Thursday
Aug282014

Financial Lessons for College Students

 A college education holds the promise of a great career start for many students.  The excitement of choosing a college, getting accepted, and actually starting classes will eventually die down. Then your student is likely to encounter some financial lessons that won’t be taught in the classroom.  Lessons like:

  • How continuous spending can take a bank balance to zero and then the bank piles on additional service fees 
  • Or how spending on small things like getting a pizza or a school sweatshirt can quickly add up

Here are three time-tested financial tips to help students develop habits that will serve them well during college years and into their adult life.

Keep Track of Spending 

If you don’t know what you are spending, you don’t know what is left or what you can afford or not afford. The key is to create a spending plan for necessary purchases like food, gas, and cellphone service before spending on discretionary items. Take the guesswork out of budgeting by using an online tool like Mint.com to automatically categorize transactions.

Don’t Underestimate the Importance of Managing Debt

While credit cards are great for convenience and emergency situations, be wary of running up a balance that you cannot pay off every month.  Use the plastic cautiously.  Establishing good credit during college will make it easier to apply for a car loan, rent an apartment, or even purchase a first home. If student loans are needed to fund college expenses, take the time to read the fine print.  Don’t take more than you need today because piecing together student loans for 4 or more years can add up. Your student may not realize they are easily signing up for substantial payments for twenty years or more after graduation.

Think Twice before Lending Money to a Friend

Everyone has had an experience where a friend comes up short and says, “Can I borrow some money?  I promise I’ll pay you back!” Recognize that lending money is a risk, even if a friend is completely trustworthy.  Just because your friend is asking you don’t have to say yes. Many of life’s lessons your student will have to learn on their own, but if they think carefully before they lend, are cautious of debt, and track spending, they can avoid some common financial mistakes.

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.


Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served. A14-025160

Tuesday
Aug262014

Tips for College Students on School Year Spending

 College students are finishing up summer jobs and internships and heading back to school with the money they’ve earned ... that is, if they didn’t blow it all this summer. But for those who budgeted and saved, it is time to look at how to spend.  I sat down with one of The Center’s summer interns, Nick Boguth, a senior statistics major at the University of Michigan. Over the summer, he worked primarily with our investment department but has also been involved in other areas of financial planning. He helped give his perspective as a college student on the flip slide of saving: school year spending. 

Before You Spend, Set Some Goals

Many students take summer jobs/internships to save money for the upcoming school year because they may not have the ability to work while attending class. So the first tip is to think back to that first paycheck. Remember how tempting it was to spend it all? I certainly made this mistake a few times when I was in Nick’s shoes! But hopefully you decided to take a more disciplined approach. Now that you’re heading back to campus, it’s time to dig down for another dose of discipline: Don’t blow it all at once! Nick suggests that you set a realistic goal before you touch a penny of the money you saved over the summer. Ask, “What do I need the money for?”  Simply put, how much can you spend and how much do you need to save to make it last until Christmas or the end of the school year?  Doing this from the onset will give you a much greater chance of reaching your goal as opposed to “winging it”. 

Dinner Out, New Clothes, or a Roth?

As you’re setting those goals, consider putting a chunk of your money into a Roth IRA. It might seem pointless because we’re not talking about a large dollar amount, but the more you save early in life, the more it can add up to later. Sure, it might seem like more fun to spend it going out or shopping and, take it from me, when you do that it will vanish in no time. But if you contribute 5-10% of your summer savings to a Roth, you are starting an excellent habit. By making such a responsible choice, your parents may even offer to throw in a "match" the same way many employers do to incentivize employees to save for retirement.

Let’s be honest, when you’re a college student working in the summer, you typically are not earning a large paycheck. WHO CARES?!  What you’re earning as far as experience, knowledge and interaction with others in your field of study is worth far more.  Best of luck to everyone returning to school this year – we wish you nothing but the best! 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.


Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Roth IRA owners must be 59 ½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Unqualified withdrawals may be subject to ordinary income taxes as well as a penalty tax. C14-026213

Thursday
Aug212014

Top 5 Factors in College Selection

 I’m beginning to feel like a pro when it comes to helping my kids pick a school. In my recent post “Making the Most of your Empty Nest Years”, I explained my son Jack was undecided on his college choice. Albion College? Belmont University in Nashville? Well, in late-breaking news from the Wyman house: Jack picked a school (though it wasn’t televised like some high school athletes these days…really!). Jack decided that Albion College is the best fit for him at this time.  Go BritonsJ!!!

After working with many families over the last 23 years and now seeing my own two kids go through the “college selection” process, I’ve developed a few factors in determining the best college for you/your child.

My top 5 factors in determining the best college for you/your child:

  1. School Size: My oldest son, Matt, knew he wanted to be at a large school (20k+) and Jack thought he might like a smaller school (under 10k).
  2. Location: Live at home or break free to the opposite coast? Matt wanted to be as far away from his parents (no offense taken Matt) as possible. Matt visited Colorado, West Virginia, and Kansas. Jack was more neutral on location but did visit both campuses (as well as others) to get a "feel" for what the campus environment was like.
  3. Majors: Some kids know exactly what they want to study as they leave high school; however, many do not (hey, they are 17-18 years old). I know of a fella that was a political science major and guess what class he dropped first semester freshman year? If your child is a bit unsure about their major, perhaps a college or university with a large ofering is best.
  4. Sports/Extracurricular: Both our kids will be playing a varsity sport next year, but neither selected their choice on athletics or other extracurricular activities alone - they are part of the package.
  5. Cost: Let's not beat around the bush - there is a financial component to the process. College is expensive! However, it is important not to make a decision based on the published costs of attendance. In Jack's case both Albion and Belmont reduced the "sticker" price and, in the end, the costs were similar.

