by Linda Leitz, CFP®, EA
Colorado Springs, CO
www.pinnaclefinancialconcepts.com/
When a divorce is final, the spouses or a third party like a judge or arbiter have made decisions about how assets, debts, and cash flow will be handled. It’s common to have requirements to sell a home and divide the proceeds, refinance debt to remove one spouse from a loan or credit card, or have alimony (also known as spousal maintenance) paid by the spouse who was the primary earner. I’ve said that there are few things in life as final as Final Orders in a divorce. But that’s not always the case.
These “final” decisions are based on many factors – how long a couple was married, what the financial resources are to both parties going forward, and what’s deemed fair in that particular state and courthouse. These factors usually incorporate what has happened historically in the economy, which is assumed to be a foundation for what will happen in the future.
In the midst of the worst recession since the Great Depression, some people are exploring reopening their financial settlement. Maybe the house that was to be sold when the kids moved out is now underwater. Maybe the credit card to be refinanced can’t be. Maybe one of the former spouses has lost a job or has had earnings reduced.
So when is it reasonable to restructure a divorce settlement from several years ago? Ethical, intelligent people in the family law arena struggle with how to address this in the current environment. Answers and outcomes vary widely. There is a long list of considerations, but here are a few.
- The first and biggest is whether or not the divorce decree allows for changes. If alimony was part of the settlement and specified as non-modifiable, that is probably not worth pursuing.
- If the reasons you want to revisit your settlement are factors that impact your ex as well as you, think carefully about why your divorce would be worth modifying after the fact. For instance, if your income is down, but your ex has also lost earnings, it might not make sense to revisit alimony.
- If the factors that negatively impact you are outside the control of your spouse, a judge might not rule in your favor. For instance, if the house was to be sold and proceeds divided, but more is owed on the house than it would sell for, forcing a sale won’t get either of you a great outcome. But if the house could be sold for less than originally anticipated and you’d each get some money and you’d now be off the mortgage, that’s worth approaching your ex about.
- If you want to make a change because you believe in your heart that your long term well being will always be the responsibility of your former spouse, think again. This is true in any economy. Unless you are disabled, it’s probably in the best interest of you, your ex, and your kids that you assume that you are responsible for making your financial future a good one. When people tie their futures to each other through a marriage, they agree to weather storms together. When they untie their futures through a divorce, they can each assume the autonomy to make their own choices and live with the consequences of their life decisions. Looking to someone else to solve your problems is seldom healthy emotionally or financially.
October 28, 2010
October 24, 2010
Variable Annuity Updates Are Not Always an Upgrade
by Robert Schmansky, CFP®
Franklin, MI
http://www.nfa1040.com/
Recently, certain variable annuity customers of insurer The Hartford received correspondence from the company that they may hold an old contract which might benefit from replacement for a newer annuity product.
Angry financial advisors have pointed out that the company did not say specifically how customer specifically may benefit from exchanging their current product. Advisors are concerned that the newer products may in fact offer lesser benefits for a higher cost, and recent history shows they may be right.
With the market crash, many insurers found they had improperly priced their annuity products, placing their ability to pay the promised benefits at risk. As a result, product benefits were scaled back, and their costs increased. A vice president of marketing at an insurer recently wrote, "one response was to introduce 'simplified' products with fewer features and vanilla benefits. Companies are promoting these new simplified offerings as lower cost and more consumer-friendly; in reality, they often serve the interests of the provider and disproportionately reduce the value to the customer."
When I come into contact with advisory firms that use annuities, I often find the advisors and representatives sell their expertise in offering 'new' products. In fact, just like The Hartford, these representatives do not always take the time to understand your current product past the realization there is another product which may offer a feature which provides the advisor with a reason to place a sale. They frequently recommend 'upgrading' to new annuities every several years.
The catch is often that while the benefits of newer annuities may be less, they often sound more attractive to a prospective consumer who would not know better. Recent features that 'lock-in' market gains sounds attractive at first glance, however the income stream offered from a variable annuity product may be significantly less than traditional products or prior versions of the annuity. The 'benefit' of the new feature might mean significantly less income and higher fees not worth the cost to pursue.
Annuity owners need to independently compare all of the features and costs of their current product with any proposed change. It often is also in the financial advisors interests to sell a new product, since many products front-load commissions; when working with a new advisor, it almost always makes sense for the advisor to propose a sale since they aren't paid on your prior contract. However, when placing an annuity sale, the advisor is not only wearing the hat of your advisor, but they are also acting as a 'producer' for an insurance company.
For these reasons, don't count on an insurer or advisor to act only in your best interest when it comes to being sold an annuity product.
Franklin, MI
http://www.nfa1040.com/
Recently, certain variable annuity customers of insurer The Hartford received correspondence from the company that they may hold an old contract which might benefit from replacement for a newer annuity product.
