Top Alternative Funding Sources for College or Vocational School

Time flies, and before you know it, our children grow up to begin their careers as young adults. We don’t know what career they may pursue or if that future career even exists today. However, one of our duties as parents is to assist our children in making smart financial decisions to help them secure a brighter financial future.

Higher education may involve four-year college and possibly post-graduate studies. However, not everyone is cut out for the traditional approach, nor does every profession require it. Some students prefer or can benefit from the one or two-year programs that provide them vocational training and fast track them into the workforce.

Whichever path your child decides to take, they all require a financial commitment. Here are alternative funding sources for college or vocational school for parents and young adults:

Commit to Your Personal Savings

Kudos to the parents who start saving while their children are toddlers or some, even younger. Other parents find it easier to start saving later, and budget daycare and preschool costs towards college savings. How much do you need to budget for a five-year-old? Say the cost of daycare/preschool averages $200 a week. If you start applying that towards savings when the kid is five, you should accumulate enough to fund four years of state college costs assuming moderate investment returns and education cost increases.

Explore Investing Strategies

One option is to personally invest the funds in an individual or joint account. This gives the parents the most control in managing and distributing the funds to their children. 529 accounts are another option. They are state-operated investment plans for college savings, and they provide tax benefits. If your child doesn’t need all the money in the account, you might designate another beneficiary or withdraw the money and pay the penalty. Some states also offer another 529 account option, known as a prepaid tuition plan, which enables you to pay for state university education at today’s prices. However, it might not cover other costs such as room and board, computers and more.

Apply for Financial Aid

It’s estimated that three out of four full-time students receive some type of financial aid, including scholarships, grants and loans. The office of Federal Student Aid is a good resource for grants, loans and work-study programs. Federal programs may offer lower fixed rates and more flexible repayment loan terms than private student loans. Even if you think your child won’t qualify, apply anyway – You might be pleasantly surprised!

Regular Income

Your peak earning years often occur later in life and after many child-related costs have ended. Parents may have more disposable income and may handle college costs out of pocket. However, have a set plan if this were not to work out.

Student Contributions

Get your children involved in the financial aspect of their education. Apply for student scholarships – even the smaller ones add up fast. They can enhance their resume by taking special classes and working. Advanced Placement (AP) courses during high school may provide college credits, and vocational courses can help steer the student.

Tuition-Free Colleges

There’s a handful of schools that don’t require tuition. A few states, including Maryland, New York, Oregon and Tennessee, offer tuition-free schools with restrictions based on residency, household income or other factors. Other colleges waive tuition; however, they require some form of service requirements and may bill for room and board.

Enlist in the Military

The military offers a range of benefits. These include job training, enlistment bonuses, and academies that combine higher education and officer training.

It’s never too early to start saving for your toddler or teenager. Learn your options and discuss with your advisors the best course of action for you. Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal.

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The Financial Stages of Life

Life and money are entwined and it’s important that they are addressed together. Financial planning should be specific to personal financial goals and priorities. Yet there are common areas for most people – three major financial life stages that are defined more by financial, career and family situations. These life transitions are outlined below, along with relevant planning and investment strategies to discuss with your family and trusted advisors.

Starting Out

Typically, from the ages of 25 to 35, life’s journeys have just begun and this is where most encounter their first major life events. A challenge can be learning to develop priorities among competing goals. These include paying off school debt, exploring career paths and saving funds for a wedding, buying a home or car and planning to have a child.

Planning and investment strategies include:

  • Develop good financial habits – Budgeting, starting a savings account and deciding how you/your partner will make the financial decisions.
  • Debt reduction – Free yourself from school and credit card debt possibly using the “debt snowball strategy.” You payoff the smallest debt first and make minimum payments on the rest. Then you move on to the next smallest, and so on, until you’re debt-free.
  • Cash reserves – Build a rainy-day fund for emergencies equivalent to three to six months’ of living expenses.
  • Enroll in company benefit programs – These include insurance, retirement and education programs. An important investment strategy is diversification. This can be conservative or more aggressive, possibly using a target date or life cycle funds.
  • Network – Now is the time to find others who can help you with your decisions and planning. They include professional organizations, mentors and financial advisors.

Peak Earning Years

A person will generally earn more money from the ages of 35 to 55. Life events might include kids graduating, career advancement and personal development. This is the time to build your retirement accounts, business value and protect you and your family from future financial hurdles.

