Investment Profile - 30s
From Spender to Saver: How these working professionals began to see solutions to their goals and dreams for their family.
Cliff and Stephanie were married three years ago. They have one child, Erica, who is 1½. The Dawson’s, both working professionals, are in their mid-thirties and moving ahead in their careers. While the family’s net worth is relatively small, their overall financial picture is healthy. Stephanie, who might be described as a “saver”, has started asking Cliff questions about where all their money goes. Her parents budgeted and saved and now are enjoying retirement in Florida. Cliff however, loves to treat Stephanie to nice vacations and seems to “need” a new car about every three years. His father made plenty of money, but also knew how to spend it. Despite Cliff’s “spender” personality, even he recognizes that there are financial issues that he is ignoring. That’s when Cliff called to set up a consultation.
At our first meeting, it became apparent that completing a basic financial plan might provide some very necessary common ground.
Cliff’s view of a budget changed from something only “people in financial trouble” needed to viewing it through his MBA lens as a revenue statement or family spending plan.
As they began to discuss goals like providing for Erica’s education, building up a significant down payment for their first home and a very future retirement, they also expressed their confusion about how to reach those goals. They were pretty overwhelmed by the “diapers and daycare” stage. So we shared the “Power of Compounding” concept with them. We explained how saving often and saving early can make the goals achievable as the savings “compound” over time. Once we established an emergency cash reserves fund and savings plan for a home down payment, college savings was their next most urgent need. We presented the 529 plan as a savings tool that gave them a state tax deduction, tax deferred growth and tax free withdrawals when used for college expenses. Adding the power of compounding regular saving deposits to this, makes the 529 plan one of the best ideas to come around for college savings. They decided to open an account right away and began funding it with automatic contributions from Stephanie’s paycheck.
Cliff was now motivated to “meet or beat” the savings goals they set up for their first home, 529 Plan, ROTH IRAs and, oh yes, that new car next year. We also helped them rebalance their 401(k)s to match their risk tolerance and stage in life. Stephanie said she was glad that Cliff and she were now on the “same page” about their goals. They are looking forward to our follow up meeting in twelve months to report on their progress and update their plan with any changes. Who knows, there might even be another little Cliff or Stephanie in the works by then.
Investment Profiles *
* Fictitious names used
Quarterly Newsletter
Winter 2010 »
Goodbye, Farewell, Auf Wiedersehen…
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