Angry financial advisors have pointed out that the company did not say specifically how customer specifically may benefit from exchanging their current product. Advisors are concerned that the newer products may in fact offer lesser benefits for a higher cost, and recent history shows they may be right.
With the market crash, many insurers found they had improperly priced their annuity products, placing their ability to pay the promised benefits at risk. As a result, product benefits were scaled back, and their costs increased. A vice president of marketing at an insurer recently wrote, "one response was to introduce 'simplified' products with fewer features and vanilla benefits. Companies are promoting these new simplified offerings as lower cost and more consumer-friendly; in reality, they often serve the interests of the provider and disproportionately reduce the value to the customer."
When I come into contact with advisory firms that use annuities, I often find the advisors and representatives sell their expertise in offering 'new' products. In fact, just like The Hartford, these representatives do not always take the time to understand your current product past the realization there is another product which may offer a feature which provides the advisor with a reason to place a sale. They frequently recommend 'upgrading' to new annuities every several years.
The catch is often that while the benefits of newer annuities may be less, they often sound more attractive to a prospective consumer who would not know better. Recent features that 'lock-in' market gains sounds attractive at first glance, however the income stream offered from a variable annuity product may be significantly less than traditional products or prior versions of the annuity. The 'benefit' of the new feature might mean significantly less income and higher fees not worth the cost to pursue.
Annuity owners need to independently compare all of the features and costs of their current product with any proposed change. It often is also in the financial advisors interests to sell a new product, since many products front-load commissions; when working with a new advisor, it almost always makes sense for the advisor to propose a sale since they aren't paid on your prior contract. However, when placing an annuity sale, the advisor is not only wearing the hat of your advisor, but they are also acting as a 'producer' for an insurance company.
For these reasons, don't count on an insurer or advisor to act only in your best interest when it comes to being sold an annuity product.
October 20, 2010
Young? Have Your Finances Under Control? You Might Benefit from Financial Advice Too
by Robert Schmansky, CFP®
Franklin, MI
http://www.nfa1040.com/
Call it youth. We don’t think we need help with much. And according to a few articles I’ve come across recently, young people on the whole generally don’t perceive a need for professional financial advice.
Although age is just a number, let’s assume for purposes of seeking financial advice that being ‘young’ ranges from the early 20’s to mid-40’s. And as someone who would be considered a young client, I completely understand the hesitation. The interaction that many have up until they accumulate some wealth is typically a lack of service since you are not a big account, or being sold a product like home owners insurance. We may even have friends or acquaintances starting careers in the financial world who we can’t imagine paying for advice from.
But, just over the last week I found myself working with several younger clients on issues that covered a wide spectrum of financial planning areas. In speaking to more mature clients about whether they would have benefited from advice earlier in life, the response is always a resounding “Yes!”
I would imagine a few of the ways they would have benefited from engaging an advisor when starting out are as follows:
Having a professional guide who knows you well enough to help navigate problem areas you may not have anticipated.
Learning how to set realistic goals along with manageable steps to achieve them.
Being held accountable for “slips” so you may think twice about charging a major purchase on your credit card or cutting back on your savings plan if someone else will know about it.
If you have a spouse or significant other an advisor can help:
Facilitate conversations about finances. We all know the impact of money on relationships. An advisor can not make decisions for you, but they can create a dialogue between people with different personalities towards and histories with money.
Develop a mutually agreeable course. Often one person in a couple has a dominant financial personality. An advisor can be the independent voice that helps the two of you negotiate differences in your personalities to formulate and clarify the course.
Provide reassurance. Should a anything happen to either of you, you know someone familiar with your goals will be there to support the other spouse.
And since young people are just about always in the beginning stages of their financial life cycle: How about the value and satisfaction of starting out on the right path instead of stumbling along? In the long run, starting your finances on the right foot early can easily overcome the benefits of waiting until the day you earn a little more.
As a profession, advisors may not have the best track record of pursuing younger clients. But, the so-called ‘account size’ mentality is quickly becoming a thing of the past. There are many ways to engage a financial advisor today, whether it is on an hourly retainer, per project basis, or a ‘coaching’ relationship. One of the realizations advisory firms today are coming to is that individuals have different needs for the type and quantity of advice.
Financial planning is not just for people who need to prepare for retirement. Young adults have their own challenges, which can include saving to buy a first home (as well as questions on the amount and process of that purchase), tax planning, insurance needs, setting up a college fund for a new baby, and more. Finding an advisor to work with even before life gets “complicated enough” is well worth the effort to get started on the right path and move efficiently toward realizing your goals.
The preceding blog was originally published by the Financial Planning Association®(FPA®). To view the original blog please visit the FPA Web site.
Franklin, MI
http://www.nfa1040.com/
Call it youth. We don’t think we need help with much. And according to a few articles I’ve come across recently, young people on the whole generally don’t perceive a need for professional financial advice.
