A family margin of safety
Question: My husband and I are late-in-life parents (he is 59 and I am 49) and we have a 1-year-old -- the absolute JOY of our lives. She is the only child for both of us and I am wondering about what you would suggest as the most cost-effective way to save for her future? Kathleen, Fergus Falls, MN
Answer: Congratulations. I think the best way to save for her future is to focus on making sure your lifestyle is secure. In other words, pay yourself first, including an emergency savings account, opportunity fund(s) and retirement savings. I would get rid of any debts you may have outside of your primary mortgage (assuming you own a home). If you're financially secure, she's financially secure -- now and in the future.
My favorite personal financial planner is Greek philosopher Aristotle. Intellectual historians credit him with developing the idea of the good life. His most famous idea is the Golden Mean. It's that desirable although elusive middle between two extremes. The practical application of the golden mean is better known as a "margin of safety." It's the bedrock idea of personal finance for all seasons. A margin of safety perspective helps us with the financial consequences of being wrong while taking advantage of opportunities.
Then there is investing in her education. We live in an economy that values an education -- especially college. If you have the financial means, one way to create a margin of safety for her when she leaves your home is to make it so she graduates from college with as little debt as possible, perhaps even debt-free. She'll enjoy freedom of choice when she graduates and explores her job and career options.
You also want to make sure that you have life insurance, in case something happens to either or both of you, and a will. Life insurance and a will are necessities for any new parent. Both should be at the top of your to-do list if you haven't already.
For the will, I would spend a lot of time thinking throughwho you would like to be the guardian of your daughter if tragedy were to strike. Many parents find it useful to separate the guardian raising the child and the guardian managing the inherited money.