Plan A and Plan B

by Millionaire Mommy Next Door on April 6, 2009

in Giving,Investing,Raising Money-Smart Kids,Success Principles

In response to my recent post, Will your parents’ financial decisions leave you holding the bag?, Steve wrote,

I agree with the premise that a person’s retirement should be taken care of before saving for a child’s education, but saving enough for one’s own future seems to be a moving target.

When does a person ‘have enough for retirement’? I am 27, with a 6 month old baby. Besides $15,000 in student loans (@ 2.6% interest rate), and a mortgage, my wife and I are debt free. We contribute to our 401k’s up to the match, and we contribute $100 a month to a Roth IRA. Since we are so young, we feel secure in our ability to save enough for retirement, so we also contribute to a 529 plan for our child.

Even though we feel secure, anything could happen at any time. Maybe one of us gets injured, and we can not work anymore. Maybe this happens to both of us. We never know, therefore I am inclined to save more. But when is it enough? If I max out my 401k, is that enough? I am 27…I may have 60 years of life left…$15,000 will not be enough if something happens next year.

I struggle with the concept of taking care of myself first, then take care of others, when there exists so many potentially negative unknowns. If I am not saving for my daughter’s education…should I not be giving money to charity? Take care myself first, right???

What is the sweet spot for annual saving for yourself, vs saving/giving to others?

Yes, the future holds many unknowns, making it difficult to be completely accurate with long-term financial planning. This deep recession, for instance, has all but destroyed many well-laid plans. The key, however, is to plan for the best while preparing for the worst. In other words, create Plan A and Plan B.

Plan A is what you hope to have happen. You hope that you’ll remain healthy and able-bodied, fully employed, happily married, able to donate money to charity, and able to save for your child’s future as well as your own.

Are you saving enough? It all depends on how much you spend now and what you anticipate spending in the future. Plug your financial considerations and planned life events into a Lifetime Financial Planner software or an Excel spreadsheet and tweak it until the numbers work.

Plan B considers what could happen; the what-ifs. You, your wife, or your child might become ill or disabled. Your marriage might not last and your assets and income could be divided in half. You might join the growing ranks of the unemployed. You might hurt someone in a car accident, get sued and lose all of your savings and everything you own.

How can you protect your finances from catastrophic incident? Buy high-deductible insurance policies, namely disability insurance, term life insurance, personal liability insurance, health insurance. Maintain and improve your job skills. Run a sideline business from your home. Consult with an attorney for additional “what-if” planning.

Additionally, save as much as you can today while you are young. Use your youth to exploit the power of compounding growth. And stay far, far, far away from consumer debt so that if something bad were to happen, you and your family could afford to live on little income.

Where does charity come into play? This is a very personal choice. Until I knew that our financial future was firmly on solid ground, I chose to donate my time rather than my money. I’ve always served as a volunteer in one way or another and not only does this help others, but it improves my set of skills, introduces me to a network of new people, and makes me feel great. This crazy busy world needs more of the gift of time from volunteers.

Should you contribute to your child’s 529 Plan? Most of us have heard a flight attendant recite these words as part of their safety spiel prior to departure:  “Please secure your own oxygen mask prior to assisting children or others”…

{ 10 comments… read them below or add one }

morrison April 6, 2009 at 3:06 pm

When I used to worry about my own health and my future, I would open up my brother’s book of Human Diseases. (He’s a doctor). When I realized that, based on the law of averages and the amount of diseases a human could possibly contract, the odds of me personally getting sick was practically nil. That thought seemed to allay my fears.

Yes, I have health insurance, live well and exercise as best I can (nor do I smoke).

The rest I leave up to the law of averages. And perspective.

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Allan April 10, 2009 at 2:30 pm

The best advice for a man is not to have a wife or children at all. i am financially independent because I never had to pay for a wife, kid, divorce, nor did I have a wife nagging me, killing my dreams, or preventing me from enjoying my life. i can go out with whomever I want, and now at the age of 45, I am semi-retired, and I have women waiting in line to go out with me. Most of them are desperate/divorced/with kids, and most of the men my age with money insist on younger women. So, I have my pick and a lifestyle that most of the married men (beaten dogs) dream about. This argument becomes moot for men if they just STAY SINGLE. I can afford the best medical care and will probably live longer than the average guy who is nagged to death or who’s wife demand he bring home a big fat paycheck each week. I live off my interest and about 10 hours of work per week!

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Peter April 15, 2009 at 9:00 am

Some good advice in the response to Steve, but it seems that Steve is overwhelmed with the responsibility he feels to do it all, and do it all now. So to respond to Steve:

You can’t fund everything for the future because you’ll never know if it’s enough until you need it for real.
You’re kid may flip you the bird and decide college isn’t for them, so all your sacrifice could be for nothing.
You could all die in the plane, or in the car, on your way to Disney World. Should that stop you from going?