Although age is just a number, let’s assume for purposes of seeking financial advice that being ‘young’ ranges from the early 20’s to mid-40’s. And as someone who would be considered a young client, I completely understand the hesitation. The interaction that many have up until they accumulate some wealth is typically a lack of service since you are not a big account, or being sold a product like home owners insurance. We may even have friends or acquaintances starting careers in the financial world who we can’t imagine paying for advice from.
But, just over the last week I found myself working with several younger clients on issues that covered a wide spectrum of financial planning areas. In speaking to more mature clients about whether they would have benefited from advice earlier in life, the response is always a resounding “Yes!”
I would imagine a few of the ways they would have benefited from engaging an advisor when starting out are as follows:
Having a professional guide who knows you well enough to help navigate problem areas you may not have anticipated.
Learning how to set realistic goals along with manageable steps to achieve them.
Being held accountable for “slips” so you may think twice about charging a major purchase on your credit card or cutting back on your savings plan if someone else will know about it.
If you have a spouse or significant other an advisor can help:
Facilitate conversations about finances. We all know the impact of money on relationships. An advisor can not make decisions for you, but they can create a dialogue between people with different personalities towards and histories with money.
Develop a mutually agreeable course. Often one person in a couple has a dominant financial personality. An advisor can be the independent voice that helps the two of you negotiate differences in your personalities to formulate and clarify the course.
Provide reassurance. Should a anything happen to either of you, you know someone familiar with your goals will be there to support the other spouse.
And since young people are just about always in the beginning stages of their financial life cycle: How about the value and satisfaction of starting out on the right path instead of stumbling along? In the long run, starting your finances on the right foot early can easily overcome the benefits of waiting until the day you earn a little more.
As a profession, advisors may not have the best track record of pursuing younger clients. But, the so-called ‘account size’ mentality is quickly becoming a thing of the past. There are many ways to engage a financial advisor today, whether it is on an hourly retainer, per project basis, or a ‘coaching’ relationship. One of the realizations advisory firms today are coming to is that individuals have different needs for the type and quantity of advice.
Financial planning is not just for people who need to prepare for retirement. Young adults have their own challenges, which can include saving to buy a first home (as well as questions on the amount and process of that purchase), tax planning, insurance needs, setting up a college fund for a new baby, and more. Finding an advisor to work with even before life gets “complicated enough” is well worth the effort to get started on the right path and move efficiently toward realizing your goals.
The preceding blog was originally published by the Financial Planning Association®(FPA®). To view the original blog please visit the FPA Web site.
October 16, 2010
Woah, Baby!
by Erin Baehr, CFP®, EA
Shawnee-on-Delaware, PA
http://www.baehrfinancial.com/
We are so thrilled to have welcomed our new grandson into the world, just a few days ago! All of us in the Baehr family are in new baby heaven. While his mommy and daddy are thinking about diapers and feedings, my mind wanders to the financial part of being a new parent. Because of my company's name, people often ask if my family members work in the business, and while they do from time to time, I explain that I included "Family" in the name because family is what I'm all about. One of my greatest joys is teaching young people about finances, especially when a blessed addition to the family suddenly makes things a whole lot more complicated financially.
So in the spirit of my recent letter to my son Andy, here is some advice for our new parents to think about- when the new baby fog lifts a bit of course.
No doubt right now you are buried (maybe literally) in diapers, toys, and feedings, so taking care of household paperwork is hardly a priority. But now that you have that precious little one, you're going to need to take care of a few things. First on your list is a will- especially naming a guardian should something happen to both of you. There’s a great book called Wear Clean Underwear by Alexis Martin Neely that can help you think it through. Alexis is an attorney and also has a website called www.KidsProtectionPlan.com, where you can print out a document to name your guardians. It is not a substitute for a properly drafted will, but a tool to guide you in the process.
Life insurance may be something you haven't thought about, but let's talk about getting some coverage, ideally a policy you own outright. If you are young and healthy, term coverage is a cheap way to give your family priceless protection, should something happen to you.
Most parents think of saving for college as something they should do right away. While I don’t discourage saving for college, your first priority should be to establish an emergency fund for your family, maximize your retirement savings, and then start saving for college. It’s the old “put your oxygen mask on first” theory. It’s much easier to draw from your own funds to pay for college than it is to use college funds to pay for a family emergency. That said, there's nothing wrong with suggesting family and friends contribute to a college account instead of buying toys for birthdays or holidays.
Think long term when it comes to how you define your child’s standard of living. What I mean by that is, will you be able to keep your child in the lifestyle to which she has become accustomed when he is a teenager? A parent of any teen will tell you, the cost of their “care and feeding” increases exponentially as they get older. Be careful what habits you (and their grandparents) instill; a dozen pair of toddler shoes costs a whole lot less than a dozen pair of Nikes.
