Mississippi Money: Financial Milestones
Birthdays are significant milestones in our lives. As we age, we open doors to new possibilities and gain new responsibilities. Just like age-based milestones, financial milestones are reasons to celebrate. Some have new responsibilities for us and all hold new possibilities.
Getting married is a huge financial milestone as it involves two people’s financial lives coming together. When you get married, you open up a new checking account, add a name to the mortgage or lease agreement and tick a different box on your tax filings. There are many different ways to combine your finances, but the most important thing is to make sure that the arrangement makes sense for your situation, both partners are happy with it and you keep an open line of communication about the details. Before you walk down the aisle, make sure that each is aware of the other’s financial picture and have a plan for the future.
Buying a house is a huge milestone! When you start dreaming about a new home, make sure that you prepare your budget for the change. Figure out what your new mortgage payments will be and set that aside each month (after taking out your current rent). This cash can accumulate for your down payment (as low as 3% but as high as 20% if you want to avoid extra fees!). A mortgage loan officer can help you understand your total costs and your realtor can give you a realistic idea of what home fits your budget. If you have already been setting aside money for the mortgage, the transition from renting to owning will be seamless.
Sending your children off to college is a milestone that you can start planning for 18 years in advance. In no particular order, your three options for paying for a college education are: save, reduce the cost, rely on loans. I recommend a combination of all three! All states offer a college savings plan that allows parents and grandparents to put away money for a child’s future education. Money that goes in can be invested and grows tax-free. The Mississippi plan even allows individuals to deduct $10,000 of contributions from their taxes! Reducing the cost of college involves making sure your child is a good student and that he applies to a school that wants him. Lastly, student loans can fill the gap. While you should never take out an amount that will be an excessive burden upon graduation, loans are a practical way to cover some college expenses.
With all of these other celebrations going on, don’t forget to plan for your own retirement! You should automate your retirement saving from the first time you get a job. A general rule of thumb is that you need to set aside 15% of your income for retirement. This varies based on age (start younger and you can get away with less) and income (the more expensive the lifestyle you want, the more you need to save to fund it!). At around $75,000 in income, you need about twice your salary saved by age 40, or four times your salary saved by age 50, to know that you are on track.
Family milestones can be expensive! Knowing that you have the financial stability to handle them as they arise should allow you to focus on the joyous occasions that they are.