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If you don’t have children or plan to have children, the normal rules about personal finance don’t necessarily apply to you.
That’s because people who meet these characteristics, known as childless people, don’t need to build intergenerational wealth, says Jay Zygmont, a certified financial planner and author of says.Portraits of wealthy people without children” This renders much of the standard advice you hear from financial experts like Dave Ramsey meaningless.
“If my nephews got $1,000 or $10,000, [when I die] That’s fine. If they get a million dollars, I’ve made a mistake,” Zsigmont said on a recent appearance on the show. fincon. “Because either they were able to use it early in life, or I was able to use it.”
Zygmont says traditional financial planning models tell you to keep “making ends meet” in order to pass on your wealth to your children. Without such variables, people without children would be free to spend or donate the money they earn before they die to maximize their happiness.
“This throws all your financial plans off the table,” Zygmont says.
Nod your head Ramsey’s 7 “Baby Steps” When it comes to managing money, Zsigmont offers eight “no-baby” steps (get it?) as a financial roadmap for childless people.
The first three steps are prescribed whether or not you have children, Zsigmont said. He recommends starting with:
- Create an initial emergency fund
- get out of debt
- Build an emergency fund for 3-6 months
Zsigmont recommends saving up enough cash to cover about a month’s worth of expenses as a starting emergency fund. This will give you a cushion as you move on to step two, which is to get rid of debt.
“When you have a lot of debt, you end up putting off maintenance on your car, home, and everything else,” says Zygmont. As these expenses add up, it may be better to pay them from your emergency fund rather than taking on more debt.
Once you have savings, make your debts a priority, especially if they have high-interest debts such as credit card balances.
“Your debt is an emergency, especially Credit card interest rates are currently over 20%” Zsigmont said.
Although Zsigmont believes there is mathematical wisdom in paying off debt through the so-called avalanche method (focusing on debts with the highest interest rates first), he generally believes there is some psychological wisdom to be gained by paying off debt in descending order of balance. I support victory. Snowball.
“Getting into debt may be quick, but getting out of debt is hard work. So getting these quick wins can help you keep moving forward.”
Here, Zsigmont says his advice is a “huge right turn” from traditional advice. People with children also save and invest, but those without children may have completely different standards. After all, you don’t have to pay child support, save for college, or leave an inheritance.
“How can you spend money, enjoy life, and still save for the future?” Zsigmont says. “At the end of the day, what do you want your goal to be?”
In the traditional model, you’d stash away, say, 20% of your income and divide that savings between a down payment on a home and retirement investments, which you’d like to start starting around age 67.
For those without children, the script may look radically different. Zygmont says a home is “an option for people without children, not a necessity.” This is especially true if you want to move flexibly.
Additionally, while you may want to invest for the long term, you can also repurpose some of your money to improve your life in the near future.
“If your goal is to open a business, you probably want to invest in that business. A better solution financially may be to invest in the stock market,” says Zygmont. “Maybe it’s investing in going back to school, changing jobs, or taking a vacation. All of those are investments. They’re not just ‘classic’ investments. ”
If you don’t have children, it’s more important to have some types of insurance than others. For example, if you have children, many financial experts recommend some form of term life insurance to cover your family in the event of your death.
“It’s very rare for people without children to need life insurance,” says Zigmont, unless there is a major financial obligation that your spouse cannot cover in the event of your death. “Disability insurance is much bigger.”
This is especially true of those whom Zsigmont calls “soloists” – people who do not have children, but also do not have a spouse.
“You need to have good disability insurance that will cover you until you retire,” says Zygmont. “Many people skip it or don’t realize that employer coverage alone is not enough.” In fact, they have access to short-term and long-term disability insurance that covers them if they are unable to work due to injury or illness. Less than half of private industry workers are able to do so.
Another important consideration is long-term care insurance.
End-of-life care is expensive. For example, the median monthly cost for a private room in a nursing home is more than $9,000 per month. According to a 2021 study by insurance company Genworth Financial..
“People without children are often asked who will take care of us? The answer is my money, with professional help,” Zsigmont says. ”[Considering long-term care insurance] Things I want to do by my mid-40s. The reason is that this is the time when long-term care insurance is most reasonable. It’s not cheap. But it’s more reasonable. ”
Financial advisors will tell you that almost everyone needs an estate plan. Estate planning tells those around you how you want your financial and medical decisions to be handled in the event you die or become incapacitated.
Zygmont says this is an even more pressing issue for childless people who may not have any obvious next of kin.
“The health care and government systems all want next of kin,” he says. For example, if you get into an accident while out and about, there may be no one to contact, he added. “So the government or the health care system is making decisions for you.”
Without an estate plan in place, you may be required to take steps you would not have chosen, or your assets may be distributed according to government rules rather than your wishes.
“It’s really important to designate financial and medical decision-makers to ensure our needs and wishes are met,” says Zygmont.
You’ve probably heard of the “sandwich generation” who are caring for both their children and their aging parents. But for many families, it’s more like an open-faced sandwich.
“People often say, ‘Hey, you don’t have kids, so it’s okay for you to take care of your mom, right?'” Zsigmont says. “The level of expectations is different.”
It may or may not be a role you feel comfortable taking on. The first step, Zsigmont says, is to establish your boundaries. For example, you and your spouse may be willing to invest more money than your sibling financially, but you may not feel comfortable letting a parent live in your home. .
You should also tell them what your financial role will be in caring for your parents. “You might be thinking, ‘Hey, I can’t afford this.’ You need to have those conversations.”
For example, if you or your siblings cannot afford long-term care for an elderly parent, you may have to choose a Medicaid-provided nursing facility. Ideally, this awkward conversation should happen as soon as possible. “We need to do this before kids get sick,” Zsigmont said.
Zsigmont’s mantra “die with zero” is Bill Perkins’ book of the same name. But both men will admit that actually aiming to die with $0 in his bank account is a risky proposition. You don’t want to underestimate your lifespan and run out of money.
That’s why Zygmont recommends purchasing long-term care insurance and making sure you have enough funds.
“It’s important to optimize your life and get the most out of your money while you’re alive,” he says.
You’d think that would be different for everyone, but in general, “you can do two different things,” Zsigmont says. “Either save less or take more.”
An example of the former is taking a low-wage job. This can reduce your stress and give you more time to focus on your passions. “Sure, you won’t save as much, but you’ll be happier, right?”
Mr. Zygmont also meets with clients who have large sums of money in the bank, and unlike many financial planners, he encourages them to spend more of their money well before retirement age.
“Their minds are blown because they’ve spent years learning how to save. There’s a lot of guilt there. There’s a lot of baggage that comes with it,” he says.
To be clear, Zsigmont is not saying that people without children are free to spend recklessly. Instead, you can focus more on how you can maximize your happiness with your money.
“I’m very cautious about the YOLO approach. It’s a balance of having enough money to keep yourself safe, but at the same time enjoying your life at a much earlier age.” is.”
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