Take advantage of flexible spending accounts at work if they are available. With these plans, because you are able to use pretax dollars for out of pocket medical expenses. The trick is you’ll have to choose an amount to defer to the account prior to the start of the new calendar year. It's a use it or lose it system, so it's better to estimate on the low side. These accounts are available for child care expenses also, and may save you more taxes than the child care tax credit; you'll want to check with your tax advisor (me!).
Please kiss that beautiful baby goodnight for me!
Shawnee-on-Delaware, PA
http://www.baehrfinancial.com/
We are so thrilled to have welcomed our new grandson into the world, just a few days ago! All of us in the Baehr family are in new baby heaven. While his mommy and daddy are thinking about diapers and feedings, my mind wanders to the financial part of being a new parent. Because of my company's name, people often ask if my family members work in the business, and while they do from time to time, I explain that I included "Family" in the name because family is what I'm all about. One of my greatest joys is teaching young people about finances, especially when a blessed addition to the family suddenly makes things a whole lot more complicated financially.
So in the spirit of my recent letter to my son Andy, here is some advice for our new parents to think about- when the new baby fog lifts a bit of course.
No doubt right now you are buried (maybe literally) in diapers, toys, and feedings, so taking care of household paperwork is hardly a priority. But now that you have that precious little one, you're going to need to take care of a few things. First on your list is a will- especially naming a guardian should something happen to both of you. There’s a great book called Wear Clean Underwear by Alexis Martin Neely that can help you think it through. Alexis is an attorney and also has a website called www.KidsProtectionPlan.com, where you can print out a document to name your guardians. It is not a substitute for a properly drafted will, but a tool to guide you in the process.
Life insurance may be something you haven't thought about, but let's talk about getting some coverage, ideally a policy you own outright. If you are young and healthy, term coverage is a cheap way to give your family priceless protection, should something happen to you.
Most parents think of saving for college as something they should do right away. While I don’t discourage saving for college, your first priority should be to establish an emergency fund for your family, maximize your retirement savings, and then start saving for college. It’s the old “put your oxygen mask on first” theory. It’s much easier to draw from your own funds to pay for college than it is to use college funds to pay for a family emergency. That said, there's nothing wrong with suggesting family and friends contribute to a college account instead of buying toys for birthdays or holidays.
Think long term when it comes to how you define your child’s standard of living. What I mean by that is, will you be able to keep your child in the lifestyle to which she has become accustomed when he is a teenager? A parent of any teen will tell you, the cost of their “care and feeding” increases exponentially as they get older. Be careful what habits you (and their grandparents) instill; a dozen pair of toddler shoes costs a whole lot less than a dozen pair of Nikes.
Take advantage of flexible spending accounts at work if they are available. With these plans, because you are able to use pretax dollars for out of pocket medical expenses. The trick is you’ll have to choose an amount to defer to the account prior to the start of the new calendar year. It's a use it or lose it system, so it's better to estimate on the low side. These accounts are available for child care expenses also, and may save you more taxes than the child care tax credit; you'll want to check with your tax advisor (me!).
Please kiss that beautiful baby goodnight for me!
October 12, 2010
Affordable College: Don’t Pay Retail!
by Bert Whitehead, MBA, JD
Franklin, MI
http://www.bertwhitehead.com/
Is college now only for the wealthy? The College Board announced that tuition and fees increased over 14% for public universities and 6% for private colleges in 2009. The posted prices for higher education have more than doubled over the last decade, a rate averaging over 7% a year, which far outpaces the general rate of inflation for that time period. Have we reached the point that only the wealthy can afford to send their children to college?
The New York Times reports that families earning $100,000 a year would have to save about $1,000 a month for 18 years in a 529 plan to send 2 children to a public college such as the University of Michigan ($51,000/year/per child for four years). That’s more than the parents are likely to be saving for their own retirement! Looking at the numbers can be disheartening, but the information I have outlined below for you will show how college can be within the reach of average American families.
It is interesting to speculate why tuition has risen so much so quickly. Critics point out that the answer may lie in the perceived importance of a college degree and the corresponding public and social policy of expecting, or even insisting, that children to go to college. As a result, colleges have increased their non-tuition sources of revenue from federal and state governments and from alumni contributions so that those sources now account for over 70% of college funding. The big secret is that over half of non-tuition funding is used to subsidize tuition expenses for students with more moxie than money.
You may conclude that colleges simply spend more as their funding increases. Having tenured faculty, building more buildings, and offering more courses are all huge status symbols in higher education. These involve costs that never do down, only up. So our culture's emphasis on the importance of college leads to open-ended support for higher education, which in turn ratchets up college costs.
