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

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

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

A Timely Reminder About 529 College Savings Plans

With school now out for most universities, who would want to talk about college planning?  But I couldn’t pass up 5/29 without discussing 529 plans!  All corny jokes aside, a 529 college savings plan is a fantastic vehicle to utilize for higher educational costs and something that all parents that plan on sending kids to school should at least consider.   

A 529 is a state sponsored educational savings account where the money in the account grows tax-deferred.  One of the major benefits of the account is that the funds are not taxed upon withdrawal (even growth), as long as they are used for qualified educational expenses (tuition, room & board, books, etc.)  A 10% penalty and ordinary income taxes would apply to any earnings portion of non-qualified distributions.  Many states (including Michigan) also offer a state tax deduction on contributions, up to a certain limit, which is an added bonus for the owner of the account.    

To maximize the benefits of a 529 plan, young parents can establish the account early for their children to allow for many years of potential growth. Typically, as the child approaches the first year of college, the plan becomes more conservative.  If other family members would like to assist with college expenses, they too can open an account for the child.  The child is the beneficiary of the account and the account owner or “custodian” is the person in charge of the account.  Unlike an UGMA or UTMA (which used to be a very popular savings account for school), the child does not automatically have access to the account at age 18 or 21. The custodian has complete control.  The beneficiary can also be changed on the account at any time, but typically this occurs if the child gets a scholarship or decides to not attend college.  This provides flexibility so the money can still be utilized for educational expenses for another child or family member.

As with any financial planning decision, a 529 may or may not make sense for your personal situation.  However, it is a great tool and resource to consider when taking on the challenge of saving for college.  If you ever have any questions about college planning or would like to dig a little deeper, don’t hesitate to contact us. That’s why we’re here!

Nick Defenthaler, CFP® is a Associate 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.

Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 college savings plans before investing. More information about 529 college savings plans is available in the issuer’s official statement. The official statement is available through your financial advisor, and should be ready carefully before investing. Rules and laws governing 529 plans are varied and subject to change. There is a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Before investing, it is important to consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Investors should consult a tax advisor about any state tax considerations of any investment in a 529 plan before investing. C14-015839

Protecting Yourself Against Identity Theft in 4 Easy Steps

 Who hasn’t heard about the Target stores’ security breach that occurred during the recent holiday season? I am sure we all know someone who was affected by this security scare as they routinely used their store credit card to pay for holiday purchases. While the victims of this breach could not control their circumstances, incidents like these are a friendly (or not so friendly) reminder that credit card security and identity theft are a fact of our everyday lives. So what can you do to make sure that your own actions don’t lead to an identity theft nightmare?

1. Routinely check your Credit Report. Go to www.annualcreditreport.com, where you can access a free report from each of the credit reporting agencies once per year. Consider requesting one report every four months to keep an eye on your credit activity.
2. Limit the number of cards you own and monitor them actively. Review your account activity at least monthly when you receive your statement to make sure that all charges are legitimate.
3. Do not give identifying numbers or financial information over the phone, by e-mail, or in person unless you are sure of the person you providing information to. Be careful not to e-mail important numbers – Social Security Numbers, credit card numbers, etc.
4. Shred documents with personal information or store them in a locked cabinet or safety deposit box. Prevent easy access to your personal information.

Taking these simple steps does not guarantee that you won’t be a victim, but can go a long way towards preventing the opportunity for fraud, or catching it early in the process.

Contact your financial planner about this and other credit and identity theft issues.

Sandra Adams, CFP® is a 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 and 2013, Sandy was 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.

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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.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. C14-001633

Holiday Financial Conversations for the Generations: Teenagers

The upcoming holiday break from school gives you the perfect opening to have conversations with your teenage children about their college plans.  Try talking to them about what they are currently interested in studying once they reach college, where they think they might apply, and also your family’s plan for college funding.  This includes what you plan to contribute, as well as your expectations about your child’s contribution. 

Here are several items that should be on your list:

How much is your child’s education likely to cost?  Go online and look up tuition rates for the schools your child might be considering. Then find one of the many online college tuition calculators to determine what your child’s costs might be.

How will you plan to pay for school?

• Discuss what you have saved (529 College Savings Plans, UTMAs, and other savings).

• Discuss opportunities for scholarships and grants.  Here are two sites to visit as early as your child’s freshman year in high school:

  • http://www.studentaid.ed.gov/  -- basic information about college costs, financial aid, etc.

  • www.fastweb.com  -- create a profile to get matched up with scholarship and grant opportunities specific to your child.

