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Thursday, December 20, 2012

Christmas Spending Tips

“Man, December is an expensive month”.  I hear that quite a bit when it comes to people planning out their monthly cash flow.  With 6 people in our immediate family I have repeated this phrase a few times myself.  In the last few years, however, I have started to get a little smarter as the grey hairs become more prevalent-especially when it comes to planning out the family Christmas gifts.

Here are a few of my recent Christmas gift revelations:

·         Come up with a gift giving game for the adults in the family.  This solves the problem of buying a gift for everyone.  We usually make a game so one adult is buying a gift for another adult so we are all only purchasing one gift.

·         Write down who you are purchasing for and how much you would like to spend per person.  For us, this includes the nieces and nephews and our own four children.  We have found this keeps the gifts somewhat “even” for our kids and also stops us from overspending when we physically see the amount that we spend per child.

·         Save up and/or use your gift certificates and look for deals throughout the year.  When you do buy a gift before the Christmas season make sure you write it down on your list.  We have forgotten this step and found a “Christmas gift” for our daughter the following July.

·         Have fun making some gifts with the kids.  We have an annual tradition of making some gifts for the grandparents.  The kids love making them, enjoy giving them to the grandparents and we create some memories along the way.
Merry Christmas!

Tuesday, October 30, 2012

Thoughts on Selling a Home

After a 7 year hiatus, we were re-introduced to the home moving process this past summer when we sold our current home and purchased a new home for our family.  The craziest part about the process is that once you finally understand all of the nuances of the process, your move is complete and off the mental radar until if/when it ever happens again.  Here are a few things I learned about selling along the way:
·         Make sure you are ready to sell.  Don’t have the “we may move if we sell our house” attitude that we had.  You have to be mentally prepared and have your house physically ready to show.

·         Stage your house.  Especially with four kids, the clearing of furniture and clutter really paid off in the end.  The showing time period of the process is hectic on the family, but if you really want to move it will be worth it in the long run.

·        Fix the little issues in the house.  If you are serious about selling, you need to do the $100-$200 projects that have been nagging for a while.  Prospective buyers will notice and be turned off if they are not complete.  Or you will pay double for the repairs once they are found during the inspection.  Fix the paint job here or the leaky faucet there.

·         Price your house competitively right off the bat.  Realtors have always said this and now I believe them.  Price to sell when your house is most appealing—when it’s new to the market.

Monday, September 24, 2012

EFC Could Be as Important as ACT

If you have a middle or high school student, I am sure you already know the importance of the ACT exam for college admissions.  A good score helps in acceptance to desired schools and also opens the door to financial assistance with tuition and other expenses.  Preparation time for this test has a big potential payoff.  While our students are preparing for the ACT, parents should begin preparing for “the EFC”.

Expected Family Contribution (EFC) is a formula used to determine how much of a family’s income and assets will be used for annual college expenses.  The higher your EFC, the more you will pay out of pocket.  EFC is calculated from the information provided on the FAFSA form.  Many families mistakenly assume this is only important for government based financial assistance.  Most colleges and universities also distribute financial assistance from their own private resources using the EFC (or a variation).  It is important to avoid common mistakes that can inflate your EFC.

·       Do not have accounts in the student’s name.   Individual accounts or UTMA accounts increase EFC more than any other type of asset. 
·       Be aware that the student’s earned income will inflate EFC.  Unfortunately, students who work hard and earn money could be penalized. 
·       The following financial transactions will increase your EFC:  Realized capital gains, Roth IRA conversions, sale of property or business, or IRA distributions.  Try not to time these transactions so that they occur in the calendar year prior to your student’s enrollment.  Also, if you plan on using proceeds from stocks or mutual funds to help pay college expenses, consider selling these assets while the student is a sophomore if there are capital gains. 
·       The following financial transactions will decrease your EFC:  Realizing capital losses, paying off credit cards or auto loans, moving the student’s assets into 529 plans, maximizing your IRA, Roth, or 401(k) contribution.
Retirement accounts such as IRA’s and 401(k)’s do not count in the EFC formula.  The contributions made in the prior calendar year do get added back into your income causing your EFC to increase.   Also, if you have a major purchase in the near future, you might consider making that purchase just prior to completing your FAFSA if you are able to use existing assets.

Do not ignore the importance of this type of planning.  Some simple steps can take pressure off the family budget and reduce the need for student loans.  Ideally, parents should start reviewing this four to five years prior to their child’s enrollment.  That being said, it is never too late to start.

Monday, August 27, 2012

Social Security Benefits

If you’ve recently updated your financial plan with your advisor, hopefully you did not forget a key component of that plan – social security benefits.  With historically secure retirement plans (such as employee pensions) becoming more and more rare, retirees are realizing the need to become more creative with their social security benefits.  Gone are the days where soon-to-be retirees automatically wait until full social security retirement age to start receiving benefits.  Now these baby boomers should be asking questions such as:

·         If I start social security at age 62 what is my breakeven point vs. waiting until full retirement age? 

·         What if I am full retirement age and still working, but my spouse is eligible for benefits and not working? 

·         How does it affect my spouse if I start my social security retirement benefits earlier than full retirement age? 

·         How does it affect my benefits if I was previously married? 

·         Should I take social security retirement benefits before full retirement age if I am still working? 

·         I don’t get a statement in the mail anymore, how do I find out what my projected benefit will be?

These are just some of the many questions that should be answered as you prepare your spending plan during retirement.  Remember that most non-tobacco using married couples are preparing for a 20-30 year retirement for at least one of the spouses.  Wouldn’t it be best to be efficient with the money you worked so hard to earn for the previous 30-40 years?

Tuesday, March 13, 2012

A Life Lesson

Have you ever paid attention to how much specific health procedures cost?  Have you ever asked?  Have you ever looked at your bill or explanation of benefit statements?  Recently one of my children was suffering from ear infections and it was decided that we would get tubes put in his ears.  This did not seem like a huge deal to me, but since we have a high deductible health insurance plan with a health savings account I did not want any surprises and decided to investigate. 

Our ENT doctor informed us of the days and locations he performed his procedures and I hit the phones to find out when and where my son would have the procedure.  My findings were eye opening to say the least.  First of all, I was to receive three bills: one from the location of the procedure, one from the ENT and one from the anesthesiologist.  No issue here, except for the fact that the person performing the actual procedure was getting paid the least! 

Then, when it came to the location of the procedure I was informed the cost for the facility alone would be between $1000-$2000 if it was performed at the hospital downtown and half that cost if performed at a surgical center on the outskirts of town.  Wait, were they telling me that I could pay half the cost and not even have to deal with the parking of downtown?  Sold for half price at an off campus location.  I have since made many more phone calls for the more recent medical procedures my family has needed and have had similar epiphanies. 

What if I hadn't made that first phone call to see what procedures cost?  What if I didn't have a high deductible health insurance plan to entice me to find out the costs of medical procedures?  What if more people had the mindset of finding out medical costs the same way they find out the costs for other commodities like appliances, clothes, etc?  Would it help change the medical and insurance costs across the board?  Who knows, but it certainly reaffirmed my decision to have a high deductible health insurance plan with a health savings account and changed the way I shop for medical care.