It is important to keep college costs in perspective. More than half of the four-year colleges in this country cost less than $9,000 per year. This includes tuition and fees, but not the other components of college costs: room and board, personal spending, books, and transportation. Is a college degree worth it? There is no question that college graduates earn much more than their cohorts (it is estimated $1million more over a lifetime) who are high school graduates and don't go to college. College graduates are also half as likely to become unemployed as those with only a high school degree.
But there is increasing doubt whether ‘Ivy League’ schools are worth the price. Do Ivy League graduates earn that much more than graduates of other schools to justify shelling out $200,000 for a B.A. degree? The value of better schools is not just their faculty and facilities, but the other students. High-end colleges provide much stiffer competition, and that continuing challenge is ingrained in the experience, deepening student scholastic relationships. This results in very strong ties to the highest achievers in society; networking that can shape opportunities in later life.
Many parents ignore college options for their children because they look at only the ‘sticker price.’ In fact, the only parents who pay the full sticker price are the more affluent. There are huge amounts of grants, scholarships, loans, and other subsidies available to most students. The more modest the means of the parents, the more aid is available. Many of the most highly regarded colleges (Harvard, Yale, Princeton, etc.) have programs to pay 100% of a gifted student’s costs if their parents don’t have the means. Many schools have acceptance policies that are "need blind," meaning that the student's acceptance is not based on whether he or she can afford to pay the full tuition. (It's a good idea to ask the admissions office of a prospective school whether or not their acceptance policies are "need blind.")
With this in mind, I recommend that my clients consider the “1/3, 1/3, 1/3 College Strategy.” I am using this strategy to fund my seven grandchildren's education, and my clients have used it successfully in one form or another for the past 20 years. I call it the “1/3, 1/3, 1/3” plan because the funding comes from three sources:
1. The student must come up with one-third of the total college costs. This may be from savings, working, scholarships, grants, gifts, — it is the student’s obligation to chip in this part.
2. Student loans, not cosigned by the parent, should make up another one-third of the costs and it’s up to the student to research the options and get a good deal.
3. Finally, the parents chip in one-third. And, if/when the student graduates, the parents commit to making the payments on the student loans. Upon the parents’ death, the students can use their inheritance to pay off the loans, if any still remain unpaid.
The advantage of the “1/3, 1/3, 1/3” plan is that the students have ‘skin in the game’. They can go to whichever school they choose, but they have to come up with their third of the correspondingly higher cost. And if they drop out without finishing college, they are on the hook to pay off their own student loans.
The bottom line of this strategy is that the student will find out very quickly that the ‘sticker price’ of college is much less when educational aid is subtracted. Most of the other things needed (textbooks, room and board, transportation, etc.) are either discretionary or are available inexpensively, if researched. For example, used text books, and now electronic books, cut the cost of books dramatically.
So even if you can’t pay the full freight for college at retail prices, if your student wants it enough to learn to find the grants, scholarships, loans, and other subsidies, any college is available. The plus is that finding out how not to have to pay retail will be a life-long financial lesson he or she will have mastered!
I appreciate the editorial review contributed by Chip Simon, CFP®, an ACA colleague in Poughkeepsie, NY
Franklin, MI
http://www.bertwhitehead.com/
Is college now only for the wealthy? The College Board announced that tuition and fees increased over 14% for public universities and 6% for private colleges in 2009. The posted prices for higher education have more than doubled over the last decade, a rate averaging over 7% a year, which far outpaces the general rate of inflation for that time period. Have we reached the point that only the wealthy can afford to send their children to college?
The New York Times reports that families earning $100,000 a year would have to save about $1,000 a month for 18 years in a 529 plan to send 2 children to a public college such as the University of Michigan ($51,000/year/per child for four years). That’s more than the parents are likely to be saving for their own retirement! Looking at the numbers can be disheartening, but the information I have outlined below for you will show how college can be within the reach of average American families.
It is interesting to speculate why tuition has risen so much so quickly. Critics point out that the answer may lie in the perceived importance of a college degree and the corresponding public and social policy of expecting, or even insisting, that children to go to college. As a result, colleges have increased their non-tuition sources of revenue from federal and state governments and from alumni contributions so that those sources now account for over 70% of college funding. The big secret is that over half of non-tuition funding is used to subsidize tuition expenses for students with more moxie than money.
You may conclude that colleges simply spend more as their funding increases. Having tenured faculty, building more buildings, and offering more courses are all huge status symbols in higher education. These involve costs that never do down, only up. So our culture's emphasis on the importance of college leads to open-ended support for higher education, which in turn ratchets up college costs.
It is important to keep college costs in perspective. More than half of the four-year colleges in this country cost less than $9,000 per year. This includes tuition and fees, but not the other components of college costs: room and board, personal spending, books, and transportation. Is a college degree worth it? There is no question that college graduates earn much more than their cohorts (it is estimated $1million more over a lifetime) who are high school graduates and don't go to college. College graduates are also half as likely to become unemployed as those with only a high school degree.
