In many ways, finances are a lot like physical fitness. If you focus too much on one area (perhaps gaining muscle) than you might sacrifice another (cardiovascular health).
When it comes to your financial health, it's easy to do the same thing. You might be really focused on paying off your student loans at the expense of neglecting higher-interest credit-card debt. It's an understandable trap to fall into, and a new survey from New York Life shows that the majority of Americans have fallen into this trap.
It's a trap!
Nearly three-quarters of American parents (72%) listed debt reduction as their top financial priority for 2019 on the New York Life survey. That number climbs to 80% for millennial (ages 18-34) parents.
The problem is that some parents have put more of a priority on debt reduction at the expense of long-term saving. That can lead to problems, according to New York Life Vice President Brian Madgett.
"While reducing debt can be a worthwhile endeavor, a singular focus on it at the expense of other planning can be dangerous to a family's overall financial well-being," he said in a press release. "Adopting a protection-first financial planning approach is crucial, as even the best-laid plans can get derailed without a strong long-term foundation."
The good news is that most parents are optimistic about their financial futures, at least for 2019. Over half of those surveyed (58%) expect their finances to get better this year, while 61% said they would be better prepared for the unexpected.
Optimism, however, is different than actually taking action. Only 28% of parents said that it's "important to have a financial plan in place to care for their children in case something happens to them," according to the press release. In addition, only 30% of parents surveyed said they expect to seek financial advice from an expert this year.
"It's encouraging to see a more positive outlook for 2019, especially among younger parents who have the benefit of time, but optimism can only carry us so far," said Madgett.
Madgett suggests getting qualified professional help to make sure your finances are on the right track. That's certainly a viable option, but it's not the only possible path. Parents should figure out where their finances stand and make sure they're allocating their money correctly. To do that (and before you seek outside help), it's important to do a self-audit.
Examine your income, fixed expenses, debt, and savings. Once you understand those numbers, you should do a rough budget and determine how much money you have left over each month to achieve your financial goals. After that, you can examine your discretionary/excess income and figure out how to use it.
When doing that, it's important to remember that not all debts are equal, nor is all savings. In general, your first priority should be to pay off high-interest loans (credit cards and other short-term borrowing). After that, you'll want to build an emergency fund (generally six months of expenses) while making sure you also save for the future (grab low-hanging fruit like making sure you earn company matches on 401k contributions).
For many families, this can be a lot of balls to juggle, and getting professional advice may help them make a plan they can stick to. Of course, whether you handle your finances on your own or with professional help, it's important to keep in mind that being too focused on one goal can cause others to suffer.
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