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Thursday, October 25, 2018

Financial Planning Tips for New Parents


According to the U.S. Department of Agriculture, child rearing is a costly endeavor. From birth through age 17, for middle-income households, the cost to raise a child in 2015 was $235,670. Add in post-secondary education and child rearing expenses, from cradle through college, can easily exceed $300,000.

Conventional cash flow wisdom is to increase income and reduce expenses to make ends meet. Having children often results in the exact opposite scenario. Expenses increase at exactly the same time that income either stays the same or is reduced. What to do? Below are recommendations to consider:

¨      Plan Proactively- Prepare a list of anticipated expenses and calculate the total cost. Add a “miscellaneous” category for unanticipated items. Try to pro-rate prenatal expenses (e.g., $4,000 divided by 9 months = $445 per month) and “pay as you go” rather than purchasing everything at once on credit.
 

¨      Shop Inexpensively- Consider making purchases at consignment and thrift shops and garage sales for clothing and nursery equipment in good condition. Another money-saving option is hand-me-downs from friends and family.

 
¨      Investigate Employee Benefits Related to Parenting- Explore your options for parental leave, Family and Medical Leave, maternity coverage, disability coverage, and pediatric care. Contact your employer’s human resources department for information and assistance.

 
¨      Plan Your Estate- Draft a will, or revise a previous one, to name a guardian and back-up guardian for a newborn child. Guardians do not necessarily have to be family members. Parents can choose anyone they feel would be best suited to raising their child. Be sure to discuss your selection with the designated guardian first.

Friday, October 19, 2018

Conference Take-Aways from ASEC and the CFPB


This week, I attended the Fall American Savings Education Council (ASEC) meeting and, via phone, part of a Consumer Financial Protection Bureau (CFPB) meeting for financial practitioners. Below are some take-aways:

¨      Four key factors can affect worker (and dependent) health status: worker share of health insurance premium, cost-sharing (e.g., deductibles, coinsurance, and copayments), choice of health plan, and workplace wellness programs.

 

¨      Nearly half of the U.S. working population with employer health insurance is in a high-deductible health plan.

 

¨      A study of a large employer that replaced PPOs with a HSA (health savings account)-eligible, high-deductible health plan (HDHP) found decreases in outpatient office visits, prescription drug fills, and medication adherence and more emergency room visits. Even preventive services not subject to a deductible were used less after the HDHP started.

 

¨      Some employers encourage workplace wellness by offering financial incentives such as prizes, gift cards, and premium contributions.  Prizes are often used in conjunction with health risk assessments or biometric screenings.

 

¨      Only 1 in 10 Americans is saving enough money to cover short-term needs and retire comfortably. Health care expenses take a big chunk out of people’s income. Some employers are starting to coordinate HSAs and 401(k)s.

 

¨      Caregiving is a threat to retirement security. For example, caregivers may have reduced work hours and missed work days or have to quit their job. The majority of caregivers work full- or part-time (52%) or are self-employed (8%).

 

¨      To increase savings, break goals into small steps and identify a “why” that is driving savings decisions.

 

¨      Using savings that is set aside for emergencies is not a failure. It is what the money was set aside for! Be sure to replenish emergency savings as needed.

Thursday, October 11, 2018

Financial Issues for Cohabitating Couples



Many people, at all ages, choose to live together without getting married. Unmarried partners do not qualify for joint income tax filing or the estate tax spousal exemption. Rather, they are treated as single individuals. In other areas of personal finance, however, they operate like married couples. For example, there are economies of scale (e.g., one cable bill instead of two) and the need to jointly pay household expenses. The longer a couple lives together, the more likely they will need to jointly make important financial and legal decisions. Below are five financial recommendations:


  • Develop a Method for Bill-Paying- Consider holding separate credit cards and bank accounts and divide household expenses evenly or proportionate to each partner’s income. Keeping assets separate avoids the problem of becoming liable for a partner’s debts.
     
  • Know the Law- Check with an attorney about the impact of cohabitation on alimony and child support from a previous marriage. State laws vary. Social Security benefits are not affected, however, which is why some retirees choose to live together but not marry so they won’t suffer a reduction in benefits based on an earlier marriage.

  • Consider Purchasing Joint Property Coverage- Find out if this is an option. Insurance companies may allow this if both partners have an ownership interest in property being insured. Many insurance companies also allow someone with renters insurance to add a partner for less than it costs for two separate policies. Consider increasing the coverage, however, to reflect the increased value of both partners’ possessions.
     
  • Understand the Fine Print- Be aware that, if both partners sign loan documents, an apartment lease, or a contract with a utility company, both are legally responsible for payments, even if one partner moves out.
     
  • Consider Beneficiary Designations- Consider naming an unmarried partner as a beneficiary on retirement plans (e.g., IRAs) and/or a life insurance policy in the case of long-term relationships. Ditto for a will. Unlike surviving spouses in a married couple, unmarried partners will not inherit anything automatically through state intestacy laws if a partner dies without a will. Instead, surviving blood relatives will receive the deceased partner’s property.

Saturday, October 6, 2018

Conference Take-Aways from AFS and FPA


This week’s post is late because I attended two conferences as a presenter and for professional development. Below are my take-aways from the Academy of Financial Services (AFS) and the Financial Planning Association (FPA):

  • About 50% of Americans own no stock directly or indirectly through mutual funds, ETFs, or retirement plans.
     
  • The new name for socially responsible investing (SRI) is ESG (environmental, sustainable, governance) investing. Investors choose ESG funds to align with their values, mitigate risk, and impact world problems.
     
  • The highest percentage of charitable giving is to religious organizations followed by “the needy.” Many more people make charitable gifts during their lifetime than at death.
     
  • Money is currently no longer the most frequent source of arguments among couples; political differences are.  Money is now the #2 stressor. When wives earn more than their husbands, conflict about money increases.
     
  • People experiencing financial stress lose 13% of their IQ (mental “bandwith) according to research studies.
     
  • About a third (34%) of elder abuse frauds are committed by family, friends, or neighbors. Warning signs include unusual activity in investment accounts, changes in legal documents, and checks made out to cash.
     
  • Many people cannot afford multiple financial goals. What to do? Increase savings, defer some goals, fund lower level goals (e.g., a less expensive car), and accept a lower likelihood of success for less important goals.
     
  • Fund financial goals concurrently, not sequentially. Otherwise, all of your financial goals will be short-term goals in conservative investments and decades of higher return investment growth will not be realized.
     
  • A speaker showed a picture of a human brain and the letters “ABL,” which stand for “always be learning.”

Red Flags of Investment Fraud

This week, I taught my Rutgers students about investment frauds like Pyramid and Ponzi schemes.  Each year, thousands of consumers lose ...