◄ Blog Home
posted by Bonnie Hughes on March 8th, 2010 at 1:22 PM
Love is in the Air – Planning Past the Wedding
Have you noticed the magazine covers this month? Not that one – Sports Illustrated notwithstanding, you are probably looking at several wedding covers on the magazines in your grocery checkout line. If you have young adults in your family, chances are you’ve experienced the wedding vortex on some level or may soon. If you are a young adult you may be planning for this or have friends who have been through it. Noting that this one day party leads (hopefully) to a lifelong marriage, we want to take a look at what young couples might discuss before the big day and how they may prepare for a mutually satisfying financial life together. If a wedding takes up to 16 months or so to plan, it seems reasonable that some of that time could be spent learning more about the financial habits of the person you intend to spend the rest of your days with. It is interesting to me that almost every media mention of a wedding includes the strong recommendation to hire a wedding planner but you rarely see it mentioned that the couple should hire a financial planner first. Let’s take a look at just some of the things that might be revealed by working with a financial planner as you set up your lives together.
I am working with a young woman now who was already a client and now that she is getting married, she is asking great questions about her future financial life with her fiancé. My client inherited some money at a relatively young age and she is wise to seek counsel regarding how her financial life as part of a couple will be different. Our last quarterly meeting included the announcement of her engagement to me, her planner, and her fiancé will be in our next quarterly meeting as they develop their plans.
Everyone has a financial personality. There are varying degrees of course, but bottom line; people are either a spender or saver to some degree. And everyone has a money history. That money history often informs how someone deals with money today. If we declare neutral ground (the planner’s office), and lay some ground rules; there are no wrong answers, only discovery, our purpose is to learn about each other and share each person’s history and needs and wants.
Money History:
1) When you were growing up, did you believe your family had enough money, not enough money, lots of money, or it never came up?
2) When you grew older, was what you believed about the money in your family true?
3) Was money discussed in your family? How, how often, in what context?
4) Were you given any instruction around money as a child? (Save for a rainy day, tithe, work odd jobs for pay or ‘don’t worry your pretty little head about that, Daddy’s got it covered’)
5) Did you receive allowance as a child?
6) Did you perceive your parents were similar in their money habits or different?
7) Did you identify with one parent over another in the way they handled their money?
Financial Personality:
1) Do you think of yourself as a spender or a saver?
2) Do you have a checking account and if so, do you balance it monthly?
3) Do you pay for most things with cash, credit card, debit card, or a check?
4) How many credit cards do you have and how many do you use?
5) Do you carry a balance on any of them?
6) Have you ever maxed out your credit cards or made late payments?
7) Do you know your credit score? If so, what is it?
8) Do you research major purchases?
9) Do you track your expenses?
10) Do you make many impulse purchases?
11) What are the terms (rate, term, payment, total amount owed) of the debts you have?
12) Do you understand each line of your paystub?
13) Do you have health, disability, and life insurance?
14) Do you have any outstanding debt collection issues (taxes, liens, past due accounts)?
15) Do you own any investments?
16) Are you working with a financial planner?
Going forward, together?
1) Would you be willing to work with a financial planner to let them to establish a relationship, collect all our data, work with us to develop our mutual goals, develop recommendations for us, implement those recommendations on our behalf, and then help us monitor our plan going forward?
2) Is either of us planning additional schooling?
3) What is our approximate timeline for starting a family if that is in our plans?
4) What are our mutual goals (owning a home, starting a business, travel)?
5) What constraints are we facing (one of us may have to re-locate; one of us may have to assist an elderly relative)?
6) Is either of us expected to inherit money? This can be a source of sharing resources but the couple will want to explore legal options for keeping the inheritance separate from shared monies.
Exploring these conversations with the person you care most about can enrich your futures in ways that will allow each of you to enjoy your mutual and shared resources throughout your lives together. When you think about hiring the wedding planner, make sure you make an appointment with your financial planner first. Then you can get out there in the world together and go in the direction of your dreams.
Read More ...
posted by Bonnie Hughes on February 9th, 2010 at 1:34 PM
It’s All in the Family
By Bonnie A. Hughes, CFP®
When planners work with families, a lot of storytelling goes on. The family tells their financial stories of how they got to this place in this time and planners will often share their own stories and anonymously, they may share the hard won experience from other client cases. Every family is different and most of us have a preference for the tone and tenor with which we like to share things inside a family. With that in mind, let’s explore some basic conversations that are helpful to have in every family.
It can be true that children learn what they live. So as parents, first take a look at your own money history. What did you learn about money that you may, for better or worse, be teaching your children? We can model what we want them to learn.
An early discussion about both parents’ contribution to the household seems appropriate to helping children understand that everyone is pitching in. If one spouse works inside the home, recognizing this person’s contribution is important. And for those working outside the home, that contribution should also be recognized. When financial strain hits a family, it can be instructive to talk about its impact and make it easier to support each other until things get better.
The families that I’ve seen are the most successful when transferring knowledge about financial stability and success are those that have enough conversations around money that a lot of the mystery around it is dissolved.
Even in a capitalist society we do not infuse our K-12 curriculum with financial education so if it doesn’t happen at home, it’s not likely to get covered. That can mean some very rough sledding ahead for those who do not have the benefit of a lifetime’s worth of conversations on all things financial.
Other conversations that may be helpful to have throughout childhood could include:
Ø What does ‘being wealthy’ means to you
Ø Choosing your own path vs. what neighbors and friends might choose
Ø when to get a first job
Ø what to expect from those early jobs
Ø when you work those early jobs, can the family match your earnings so you can contribute to a Roth IRA?