Thirty years ago the advice was save 10% of your salary. Now it’s typically 15-20%. Do you honestly think those who saved 10% are completely screwed or just have to make adjustments to either their expectations for retirement or the time they decide to retire?

Twenty years ago the “average” college cost was something like $100K. I couldn’t save half that without trashing my standard of living for my family. Starting with twenty bucks a pay with $5 increases when given a pay raise or cost of living allowed me to provide $25K to my daughter for college planning. Will it pay it all? No. Does it help a lot? Yes.

Make reasonable plans, with reasonable projections, and pay attention and stay flexible. You can set thing up and adjust them over the years, it doesn’t have to be done all at once and you may not fully reach your goal. So don’t beat yourself up if you can’t do it all, do what you can without paupering your today for your future.

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Vicky April 16, 2009 at 10:14 pm

“….i can go out with whomever I want, and now at the age of 45, I am semi-retired, and I have women waiting in line to go out with me. Most of them are desperate/divorced/with kids….. ”

Good lord, what a sour grape attitude you have Mr Allan…. I have no idea where that disgust for women is coming from or what justifies it. If you can only get desperate women, you will have to see what is wrong with you. I am sure some psychiatrist will be able to trace it back to some traumatizing experience you had with a female – spend some of your expensive medical care on some good help. It is so over the top that I can only laugh at it. As a self-made millionaire I am living proof that it can be done at a much younger age while being happily married at the same time.

On the other hand, that repeat negative message about women is getting old and I don’t see what is has to do with the blog entry. Get some professional help and get over it.

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Allan April 17, 2009 at 8:24 am

Vicky, dear, my attitude is like it is because of the court system and the male bashing feminists in the USA in which women generally fare much better in divorce court then men. If I married someone like you, and you decided you wanted out, I might have to give you half or more of my assets on the way out. Even with a pre-nup, I might still have to split my earnings since the marriage with you. This is why women file for divorce more than 75% of the time in the USA. Further, you are expressing yourself with no logic. You assume that I have a problem and need psychiatric attention, because I refuse to adhere to “societies norms” and end up as a victim to a woman like you. NO! I am just smart. I love women and have more women to date than I can possibly handle. As a single man, I always have the power because I control my money and I can walk away anytime a woman starts nagging or trying to control me. I am certain that the majority of divorced men who got cleaned out in court by the women who claimed to “love” them would agree with me. You are getting tired of my comments because you know this goes against the grain of what you want as a woman; a walking wallet of a man.

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Millionaire Mommy Next Door April 17, 2009 at 9:15 am

You are entitled to your opinions, but please keep your comments polite, respectful and on-topic. Mean-spirited or inappropriate comments will not be posted / will be deleted. Play nice with one another. By posting here you agree to these terms.

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Allan April 19, 2009 at 1:29 pm

This is on topic. If you don’t have kids, you don’t have to pay for their education or other expenses. Not having kids is one of the best money management strategies ever. For the same reason I don’t believe in marriage. I also don’t pay for dates. I expect whoever I go out with to pay their own way. After all, men and women are equal in 2009. Why should I get stuck paying the whole thing? All of theses strategies allow me to save money. I think this is very much on topic.

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Ruchika May 5, 2009 at 9:41 am

There are some people who are against the children and they are not able to get the proper education because the parents are not doing anything for their children they are simply wasting their money on stupid things. The men are not doing any of jobs and also not letting the women do the job and moreover some men are even jealous if the women are more successful than them.
Thanks

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Michelle June 30, 2009 at 12:53 pm

Hello… In response to Allan…. I hope that your money will be enough that when you are 80 and still single…. you can pay someone to help you in your old age. Children and family often do this out of love and respect. You are definitely entitled to your opinion and the idea of not having children as a means of savings is not new. However, I would say that money is not the most important or only thing. Most people take enjoyment in the responsibility of a family (including a spouse and children.) They would gladly exchange a portion of their “riches” for this enjoyment.

For Steve, as a parent, I understand your concerns. Consider term life insurance and long-term disability insurance. This will give you some peace of mind.

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Allan June 30, 2009 at 3:35 pm

Michelle, you have no guarantee that the person you are married to will be there for you when you are 80. I would rather pay for the best medical care instead of losing my money in a divorce. Your kids will more likely be on the other side of the country doing their own thing and they are not going to want to empty your bed pan. In the current divorce climate (favoring women), the smart man would do best to stay single. There is absolutely nothing a man gets by being married that he can’t get by remaining single. he can love someone, have kids, etc. However, when the divorce comes (as it most likely will), men typically get destroyed in court and there is no reason to get the government into your personal relationships. Personally I don’t know ANYONE who is married and happy, but I know lots of single guys like me that have money, freedom (no nagging in the house), and can date lots of women instead of being chained to one. Almost every married man I know is miserable and they don’t like the “responsibility” of paying for a wife and kids. Most would never do it again. I think all men should strike against marriage until the ridiculous anti-male laws are changed.

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