We found the college “hunting” experience enjoyable.  It provide my wife Jen and me an opportunity to lock the kids in the car (or plane) and force them to talk to us and the boys got to check out their potential four-year home. Enjoy the hunt!

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.


Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. C14-024133

Tuesday
Aug192014

The Power of Compounding

 

When you’re just starting in your career, you can feel strapped, earning a small salary and trying to make ends meet.  You might not feel like there is any money left over at the end of the month and that’s why some people decide to wait to start saving for retirement. However, the power that time has on your money can’t be understated.

I recently had an opportunity to meet with a long-time client’s daughter.  The goal of the meeting was to give some timely financial advice as she embarks on her new career after college. One of the key points I made was the power of compounding dollars over time.    

Using Time to Compound Money

For instance, if a 25 year old were to save approximately $4,500 a year compounding at 7% she would have close to 1 Million dollars by age 65. But, if she decided to wait to start saving for retirement until she was making more money at age 45, she would need to save $21,904 a year to accomplish the same result. That’s a staggering 486% increase in the dollars she’d need to save compared with the 25-year-old saver.

Knowing Your Benefits

To help with your retirement savings, it’s very important to fully understand your employer benefits before you begin employment.  Many employers will offer qualified retirement savings programs like a 401(k) or 403(b). If these plans exist and the company offers a match on your contributions, you should do everything you can to make sure you at least get the matching dollars.  For instance, in the case of our 25 year old, we know the potential of a $4,500 a year savings and earning 7% on that money. Now, if we factor in an employer match of $2,250, that same 25 year old would have accumulated approximately $1,350,000 over that same time horizon.

The longer you wait to start saving, the more you are going to have to put away. In other words, the pain could be much worse the later you wait.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.


This is a hypothetical illustration and is provided for illustration purposes only and is not intended to reflect the actual performance of any particular security. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions. C14-022060

Thursday
Aug142014

Elder Care Planning: Aging in Place

 In last month’s Elder Care Planning post, we looked at the 4 “C’s” when it comes to housing decisions for older adults; Comfort, Convenience, Companionship and Care. For many, those factors add up to a desire to “age in place.” According to a recent AARP survey, nearly 90 percent of those over age 65 want to stay in their residence for as long as possible and over 80 percent believe that their current home is where they will always live.  The MIT AgeLab reports that close to 90% of all Americans do, indeed, age in their own homes.  So, when it comes to aging in place, what challenges and opportunities come into play when we look at the 4 “C’s”?

Modifying for Comfort

Many people are most comfortable in their own homes.  However, comfort also includes “safety” and this can be a challenge as an individual ages.  Choosing to age in place means planning ahead to make sure that the current living situation is safe as health and mobility changes occur.  There may be a need to have the home modified or remodeled to make aging in place possible.  This can include things like widening doors, adding grab bars, adding a walk-in shower, moving the laundry room to the first floor and adding a chair lift or elevator to a two story home.  These changes can be expensive.

When Convenience Vanishes

The ability for individuals to stay in their own communities and be near people and places they know is of great value.  Depending on the location of the home, it may become a challenge to get to those places that once seemed so handy.  Mobility and transportation may become an issue, which means that it’s important to plan ahead and find resources to help.  Finding a friend, family member, or hired caregiver to assist with mobility and/or transportation can be a solution.  Also, try researching local Area Agency on Aging and Senior Centers that offer transportation services.

Finding Companionship

Once an older adult is on their own in their own home, one of the biggest challenges can be companionship.  Staying social and engaged is vital to successful aging, so for those who live alone, it is important to stay connected.  For some, that means engaging often with family members, friends, and neighbors.  For others, that means finding ways to get to social events, church services, classes, or other activities out of the home.  This may mean hiring a companion or caregiver who can visit several times a week. 

Care at a High Cost

The care component can be the most costly from a financial perspective for those who choose to age in place.  As individuals age, particularly those with chronic health conditions, care needs can be significant.  For some, there are family members and friends who can assist.  However, many people must hire caregivers to provide medical and non-medical assistance.  For those who need full-time care and assistance, the cost to age in place can be high … $10k  - $15k a month*! This is an expense many cannot afford. 

Working with a planning team, including a financial planner, can help older adults plan for what might lie ahead. By identifying future challenges, you can put resources in place.  Planning ahead provides the best opportunity to live the life you wish – at home or elsewhere.

In future posts, we will look at additional housing options for older adults.

This is one post in a running series that addresses Elder Care planning topics.  If you have a specific question or issue you’d like addressed, please contact me at Sandy.Adams@CenterFinPlan.com.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012-2014 Sandy has been named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.


Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

*Source: The 2012 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. C14-025162