But there is increasing doubt whether ‘Ivy League’ schools are worth the price. Do Ivy League graduates earn that much more than graduates of other schools to justify shelling out $200,000 for a B.A. degree? The value of better schools is not just their faculty and facilities, but the other students. High-end colleges provide much stiffer competition, and that continuing challenge is ingrained in the experience, deepening student scholastic relationships. This results in very strong ties to the highest achievers in society; networking that can shape opportunities in later life.
Many parents ignore college options for their children because they look at only the ‘sticker price.’ In fact, the only parents who pay the full sticker price are the more affluent. There are huge amounts of grants, scholarships, loans, and other subsidies available to most students. The more modest the means of the parents, the more aid is available. Many of the most highly regarded colleges (Harvard, Yale, Princeton, etc.) have programs to pay 100% of a gifted student’s costs if their parents don’t have the means. Many schools have acceptance policies that are "need blind," meaning that the student's acceptance is not based on whether he or she can afford to pay the full tuition. (It's a good idea to ask the admissions office of a prospective school whether or not their acceptance policies are "need blind.")
With this in mind, I recommend that my clients consider the “1/3, 1/3, 1/3 College Strategy.” I am using this strategy to fund my seven grandchildren's education, and my clients have used it successfully in one form or another for the past 20 years. I call it the “1/3, 1/3, 1/3” plan because the funding comes from three sources:
1. The student must come up with one-third of the total college costs. This may be from savings, working, scholarships, grants, gifts, — it is the student’s obligation to chip in this part.
2. Student loans, not cosigned by the parent, should make up another one-third of the costs and it’s up to the student to research the options and get a good deal.
3. Finally, the parents chip in one-third. And, if/when the student graduates, the parents commit to making the payments on the student loans. Upon the parents’ death, the students can use their inheritance to pay off the loans, if any still remain unpaid.
The advantage of the “1/3, 1/3, 1/3” plan is that the students have ‘skin in the game’. They can go to whichever school they choose, but they have to come up with their third of the correspondingly higher cost. And if they drop out without finishing college, they are on the hook to pay off their own student loans.
The bottom line of this strategy is that the student will find out very quickly that the ‘sticker price’ of college is much less when educational aid is subtracted. Most of the other things needed (textbooks, room and board, transportation, etc.) are either discretionary or are available inexpensively, if researched. For example, used text books, and now electronic books, cut the cost of books dramatically.
So even if you can’t pay the full freight for college at retail prices, if your student wants it enough to learn to find the grants, scholarships, loans, and other subsidies, any college is available. The plus is that finding out how not to have to pay retail will be a life-long financial lesson he or she will have mastered!
I appreciate the editorial review contributed by Chip Simon, CFP®, an ACA colleague in Poughkeepsie, NY
October 8, 2010
A Money Moment with Jane - What Are You Spending Today?
by Jane Young, CFP®, EA
Colorado Springs, CO
www.pinnaclefinancialconcepts.com/
The first step to any solid financial plan is understanding your current situation. How much money is remaining after paying your non-discretionary expenses? If you don’t know, then you need to review your expenses over the last few months to better understand your spending habits. How much do you spend on non-discretionary items and how much do you spend on discretionary items. Are you happy with how you are spending your money? Are you saving as much as you could? Are you spending too much on frivolous items? Do your spending habits align with your goals? Have you set some financial goals?
Colorado Springs, CO
www.pinnaclefinancialconcepts.com/
The first step to any solid financial plan is understanding your current situation. How much money is remaining after paying your non-discretionary expenses? If you don’t know, then you need to review your expenses over the last few months to better understand your spending habits. How much do you spend on non-discretionary items and how much do you spend on discretionary items. Are you happy with how you are spending your money? Are you saving as much as you could? Are you spending too much on frivolous items? Do your spending habits align with your goals? Have you set some financial goals?
October 4, 2010
Safe Investing
by Bridget Sullivan Mermel, CFP®, CPA
Chicago, IL
http://www.sullivanmermel.com/
Dear Bridget,
In the 70s, when I was in high school, I shared a Pinto with my sister. She bought the gas, I bought the oil. When the BP crisis hit, inspired by the exhilaration of getting the Pinto up to 60 mph with the windows open, I bought some shares. I know it's a risky investment.
I'm wondering what I can buy on the conservative side to balance my wild freewheeling. Maybe my angst is out of line, but I would like to buy something that will most assuredly maintain its value. I'm not impressed with the interest rates offered by FDIC-insured cash accounts. I've heard some gold talk, but it seems like a big step into the back-alleys of commissions and swindlers.
I am a regular reader and follow your advice closely to maintain some savings.
Dear Inspired,
I love your reasoning for buying BP!
