IRA. Some people choose to convert a particular year of lower income to a Roth to capitalize on the lower income tax year. Another reason for a conversion could be to maximize your estate for your family. You will pay the taxes up-front, but your heirs will be able to withdraw that money tax-free.

There are many factors to consider when choosing a Roth IRA or a Traditional IRA and it really depends on the trajectory of your life and your goals. It can be empowering to have the financial literacy to make an informed decision. The tricky part about choosing is it can be challenging to anticipate what your life will look like 10 to 40 years from now. All we can do is consider who we want to be and where we want to be, and plan accordingly.

Matt’s Corner

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The post A Great Debate: Traditional IRA vs. Roth IRA appeared first on New Century Investments.

But how much should we actually save? Well, this depends on your lifestyle goal.

For instance, an individual who’s in their early 30s could save $12,000 per year (or $1,000 per month) and have $1.1 Million at retirement. Will $1.1 be enough in 30 years? Assuming inflation is 3% per year, then $1.1 Million will really only be worth $600,000 in today’s dollars.

So this begs the question, is $600,000 enough?

Well, assuming you earn a moderate rate of return and inflation is 3%, this would give you a lifestyle of approximately $30,000 per year in retirement. Now, that may work for some, but others may want a similar lifestyle to what they spend now, or maybe even more luxurious retirement.

Determining your savings strategy starts with your goal. Retirement, college planning, and saving for a new home are a few of the most common savings goals.

Call to schedule a time to discuss your savings plan with us. We will help create a realistic savings plan and be there to ensure that we make the necessary changes along the way. Say inflation increases to 5%, or college expenses increase, adjustments will need to be made to your savings plan.

It’s easy to put this stuff off. Start budgeting and saving early. Your self in retirement will be thanking you for doing this.

Call today to start your financial planning journey! 817-238-6300

Matt Ward, CFP^®

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