Planning and investment strategies include:

  • Funding college and trade school accounts – One of your options is including 529 plans or personal accounts to help fund your children’s schooling.
  • Minimizing income taxes – Take advantage of tax reductions using tax-free or tax-deferred investment vehicles such as 401k and HSA plans. Make effective use of your business structure and consult with your accountant.
  • Protection – Estate planning includes working with financial advisors and attorneys for wills, trusts, powers of attorney, entity structures and beneficiary designations. Review insurance for adequate coverage and cost competitiveness, income replacement, and property and risk exposure/liability.

Nearing Retirement and Retirement

People get serious about retirement planning around 55 to 65. Some life changes you will encounter are a career change, downsizing your home and being debt-free. Retirement can last two or three decades, and goals include maintaining your lifestyle, not running out of money, independence and transferring wealth.

Planning and investment strategies include:

  • Retirement assets – Accumulate sufficient wealth to last your lifetimes. Prepare forecasts of various scenarios including travel and discovery, maintenance and repairs, relocation, healthcare and assisted living with aging.
  • Business considerations – Develop and execute exit strategies if you own any businesses.
  • Maximize your Golden Years – Explore, enjoy and reflect. Prepare for the process and changes from aging. Share your wishes and expectations with family, build a network for living assistance and navigate healthcare. Prepare for the potential of losing your spouse.
  • Transferring wealth – Plan for transfers during your lifetime and after your death. Coordinate and collaborate with your advisors. Review and update trust provisions and successor trustee designations. Review your wishes for charitable giving.

Personal financial planning is an on-going process. These stages aren’t always performed in sequence, and some people might find themselves “starting over” depending on windfalls, career resets, divorce, etc. To avoid major complications, have a financial plan ready and stick to it, and review and adjust along the way.

Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal.

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Four Fundamental Investment Principles in a Down Market

We are currently in the longest U.S. economic expansion in history going on 122 months. We have had 107 consecutive months of job growth and the unemployment rate of 3.7 percent sits around the lowest level since 1969. The stock market measured by the S&P 500, the stock market index that tracks the stocks of 500 large-cap U.S. companies, is up approximately 20 percent year to date and home values are up. The stock market also has its risks – it can be volatile in the short run.

I’m not predicting a market decline but it’s in best practice to always be prepared. September 15 marked the 11th anniversary of the bankruptcy of Lehman Brothers and the beginning of the Financial Crisis. Angst and fear of the stock market falling by half crushed some investors, yet the S&P 500 now stands near record highs and has increased 450 percent since the March 2009 lows. So, while the sun’s shining and the seas are relatively calm, let’s do a lifeboat drill and discuss four principles that can help you manage in times of market turmoil.

Fear Can Drive Decisions

Why do some people sell their stock investments when markets decline and duck for cover, then wait for a magical whistle to blow signaling the coast is clear and buy after markets rise – sell low, buy high? It’s because we hate losing. Daniel Kahneman, a Nobel Prize winning psychologist, introduced the loss aversion theory in which he explains that people fear the pain of loss more than they enjoy the gains. This means that shying away from investments that are bad for our financial health is part of our innate survival skills. But it’s not all bad. We cannot ignore our fears and emotions, however, we can recognize that they can impact our investment decision making process.

Market Declines are Part of Investing

The capital markets have shown a permanent upward trend interrupted temporarily by market declines. This is part of the natural cleansing process. The good news is that based on the S&P 500 since 1949, corrections (10 percent or more declines) and bear markets (20 percent or more) don’t last forever. Declines of five percent or more occur about three times a year and last about 44 days, 10 percent declines occur about once a year and last about 114 days, and 20 percent or more declines occur once every seven years and last about 431 days. Market gains have historically been longer and higher, but bear markets and bad news tend to get more attention in the media.

Stay the Course – Be Prepared for Volatile Markets

Today, a young investor in her 30s and a mature investor in his 70s face the same market conditions. Yet why are their investment strategies different? They have different goals and stages of their lives. Setting a course is an important part of any journey and goals drive the investment strategy, not market conditions. It’s best to stick to the game plan, unless of course, your goals have changed requiring a possible reset of your financial plan and investment strategy.

Shop the Sales

Good “savers” know the benefits of saving early and consistently. A good example is deferring 10 percent or more of your pay into your 401(k) plan. If you’re making $4,000 per month, then $400 goes into your 401(k) (plus matching employer contributions). When market levels are high, you’re buying less shares. However, in down markets, you’re acquiring more shares (they’re cheaper). Over the long term, you pay less on average per share – this is called dollar cost averaging. A similar opportunity occurs for retirees. Some retirees tighten their belts and spend less when economic conditions weaken. Prudent investors are diversified and view their wealth similar to a pension plan. They can maintain their lifestyle regardless of economic conditions.

