Dear Paul...
Financial basics for our clients' adult children.
Most of our clients are empty nesters whose children launched their independent lives during the past ten to 15 years. These clients frequently tell us that they are worried and anxious about not having prepared the next generation of their families to cope with adult financial realities.
We usually make ourselves available to visit with clients' grown children to review their practical concerns and offer some basic wisdom on budgeting, consumer debt, saving and investing, home buying, insurance, career decisions and the like. We refer affectionately to this generation of future clients as ACOFACs, our acronym for Adult Children of Financial Advisory Clients. Some of the nicest notes we've received have been from ACOFACs and their grateful parents.
Last week I received a call from the 30-year-old son of a recently widowed client. He asked for some advice about investing $25,000 he and his wife had accumulated in a savings account. As I began to ask Paul the basic questions about their income, savings habits, goals and liquidity needs, it occurred to me that we had literally dozens of ACOFACs in the same financial boat: hard working young family people facing the rising expenses of raising a family and a dauntingly complex world of financial services. Some of these young people had bought their first home, some had not. Some had a little experience with stocks or mutual funds in the last bull market, while others had yet to accumulate any savings at all. Most were untutored in financial matters, and almost none of them were comfortable divulging their personal financial information to Mom or Dad, so they tended to wing it without any guidance.
It occurred to me that it might be helpful if we could prepare some general advice and a list of resources to offer routinely to our clients' adult children on request. Paul lives several hundred miles from our office, making a personal visit inconvenient. So I suggested that what I would like to do for him is to write a three- or four-page letter touching on some of the financial basics related to his investment question-a letter he could refer to as a sort of general guide and resource for financial decision-making for his young family. And, of course, I assured him that he could call us any time.
I told Paul that this was not an entirely unselfish offer, as I had many other ACOFACs with whom I could share these basics. It also occurred to me that readers of Financial Advisor magazine might want to consider preparing a similar letter and list of their favorite resources for their own clients' grown children.
Dear Paul:
It speaks well of your maturity that you are willing to seek out professional guidance for your financial decisions. I am honored that you have asked me to share some ideas out of my own experience. But whatever value my suggestions may have, ultimately it is you and Beth who must make the financial decisions that will influence your family's future. I hope these suggestions will give you a bit of a head start.
Cash Flow: If you haven't done so yet, my first recommendation is that you take some time together to create what your mom and dad used to call a "Budget." Today we usually call it a "Spending Plan," because the idea is to take control of your income in a way that allows you to get the most satisfaction from it rather than wake up in ten years and wonder where it all went. It is a plan for how you want to use your income to achieve what's important to you and your family.
You can find a good budget worksheet along with practical general advice for creating a spending plan at www.personal-budget-saving-money.com.
Personal Goals: Integral to the spending plan process is defining your personal financial goals and trying to quantify them in dollar terms. By listing your near-term financial goals, say those you want to achieve in the next three or four years, you will get an idea just how much money you will need to save each month to have a realistic possibility of achieving them. And you can work the rest of your Spending Plan decisions around these goals.