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You can’t just BE content…

November 3, 2011

Show me someone who spends less than they make.

Show me someone who gives at least 10% of their income.

Show me someone who serves their friends and family.

Show me someone who lives simply.

Show me someone who works hard…and plays hard.

Show me someone who regularly exercises.

Show me someone who takes responsibility for their actions.

Show me someone who believes God created them for something great…but leaves the results to God.

And every time, I’ll show you someone who is content.

Contentment is not a state of mind.  It’s learned.  It’s earned.  Don’t just be content…live content.

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Dressin’ up with your money

November 1, 2011

We had an awesome time walking around our neighborhood last night trick-or-treating.  Our kids are at great ages to enjoy the whole production of choosing a costume and dressing up.  Oh yeah, and the candy might be a motivator as well.

But let’s be honest, the cuteness wears off about age 12.  Maybe you can get away with it for another few years, but the group of 15 – 17 year olds that throw the mask on and think they’re geniuses because they just loaded up on smarties and dumdums…bravo.  Suggestion – go to Sam’s and buy a 24 pack of Snickers and leave the mask at home…we’ll all be better for it.

At some point we grow up and leave the masks and pillow cases at home.  And while it’s easy to see the lunacy of high school trick-or-treating, many of us are doing the same thing with our money.  We don’t act our wage.  We buy things we can’t afford.  We try to convince the world we’re someone else…someone who actually can afford that car or that house.  Someone who can afford that vacation or those clothes.

If you can, great!  If you can’t, then don’t.  It will leave you in a world of hurt in the long-run.  The two areas that tend to give people problems are housing and vehicles. If you can stay within your means in these two areas, it typically gives you more freedom and flexibility in the rest of your budget.

Remember, you’re an adult.  It’s time to make big boy decisions.  Your Freddy Krueger mask was really cool 15 years ago.  It’s not now .

College Savings – 529 Plans

October 28, 2011

Now things get a little more complicated, but just a little.  And don’t worry.  That’s why I’m here – to remove the complication, and leave you with answers.  We’ve already addressed Prepaid Tuition and the Coverdell ESA.  Today we close up with 529s.

529s are named after the equally numbered IRS code that allows for these plans.  They are savings plans developed by state governments or institutions to provide a tax-advantaged savings vehicle for higher education.  They are similar to ESAs in that they provide for tax-free disbursements for qualified higher education expenses, but there are a few differences…

The ESA would be my first choice if you qualify, but a 529 is a close 2nd.  Because 529s are offered by all 50 states, there can be a little confusion when choosing one.  Here are a few FAQs to help out:

1.  Do I have to invest in my resident state’s plan?

No.  You can invest in any state’s plan.  If your state has income tax, there is typically a tax-benefit for investing in your own state.  However, if you live in Florida, the choice is yours.  No state income tax means there’s no benefit for staying in-state.  Choose whatever plan you want.

2.  Does my child have to go to school in the state of the plan I choose? 

No.  Almost every college or university is eligible, regardless of what plan you choose.  So you can live in Florida, invest in Utah, and go to school in Connecticut.

3.  Who manages my money?

The state’s treasurer is ultimately responsible, but each state usually offers mutual funds from a respected investment firm, such as Vanguard, Schwab, T. Rowe Price, etc.

4.  If all 50 states offer plans (many more than one), how do I choose?

First, be sure to invest in a DIRECT plan, meaning you as the consumer are investing directly –  not going through a broker, therefore not paying additional fees.  Secondly, each state’s fees vary, so choose a state with low fees and good investment options.  There are a number of “rankings” out there, but the states that seem to consistently be at the top of the list are as follows (in no particular order)…

Utah, Virginia, Kansas, New York, Iowa, Nevada, Ohio.

5.  How do I decide which funds to invest in?

Many states provide an age-based option that will invest appropriately based on your child’s age.  For example, if you child is 16 with just one more year before college, you don’t want to be in 100% stocks.  If we experienced a market crash like we did a few months ago, your investment would take a significant hit.  However, if you’re opening an account and your child is 3, you can be more aggressive in your choices.  Allow the fund manager to do his/her job and manage this time risk for you.  **NOTE – This is one of the few areas I disagree with Dave Ramsey.  He would say to maintain as much control as you can.  Given college savings is a medium-term investment, the risk needs to be closely managed and I believe it calls for less aggressive investing. That being said, he does make a lot more money than I do.

So to wrap-up, remember…

1.  Investing in your child’s college education should NOT be in your top 3 priorities.

2.  Avoid pre-paid tuition plans

3.  If you qualify, start with an ESA.

4.  After the ESA, go with a DIRECT 529 plan.

5.  Go Noles!

College Savings – Coverdell ESA

October 26, 2011

You can thank the gentlemen to your left for making it easier for most of us to save for college.  Paul Coverdell sponsored the bill that allowed for the formation of an investment account specifically for higher education.

Basics

The Coverdell ESA is probably the best option for long-term college savings.  Previously known as the Education IRA, the Coverdell ESA was designed to provide a tax-advantaged savings vehicle for college and university expenses.  You can open an account for each of your children, but there are restrictions and some people won’t be eligible.

Benefits

  • Contributions can be invested in an almost endless number stocks, bonds, mutual funds.
  • Distributions can be made for any qualified higher education expenses, including tuition, room and board, supplies, etc.
  • Distributions can be made for qualified PRIMARY AND SECONDARY education expenses.  (Yes, that means you can use it for private high school tuition.)
  • Distributions are tax-free for qualified expenses.
  • Accounts can be transferred to family members without penalty

Burdens

  • Contributions are limited to $2000 annually
  • To be eligible, your AGI (Adjusted Gross Income) must be less than $110,000 (single) or $220,000 (married filing jointly).
  • If the funds aren’t used for qualified education expenses, they will be subject to income tax and a 10% penalty.

