(Meet the Sterlings – we’ll explore their financial lives in our 10-part story)
“You’re kidding me!” Amy says, “I don’t even understand what half these numbers are, but look at the bottom of this page. There, where it says ‘Your Annual Summary.’”
Travis Sterling takes the statement from his wife’s hands and looks at the number she’s circled with her over-used “grading” pen.
“That’s great! So Joe’s advice paid off, and my 401k is performing better than we expected. Not so bad to have someone with an inside scoop in the neighborhood, eh?” Travis pauses and looks at Amy, “So, why do you sound a little peaked?”
“Sophie’s now decided she wants to go to school out of state with her friends, but what we’ve put into the 529 won’t cover nearly as much out-of-state tuition. It’s just … hindsight is frustrating.”
Amy continued, “I remember we talked about upping contributions to your 401(k) as well as saving to the 529, and deciding we really wanted to upgrade a few things around the house first. Now, I feel like that money could have been better spent. Why on earth did we think new countertops were a good idea two years before our kids started college? Now I feel like it was a frivolous expense.”
Travis puts aside the statement as Amy ruffles through the stack of papers that are dog-eared on their dining room table.
“Sweetheart, don’t beat yourself up,” he says. “I wasn’t completely confident that Joe’s tips were going to pay off — maybe he wasn’t either! Think of how mad we’d be if the opposite happened.
“I’m glad Sophie’s considering her choices, but the decision to upgrade the house was made after our conversation with Sophie.
“Now, when we’d considered investments, both in my 401(k) and Sophie’s 529 plan, we knew there some would be winners, but some had to be losers. I just wish I felt more confident recognizing which investments are really worth staying in, instead of reacting like everyone else.”
“Exactly!” Amy responded. “How can you really know what an investment is going to do when you choose it? Just think, being able to choose only the best ones so every time I open a statement, I don’t immediately flash back to all the stuff we’ve spent money on that we didn’t even need.
The advice we got from Joe is great, but one investment doesn’t help us with the bigger picture. How do we ever really feel like we’re putting our money in the right place? Especially when we’re balancing so much that we need to save for.”
Finding Your Family’s Strategy
Like many forty-something couples, Travis and Amy Sterling of Lake Zurich, Illinois face the question of how to control the outcome of saving for college and retirement.
Despite enjoying two careers that have rewarded them with financial stability and a healthy discretionary income, Travis and Amy still struggle with making decisions based on what might happen in the future; including when to spend their money on “stuff” versus saving, and how to choose investments without really knowing what they might do in the future.
The question of how much to save and where to invest those funds can leave many do-it-yourself investors scratching their heads.
But the first step in assessing any family’s financial game plan is surprisingly simple. It starts with looking at what matters to you, what is within your control and understanding what to focus on.
Focus on what matters:
In the case of Travis and Amy, Amy is having real trouble spending money on things that she values. She is concerned that she is wasting money now, instead of saving for the future.
It’s a delicate balance.
Before she spends a significant amount of money today, she should be discussing things with her family – What do they value? Time, possessions or experiences? These types of conversations should drive their family purchases.
Focus on what you can control:
When it comes to saving for the future, it’s all unknown, but there are some things that Travis and Amy can control.
While they can’t control what the stock market — and their chosen investments — will do, the amount they save, accounts they use, and the amount of taxes they subject their savings to can be controlled. By controlling these things and being prudent in selecting investments, they have done the best they can do — the rest is out of their hands.
Life is full of uncontrollable events, with one being the stock market. Additionally, how hard Sophie studies and even how many applicants she’s competing with determine the college she attends, but none of these are within Travis and Amy’s control.
Financial decisions become unnecessarily difficult when families start juggling the “what-ifs” instead of looking at the “shoulds” and “coulds”. Like Travis and Amy, every family’s key to simplifying long-term financial success is to step back from all the variables and concentrate on what you can control, so even when things change, you’ll know you made the best decisions.
Find part 2 of their journey here.