Successful investing is part art and part science. On one hand, modern investment strategy is rules-driven or evidence-based, whereby you diversify a portfolio to achieve an expected return given the desired level of risk. But it’s also an art. Earlier we introduced how emotions and biases can impact our decision making (e.g. most people hate to lose) and that we’re not always rational.  Also “risk tolerance” is an ambiguous term, it fluctuates with our mood (e.g. great date night versus driving by an accident) and it tends to decline as we age.

Two successful strategies include patience and riding them out and the other is to lose less when they decline and participate on the upside when they advance. Build confidence in your strategies and talk with your trusted advisors.

Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal.

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Essential Tips to Boost your Retirement Savings

When planning for retirement, it’s easy to say you will save more money, follow a budget or even invest. Yet, if there is no set plan in place, it can be the perfect procrastination recipe which often leads to financial stress.

Fidelity Investments, a leading workplace benefits provider, reported in their second quarter Retirement Analysis that a record number of account balances continued to increase across more than 30 million retirement accounts. The average 401(k) balance rose to $106,000 and the Individual Retirement Account (IRA) balance rose to approximately $110,000, which were both a two percent increase from the first quarter of 2019.

This is good news. It reflects the opportunity to impact the future. More and more American workers focus on funding their retirement, especially since most of us aren’t inheriting the Taj Mahal, some may be pensionless or fear Social Security benefits will change.

Here are some smart ways to increase your 401(k) balance.

Stay the Course

Retirement planning is for the long haul. Your money has to last approximately 20 to 30 years in retirement. Step one is to set a course – How much do you need to save to maintain your desired standard of living through retirement? That roadmap serves as a financial GPS (Global Positioning System). The second step is proceeding with your plan even when times get tough. Fidelity Investments reports that those who remained invested in their 401(k) plans for the 10 years following the Great Recession of 2008 saw their balances grow fivefold from an average balance of $59,900 to $305,900.

Start with the Defaults Then Adjust to Fit your Needs

How do you start? Many 401(k) plans automatically enroll new employees at a contribution rate of at least four percent and the funds are invested in a target date fund or managed account. This is to help reduce the chance the employee does nothing due to the uncertainty of how much to contribute or given a menu of unfamiliar investment options. 401(k) plans offer many benefits including tax advantages and providing you a “forced savings” plan by getting the funds into your retirement account before you have a chance to spend them.

Time Is One of Your Greatest Allies

The power of compound interest comes from your investment generating earnings which are reinvested to generate their own earnings. The earlier you start the better. For example, a 25-year-old investing $75 per month accumulates more funds by age 65 than a 35-year-old investing $100 a month – the projected accumulations at six percent annual return are approximately $149,000 versus $100,000.

Meet Your Employer’s Match

At a minimum, take advantage of matching contributions. For example, an employer might match 50 percent of contributions up to five percent of your pay. If you contribute $2,500 or five percent of your $50,000 salary, they’d match it with $1,250. That’s a 50 percent return on your contribution.

Save More

Increase your 401(k) deferral. Fidelity Investments reported that the average deferral rate is 8.8 percent. The maximum employee deferral limit for 2019 is $19,000 and workers age 50 and older can save an extra $6,000 for retirement. You may need to save more than the 401(k) limits to achieve your retirement goals. There’s no limit to saving and investing after-tax funds.

High Frequency Job Changers

Job hoppers may find they’re ineligible to participate in a 401(k) plan (e.g. the plan might require to be employed for at least 12 months). Their option might be to fund Individual retirement accounts (IRA), which have lower maximum contribution limits of $6,000 plus a $1,000 catch up if age 50 or older.

Consolidate

Do you have scattered retirement accounts possibly from former employers? Consider herding them up and consolidate them to an IRA or your current 401(k) plan. This reduces clutter and helps you give your retirement assets the attention they deserve.

Minimize Retirement Leakage

Avoid borrowing from your 401(k) plan. These funds are for your future versus your personal ATM. Repayment amounts can be expensive – a maximum of a five-year repayment period. Also, if you change employers, unpaid 401(k) loan balances might generate a tax bill. Fidelity Investments reported that approximately one in five participants has a loan balance and some of the common reasons are paying down debt (31 percent), home improvements (24 percent), buying a home or refinancing (21 percent) and paying outstanding bills (19 percent).

