My only child graduated from college this year. She made it through debt-free. Writing that last tuition check felt great. I had the college fund covered, and I didn't sacrifice my retirement account contributions to make that happen. I recognize that not everyone can pull this off. There are competing claims on your income. The point is that I made it a priority on the front end versus trying to figure out how to pay for it after the fact with student loans or home equity debt.
Parents funding their children's college costs isn't a birthright, but if parents want to make it a goal, then try to plan and invest for it rather than taking out loans to fund it. Now it's time to start building a wedding fund.
3. Financial literacy for children.
A lot has been made of how our children don't understand the basics of personal finance. Financial literacy programs in our schools don't seem to be having as much impact as we'd like. We want our children to be able to learn to live within their means, understand how to put together a budget and manage credit responsibly. Probably the best idea I've heard on this front comes from a friend who is an investment professional. As a single mother of two, she had her children, while they were in high school, "drive the bus" in terms of managing bill-paying and the household budget. It may not work for every family, but in terms of getting some real-world experience about the competing claims on an income stream, I think it's a great idea, with one caveat: This doesn't mean unsupervised access to the till.
Whether it's learning from your mistakes or setting a good example, they must learn from you, and you must work with them to foster an understanding about why it's important and how they can become in control of their finances.
4. Financial literacy for adults.
Bankrate makes a business out of helping people make better financial decisions. In terms of financial literacy, studies have shown that researching an upcoming financial decision is one of the best ways to improve financial literacy because the consumer has a vested interest in improving the outcome.
We all have our blind sides when it comes to financial literacy. We also tend to resist change. I'm suggesting that you take some aspect of your finances and look for a way to improve upon it this year. Maybe it's the cable bill or your cellphone plan, or the fees you're paying when investing. Pick a topic and learn more about it, including whether you can improve on the status quo. The ambitious among us could do this once per quarter or once per month.
5. Stop looking at your house as a piggybank.
For most homeowners, a home is the highest leveraged investment they ever make. Even with 20 percent down, you're borrowing 80 percent of the value of the home. While in today's relatively low interest rate environment, there may be a reason to take your time paying down the mortgage, but that doesn't mean that you tap your home's equity for college costs, vacations or investing in property.
6. Don't raid the retirement accounts before retiring.
I get letters from readers all the time looking for permission to raid their retirement accounts for a host of reasons. The two most common are paying for college costs or paying off the mortgage.
You've spent your working career building these accounts. The money in them was set aside to meet your income needs in retirement. While paying off the mortgage can reduce your income needs in retirement, is this really why you set this money aside over the years? If that was the goal, you should have been making additional principal payments on the mortgage over the years and saving all that interest expense.
As to raiding the accounts for college costs, don't. Have the kids take out federal direct loans in their names. They're investing in their future.
7. Know your number.
We've all seen the ads with people walking around with a six-figure or seven-figure number. That's their goal for the size of their retirement accounts at retirement. There was even a book written by Lee Eisenberg in 2006 called "The Number," which to my mind wasn't as helpful in coming up with an actual number as it was in beginning to think through what should go into coming up with that number.
Estimate what your income needs will be in retirement. Some of those income needs may be met by Social Security. Some, if you're lucky enough to still have one, will be met by your pension. What fills the gap for most of us is being able to draw against our retirement savings.
If you're a do-it-yourselfer, there are a host of free retirement calculators available on the Web. Try several and see which ones make the most sense to you. If you work with a financial professional, have him or her walk you through the process, if you haven't already.
Keep in mind that not all that money in your 401(k) or traditional IRA is yours. Typically these accounts are funded with tax-deferred contributions, and the money is taxable income when you take distributions from the account. I'm hoping that I'm on the high side, but I assume that one-third of the money in my tax-deferred retirement account belongs to the government. The good part of that is it makes me more willing to take on risk in my retirement investing because I'm sharing that risk with the tax man.
8. Retirement health care needs.
Fidelity Investments does an annual survey of retiree health care costs. In its 2013 survey, Fidelity reported that, "A couple retiring in 2013 is expected to need $220,000 to cover health care costs in retirement, down 8 percent from last year's estimate of $240,000."
It's too soon to tell how the Affordable Care Act will move that needle for 2014, but the survey reminds us that health care costs won't all be covered by Medicare and that households need to consider health care in planning for retirement income needs.
AARP recently released a free Health Care Costs Calculator for retirement planning. I ran my numbers, and the calculator came back with an estimate for me of slightly more than $100,000 in health care costs not covered by Medicare. Add a spouse to the mix and you can see the similarity to the Fidelity survey number.
The 2013 Retirement Confidence Survey by the Employment Benefit Research Institute with Matthew Greenwald & Associates Inc. shows that 57 percent of workers have less than $25,000 in total savings and investments for retirement, not counting home equity or defined-benefit plans, and 28 percent have less than $1,000.
Living within your means also means investing for retirement, including retirement health care needs.
9. Know your net worth.
The consumer balance sheet is pretty simple. Estimate the value of what you own, subtract what you owe, and what's left is your net worth. Why is this important? It helps you to see if you're building wealth over time, treading water or seeing your wealth decline.
Finance professionals like to distinguish between investable assets and personal assets. There's some value in that perspective because it's the investable assets that you're most likely to tap for future income needs. But, a primary residence is typically classified as a personal asset, yet seniors can use a home equity conversion mortgage -- or reverse mortgage -- to provide income in retirement.
10. Track your investments.
Unless you have all your investments with one firm, you're getting multiple statements each month about your savings and investments. It's all your money. If you don't take a look at the overall portfolio, you may have too much money allocated to a particular asset class or even a single stock.
As an example, when Apple was the apple of everyone's eye and on its way to $700 per share, I thought about buying some shares. Before I did, I took a look at the Apple holdings in my mutual funds and was reminded that it was already one of the larger holdings in my portfolio. I didn't need to add to the position.
Tracking your investments lets you see when you've veered away from your target asset allocation in the portfolio. The decision to rebalance needs to be made within the context of tax planning and your attitude toward investment risk. But, regardless of your investment approach, you should know where you currently stand in your asset allocations.