Here are some typical mistakes that parents make and ways that you can prevent them:

Mistake number 1- Caving into impulse-buying based on a child’s whims.

This first starts when a child is around 3 to 5 years old and they make demands at the checkout counter of the grocery store. They just must have that candy bar! As parents we tend to be very emotional. We don’t want to tell our kids, “No!” We want them to be happy. And, our kids can wear us down with their persistence. But there is a way to say no that can be constructive. Give your child an allowance when the starting at age around age 4 and increase that allowance as they become older. Here are some recommended age based allowance guidelines:

Age 3-5 $1-$2/week

Age 6-9 $3-$5/week

Age 10-15 $6-$10/week

Age 16+ $10-$20+/wk.

Always tie their allowance to chores and completed homework.

If they simply must have that candy at the checkout counter, explain to them that you already spent your money on groceries, so they must pay for it with their own money. Another alternative is to ask them to put back another item in the grocery cart (something they really wanted like their favorite cereal) and substitute the candy bar for that item. In taking these steps, parents do three things. They make the child part of the financial decision, they teach the child about trade-offs, and they reinforce that money is not an unlimited resource.

Mistake number 2- Buying in response to peer pressure from other kids.

We parents have all experienced it. Our child comes home and just has to have the designer label clothing everyone else is wearing at school or those fancy new soccer cleats that are all the rage. One way to prevent spending more for items than you would otherwise, due to peer pressure, is to pay for only part of their expense, and let your child pay the balance out of their allowance. Alternatively, you can show them how to comparison shop online and try to get a cheaper price for the item and/or encourage them to shop for the item when it goes on sale or with the coupon. This helps reinforce prudent shopping habits, and, gives them some “skin in the game.” It is also extremely important to lead by example. Do you buy something on impulse, in front of your children? Do you succumb to the latest fads and popular items? We can be valuable role models for our children, so watch your own behavior when it comes to purchasing decisions.

Mistake number 3-Keeping up with the Joneses.

This is peer pressure of the adult type. Just because all your friends are paying for their kids lavish weddings or Caribbean spring break vacations doesn’t mean that you need to do so. In fact, part of growing up is learning that you need to delay gratification. Remind yourself, as well as your kids, that these people are going to have to retire later or have to cut back in retirement to pay for this indulgence.  It’s important that our kids know that we will not sacrifice our future financial wherewithal for short-term overspending. The most important gift that you can give your child is that of your own future financial security.

Mistake number 4- Spending too much on our kids by raiding retirement accounts and delaying retirement savings.

In an attempt to make sure that our kids’ happiness is optimized via the best education or most special wedding day, many Americans are curtailing savings for their retirement. It is only after they’ve paid for their kids’ activities, college, and weddings that they seriously start ramping up savings for retirement.

Retirement planning should always take priority. Many Americans do not have adequate savings, and will possibly be drawing from their savings to provide income for themselves well into their 90s. They have to have adequate reserves to ensure that they don’t outlive their money.

Raising financially independent children can be easy if you start at a young age, send consistent messages from both parents, and set guidelines and expectations for your children.

How to Wean Your Child Off the Bank of Mom and Dad

Here are some basic guidelines for increasing your child’s expenses over time:

• Age 3-9 they pay for special “wants”- candy, toys, gifts
• Age 10-15 they pay for non-essential items– dessert and sodas if they are out to dinner with you, any entertainment with friends-movies, video games, family gifts
• Age 16-18 they pay for gas and car expenses, any luxury items, some clothing and help pay for their extra-curricular activities.
• Age 18+ add books and expenses at school, entertainment, extra meals at school.
• Once employed- Ideally they should assume full responsibility for their expenses; make sure they pay for their cell phones and car insurance.
• Also make sure they have a budget and start saving at least 10% (preferably 15%) of their gross income.

