CFP8 says having no children ‘breaks’ traditional financial planning

If you don’t have kids and don’t plan to have any, the normal rules of personal finance won’t necessarily apply to you.

That’s because people who fit this description — the childless population — don’t need to build intergenerational wealth, says Jay Zigmont, a certified financial planner and author of “Portraits of Childless Wealth.” This renders much of the standard advice offered by financial experts like Dave Ramsey meaningless.

“If my nephew gets $1,000 or $10,000 [when I die] It doesn’t matter. If they get $1 million, I’ve made a mistake,” Zygmunt said during a recent appearance at FinCon. “Because either they could have used it earlier, or I could have used it.

Under the traditional financial planning model, Zygmunt says, you’re told to continue “in business” in order to pass your wealth on to your children. Without in-game variables, childless people would be free to spend or donate every penny they earn before they die to maximize their happiness.

“This breaks all financial planning,” Zygmunt said.

In a nod to Ramsey’s seven “baby steps” to money management, Zygmunt proposes eight “baby-free” steps (get it?) as a financial roadmap for the childless.

1 – 3: Establishing a Financial Foundation

Zygmunt says he prescribes the first three steps whether you have children or not. He recommends starting with:

  1. Create a Start-Up Emergency Fund
  2. get out of debt
  3. Build a 3 to 6-month emergency fund

For starting an emergency fund, Zygmunt recommends setting aside enough cash to cover about a month’s worth of expenses, which can provide a cushion as you move onto step two: getting out of debt.

“When you’re in debt, you put off maintenance on yourself, your car, your house, everything,” Zygmunt said. When these expenses keep popping up, you’d rather use your emergency fund to pay them than go deeper into debt.

Once you have a savings cushion, consider your debt as your first priority, especially high-interest debt like credit card balances.

“Your debt is an emergency, especially with credit card interest rates now over 20 percent,” Zigmont says.

Although Zygmunt saw the mathematical wisdom in paying down debt through the so-called avalanche method (focusing on debt with the highest interest rate first), he generally preferred the psychological victory that came from paying off debt in order of smallest balance, a strategy that became known as It’s called the snowball method.

“Getting into debt can happen quickly. Getting out of debt is a difficult process. So, quick wins can keep you going.”

4. Save and invest for your goals

Zygmunt says this is where his proposal is “very different” from conventional advice. While people with children are also saving and investing, people without children may have very different milestones. After all, there are no childcare bills to pay, college expenses to save for, and no inheritance to inherit.

“How can I spend some money and enjoy life and still save for the future?” Zygmunt said. “At the end of the day, what is your desired goal?”

Under the traditional model, you might save, say, 20% of your income and divide the savings between a down payment on a house and retirement investments, where you hope to retire starting around age 67.

For someone without children, the script may look completely different. Zygmunt says a house is “an option for people without children, not a requirement,” especially if you want the flexibility to move around.

What’s more, while you may want to invest for the long term, you can use some of your money to improve your life in the near future.

“If your goal is to start a business, and maybe you want to invest in that business, a better answer, financially speaking, might be to invest in the stock market,” Zygmunt said. “Maybe it’s investing in going back to school, changing careers, or taking a sabbatical. Those are investments. They’re just not ‘classic’ investments.”

5. Choose the right insurance

Being childless makes having certain types of insurance more important than others. For example, if you have children, many financial experts will recommend that you purchase some form of term life insurance to protect your family in the event of your death.

Unless you have significant financial obligations that your spouse won’t be able to meet after your death, “people without children rarely need life insurance,” says Zygmunt. “Disability insurance is much larger.”

This is especially true for what Zygmunt calls “soloists,” people without children and without a spouse.

“You need good disability insurance that will cover you until retirement,” Zygmunt said. “A lot of people skip it or don’t realize their employer’s coverage isn’t enough.” In fact, less than half of private industry workers have access to short- and long-term disability insurance, which covers you if an injury or illness prevents you from working. will take effect.

Another major consideration: long-term care insurance.

Hospice care is expensive. For example, the median monthly cost of a private room in a nursing home is more than $9,000, according to a 2021 survey by insurance company Genworth Financial.

“Childless people are often asked who will take care of us. The answer is my money and with the help of professionals,” said Zygmunt. “[Considering long-term care insurance] I want people to start doing this around forty-five. The reason is that that’s when long-term care insurance makes the most sense. It’s not cheap. But this makes more sense. “

6. Be proactive with estate planning

Financial advisors will tell you that almost everyone needs an estate plan that can guide the people in your life on how to handle financial and medical decisions in the event of your death or incapacity.

This is a more pressing issue for childless people who may have no obvious close relatives, Zygmunt said.

“Health care and government systems are looking for next of kin,” he said. For example, if you get into an accident while you’re out of town, there may be no obvious person to contact, he adds. “That means the government or the health care system will make the decision for you.”

Without proper estate planning, you will go through procedures you would not have chosen, or your assets may be distributed according to government rules rather than your wishes.

“It’s really important that we have decision-makers assigned to us both financially and medically so that our needs and desires are met,” Zygmunt said.

7. Make plans for mom and dad

You may have heard of the “sandwich generation,” the people who have to care for their children as well as their aging parents. But for many families, it’s more like an open sandwich.

“People often say, ‘Hey, you don’t have kids, so you can take care of mom, right?'” Zygmunt said. “There are different levels of expectations.”

This may or may not be a role you’re willing to take on. Your first step, says Zygmunt, is to set your boundaries. For example, you and your spouse may be happy to contribute more financially than your siblings, but not have your parents living in your home.

You will also need to communicate your financial role in caring for your parent. “You might decide, ‘Hey, I can’t afford it.'” You need to have that conversation. “

For example, if you and your siblings cannot afford long-term care for your elderly parents, they may have to choose a Medicaid-provided care facility. Ideally, this awkward conversation should happen as early as possible. “You need to do it before they get sick,” Zygmunt said.

8. Zero deaths

Zygmunt’s “Death and Zero” mantra is a nod to Bill Perkins’ book of the same name. But both men admit that dying with $0 in your bank account is a risky proposition. You don’t want to underestimate your life expectancy and run out of money.

That’s why Zygmunt recommends purchasing a long-term care policy and giving yourself a generous cash cushion.

“Then it’s a matter of optimizing your life and making the most of your money while you’re alive,” he said.

That’s going to look different for everyone, but in general, “we can do two different things,” Zygmunt said. “Either we save less or we save more.”

An example of the former is accepting a lower-paying job so that you will be less stressed and have more time to focus on your interests and hobbies. “Sure, you won’t save as much, but you’ll be happier, right?”

Zygmunt also met with clients who had huge sums of money in the bank and, unlike many financial planners, encouraged them to spend more before retirement age.

“They’re shocked because they’ve spent years learning how to save. They have a lot of guilt. There’s a lot of baggage that comes with that,” he said.

To be clear, Zygmunt is not suggesting that childless people should spend their money lavishly. Instead, they can focus more on maximizing their happiness through money.

“I would be very cautious about the YOLO approach. It’s a balance, you have enough money to keep yourself safe. But you’re also enjoying your life at an earlier age.”

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