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With Labor Day behind us, and kids back in school, it is safe to say that summer is over, even though the temperature hasn’t exactly reflected that.
This time of year is a good time to start thinking about getting your finances back on track. Financial planning is important, but it doesn’t have to be complicated. Taking some time to think about your financial future is time well spent. Here are a few reasons you should develop a sound financial plan.
The first, and most important reason, is to protect yourself and your family from financial risks. Financial planning can’t and won’t take away the risks in life. What it will do, however, is manage the financial effects of the bad things that can happen in life. Injury, illness, death and accidents will happen to just about all families to some degree. A big part of financial planning is addressing and mitigating the harm those things cause to your family.
A second important reason to develop a financial plan is to help eliminate personal debt. Total consumer debt in the United States is $18.77 trillion, which is $383 billion higher than a year ago. The average American household has $139,300 in debt (Source: Federal Reserve). All this debt causes people to run out of money before they run out of month. This perpetuates the debt cycle.
Another issue is that life expectancy has increased substantially over the last century. In 1935, at the inception of Social Security, the life expectancy in the U.S. was 61.7. In 2025, it is about 79, and for someone turning 65 today it is around 84.7 (Source: SSA.gov). All of this means that you are likely to live a very long time, and you need to plan for that financially.
The cost of raising children is another reason we must plan our financial lives. A 35-year-old making $3,000 a month will have over $1 million in lifetime earnings. That sounds good, but how much do you actually keep? You have many expenses as a couple, but they all pale in comparison to the cost of children. The average cost to raise a child to age 18 today is more than $310,605 (Source: U.S. Department of Agriculture).
The cost of children doesn’t necessarily end at 18 either. For a baby born today the cost of a four-year education at a public college is over $100,000. A private college can be over a quarter of a million or more. It doesn’t end there, either. The cost of a wedding today is over $30,000, and often happens right after college.
Another reason for financial planning is to figure out the best ways to buy a car. The average price of a car today is $49,855 (Source: Cox Automotive). Is it best to pay cash, or use dealer financing, or tap into home equity? The answer is different for each person, but putting together a plan will help to sort that out.
Along those same lines, financial planning can help you to buy a home. Americans devote the largest portion of their income to their home. How you handle this purchase has far-reaching implications including your ability to save, pay for college and finance other purchases.
The next reason is retirement, specifically to be able to retire when you want to and the in the style you want to. If you retire at 65 and live to 85, you will eat a total of 21,900 meals in retirement. At an average of $5 per meal, that comes out to over $109,000! Thirty-nine percent of retirees have an income under $15,000 per year while only 15% have income over $50,000 (Source: Social Security Administration). How you plan your life while working will have far reaching implications over the remainder of your life.
As life expectancy has increased, so has our need for long term health care, which is another reason you need to plan things. The average cost of a nursing home in Indiana is over $123,000 per year and 40% of us will require long term care during our lifetimes (Source: US News.com). Health insurance doesn’t cover long-term care, and government assistance doesn’t happen until you spend virtually all of your assets, so planning ahead is critical.
Finally, financial planning may allow you to leave a legacy, both you the next generation of your family and to the charities and causes that are important to you. Planning in this area can manage your costs and ensure that your wishes are carried out.
There are many reasons for planning, and fall is an appropriate time to start.
Important Disclosure:
Alan Alderfer is a Partner, Managing Director at Beacon Pointe Advisors LLC. The information contained in this article is for general informational purposes only. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Past performance is not a guarantee of future results. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information. The discussions, outlook and viewpoints featured are not intended to be investment advice and do not consider specific investment objectives or risk tolerance you may have. All investments involve risks, including the loss of principal. Consult your financial professional for guidance specific to your circumstances.