Ask for Help

Congratulations for recognizing the need to save money for retirement. The process can be overwhelming and it’s tempting to bury your head in the sand. Your plan might have 20 investment options. How much in savings is enough given the uncertainties of investment returns, inflation rate, taxes, life expectancy, other sources of retirement income, and the challenges of aging? How do you avoid common retiree regrets such as starting too late or saving too little? Don’t be afraid to ask for help. Use your resources including DIY (do it yourself) calculators and allocation tools, plan representatives and trusted advisors, and never lose sight of the goal in mind.

Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal.

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Here’s what to consider about financially helping adult children

The mindset we bring to our finances depend on various factors. A single person does not financially plan the same as a person who has children. When one becomes a parent, we often prioritize our children’s future before our own. Situations and relationships change and thus, a financial plan for the future should change as well. There are several factors to take into consideration when your child is in a life transition; where learning how to manage money can become a challenge, if you are not both financially prepared.

Picture that your daughter is a sophomore in college. She’s decided that she’s going to move out of the dorms and is going to pursue off-campus housing. Do you assist her with housing by co-signing an apartment lease, or possibly invest in a house or duplex that can be rented to her and her friends? What if your child is not attending college or has already graduated but needs assistance in buying a home? Do you help them make a down payment or co-sign the mortgage? What if you served as banker and they made the monthly mortgage payments to you?

Young adults may need financial help with their housing – down payment, co-ownership, financing the purchase, or qualifying as a lessee or borrower – and depending on your finances, you may have the fortunate position of being able to assist them. However, you should take into consideration that there are rewards and risks that come with it. Although you may want to help your child, you and/or your partner need to consider all the factors.

The Upsides

Financially assisting your children has many rewarding benefits for both parties. Benefit to your children includes helping them build good credit history, teaching them to be financially savvy and responsible. You will help them experience the pride of home ownership and the safety and comfort of a good roof over their heads. As a parent you may get the satisfaction of assisting your children, transferring wealth while you’re alive and even have the possibility of a good investment opportunity.

The Downsides

The downsides of financially assisting your children when they become young adults can be categorized into three broad areas – not holding up one’s end of the bargain (e.g. late payments, care and maintenance, etc.), adverse real estate market conditions and extraneous forces (e.g. job change, fire or casualty, legal actions, etc.). These downsides can negatively affect either of you and should be considered before making a decision.

Tax Issues

There are two issues you should consider before financially assisting your child which are gift and income taxes. Currently, you can annually gift $15,000 per person – free of gift tax. This means two parents can give a total of $30,000 to a child without incurring a gift tax. Additionally, if you’re gifting funds for a down payment on a house, you may need gift tax returns and/or gift letters. Lenders may want to track and source funds and hence, the need for a gift letter. Monetary gifts in excess of that amount could be subject to gift tax. However, keep in mind that you may utilize up to an $11.4 million lifetime gift exemption. Also, the Internal Revenue Service (IRS) can view a home in three ways – residence, vacation home or rental property. Rent received is generally income but the deductibility of expenses varies depending on how the property is treated and circumstances.

Emotional Considerations

Throughout this entire process, the main goal is to maintain harmony in the family. Financial entanglements can cause stress or unnecessary problems in a relationship. Remember the potential of “blood is thicker than water until it comes to money.” If you have more than one child, something you should consider is the issue of fairness amongst your children. Be aware of conditions being construed as “strings attached,” or resentment of putting your retirement on hold or trimming your lifestyle. And are you prepared to act decisively if a contract is breached?

With all these tips in mind to make the right financial move, always remember to talk it out and put it in writing. Have a discussion with your child about your expectations and concerns. Talk about risks and how they should be managed. Also, when you write out your plan, it becomes a business agreement with terms, conditions and consequences. It’s also important to get your advisors involved – they can help you think things through and help put things in your favor. Make it a valuable and cherished experience for your family without compromising your retirement or relationships.

Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal.

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Traveling through Retirement Years

When planning your retirement, there are many things to take into consideration. Retirement is not the same for everyone and while to some it is about freedom, having choices and independence, to others it may be about security, maintaining health or nurturing family relationships. Overall, travel always seems to play an important role in retirement. Traveling not only helps you stay connected with family and friends, but it feeds the spirit of adventure and helps you find a sense of purpose. Although many of us have daydreamed about the idea of traveling the world through our retirement years, how have you woven travel into your personal financial plan for retirement?