Your ultimate goal is not to maximize your child’s happiness but rather to maximize their ability to provide for themselves and be productive members of society. Building these lifelong habits for your child is the best gift you can give them. So what are you waiting for? Get started now. It’s never too late.

• Think long term (Reconsider early retirement)- My mantra is that 70 is the new 65. The trend, whether out of necessity or want will be for people to work well into their late 60s and 70s, so make sure you enjoy what you do. The added benefit of this move is that it maximizes your Social Security and pension payments for life.
• Social Security planning is so crucial as it is an inflation adjusted pension for life. Try to resist the urge to take benefits early (age 62). Consider taking benefits at full retirement age (FRA) and/or the highest paid earner should postpone until 70. Your benefit increases by 8% each year you delay your benefit from FRA to age 70.  For an excellent discussion on this topic here is a recent blog by my colleague Michael Kitces.
• Americans 55 and older will likely not see major reform. Younger Americans should expect changes to full retirement ages, reduced benefits, or higher payroll taxes.  The inflation factor will change for all.   Ultimately, it means younger folks need to save more to make up for reduced benefits and will be taxed more to pay for their parents benefits.
• Medicare is a bigger issue– it is the budgetary line item in the US budget that is most unsustainable and requires major reforms.  Expect reform to be a shared sacrifice–a confluence of reduced provider payments, reduced availability of care, and higher premiums.  This will happen regardless of who wins the election.
• We will all need to save more in order to cover our medical bills in retirement.  Most financial planners estimate that retirees will spend roughly $10K-$12K a year in retirement for medical expenses and that these costs will rise higher than the rate of inflation.
• In fact, studies indicate that a 65 year old couple retiring this year will need roughly $225K set aside to pay for all of their medical expenses in retirement, not covered by Medicare.  (This figure does not include long term care).

The best defense is to save an additional lump sum of roughly $250K for retirement medical expenses, retire at a later date or work part time in retirement, and/or make use of a health savings account to save in a tax efficient way for medical costs in retirement.

An Ongoing Educational Workshop for Women

Investing in a Volatile Economy- Market Valuations

In particular, we will discuss:

• How to tell if the market is favorably valued.
• What is a PE Ratio? and can it predict if the market is poised for a fall?
• Market Timing – Does it work?   Can technical analysis of stock prices help you predict market moves?

Tuesday,  June 12th, 2012
11:45AM to 1:00PM 

Bring your own lunch; drinks will be provided.

Irmo Chamber of Commerce
1248 Lake Murray Blvd.
Irmo, SC 29063

Attendance is limited to the first 10 RSVPs.
Reserve your space today at (803) 331-3721 or email laura@ascendfinancialplanning.com.

Unfortunately, their desire to retire is not in sync with their ability to do so. When you run the financial planning projections, early retirement is more often feasible for only those people who have amassed significant savings and or have generous (inflation adjusted) pensions. For the rest of us, the notion of early retirement is tough to realize due to high health insurance premiums prior to Medicare, limited savings, and the risk of potential longevity. We could be drawing from our savings for a long time, possibly 40 plus years. Another exacerbating factor is the current investment landscape. Equities are overvalued, bonds are at historical highs, and cash is earning next to nothing. Retiring in the midst of these variables can mean that you risk a huge pullback in the market at or around the time of retirement which will further undermine your probability of success.

Rather than feel desperate and want to leave your career, you should be engaged in a profession or business that you love. In fact, the most important decision you can make regarding your wealth is how to maximize your “human” capital or the potential of your lifetime earnings. If you can delay retirement into your late 60s early 70s, you will maximize your Social Security and pension payments while minimizing the number of years that you will need to withdraw funds in retirement. Studies also indicate that people who retire early have a greater chance of substance abuse, weight gain and depression. Career planning will be essential as Baby Boomers start a new trend of phased retirements or second careers in retirement. Planning how your day is spent and filling it with meaningful activities and pursuits is an important ingredient for emotional success in retirement.

