At 35, a young dad strives to save $4,000 a month

 Adam Ligman has it all: a nice home, great job and a super-cute wife and kids. 

“I’m fortunate because we’re able to get what we need,” says Ligman, 35, an area sales manager at Intuitive Surgical, a maker of robotic surgical systems, in Pittsburgh. “Sometimes, the extras have to wait, but savings won’t.”

His young family, which includes his wife, Jaime, 35, a former elementary education teacher; daughter, Aubrie, 9; and son, Keegan, 5, enjoys taking a big vacation every year, with a couple of smaller jaunts in between. 

Yet the fun never comes before putting $4,000 a month in his savings account, 401(k), company stock plan and other investments.

“It’s really a balancing act, juggling the income with what we really need to get done versus what we want to do,” says Ligman, whose job is largely commissioned-based. “There were a couple times where we had to cut back on our fun stuff for a few months, but there wasn’t any crazy stress or conflict.”

But coming up with a good investment strategy can pose a challenge to Ligman's many priorities.

“My kids are getting older,” he says. “I want to make sure I am planning appropriately for college … as well as my own retirement.”

He invests 4% of his income in his 401(k), 10% in an emergency savings fund and 15% in his company’s stock plan. 

Before, all he could focus on was investing in his company-sponsored 401(k), something he had done since graduating college. “As my career has progressed, I’ve had the opportunity to invest more instead of making it by paycheck to paycheck,” he says.

Landing a new job at Intuitive Surgical in July 2015 brought him a 20% bump in base pay and a significant increase on the commission side. That prompted Ligman to get serious about his financial future.

“I rolled over a good chunk of change — six figures — from my former employer’s 401(k) into a brokerage account that my financial adviser manages,” Ligman says.

He doesn’t claim to be a financial wizard but believes in surrounding himself with people he admires and trusts.

“I’m not educated in investing or the stock market, so I found someone to manage my money based on my specific goals and needs,” he says. Ligman and his financial advisor were friends before they started a business relationship. “We both had kids the same age and very similar financial goals, so I asked him to help me take that money and put it into something that would grow over time,” he says.

For other Millennials wanting to enjoy the fruits of their labor while planning their financial futures, Ligman offers this advice: 

“It’s all about balance and being responsible, planning appropriately and putting the right amount of money away today, but not limiting yourself on enjoying life now, too.” 

Carlos Dias Jr., a wealth manager and financial adviser at MVP Wealth Management Group and Excel Tax & Wealth Group in Orlando, says Ligman is not an extravagant spender, but things cost more today than they did 20 or 30 years ago. 

“Having to pay for a mortgage, insurance, food, your family and other obligations means really figuring out what’s important,” Dias says. “So my first question is, ‘How much has Adam saved and what target number is he expecting to achieve?’ ”

In retirement planning, sometimes people get so laser-focused on saving $1 million, $2 million or six figures that they don’t prioritize their needs.

For Millennials with competing obligations, Dias lays out a financial plan:

• Plan for gaps in income. “Anyone who receives any sort of commission knows that their income can fluctuate from six figures one year to five figures in the next,” he says. This is where you want to have up to 24 months of income saved to cover any dips in earnings.
• Figure out your retirement number. Dias offers this methodology: “Calculate the total balance of your retirement assets. Then research how much you would receive if you placed your nest egg into an annuity — a fixed amount of money paid to you each year for the rest of your life through an insurance company,” he explains. It takes the guesswork out of your retirement because you are turning over the money to an insurance company that will manage it for you. Interest rates are historically low right now, which means your money will grow as rates rise. “Also, before hiring a CFP to oversee even a portion of your nest egg, always get a second opinion,” Dias says. “You shouldn’t put your trust (and your money) into someone just because of the friendship or having similar financial goals.”
• Recognize the pros and cons of investing in company stock. Adam contributes 15% of his pretax income into his company stock plan. There are two sides to this equation, Dias points out. “You had Enron where a lot of people were millionaires on paper because most of their nest egg was invested in company stock, and they ended up losing their shirt,” he says. However, there’s a significant upside to investing in your firm’s stock called net unrealized appreciation. “When you sell your shares, you’ll only pay long-term capital gains tax on the stock’s NUA. Currently, the maximum federal capital gains tax rate is 20%, far lower that the top income tax rate of 39.6%, so your potential savings may be substantial,” he says.
• Review life insurance. Ligman is the sole breadwinner and is married with children, so it’s a good time to review his options. “If you’re earning $100,000, divide that number by a reasonable interest rate such as 3% (from a CD or Treasury-backed security). That equals $3.3 million,” Dias explains. “If Adam passes tomorrow, and his wife receives $3.3 million, she can purchase a CD with an interest rate of 3% for the next five or six years, and it’s going to give her $100,000 a year of income, putting her right back into the same financial position she was with him.”
• Pay yourself first. For those with myriad financial obligations, Dias says tackle your own goals to start. “For Adam, he should focus first on his and his wife’s retirement, then consider options like prepaid college plans for the kids, which allow you to lock in today’s college prices for tomorrow,” Dias says. Once you know that you’re secure, explore what else you can do for your family.