We wrote last time  about the different life stages we go through, and how it affects our finances. It’s based on the work of Nobel-Prize-winning MIT Professor, Franco Modigliani, who separated our financial life into four distinct phases:

1. Before having children there is often a surplus of income.
2. While raising and educating children, there is often a deficit when the family is spending more than they are earning.
3. When children go out on their own, families often have a surplus again.
4. In retirement, the surplus is small if it is there at all.

We offered a couple of conclusions from this, last week, and (based on feedback, as well as the fact that we still had more  on the subject) we are continuing it this time.

What we advised last time:


Finance (Photo credit: Tax Credits)


1) When you are starting out, don’t try to duplicate your parents’ lifestyle.
2) Encourage your children to save as much money as they can in their 20’s.

A few more important financial thoughts — ones which can help create a generational legacy, even change an entire family line…

3) Avoid debt while raising a family.
Expenses multiply once children arrive. The one-bedroom apartment is replaced by a four-bedroom home with a mortgage. If expenses for food, clothing, medical, dental, clubs, camps and lessons aren’t enough, children have their own set of endless desires.

The average cost of raising a child to age 18 in 2012 dollars, totals about $300,000. After a third of a million dollars in payments, the balloon payment comes at the end when college expenses are often financed through student loans and additional mortgages. During these years, many couples wish they hadn’t spent their pre-child surplus!

Families find it challenging to live within their means during this phase of life. But you can live more simply in order to live debt free. Truly — run the numbers on it, and it’s clear — the difference between middle income and multi-millionaire in the long run is a few hundred dollars a month in saving and investing.

4) Stop telling yourself you will get your finances in order later.
The average American family runs their financial affairs in such a way that if they were a publicly-traded company, their stock price would plummet, the business would go bankrupt and the people in the accounting department would be taken away in handcuffs.

You can’t postpone financial faithfulness any more than you can postpone marital faithfulness! Your habits set your financial DNA, and habits are simply habit-forming.

Many people mistakenly believe that life comes in three stages: learning, working and recreation. They think that until they are toward the middle or end of the working stage of life, they don’t need to worry about finances.

Everyone in America can save something. Whatever you save, the magic of compound interest produces incredible results. It is far preferable to know what you need to save than to arrive at retirement unprepared.

5) Get a retirement checkup before you turn 50.
For most families, expenses drop significantly after children leave home. Although starting younger is obviously more ideal, these are the years when many families realize time is running out to prepare for their retirement and they seek professional financial advice.

So the good news is that this period provides a second chance to save and secure a financially comfortable retirement. If you are in this stage of life, you need to know exactly how much you must save to achieve a comfortable retirement. You don’t have the luxury of guessing at the appropriate savings rate.

The lessons to learn from Modigliani’s work are simple: “Before the children arrive, squirrel it away. Don’t eat more nuts than you can afford in the winter … and when spring arrives (when the children go out on their own) you get one last chance to save for that big nut!”

We are happy to sit down with you to see how well you are doing. In about 10 minutes we can help you answer the question of how ready you are for retirement.  Better yet, we have the solutions to get you back on track if you need to.

Hope to hear from you soon!

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