So what can you do to manage your job rewards and satisfaction from a qualitative and quantitative standpoint?

Seek out additional job training and education.

This is especially important if you are interested in a second career. And often, this is a lot tougher than expected. Research the career you are interested in, especially if you want to change gears at the latter stage of your career. Have realistic expectations regarding your new career or interest; and certainly, don’t make a change by quitting your current position before you have a new position in place. A great resource for career counseling is the Highlands Battery Ability Test. http://www.highlandsco.com/

Show your boss you are staying ahead of the curve.

If you don’t want to embark on a new career, but want to maximize your opportunities for advancement within your current profession, make sure to keep up with your credentials by investing in ongoing education and training, reading industry journals, and attending conferences.

Be indispensable at work.

Develop a special skill or area where you are seen as the expert at your company. Think of an area that often is neglected or solve a problem that tends to be a constant source of aggravation for the company execs.

Be flexible.

A lot of people do not think about moving from their home town or state. Job opportunities may exist in other states, companies, or fields that you hadn’t considered. Your skills may be transferrable to another industry or highly sought after in an area which is underserved.

Ask for a raise.

Sometimes employees can be taken for granted, especially if they have been with a company for a long time, and particularly if they have been excelling in the midst of fewer resources and staff members. If you have been at your company for a while and are highly regarded and productive, chances are you will be rewarded if you do ask for a raise. If you can’t get them to agree to a raise, ask for a lateral move to a division or area that interests you; sometimes all you need to get out of a rut is a change in perspective.

Rethink tradition.

As I tell my clients, the world has changed and 70 is the new 65. Baby Boomers are healthier, will likely live into their 90s or even 100s, and will want to be intellectually engaged and socially stimulated by work whether part time or full time for a good portion of their lives. Whether by necessity or desire we will see people working longer.

A good friend of mine decided to continue work as a physician, although he could have retired early. He is still a young 63, yet most of his friends retired at 60 and couldn’t understand why he wanted to continue working. Now roughly 2-3 years later, he has noticed that they are complaining about the possibility of running out of money. Many of them are spending far more than they imagined, are having marital problems, and several of them gained a tremendous amount of weight. The moral of the story is to be careful what you wish for. Early retirement may not be as appealing as you think.

Food:

Use coupon sites like couponmom.com, southernsavers.com, Publix.com, Kroger.com.

Shop for items that are in season and build menus around sale items.

Aldis continues to be a favorite source for very low price but high quality produce as well as canned goods.

Be careful of websites that offer daily or weekly deals.  These are often for items you would not buy otherwise.

Retailers

Use Belk coupons in conjunction with sales.

Travel to warehouse sales or manufacturing sites for great discounts. E.g. Hartman luggage.

Keep expired Bed Bath and Beyond coupons as they will often accept these.

To get the best prices on furniture work with wholesalers.

Travel

Consider using exchanges echangehomes.com or staying at convents or monasteries for overseas travel.   Share rental homes with friends.

Check out Sniqueaway and Luxurylink.com for weekly deals.

Compare airfares using travelocity, kayak, google.com/flights. You can have email alerts sent to you via cheapfares.com. Ramp up your air miles by charging business expenditures on a credit card that accrues miles for your purchases.

Organizations like AAA, your college alumni organization, local Chamber of Commerce often will offer excellent package deals.

Book in off season- good if don’t have kids; flexible dates.

Try working directly with home owners via VRBO.com to negotiate price.

Make a professional trip also a working vacation for a partial tax deduction.

Sometimes working with a travel agent can save you a lot of money because they are aware of special deals and they can accommodate your special needs.

Research prices on-line: Amazon, pricegrabber.com, etc. Input the QR code for an item you want to buy for a quick price comparison.

Entertainment: There is a free seminar featuring renowned book authors at USC called “The Open Book”.

Use your library for magazines, DVDs, and books.

We will meet next the second Tuesday in June.