It is that time of year again. Time for fresh starts, clear thinking, and new opportunities! Resolutions abound for all, but in celebration of the themes fresh, young, and new, we decided to share a “to do” list of resolutions that we think are important for working parents with young children. This demographic is often too busy to think about, let alone attend to basic financial planning and details, but if they are able to check off the following items early in life, then their families will be far better protected throughout their young years and will be light years ahead of most middle aged folks when they eventually choose to work with a financial planning professional.

Our resolution for early 2019 is to author short blog articles that discuss each of the following subjects during the first half of the year. In the meantime, there is enough information right here to help the enterprising young couple get started building a solid financial future.

1. Have Wills that as a minimum:
   1. Name guardians for your children (there is no perfect solution, but your children will need steadiness versus chaos on top of grief should something untimely happen to both of you.)
   2. Ensure that there is a trust for your kids with a financially reliable trustee appointed, and that it contains “pass through” language so your children can receive valuable tax benefits from “stretch” IRAs. The attorney who drafts your Wills will know exactly what this means.
2. Prepare for unexpected incapacity:
   1. Have reciprocal durable Powers of Attorney (POAs) between spouses with a back-up person appointed in case both spouses are affected.
   2. Have Advanced Directives in place (Healthcare POAs/Living Wills).
3. Have sufficient term life insurance to help the surviving parent keep the ship aright. Should the unthinkable happen to both parents, make sure the contingent beneficiary is a trust for the kids. Buy inexpensive term insurance and invest the difference in the recommendations that follow.
4. Have proper property and casualty insurance coverage. Make sure you have adequate homeowner’s coverage for your real estate holdings, and all of your vehicles. You should also have umbrella coverage that properly connects to your homeowners, and vehicle coverage to protect against the unlikely disastrous event that could clean out your savings. Don’t overlook your motorcycles and other fun vehicles. They should connect to your umbrella coverage as well.
5. Plan for Cash Flow Emergencies. Have cash reserves in the amount of six months of spending if there is one primary earner and three months if there are two primary earners. Keep this in a separate account for REAL disasters like losing a job. Short-term CDs are ideal for this type of account. They can be “laddered” to mature at different dates in the near future and will help you resist dipping in for budget extras. Credit cards do not suffice as cash reserves.
6. Pay off your student loans. Student loans can be a terrible ball and chain for young adults especially those with families. Interest rates are often high and the terms can be tough, but pay them off as soon as possible. If your loans are large, sit down with a financial planner and work out a plan of attack. Although it is true that up to $2,500 of loan interest can be deducted, the deduction phases out as income climbs. Also, with the new standard deduction of $24,000 for married couples, far fewer young married couples will be itemizing deductions. There are also some special programs that can help, but they are too few. In most cases, living as modestly as possible while focusing on paying the loans off is the best route to free yourselves from this terrible drag on your future success.
7. Plan early for your retirement. Defer as much income toward the future as possible while living a reasonable life. This will accomplish two goals. First, funds will be tucked away to grow for your future.  Give these funds an endearing name for these are your “Freedom Funds” and will afford you the gift of choice in the future with respect to when and how you will retire. The second goal of salary deferral is avoiding lifestyle bloat. Lifestyle bloat is like consuming extra calories every year and then wondering why you are thirty pounds overweight as you approach midlife. Staying financially trim and flexible is as important as keeping your body in shape. Following are some specific recommendations:
   • If you work for a company, defer as much as you can into your employer retirement plan. For 2018, the maximum contribution for wage-earners under age 50 is $19,000. Starting small is fine. You will be surprised to see that for every $10 you defer, it will be a smaller amount coming out of your paycheck, for example, maybe only $7 or $8 dollars. Why? Because the funds are coming out pretax! When you get a raise; don’t spend it, defer it, and your deferral amount will naturally grow.
   • If you are self-employed be religious about annual IRA, individual 401(k), SEP, or SIMPLE plan contributions. Consider having a modest automatic withdrawal after consulting with your tax preparer regarding the amount. The greatest enemy of saving is not getting around to it.
   • Pay attention to the investment education offered by your employer or plan vendor and strive for a diversified portfolio appropriate for your time horizon and risk tolerance.
   • You will do well to avoid high cost funds but paying up for some active management is sensible too, especially in certain asset classes like international emerging markets. Just keep an eye on costs.
   • If you are too busy to take the time to deal with your investments, often the Target Retirement Date programs are reasonable choices.
   • Be sure you have designated beneficiaries for your retirement assets. Moreover, be sure to update your beneficiaries when major life changes occur, especially difficult ones like divorce.
8. Plan for College Costs: Be sure to have 529 Educational Plans for your children in an amount that at least takes advantage of all state matching grants. However, do not focus so much on your children’s education that you ignore your retirement. You, and/or your children, can borrow for college but not for retirement. We recommend making regular 529 Plan contributions (preferably automatic checking withdrawals) of at least $600 annually. If you are using the Maine NextGen Plan, this contribution level allows you to receive the $300+ annual grant funding from the State of Maine for your children. Even a modest 529 account can make a huge difference in terms of closing gaps to obtain higher education. We recommend Maine residents choose the NextGen Direct series and choose an age related investment choice. Blackrock or iShares are both fine, the important thing is to get the age related shares.

We hope you have found this list helpful.  There is intention to the order of the recommendations.  If it is possible, do a little bit of each thing listed even if the amounts involved seem small at first. From many years of experience, we know that tiny acorns do grow into big oaks! Again, we will be publishing short, readable articles expanding on each subject listed in the coming months. In the meantime, should you have any questions about these subjects please feel free to call.  Happy New Year!

Note: This article is featured in Deighan Wealth Advisors’ Fourth Quarter 2018 Newsletter. Over the next several blog posts we will expand upon each of recommendations. Stay tuned and thanks for following us!