Recommendation

The ESA, if you’re eligible, should be your first choice when saving for college.  Because of the  flexibility and tax advantages, it’s a great vehicle to provide your children with a head start.  You can open an ESA through almost any major bank or brokerage firm.

On Friday, we’ll take a look at 529 plans…

College Savings – Prepaid Tuition

October 25, 2011

Based on 10-year historical averages, university tuition has increased at about 6% annually. (Last year, it was 7.9% for public universities and 4.5% for private.)  This being the case, throwing a few dollars into a savings account won’t get you very far. There are a number of savings options for college, and we’ll run ’em down over the next few days.  Today, let’s take a look at prepaid tuition

Basics

There are only a few states that still offer a guaranteed prepaid tuition program.  Florida is one of those states, so I figured it would be worth addressing.  Prepaid tuition is exactly what you’d expect:  you pay tuition at today’s rates for guaranteed tuition credits in the future.  For example, if you pay for 15 credit hours for your 10-year old this year, that’s 15 hours he or she will have in 8 years when they begin college.

Benefits

  • Paying today’s rates given rapidly increasing tuition costs
  • Can be transferred to another qualifying family member
  • Can be transferred to out-of-state or private institution

Burdens

  • Can only be used for tuition and fees. (Florida offers a separate plan for room and board).  You cannot use any of the funds for other college related expenses, such as books and supplies.
  • Though you can transfer credits to an out-of-state university or private school, it will be at a reduced rate.
  • If for some reason your child or children are not able to attend college, you can receive a refund, but it will be with modest interest.

Recommendation

As you’ll see in the coming days, there are better options.  The limited flexibility of pre-paid plans, and a rate of return of 6% (based on annual tuition increases) make it a less desirable option.  I WOULD recommend a prepaid plan if you’re within 5 years of your child starting college and you’re 99.9% sure they will attend a Florida (or state-sponsored) school.

Do you owe your child college?

October 21, 2011

Do you owe your children a paid-for college education? The short answer is no.  However, based on yesterday’s post, you understand the value of that education, and I believe every parent wants to provide their children with an opportunity to succeed. Before you save a dime for college, help them understand:

-College is a privilege, not a right
-They will ultimately be responsible for their education

Even if you can’t provide the financial backing you wish you could, you can instill the values and outlook they will need to succeed. For us, college will be an expectation, and whatever financial support we provide will be contingent on some ground rules.

That being said, where should saving for college be on the list of financial priorities? It’s doesn’t make the top 3, but still should be a goal you are working towards. As we’ve discussed before, here’s how your financial priorities should line up:

1.  Give 10% of your income

2.  Consumer debt paid off

3.  911 Fund (3 – 6 months income in emergency savings)

4.  15% of income to Long-term Savings (Retirement)

5.  College Savings

The investment options for college savings have increased dramatically over the past 10-15 years.  Next week I’ll break down all the options, and which ones would be best for your family and your child…but remember, the best education you can give your children is to SHOW them what it is to be generous and how to create margin in their lives.

Doing college…the right way

October 20, 2011

College might not be for everyone.  But if you can make it work, you should go.  And you should graduate.  Here are just a few reasons why:

-Current unemployment rate for high school graduates with NO COLLEGE – 9.7%

-Current unemployment rate for college graduates – 4.2%

-Average salary for high school graduates with NO COLLEGE – $29,000

-Average salary for college graduates – $46,000

This doesn’t mean you have to go to college to be successful (see Mark Zuckerberg and Bill Gates), but it will greatly improve your chances to earn more during your lifetime.  It also doesn’t mean you go to college at any price.  Please don’t leverage your future with student loans just because of the statistics above.  Adults, I’ll address the options you have to save for your children or future children in tomorrow’s post. Today I want to address students and prospective students.

AVOID STUDENT LOANS

Yes, I took out student loans.  I wish I hadn’t.  Though I didn’t have much outstanding upon graduation, it was enough to suck up my first bonus check.  Better you take 6 years and work your way through college debt free, than 4 years saddled with debt.  When you take on consumer debt, you’re presuming on the future.  There are some recent college graduates living in a tent on Wall Street right now because they have $50,000 in student loans and no job.  Newsflash – that’s not Wall Street’s fault.  That’s stupid.

GO TO A SCHOOL YOU CAN AFFORD

If the only way you can attend that prestigious, liberal arts college in the northeast is to take out $80,000/year in student loans, THEN DON’T GO!  Go to a state school.  Go to community college.  Few people care which school you graduated from after you get your first job, they’re more concerned with you as a worker.

WORK HARD

College isn’t about what you learn (well, maybe a little), it’s about learning to learn.  Learn to be a lifetime learner.  Learn to be disciplined.  Learn how to study.  Learn how to prioritize.  Learn to be efficient with your time.  Learn how to work hard.  Oh yeah, and work hard at having fun – these can be some of the best years of your life.

DISCOVER YOUR GIFTS

There comes that dreaded day when you have to declare a major.  But don’t let it stress you out.  I changed my major twice.  I know a lot of successful people no longer working in the field they have their degree.  Use these years as an opportunity to explore a few options.  You’ll land on one eventually.

GO BULLFROGS…I mean, BULLDOGS  (for those of you that caught Modern Family.)

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