Ø What advanced schooling is appropriate for each individual child
Ø Where that schooling will take place (community college, state college, an elite private school)
Ø How to pay for that school (will the student work, can an employer pay, will the family be able to help, are loans or scholarships available)
Ø Once adulthood is reached, what is a good savings rate to insure financial security down the road?
Ø Emphasize ‘doing the math’ (it’s been surprising and disappointing how many financial decisions are made on hunches or rules of thumb vs. sitting down and crunching the numbers)
Once the concept is understood that money doesn’t know or care who owns it, but that our choices can affect the degree to which we obtain it, use it, share it, and enjoy it; we can move money in the direction of our own dreams. Taking away the taboo of talking about money increases our chances of gaining and keeping perspective around it.
So bottom line, keep talking!
Read More ...
posted by Bonnie Hughes on September 1st, 2009 at 5:53 PM
WHY EVERY COLLEGE FRESHMAN SHOULD START A ROTH IRA
At no time since the Great Depression have college students worried more about money. Tuition continues to rise, financing sources continue to contract. So why should a student worry about finding money for, of all things, retirement?
Because even a few dollars a week put toward a Roth IRA can reap enormous benefits over the 40-50 years of a career lifetime that today’s average college student will complete after graduation. Take the example of an 18-year-old who contributes $5,000 each year of school until she graduates. Assume that $20,000 grows at 7.5 percent a year until age 65 – that would mean more than a half million dollars from that initial four-year investment without adding another dime.
Consider what would happen if she added more.
There are a few considerations before a student starts to accumulate funds for the IRA. First, students should try and avoid or extinguish as much debt – particularly high-rate credit card debt – as possible. Then, it’s time to establish an emergency fund of 3-6 months of living expenses to make sure that a student can continue to afford the basics at school if an unexpected problem occurs.
Certainly $5,000 a year sounds like an enormous amount of outside money for today’s student to gather, but it’s not impossible. Here’s some information about Roth IRAs and ideas for students to find the money to fund them.
The basics of Roth IRAs: It’s good to start with describing the difference between a traditional IRA and a Roth IRA and why Roths might be a better choice for the average student. Traditional IRAs allow investors to save money tax-deferred with deductible contributions until they’re ready to begin withdrawals anytime between age 59 ½ and 70 ½. Roth IRAs don’t allow tax-deductible contributions, but they allow tax-free withdrawal of funds with no mandatory distribution age and allow these assets to pass to heirs tax-free as well. If someone leaves their savings in the Roth for at least five years and waits until they're 59 1/2 to take withdrawals, they'll never pay taxes on the gains. For someone in their late teens and early 20s, that offers the potential for significant earnings over decades with great tax consequences later.
Getting started is easy: Some banks, brokerages and mutual fund companies will let an investor open a Roth IRA for as little as $50 and $25 a month afterward. It’s a good idea to check around for the lowest minimum amounts that can get a student in the game so they can plan to increase those contributions as their income goes up over time. Also, some institutions offer cash bonuses for starting an account. Go with the best deal and start by putting that bonus right into the account.
It’s wise to get advice first: Every student’s financial situation is different. One of the best gifts a student can get is an early visit – accompanied by their parents – to a financial advisor such as a Certified Financial Planner™ professional. A planner trained in working with students can certainly talk about this IRA idea, but also provide a broader viewpoint on a student’s overall goals and challenges. While starting an early IRA is a great idea for everyone, students may also need to know how to find scholarships and grants and smart ideas for borrowing to stay in school. A good planner is a one-stop source of advice for all those issues unique to the student’s situation.
Plan to invest a set percentage from the student’s vacation, part-time or work/study paychecks: People who save in excess of 10 percent of their earnings are much better positioned for retirement than anyone else. Remarkably few people set that goal. One of the benefits of the IRA idea is it gets students committing early to the 10 percent figure every time they deposit a paycheck. It’s a habit that will help them build a good life.
Get relatives to contribute: If a student regularly gets gifts of money from relatives, it might not be a bad idea to mention the IRA idea to those relatives. Adults like to help kids who are smart with money, and if the student can commit to this savings plan rather than blowing it at the mall, they might feel considerably better about the money they give away. At a minimum, the student should earmark a set amount of “found” money like birthday and holiday gift money toward a Roth IRA in excess of the 10 percent figure.
-30-
August 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Bonnie A.Hughes, CFP®, a local member of FPA.
Read More ...
posted by Bonnie Hughes on August 12th, 2009 at 8:39 AM
From a www.bankrate.com article, "So, if you think you might inherit an IRA from someone other than your spouse, such as an elderly parent, it's wise to do some advance planning if you can. According to Bonnie Hughes, CFP, your options for handling the account are a little trickier. In particular, there are some thorny rules regarding designating beneficiaries for IRAs.
In most cases, says Hughes, IRA beneficiaries should be actual, named people -- known as designated beneficiaries -- rather than simply "my estate" or "my living trust." Another no-no: leaving blank the space on the IRA beneficiary form (available from the financial institution that holds the account) in the mistaken assumption that the account automatically will be distributed to heirs as part of their will.
Why? "Trusts, estates and other entities don't have life expectancies," says Hughes. If they 'receive' an inherited IRA, they must draw down,and pay taxes on, the entire IRA account within five years or according to distribution plan of the original owner, if the owner had already begun taking distributions before his or her death, says Hughes."
By Teri Cettina • Bankrate.com 2004
Want to know more and the most up to date rules? Contact American Capital Planning at 703.579.7031 or meeting@americancapitalplanning.com.
Read More ...
◄ Blog Home
