Since debt does not happen overnight, we cannot expect to get out of debt overnight.  However, we need to learn some simple skills that can help us get our finances under control before they end up controlling us.  If we are going to help our children practice money management skills, we should develop our own skills, as well.

     A budget is nothing more than a plan for our finances.  It is a guide upon which we base many of our financial decisions.  If we were to build a house, we would not start without first figuring out what we want the house to look like.  Then, we would create the blueprints that provide the details that the builder would need to turn our dream into a reality.

Have a blueprint

     In the same manner, a budget serves as our financial blueprints to help us determine what goals we can afford.  We should never spend our money frivolously; everything should be thought out well in advance.

     Jesus told us about planning in Luke 14:28-30.  He said, “Suppose one of you wants to build a tower.  Will he not first sit down and estimate the cost to see if he has enough money to complete it?  For if he lays the foundation and is not able to finish it, everyone who sees it will ridicule him, saying, ‘This fellow began to build and was not able to finish.’”

     A budget is not a tool only for people who are “financially impaired.”  Everyone needs a budget.

     A common myth is that a budget is a way to limit our spending.  However, it is actually not designed to constrain us.  Rather, it sets us free from the daily worry about where our money has gone.  Since all funds are allocated among our daily expenses, we no longer have to worry about being able to cover certain bills.  After looking at the costs of debt, we can see how important a budget is just to maintain our sanity.

Analyze spending decisions

     The best way to begin creating a budget is to analyze our current spending habits.  First, we need to distinguish between our needs, our wants, and our desires.  Confusing these categories is a common way for our budgets to get out of line.

     Our needs are just that – the day-to-day necessities.  This would include such purchases as food, clothing, and shelter.  We can do just fine with these items and nothing else.  Remember that Paul taught us to be content.  In 1 Timothy 6:8, he tells us, “But if we have food and clothing, we will be content with that.”

     Our wants go one step further to include things that might make our lives a little more comfortable or enjoyable.  This might mean improving upon the quality of our needs (such as getting a better brand of clothing or going out to a first-rate restaurant) or buying something nice (for instance, getting some jewelry).  We need to be careful, though, about letting these wants define us.  Peter told us that our beauty and self-worth should come from within (1 Peter 3:3-4).  Remember that material goods will never bring lasting happiness.

     Our desires are even more sophisticated than our wants.  These are the ultimate things we would like to enjoy in life.  However, there are two precautions that we should keep in mind.

     First, desires only come after everything else has been done.  If our basic needs have not been met, then we should not try to splurge on desires.

     Second, we need to keep our priorities straight.  John reminded us in 1 John 2:15-17 that we should not love the world or anything in it.  Our focus should always remain on God and His will.

     Last time, we looked at financial planning for people in their 40s and 50s.  Here are some tips to help you make sure that you are ready in retirement - 60s and beyond.

The retirement years – 60s and beyond

     In our retirement years, we need to be well-prepared.  We no longer have jobs, so we are living on a fixed income.  This applies whether we have money coming in monthly or if we are drawing money out of a lump sum in an investment account.

     At age 70 ½, the government begins requiring mandatory distributions from our tax-deferred retirement accounts, such as a 401(k) or IRA.  There are penalties for not withdrawing the money, even if we don’t feel that we need to use it.  Our custodians can let us know how much is required to be withdrawn each year.

     Retirement money should be invested in conservative, and somewhat stable, vehicles.  This is the only way to ensure that the money will last as long as we do.  This does not mean that we switch all of our money to money markets, CDs, or bonds.  The growth offered by those vehicles will not be sufficient to keep up with inflation, and we are very likely to outlive our money.

     Nevertheless, we do need to understand, based on the growth of the funds in the account, how much you can take out regularly without depleting the account too soon.

     The best way to curb any potential mistakes is to create a budget.  Many people look at budgets as a bad thing, but a budget is the key to maximizing your income.

     This is also a great time to review all insurance to make sure that we are covered in every area.

