QUESTION: I am putting the max I can in my 401k. But I’m wondering if I should re-direct some of that towards a 529 plan for my seventh grader’s college. We also have some credit card debt we are trying to get paid down. But that’s tough ever since we signed up for one of those bi-weekly mortgages to save interest on our house payment. Sometimes I just want to ask myself, “How much is enough?” So I thought I would ask you. How much is enough?
ANSWER: You sound product rich and plan poor.
Do you remember who taught you how to play tic-tac-toe? Probably not – for most of us it was a while ago. Usually it’s an older sibling or a neighbor kid down the street. They “graciously” offer to teach us how to play. They might even let us go first.
Three moves in they’ve got an “x” in the middle and an “x” on both lower corners. They look at you, smile, and offer, “Your turn.”
No matter what you do, you’re toast. No matter where your next “O” goes, you’re about to get “tic-tac-toed.”
All because they knew how the game works, and you didn’t.
Think about the rules of the game as played by financial institutions. Whether that financial institution is a bank, a mortgage company, a mutual fund, an investment house or an insurance company – they’re going to tend to want the same things from you.
First, they want you to give them your money. Second, they’d actually like you to send it to them systematically, so they can plan for the inflows of money. Third, they would prefer to hold on to your money for a very long time (10, 20 or 30 years if possible). And when it comes time to give you back your money, they don’t want to give it back all at once – actually, they’d prefer just a trickle at a time.
Doesn’t that sound exactly like a 401k plan? You send them money for years. Each week or month, it comes out of your payroll check automatically. They hold on to the money as long as you are working, perhaps until you retire. Then, upon retirement, they send you a little money each month to live off of in retirement.
Their plan is for you to use their products. They are very content with this plan. You should not be.
A financial plan is not just a collection of financial products, any more than a symphony is a musical instruments store. Financial plans and musical symphonies have a few things in common: coordination of all parts involved, skill of the conductor and an ultimate goal for where its disparate parts are all going.
You’re never going to get an answer to “how much is enough” by simply piling on product after product.
A well-designed financial plan will help you choose not only which products to use, but also in what proportions and at what time.
Don’t just follow the “rules of the game” as taught to you by purveyors of financial products.
Write your own rules. Get a plan.
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Byron R. Moore, CFP® is Managing Director / Planning Group of Argent Advisors, Inc. Email him at firstname.lastname@example.org. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5858. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc. No forecasts can be guaranteed. Argent Advisors, Inc. does not offer tax, insurance or legal advice. The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.