Discuss ways for your child to contribute, either now or in the future. This may include part-time work in high school, during summers, or during college.  This also includes strong academic performance and/or extra curricular activities now which can put them in a position for academic or other scholarships in the future.

The high cost of a college education makes these family conversations necessary.  By framing the discussions around the excitement of planning for your child’s future, you can make this an enjoyable and productive use of the holidays.

Talk to your financial planner about the many ways to save for your child’s college education.

In my next blog, I will talk about holiday financial discussions to have with your older adult parents.

Sandra Adams, CFP®is a 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 and 2013, Sandy was 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.

Links are being provided for information purposes only.  Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors.  Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

The Early Bird gets the Dough

This post is provided by Zach Gould our former summer intern and current college campus envoy. From his perspective at the University of South Carolina, Zach offers his take on funding the ever-rising cost of a college education.

The time before, during, and after college can be truly hectic. The packing, the dorm room decorating, it can all be mayhem and the financials can easily be forgotten. I should know! I didn’t do a great job of managing the financials when I was applying to college. Sure I spent hundreds of hours finding which school was the best for business, or which schools had the nicest dorms and on-campus restaurant options, but I put the financial aspect on the back-burner. The reality is that there are a ton of resources out there to help pay for college and to help budget money. The biggest thing is taking a look at these resources before the opportunities to utilize them pass you by.

FAFSA: Don’t Miss the Deadline

The first resource is FAFSA, which stands for Free Application for Federal Student Aid. This is a form that I highly recommend filling out before sending in that first tuition check or even choosing a school. FAFSA becomes available every year on Jan 1st. Check with your individual state, as different states have different deadlines for submission. For this past school year, the deadline in the state of Michigan was March 1, 2013. Federal student aid can come in a variety of forms, from work-study programs (where you work part-time and the money goes directly to paying for your tuition), to low or no interest loans, and even to aid that doesn’t require repayment. And don’t think that you don’t qualify because you or your family is well-off. There are a variety of factors that are looked at and it can’t hurt to apply!

Scholarship Scoop

While I failed at getting a FAFSA in on-time/at all, I did take advantage of one amazing resource that is offered by almost every college out there: SCHOLARSHIPS. Scholarships are probably the most important and valuable resource in helping to pay for school. I can say with all certainty that without scholarship money, I would not be attending the University of South Carolina. As a resident of North Carolina, I noticed that the out-of-state tuition for almost everywhere was triple if not quadruple the in-state tuition rates at many universities. In fact, the University of Michigan has one of the highest out-of-state tuition rates, coming in at over $40,000 per year before any fees or room and board. The University of South Carolina has a particularly attractive scholarship program. The university offers scholarships to qualified out-of-state students that not only reduce the tuition to the in-state rate, but also take-off additional money. I am currently attending an out-of-state school, while paying less than the rate I would pay for an in-state school. See if any of your potential schools have a similar scholarship. The best place to look ships is on the school’s website. Make sure you take extra note of deadlines, as many scholarships have early deadlines.

Study Abroad Secrets

In addition to tuition scholarships, there are scholarships or grants to do things while in school. A friend of mine started early in looking at scholarships for her semester of studying abroad in Italy and received a few thousand dollars to help pay for her semester abroad. This gave her more options once abroad to travel and experience the local culture with the money she saved. At the University of South Carolina there are scholarships available through each language department and there are also general study abroad scholarships or grants that could be applied for within or separate from the school. I truly wish I had taken advantage of these scholarships, as I found out very quickly last semester how expensive it is to live for 4 months in Paris. Like the other financial resources, getting scholarship applications submitted early is imperative and many require written recommendations from professors or other references which can often be a lengthy process.

The opinions are those of Zachary Gould and The Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

College Savings 101: The 529 Plan

 It doesn’t quite seem possible, but yet another summer is quickly coming to an end and before you blink, the leaves will have changed and Christmas products will be on the shelves.  Very soon, school will be back in session and those who are of college age will begin the seemingly daunting task of getting their ducks in a row before another semester begins.  Deep sigh……

One of the top priorities on that list for parents should be to consider using a 529 account for college savings.   529 plans are tax-deferred accounts (like an IRA) that are an excellent way to save and invest for various higher educational expenses. 