     Before retiring, we should find out what type of medical coverage we will have upon termination of our employment.  Some employers offer full medical coverage after an employee works a certain number of years.  I’ve known people to retire just short of the time required to get full medical benefits in retirement.

     If our employer’s plan does not offer full coverage, we should do some research to find out what we need to do to get supplemental coverage.

     Now is also the time to look into long term care insurance.  There is a 50/50 chance of needing long term care at some point during our lifetime.  As health care costs continue to rise, the out-of-pocket cost of long term care can severely diminish any retirement savings we’ve accumulated.

     There are many options available in a long term care insurance policy.  We should review the options and choose what works best for our family.

     We should also remember to update all estate planning documents.  These include our living trust, advance health care directive and power of attorney.

     Someone should be assigned to handle our affairs in the event that we are incapable of doing so.  If we don’t take care of this critical issue, the courts may assign someone to handle it for us.

     This series has offered only a glimpse into some key financial areas that we should look at over the years.  Keep reading this blog as we look more closely at these, and other, areas.

     Last time, we looked at financial planning for people in their 20s and 30s.  Here are some tips to help you make sure that you are on the right track in your 40s and 50s.

The later family years – 40s

     In our 40s, things won’t change much.  We still need to be aware of our spending.  We should be avoiding and eliminating excessive debt, and maximizing our retirement savings.  Reevaluate all financial strategies to make sure that they are still meeting the family’s needs.

     Most of the financial concerns are still related to family, but the children are older.  With college around the corner, college funding begins to become an important matter.

     Although I’ve had many teens get upset with me over my advice to parents, please hear me out.  You are still free to make whatever decision you choose.  I always tell parents not to sacrifice their comfort in retirement in order to put their children through school.

     I’ve heard several horror stories of parents refinancing their homes or foregoing retirement savings to pay for college, only to find out that their child is no longer interested in completing a degree.

     While my parents did help me out financially, I did not get a free ride in college.  I had a part-time job to supplement other monies.  Since I was helping to foot the bill, I had a much greater appreciation for my classes.  I wanted to make sure that I did well, so that I got my money’s worth.

     Don’t cripple your children.  Give them a foundation.  Let them move into adulthood with a sense of responsibility.

Almost empty nesters – 50s

     By the time we reach our 50s, many families are watching children go off to college, or move out on their own.  We want to make sure that we reevaluate our finances again to see that all needs are being met.

     Look at your retirement accounts to make sure that they are not too aggressive.  As you get closer to retirement, you will want to be a little more conservative.

     In reviewing the retirement accounts, ask yourself if you are on track toward the goal.  Do you need to save more to make sure that you are financially ready to retire?

     Reevaluate life insurance policies.  With retirement nearby, the children out of the house and the mortgage balance reduced, you may be able to reduce your coverage.
You could also consider moving into a smaller home after retirement.  Many retirees downsize to cut back on expenses and increase funds available in retirement.

     Next time, we will look at the planning for ages 60 and beyond.  This group is the one that should be most concerned with the retirement years.  Remember, the sooner you start the better, but it’s never too late.

     Many people don’t start thinking about retirement until they get close to it, but financial planning should actually begin from the first day on the job.  Here are some tips to help you make sure that you are on the right track.

The early years – 20s

     When you start your first job, you know that you have plenty of time before you retire.  But don’t let time get in the way and turn you into a procrastinator.  It is never too early to start.

     While expenses are still minimal, get started on a budget.  Budget doesn’t have to be a bad word.  A budget is simply designed to help you know where your money is going.  If you always have a plan for your money, you should never be without.  Set a plan for both short and long-term goals, and stick to it.

     It is also time to get an emergency fund established.  You should set aside three to six months’ living expenses for the “just in case” situations.  Remember what emergencies are, and don’t dip into it for lack of patience and control.

