Many Americans expect to follow a traditional life path.
Step 1 – Graduate from college
Step 2 – Start career
Step 3 – Get married
Step 4 – Buy first home
Step 5 – Have children
Step 6 – Children graduate and move out
Step 7 – Children get married
Step 8 – Grandchildren
Step 9 – Retire
Step 10 – Enjoy spending time doing favorite hobbies with my favorite people.
However, life rarely follows such a straightforward path. Unforeseen events and opportunities can shift your course dramatically. How you manage these changes will determine how fulfilling and satisfying your life is. In this article, we’ll explore some common misconceptions about life’s financial milestones and offer insights on how to prepare for the twists and turns ahead.
Table of Contents
Common Financial Challenge: Retirement
Belief – I can start saving for retirement when I am older.
Reality – I need to start saving for retirement as soon as I start working.
You hear it often: the sooner you start saving for retirement, the better off you’ll be in the long run. It also may not seem like it, but it’s easier to start saving at a younger age than when you’re older.
You may think, “No, that doesn’t make sense. I will have a larger paycheck when I’m older, so I’ll have more money to put away.”
That is the belief, but the reality is you will likely have many more financial responsibilities when you’re older as well. You’ll have mortgage payments, children to raise, college tuition to cover, one parent may decide to stay at home, a furnace may need to be replaced, etc.
In addition, you need to take advantage of compounding interest. The earlier, the better. While you’re working hard, your money will be working hard.
If you’re investing in a 401K, IRAs, stocks, bitcoin, etc. there will be natural ups and downs. The earlier you start saving, the better cushion you’ll have to protect your finances against some instability.
As you move closer to retirement, be sure to switch gears. Adjust your portfolios so you’re risking less of your investment
Common Financial Challenge: Health
Belief – I’m young. I don’t have to worry about serious health problems any time soon.
Reality – Chronic medical conditions are common, even at younger ages.
A chronic medical condition is usually one that lasts for at least three months. Examples include conditions like arthritis, asthma, cancer, Chronic Obstructive Pulmonary Disease (COPD), diabetes, and viral diseases such as hepatitis C and HIV/AIDS. These are just a few examples, and each of these conditions can seriously impact your life. They may require ongoing treatment and could even force you to take extended time off work or quit your job.
Young people are not invincible to chronic illness. In a report by The CDC, young adults aged 18–34 years reported having at least one chronic condition.
Being diagnosed with a chronic health condition also means you’re likely going to be spending more money out-of-pocket on healthcare. This fact stresses the importance of having an emergency fund and not waiting to buy life insurance or disability insurance.
Common Financial Challenge: Disability
Belief – I won’t be disabled during my working years.
Reality – Long-term disability is common, even in healthy (low risk) office workers.
Consider these eye-opening statistics from the Council for Disability Awareness:
- More than 25% of people who are currently 20 years old will experience a disability before they retire.
- Nearly 30% of American adults can’t afford an unexpected $400 expense without using a credit card or borrowing money.
- Only two out of five U.S. households have enough readily accessible savings to cover at least three months of their usual expenses.
- Almost 78% of individuals who filed for bankruptcy said that a loss of income played a role in their financial downfall.
A sudden disability can happen to anyone. While there are higher risks of becoming disabled if you’re a professional bull rider, even low-risk office workers could develop cancer at a moment’s notice. Your income is your most valuable asset and disability insurance helps to protect it.
Common Financial Challenge: Death
Belief – I won’t die at a young age.
Reality – Unexpected death occurs, even in young people who work in safe occupations.
Death isn’t a financial challenge for you, but it will be to those you leave behind.
If you have people who depend on you and your income, it’s essential to plan for the future. Otherwise, your death could leave them struggling financially, in addition to coping with emotional loss. Life insurance is the number one way to protect your family from financial hardship should you die too soon.
The cost of term life insurance is vastly overestimated by the general public. And many think it’s a complicated process, which it can be if you aren’t working with a good broker. Here at Quotacy we make getting life insurance easy and will walk you through the process every step of the way.
See what you’d pay for life insurance
Common Financial Challenge: Children
Belief: I’m not sure I am going to have children.
Reality: More than half of Americans ages 18-40 have children. Another 40% do not currently, but hope to someday.
Families these days are having fewer children, but costs have not gone down. The average expense to raise a child from birth to 17 years old stands around $310,605. And if you plan on helping them with college, annual college costs range from $22,690 for a public college and $51,690 for a private college.
Even when your child turns 18, your financial responsibilities might not end there. Here are some eye-opening statistics about the ongoing financial commitments parents often face:
- 40% of young adults (18-34) live with their parents, barring full-time college students.