Features:

• Potential state tax deduction on contributions up to certain annual limits
• Tax deferred growth potential
• No taxation upon withdrawal if funds are used for qualified educational expenses (such as tuition, books, certain room and board, computers, etc.)
• The owner, generally the parents have control over the account and can transfer the account to another beneficiary
• Not subject to “kiddie tax rules,” unlike UGMA accounts (Uniform Gift of Minors Act) and UTMA accounts (Uniform Transfer to Minors Act)

Items to be aware of:

• No guaranteed rate of return – subject to market risk
• Certain taxes and penalties may apply if funds are withdrawn for non-qualified expenses
• Keep records of how money was spent that was withdrawn from the 529 account in case of an audit
• Review the asset allocation/risk profile of the account periodically.  Typically, the closer the child is to entering college, the more conservative the account should become

In one of our staff meetings this week, one of The Center planners reminded us all, “there are certain aspects in life that are humanly impossible to control.  It is, however, the factors that we do have control over that we must focus on, to better ourselves and the service we provide to our clients.”  Although college expenses have risen by almost twice the rate of inflation, this is something we truly cannot control.  What we do have control over, however, are the tools we can use which can assist us in creating a solid educational financial plan – something a 529 account can help provide.

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Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 college savings plans before investing.  More information about 529 college savings plans is available in the issuer’s official statement, and should be read carefully before investing.

The information contained in this report does not purport to be a complete description of the subjects referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Prior to making an investment decision, please consult with your financial advisor about your individual situation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Favorable state tax treatment for investing in Section 529 college savings plans may be limited to investments made in plans offered by your home state.  Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan.

How to Get Started with Your Savings Goals

 Whether you are young and starting your own life as an adult or in mid-life and realizing that you are behind in getting started towards your financial planning savings goals, it may be hard to know how to begin.  No matter where you are now, it’s time to take steps towards setting and achieving your financial goals. 

Ready.

Determine your top financial goals.  Maybe you need to start saving, period.  Then there is college for the kids and retirement someday (?)

Set.

Prioritize your main goals.  Top priority is building emergency reserves – at least 3 – 6 months of monthly expense needs is recommended.  Next, balance retirement and education savings, keeping in mind that loans are available for education costs, but there are no loans for retirement.

Go.

• Begin your saving by paying yourself first.  Budget an amount to set aside in savings, as if your savings account is someone you owe, until your savings reserve is built up to your goal.
• Next, begin contributing at least a minimal amount to your employer retirement plan.  Start by contributing enough to receive any employer match that might be available, and then slowly increase your contribution percentage over time.  
• Education saving can begin by investing monetary gifts received for birthdays and other holidays into 529 college education accounts for your children.  As cash flow allows, budget in a set amount monthly to add to the 529 accounts.

No matter what your current place in life, it’s the right time to start saving to meet your financial planning goals.  Contact a Certified Financial Planner™ to help you come up with a plan to get you to the starting line and off to the races!

Sandra Adams, CFP® is a 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 and 2013, Sandy was 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.

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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.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

What Better than the Gift of Financial Education and Support?

 I don’t know about you, but I can hardly believe that it is already time for the holidays.  It seems like just yesterday that I was racking my brain to come up with creative gift giving ideas for all of those people on my list.  I find that it is just as hard to find gifts for adults as it is for children.  But there is one gift I’ve found that transcends generations – the gift of financial education. 

I know, financial education does not sound as attractive or exciting as say, an iPad or a Wine of the Month Club membership, but it is a gift that can keep on giving for a lifetime.  What am I talking about when I suggest a gift of financial education?  Here are just a few ideas:

For Younger  Kids (elementary – high school):

• If you’re trying to stay away from more electronics, there are hundreds of books, workbooks and other resources available from Jump$tart Coalition (JumpStart.org)
• Games like Monopoly, The Game of Life, and PayDay are great (Most are available as both traditional board games or for the computer, Wii, etc.)
• Make a contribution to a 529 College Education fund to support the child’s future education.

For Older Kids (college - young adults):

• If your gift recipient has had earned income during the year, consider contributing to a ROTH IRA in their name. 
• Gift shares of a mutual fund or stock introduce them to investing and help them start an investment portfolio.
• Make a payment towards their outstanding student loan debt.

For Young Adults and Beyond:

• Fund a year of a credit monitoring service to protect their credit and financial identity from fraud.
• Purchase financial software to help them with budgeting and financial tracking (i.e. Quicken)
• Pay for a consultation with a Certified Financial Planner ™ (my personal favorite!).  This can help provide basic financial education and guidance for getting them set on the right financial path.

Giving a gift tied to financial education and support may not make you the hero of the holidays, but you can be certain that the gift will long be remembered as one that lasted long after the holiday decorations are put away for another year.

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Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Investments mentioned may not be suitable for all investors.