Financial Planning for the Youth Worker | Start with You

Financial Planning for the Youth Worker

Financial Planning for the Youth Worker

If you are like every other youth worker out there then you have a pretty humble income. Like every other youth worker out there you have these thoughts of what your future financial situation might be. How are you going to help you children in their university or other schooling choices? How are you going to live into retirement? What types of long term care can you help ensure for yourself? This is the second in a series of blog postings on financial planning with you the youth worker in mind. These post are not to be considered financial advice (call that a disclaimer if you like) but some thoughts and plain english speak to help guide you take control of your money and ensure some securities for the future.

Don’t Think First About the Kids
When we started doing our own family financial planning we just had child number one. Our inclination was to put their future at the front of our planning, having money for that child (and future children) for college and other life events. It became pretty clear early on that we had to focus on ourselves first.
This might sound counter intuitive since a child’s extended education needs come before retirement. However, the honest truth of it all is that you can take a loan for college as needed but there is no loan available for you retirement. So start with a plan to fund your retirement. Then do something for the kids educations as your earning power grows.
So What Do You Start With?
Here’s a quick run down in order of suggested steps.
  • Social Security: Honestly I do not see this system available to many of us when we reach retirement age. You are going to be required to pay into it so why not collect it when you get to retirement age. But you want this to only be add on cash to what is your primary retirement portfolio. That is, if it is still able to provide any funds at all.
  • Savings Account: This is pretty simple practice of putting money into a special savings account in your bank or credit union that gives you a building interest on your money. The cool thing is that this money is going to have stable growth (minus economic crisis) and is accessible should you need it. Drawback is that the growth is very small compared to other options. If you can put together some ’emergency funds’ or ‘rainy day funds’ then put those in a savings account. The general rule is to get about 3-6 months of livable funds in that account and just leave them there as best as you can.
  • 401K: Is a type of retirement account that builds and grows over time with regular contributions from you, and sometimes your employer. Most of the time these are organized through an employer (or agency of an employer). The great part of 401K is that the money comes out of your check pre-tax. So essentially you pay less in taxes and still get to save the money you want. The account will build over time in and if created early enough and fed into will give you a quite a few hundred thousand dollars to work with on retirement. A drawback is that you will pay taxes once you start drawing from the fund. This tax now or tax later is all a part of the retirement and funds game. Another detail you will have to decide is what entity to invest your fund into. Most likely you would choose a fund that has some moderate risk to maximum gains.
  • IRA or Individual Retirement Account: Is another form of a retirement account. You can open up your own IRA and start putting money into it through an investment company. There are a bunch of types of IRAs out there with various taxing games to them. Basically you choose when you pay taxes on the money & interest as well some types of accounts give you a higher ceiling of money to deposit into it within a years time. If you work for a church that doesn’t offer a 401K plan, or the overarching institution doesn’t have an option for you, then this is the route to go. You can find an IRA plan at just about any financial institution. There are pluses & minuses to wherever you go, so keep a few of these things in mind. A credit union will make it easy to open up and direct money into it, however, they might have limits to their growth. Consider that a safe and very slow growth. If you can get a financial planner friend to work with you on this then that is great. If they represent an investment company they probably have a myriad of options to choose from. One question you will want to ask is how much is needed to start an IRA. With our person it took just $250 to open and $50 automatically gets put into there. Pretty painless now and the plan is to extend that incoming years. If you feel confident enough you can use some of the online entities. Those will have some attached fees, transaction or maintenance type things. But you can get the same results. There are other off the radar brokers out there that can give big interest rates but it might be best keeping your money moves conservative as you start. Still confused? Try out this ‘plain english’ type video to explain some of this fun. Want some more to chew on, check out this differences chart between 401k’s & IRA’s.
  • Insurance: Stick with me on this one, it was hard for me to conceptualize this when I first was presented it, but you can use some forms of insurance to build your financial portfolio. It is way more math than this, but the quick gist is that with some blended type insurance policies you can towards the end of the policy draw out the value of the policy what was paid in with interest. There is all kinds of fun math with this and would need you to pay close attention to what you are getting. With some policies you could be making less than a traditional IRA set up. So why if that is the case? Generally these insurance investment options do not have investment limits. So, if you are pretty sure you are going to max out your IRA or 401K yearly limits, then this becomes a solid option for you. This article in Forbes tackles this idea pretty well. Depending on your financial planner friend they have this option well spelled out for you. Back in the day insurance companies were not allowed to be investment companies as well. Only in the last decade plus have the insurance companies, through some law changes I wasn’t paying attention to, been able to join in the funds business combining all these options.
  • Stocks: Things sure have come a long way since I got to play the stock market in grade school and you had to bring in the newspaper each day and figure out what to buy or short sell based on that days results. Provided you have started these prior steps look to diversify your portfolio with some stocks. The risk is greater than a bond, but the benefit is greater as well. Plus, it is widely recognized that investing in the long term, ie. putting in your money and leaving it there for a long period of time, will yield positive results the majority of the time. Day trading, not always the case.

Hoping this helps you get an idea of where to possibly start.

Our Quick List

  1. Figure out your money. If you need help download a blank budget sheet, or use a phone app. Get whatever debt under control or paid off fast.
  2. Set some Goals. Have the conversation and write them down. This really is fun to do and even better to realize.
  3. Find a friend. Ask some of your other friends. Get comfortable talking money and get someone you trust to help you get there.
  4. Set up the Savings Account for those rainy days. Get something in there with a plan to add to it as you move to the next investments.
  5. Get set up with an 401K or IRA, or both TODAY! The longer one of these things is alive the more beneficial it will be. One church I worked at offered a 401K I did whatever minimum investment into that for the five years I was there. The last projection of that fund upon retirement (and I haven’t added to it since leaving that church) is over $250k. Not bad for something I had no idea what I was doing with. Now we have added an IRA for each member of our family (more on the kids later). Investigate the insurance and stock options to expand your portfolio after you get going with the more stable growth plan.
  6. Next, we will worry about the kiddos!!