As you move from second base to third base you potentially face a difficult stage of life: Sending kids off to college, those kids graduating and you moving into the empty nest phase of life.
Third base can be a difficult stage. Kids going off to college and completing college brings changes to both home and financial life.
Home life changes because children are not there all the time while in school. The home dynamic changes. Your relationship to your kids changes.
After they finish college, kids may be there more than you want if they are still living at home. In this case, definitely set ground rules that include some financial contribution on their part if they have income. That helps keep the parent-adult child relationship on a proper footing and helps the adult child develop experience and maturity in the area of financial independence.
Financial life changes because you may have a whole new set of college-related expenses including everything from tuition and room and board, to college loan costs and travel costs.
Once you are a complete empty-nester you may find that some expenses completely disappear with kids gone completely. Make sure your financial plan is adjusted to put extra funds to productive use. Focus on paying down debt, if any. Then, work on maximizing retirement saving if you are nearing retirement.
At the same time, begin to work out how you want to live in retirement comes. Be realistic about what your regular expenses will be before you plan for all the “retirement activities” in which you want to engage. Remember also to consider the possibility of retirement coming earlier than planned or desired as the result of job loss or disability
Be prepared! Now you’re rounding third and heading for home.
Last time I wrote about getting to financial first base. The next stage, getting to second base, involves things such as supporting a family, buying a home, beginning to save for retirement, paying off outstanding debt (based on the plan set up at first base) and putting asset protection in place.
Buying a home brings a new element of debt. However, this is not “bad” debt if it is handled correctly, i.e. buying what you can truly afford. Get adequate homeowner’s insurance coverage for replacement of the structure and possessions. Or, if you are a renter, buy a renter’s insurance policy.
Saving for retirement should begin in this stage if it has not already. Take advantage of employer-sponsored retirement savings plans. If your employer offers any type of matching, do what is necessary to get the whole match if at all possible. Alternatively, look into a traditional IRA or a Roth IRA or perhaps your own personal or small-business retirement plan.
Very likely you may have to weigh saving for retirement against saving for your child’s college education. Err on the side of saving for your own retirement. You won’t be able to borrow to fund retirement, and your children may not be able to support you later.
For those saving for college give consideration to a 529 plan. In Georgia contributing to a 529 plan also brings the potential benefit of a tax deduction for all or part of the contribution.
Finally, proper asset protection is essential if you have dependents and/or substantial assets. Have a written will to define what happens with your belongings when you are gone, including defining guardians for minor dependents. If you do not have employer provided disability insurance, add a personal disability insurance policy. Make financial provision for surviving dependents through term life insurance.
As you move on to third base, expect more life changes.
Life is similar to going around the bases on a baseball diamond – a progression. Our financial life is a progression also. We progress through stages of financial life at the same time we move through various life stages, from beginning to end.
Let’s start at the beginning. As you begin your financial life a number of basic steps are prudent and should be considered necessary: Establishing a budget (know what and where you are spending), beginning a program of regular saving (the amount is not as important as the habit), committing to paying off whatever debt you do have (whether school debt or debt taken on as you begin life after school) and avoiding unnecessary debt (e.g. debt for lifestyle).
Think of accomplishing these steps in combination with beginning your working life as getting to first base.
Once on first base, a variety of things can happen that impact your ability to advance to the remaining bases. Some things are in your control and some are not. You are responsible for managing the things in your control. Think of this financial life progression as stewardship rather than ownership. (The fact that anything we think we own will eventually go to someone else will be addressed later.)
Things not in your control still require your awareness and vigilance in order to respond or react appropriately. Otherwise you may have to start over and get back to first base. Things you cannot control include job loss, extended illness or disability. You can exert a measure of control by having adequate health insurance and disability insurance if available and affordable.
Sticking with the plan that got you to first base is essential for moving forward to second base. This involves moving from the financial basics stage to the stage of a more established financial life.