     Now that everyone is willing to lend you money, don’t get caught in the credit card trap.  Open two or three general purpose cards.  Don’t get department store cards.  Use only what you can afford to pay off each month, and always pay the balance in full.

     You should also maximize your retirement savings.  While you’re young, get in the habit of contributing to your employer’s retirement plan.  Put in at least the amount that your employer is willing to match.  If you can afford more, do it.

     You should also contribute to a Roth IRA.  Research the types of investments available and use a combination of mutual funds and exchange-traded funds (ETFs).  Do not use individual stocks and bonds.  The ability to diversify at this stage is too difficult, and you will increase your portfolio risk.

The family years – 30s

     By the time most of us reach our 30s, we have started our families.  These life changes bring on new responsibilities and new priorities.  Don’t stop any of the financial strategies that you were doing in your 20s, but reevaluate everything and make the necessary adjustments.

     Purchase life insurance to protect your spouse and children in the event of your unexpected absence.  We don’t like to think about death in our 30s, but it is better to make sure that your family is financially secure than to live in denial.  Consider your family’s lifestyle and financial needs to make sure that you purchase the proper amount of coverage.

     You should also consider your family’s estate planning needs.  Set up a revocable living trust so that your assets can be passed on to your loved ones without going through probate.  As things change later in life, you can adjust the revocable trust as needed.

     Next time, we will look at the next two groups – 40s and 50s.  The strategies may change, but the end result stays the same.  The sooner you start, the better.  But remember that it’s never too late.

     Resolutions are a popular way to bring in the new year.  But anytime is a good time to get your finances in order.  We last looked at some easy money lessons to share with our children.  Here are 10 personal finance basics to consider if you are ready to get your financial house in order now.

1.) Become a tither

     It is more blessed to give than to receive.  Start this year off the right way by giving God His 10%.  Let Him show you that He can bless you far beyond the money you give Him.

2.) Set goals

     Many of us get upset when things don’t work out as we would have liked.  The only problem is that most people don’t even know what they want.

     Sit back over the next few days and figure out what you would like to see happen in your life this year.  Then, write it down.  Oftentimes, we don’t reach our goals because we forgot what they were.  If the goals are written out, you can now hold yourself accountable to finding ways to get yourself closer to that goal every day.

3.) Create a budget

     Financial ruin can loom in the household that doesn’t know where money goes.  Create a financial game plan.  Track all of your expenditures and find areas that need improvement.  Then work on cutting back on the unnecessary expenses so that you can use the money on things you really want.

4.) Pay off debt

     The longer you pay creditors 20% interest, the more difficult it will be to reach other important goals, such as a family vacation, college education, or even retirement.  Get those credit cards paid off, and vow not to run them back up.

5.) Create an emergency fund

     Are you prepared for the unexpected?  The majority of Americans are not.  Most households are one paycheck away from disaster.  Work on setting aside 3 to 6 months’ living expenses.  It may be a challenge, but you definitely do not want to be caught off guard.

6.) Increase retirement savings

     We cannot count on pensions or Social Security.  It is up to you to make sure that you live comfortably in retirement.  Try to increase your retirement deductions.  If you don’t have a Roth IRA yet, start one.

7.) Clean up credit

     Credit is important.  Your interest rates on borrowed money are largely based on your credit.  Good credit leads to better interest rates and lower monthly payments.  Contact those creditors and get everything straightened out.

8.) Review insurance coverage

     Insurance needs change.  If there has been any change in the family structure, it may be time to reevaluate your insurance protection.  Being overinsured can be just as costly as being underinsured.

9.) Review estate plan

    Although we don’t like to think about death, it is a reality.  It is also very real that we never know when our time is up.  Make sure that your estate is in order the way you would like so that a judge is not choosing a stranger to divide up your belongings.

10.) Become more informed

     The main reason many people aren’t doing better financially is because they lack knowledge about resources and opportunities that may be available.  Take time to learn more about financial matters.  Pick up some books.  Attend some workshops or classes.  There are so many resources available to help.