Pretty much all researchers, including Nobel-prize winners, conclude that you can't "beat the market." In other words, no one can reliably pick stocks that will make more money than the market. Still, some people have an emotional desire to pick stocks, and there's nothing wrong with that. Just be smart.
I suggest that you hold your stocks in a separate "fun money" account. Don't let the account grow to over 10% of your total portfolio. When the value of your "fun money" grows to over 10% of your total portfolio, transfer some to your other accounts to bring it in line.
Never add money into your "fun money." If it runs out, then you're stock picking days are over. You're done.
For the other 90% of your money, design a well-diversified, tax-smart, low-cost portfolio.
Since you ask specifically about investments that are not risky, I suggest US Treasuries known as "strips" as part of your portfolio.
You can buy these through your broker (like Schwab or Fidelity) or from US Treasury Direct. Currently a buying a treasury strip that matures in 2026 costs approximately $5,470 and will pay $10,000 in 2026. That's a yield of around 4%.
Any financial professional who earns money based on commissions will discourage you from this strategy. They earn little if any commission on US Treasuries. "Oh, the yields are so low," is what I've heard. In fact, treasuries protect you against deflation, because even if prices on everything start dropping, in 2026, you'll get your $10,000.
Plus, the yields on treasuries always seem low. You're buying them because they're safe and earn more than a CD, not to try to out-earn BP. The yield seemed low when I bought US Treasury Strips in early 2008, but seemed brilliant a year later.
In fact, for clients and for myself, I build what is known as a treasury bond ladder for retirement. The ladder is designed to have a set amount of treasuries maturing each year. This creates what amounts to a guaranteed paycheck during retirement.
You also ask about gold. You don't invest in gold; you speculate on gold. Gold grows in value when someone else will speculate more wildly than you did when you bought it. Some people want gold in case all hell breaks loose. It makes them feel safe. They like the option of being able to make a run for it with their gold stash. I like feeling safe, too.
If you're in this camp, you could use 1-2% of your portfolio "fun money" to buy some gold. Take physical custody of it; put it in your safe at home. Buy enough to get you over the border, and remember the practicalities you are trying to plan for; small coins will probably work best. You don't want to be stuck trying to get change for $1000 gold bars when the banks have closed.
To take the next step down this road, add the following to your safe: guns, ammo, water, and copy of your favorite Mad Max movie. If you can't watch Mel Gibson anymore, I thought
The Book of Eli was okay and 2012 was even better. However, none of these movies feature a post- apocalyptic gold standard. According to them, if all hell breaks loose, you'll want guns, ammo, and perhaps a jet.
Chicago, IL
http://www.sullivanmermel.com/
Dear Bridget,
In the 70s, when I was in high school, I shared a Pinto with my sister. She bought the gas, I bought the oil. When the BP crisis hit, inspired by the exhilaration of getting the Pinto up to 60 mph with the windows open, I bought some shares. I know it's a risky investment.
I'm wondering what I can buy on the conservative side to balance my wild freewheeling. Maybe my angst is out of line, but I would like to buy something that will most assuredly maintain its value. I'm not impressed with the interest rates offered by FDIC-insured cash accounts. I've heard some gold talk, but it seems like a big step into the back-alleys of commissions and swindlers.
I am a regular reader and follow your advice closely to maintain some savings.
Dear Inspired,
I love your reasoning for buying BP!
Pretty much all researchers, including Nobel-prize winners, conclude that you can't "beat the market." In other words, no one can reliably pick stocks that will make more money than the market. Still, some people have an emotional desire to pick stocks, and there's nothing wrong with that. Just be smart.
I suggest that you hold your stocks in a separate "fun money" account. Don't let the account grow to over 10% of your total portfolio. When the value of your "fun money" grows to over 10% of your total portfolio, transfer some to your other accounts to bring it in line.
Never add money into your "fun money." If it runs out, then you're stock picking days are over. You're done.
For the other 90% of your money, design a well-diversified, tax-smart, low-cost portfolio.
Since you ask specifically about investments that are not risky, I suggest US Treasuries known as "strips" as part of your portfolio.
You can buy these through your broker (like Schwab or Fidelity) or from US Treasury Direct. Currently a buying a treasury strip that matures in 2026 costs approximately $5,470 and will pay $10,000 in 2026. That's a yield of around 4%.
Any financial professional who earns money based on commissions will discourage you from this strategy. They earn little if any commission on US Treasuries. "Oh, the yields are so low," is what I've heard. In fact, treasuries protect you against deflation, because even if prices on everything start dropping, in 2026, you'll get your $10,000.
Plus, the yields on treasuries always seem low. You're buying them because they're safe and earn more than a CD, not to try to out-earn BP. The yield seemed low when I bought US Treasury Strips in early 2008, but seemed brilliant a year later.
In fact, for clients and for myself, I build what is known as a treasury bond ladder for retirement. The ladder is designed to have a set amount of treasuries maturing each year. This creates what amounts to a guaranteed paycheck during retirement.