- Two-thirds of parents are still covering some of their adult children’s expenses, such as rent, mobile phone bills, and loans.
- One out of every 20 young people (15-24) have severe disabilities, requiring lifelong support.
- One in five retirees continue to provide substantial financial help to their children or grandchildren, particularly for educational expenses.
If you’re considering starting a family, it’s wise to prepare for these financial commitments. An emergency fund can offer a safety net for unexpected expenses, and a 529 plan can be a smart way to save for educational costs. Also, securing life insurance can offer peace of mind by financially protecting your family.
Raising a child is already expensive, so passing away unexpectedly without life insurance could set off a series of financial hardships for your family. Get a term quote – you may be surprised at how affordable it can be.
Not sure how much term life insurance you need?
Common Financial Challenge: Sandwich Generation
Belief: My parents planned for their financial future.
Reality: Many people end up supporting both their children and aging parents simultaneously.
The term “sandwich generation” describes adults who are in the challenging position of caring for both their aging parents and their own children simultaneously. This scenario is becoming more common as people are having children later in life, while also dealing with elderly parents who require support.
Among adults who have a parent that is 65 years of age or older:
- 60% of adults with a parent aged 65 or older have helped them with tasks like errands, housework, or repairs in the past year.
- 30% have provided financial assistance to their parents.
- Around 14% have assisted with personal care, such as bathing or dressing.
According to the Pew Research Center, more than half of adults in their 40s and 50s are shouldering this dual financial burden. With Americans living longer lives, adult children are finding that their responsibility to care for their elderly parents extends further into adulthood than before. On top of that, economic setbacks like the Great Recession have made it more common for young adults to rely on their parents for financial support well into their 20s or even 30s.
In light of these challenges, having a life insurance policy becomes increasingly important. A well-chosen life insurance policy can provide a financial safety net for both generations, ensuring that your parents can continue to receive the care they need while also securing your children’s financial future.
Taking additional steps like saving for long-term care needs and drafting a will can also be beneficial. These measures can help you plan for the future and could prevent your children from finding themselves in a similar “sandwiched” situation.
Common Financial Challenge: Divorce
Belief: I won’t get a divorce.
Reality: Many marriages end in divorce.
Statistics tell a compelling story:
- Divorce rate for first marriages: 41%
- Divorce rate for second marriages: 60%
- Divorce rate for third marriages: 73%
The often-quoted statement, “Half of all marriages end in divorce,” may not be entirely accurate, but it captures a trend that began with the Baby Boomer generation. Many Baby Boomers married young and started families quickly. As their kids grew up and moved out, these couples reevaluated their relationships, often leading to higher divorce rates.
Their children, part of Generation X, grew up seeing divorce as a fairly common life event. But they’ve also altered the pattern by delaying marriage until later in life, contributing to a slight decrease in the divorce rate.
For Millennials (Generation Y), cohabitation before marriage has become more the norm than the exception. Many see marriage as an economic burden, influenced in part by observing their parents go through both divorce and economic downturns.
Though nobody enters marriage anticipating a divorce, being prepared is prudent. In the past, the idea of married couples having separate bank accounts was rare. Now, 32% of Americans maintain separate finances from their partners.
Prenuptial agreements are on the rise as well. Millennials are on a mission to avoid the messy divorces they witnessed their parents go through.
Prenups are not just for the rich and famous; they’re practical tools for protecting individual assets, especially as people are marrying later in life with more to protect.
Trusts are another financial planning tool that can safeguard assets. A trust established before marriage usually counts as separate property and can protect your assets in various life scenarios.
Having separate bank accounts, writing a prenuptial agreement, and owning trusts are a few ways you can plan ahead to make the event of a divorce easier, should it ever come to that (we hope it doesn’t.)
Protecting Yourself From Future Challenges
There is no way to 100% avoid any of these challenges, but the unifying thread among them is the importance of financial planning and the value of safeguarding against unforeseen circumstances.
The key takeaway is simple: Being proactive in your financial planning can act as a safety net, catching you when life throws its curveballs. This is not about living in constant fear of what could go wrong but about empowering yourself to live your life with greater confidence and security.
There are no guarantees in life, but that doesn’t mean you should leave everything to chance. Financial preparedness allows you to face life’s complexities head-on, offering a semblance of control in an unpredictable world.
If you feel overwhelmed by the complexities, consider consulting a financial advisor to help chart a course through these potential challenges. By taking steps today, you’re not just planning for the “what-ifs”—you’re investing in your peace of mind for the years to come.
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