Have you ever considered the interrelationship between different types of planning? One aspect of planning affects the other. Here are some examples:
Estate Planning vs. Financial Planning. With estate planning you plan your estates for the benefit of your heirs. But, if your financial plan goes awry (more debt, less income, and/or less savings) it could easily affect your strategy. For example, if your estate plan includes charitable giving as a part of your strategy (if you have a charitable remainder trust, as an example) a decrease in the amount of your available assets could affect the amount you can practically give. In other words, with the recent market turmoil, you might now be “giving beyond your means.”
Also, if your financial and investment plan is hugely successful, you may have estate or inheritance tax issues which you might not otherwise have.
College Planning vs. Retirement Planning. As Deborah Fox recently wrote in the January 2009 issue of Financial Planning, “college planning is retirement planning.” Every cent plus future never-realized appreciation which you spend on college is taken away from retirement. Thus, if you sink $100,000 into college for your children the future value of that amount in 25 years, even at a modest 4% rate of return, would be well over $260,000. Of course this is highly simplistic, because college funds do not (poof!) appear out of the air, but are saved over a substantial period of time. That means that there is a potential for even more never-realized income.
So, what do you do? Here are just a few suggestions:
● Get a financial planner. Many don’t do this, but consider getting professional assistance.
● Get an estate planner. So many people decide to “save a buck” and do their own estate planning. Often this is with less than desirable results. It’s hard to integrate your strategies when there is no strategy.
● Integrate saving and borrowing into your college planning. I will admit: There are many disputes on this score between planners on this issue. Many planners find borrowing an anathema, while others embrace it. Consider this, however: Your children (or, potential children) have a much greater number of earnings years than you do as parents.
Also, consider this analogy: the logic behind a city borrowing to pay for a public improvement is that the resurfaced street, for instance, is to be used for many years by many taxpayers and motorists. It would not be fair to saddle the present taxpayer with all of the cost, but to spread it out over time. The same could be said for college borrowing.
I suggest postponing borrowing as long as possible by using savings, but recognize that borrowing (especially through the federal student loan program) is a perfectly appropriate way to go.
These are just a few suggestions, and each of them could be discussed in a separate article or blog entry. There are more, which I will discuss at a later time. However, the first step in moving forward is…taking the first step.