You also ask about gold. You don't invest in gold; you speculate on gold. Gold grows in value when someone else will speculate more wildly than you did when you bought it. Some people want gold in case all hell breaks loose. It makes them feel safe. They like the option of being able to make a run for it with their gold stash. I like feeling safe, too.
If you're in this camp, you could use 1-2% of your portfolio "fun money" to buy some gold. Take physical custody of it; put it in your safe at home. Buy enough to get you over the border, and remember the practicalities you are trying to plan for; small coins will probably work best. You don't want to be stuck trying to get change for $1000 gold bars when the banks have closed.
To take the next step down this road, add the following to your safe: guns, ammo, water, and copy of your favorite Mad Max movie. If you can't watch Mel Gibson anymore, I thought
The Book of Eli was okay and 2012 was even better. However, none of these movies feature a post- apocalyptic gold standard. According to them, if all hell breaks loose, you'll want guns, ammo, and perhaps a jet.
October 1, 2010
Tips for the Small Business Owner
By Troy Von Haefen, CFP®
Nashville, TN
http://www.vhfinancialmanagement.com/
As a fee-only Advisor that works with small business owners, I constantly see issues with the management of prospective clients’ businesses. While every business has its own idiosyncrasies, there are several aspects of a business that should be similar regardless of the type of business. Bookkeeping is one example. A common mistake small business owners make is the improper tracking of income and expenses. Too often, I see owners commingling their business income with personal assets.
If you are a small business owner or thinking about starting a business, here are few tips.
1. Get a separate business checking account
A separate checking account is a great way to have a record of business income and expenses. If the business is audited or questioned by the IRS, only the business records may be needed. This could keep the personal assets out of the equation.
2. Track your income and expenses with software
There are several affordable software packages that are easy to use. Most packages these days will allow you to run reports which can help illuminate the true picture of the business. These reports can help set goals, establish budgets, as well as assist in tax preparation.
3. Set the business up for success
Run the business as a business! So often, small business owners “play” in their business. If you run the business as a hobby, it will probably remain a hobby. If you want to be a successful business owner, you must act like one. Study successful people and learn from their successes and failures.
4. Make sure to get a business license, if needed
Contact the local tax department and inquire about the proper licensing needed to operate the type of business you own. The last thing a business owner wants to learn is that proper licenses are not in place. Penalties and fines may follow suit, so it’s important to do the homework. For example, as a Financial Advisor in TN, I have to pay a $400 Professional Privilege tax every year. Failure to comply would result in penalties and eventually fines!
5. Keep Businesses separated
If you own more than one business, it’s imperative to keep all the business records and transactions separate. Again, this will make life much easier on several fronts. It’s make tax preparation and planning much easier, as well as projections involving business growth. If the business is to be sold, separate records are imperative.
These five tips will help to solidify the business side of the business. Don’t let your success be curtailed by bad business practices.
Nashville, TN
http://www.vhfinancialmanagement.com/
As a fee-only Advisor that works with small business owners, I constantly see issues with the management of prospective clients’ businesses. While every business has its own idiosyncrasies, there are several aspects of a business that should be similar regardless of the type of business. Bookkeeping is one example. A common mistake small business owners make is the improper tracking of income and expenses. Too often, I see owners commingling their business income with personal assets.
If you are a small business owner or thinking about starting a business, here are few tips.
1. Get a separate business checking account
A separate checking account is a great way to have a record of business income and expenses. If the business is audited or questioned by the IRS, only the business records may be needed. This could keep the personal assets out of the equation.
2. Track your income and expenses with software
There are several affordable software packages that are easy to use. Most packages these days will allow you to run reports which can help illuminate the true picture of the business. These reports can help set goals, establish budgets, as well as assist in tax preparation.
3. Set the business up for success
Run the business as a business! So often, small business owners “play” in their business. If you run the business as a hobby, it will probably remain a hobby. If you want to be a successful business owner, you must act like one. Study successful people and learn from their successes and failures.
4. Make sure to get a business license, if needed
Contact the local tax department and inquire about the proper licensing needed to operate the type of business you own. The last thing a business owner wants to learn is that proper licenses are not in place. Penalties and fines may follow suit, so it’s important to do the homework. For example, as a Financial Advisor in TN, I have to pay a $400 Professional Privilege tax every year. Failure to comply would result in penalties and eventually fines!
5. Keep Businesses separated
If you own more than one business, it’s imperative to keep all the business records and transactions separate. Again, this will make life much easier on several fronts. It’s make tax preparation and planning much easier, as well as projections involving business growth. If the business is to be sold, separate records are imperative.
These five tips will help to solidify the business side of the business. Don’t let your success be curtailed by bad business practices.
Subscribe to:
Posts (Atom)
Posts