The Retirement Honeymoon Phase

Retirement has different phases and during the honeymoon phase, retirees immerse themselves in activities and projects they have always wanted to do but were too busy to do it before. These often include traveling, adopting a new hobby, volunteering and sometimes working “honey-do-lists.” Life remains busy but exciting! However, retirement can be one of the biggest transitions people make with shifts in purpose, routines, social circles and finances, and switching a mentality to go from a saver to a spender is probably one of the biggest transitions. Rather than being active and busy, some retirees tighten up and revert to college-like budgets afraid to spend savings because they don’t have a financial plan. Others struggle with their free time or they realize that golfing 24/7 leaves them unsatisfied; and they risk finding themselves bored or worse…boring.

Adding Travel to Your Retirement Budget

Traveling depends on your retirement plan. Planning can help you overcome two big financial challenges. The first is working out a retirement spending plan. A good financial habit is to periodically revisit why you are saving for retirement especially when times are tough. An unexpected expense can have a negative effect on your savings, or a bear market may send your wealth into hiding temporarily. In the meantime, control the things you can control such as saving, spending and diversifying. The curves will eventually straighten, and you’ll be back on track. While some retirement expenses are relatively constant (basic living expenses), others can be lumpy or retirement-stage dependent (travel, home remodels, repairs and replacement, health care and assisted living). The second involves maintaining your lifestyle regardless of the state of the economy. This means keeping your foot on the gas while others are braking. Maintain your travel plans in economic downturns – prices may be cheaper and the lines shorter. And a solid financial plan includes having sufficient and steady cash flow from investments, pensions, Social Security, etc.), liquidity or a rainy-day fund to handle emergencies or take advantage of buying opportunities, and little or no debt.

Retirement Travel Options

People have varying “travel appetites” from week-long vacations or adventure travel to full out road gypsies. Some will hit the road with road bikes, motorcycles or RVs. There is a big difference between a couple big trips and a more permanent life on the road nationally or overseas. All traveling involves research, networking and finances, and some require more specialty work including taxes, legal, health care, domicile/residency and more.

Some of the questions you should ask yourself are: What are you going to do with your home? Would you lease it, use it as an Airbnb or swap it? There are many resources online including community forums whether you are looking for a place or putting yours in a rental or exchange pool. Rick Steves offers house swap tips – some people enjoy it as a budget option, some include cars, but most draw the line at pets. For more information, visit www.Homeexchange.com, www.Thirdhome.com and www.Lovehomeswap.com.

Another unique travel opportunity is a volunteer vacation where you contribute skills and experience in the U.S. or abroad. It can be a rewarding blend of interaction, making a difference and cultural experience. There are numerous opportunities that require people with diverse skillsets. International Volunteer HQ offers over 200 projects, Global Vision International includes internships for potential career opportunities and the Sierra Club runs about 90 service outings ranging from one week to six months.

And finally, some travelers are very tech savvy and prefer to book their trips online. Retirees have the advantage of having time to shop and research and have flexibility on their traveling dates for last minute deals, off-season rates and mid-week airfare. Others however, value the guidance, budgeting and planning offered by professional travel agents or companies. You can find more information at www.Backroads.com, www.MythsandMountains.com and www.FriendlyPlanet.com.

Travel is not only an option but an important part of retirement. It can be an opportunity to rest and relax, adventure and explore, to make new connections and deepen those with friends and family, and help others. As Gustav Flaubert said, “Travel makes one modest. You see what a tiny place you occupy in the world.”

Happy trails ahead!

This article can also be viewed at the Reno Gazette Journal.

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Mid-Year Financial Check Up – Are You in Good Financial Shape?

What are your childhood summertime memories? Some may recall picnics on the beach and spending hours in the water, others reminisce long car rides on family vacations and many remember summer jobs. As we take a break and enjoy the sunshine, also take the time to do a quick self-exam and see if we’re on a good financial track within a few key areas:

Debt Reduction

Take a second and imagine the relief you’ll feel when you’re free of debt. Now, what if I said you can achieve that feeling sooner than you think? Paying off your 18 percent interest credit card is generally more advantageous than making minimum payments and investing the difference. Consider applying the “Snowball Method” to attack multiple debts (various credit cards, student loans, etc.) You start by designating a specific monthly amount in your budget for debt repayment then line up your debts in increasing order of balance owed. After you’ve reorganized, make minimum payments towards all of the accounts and apply the remaining amount in your budget towards the account with the smallest balance. Repeat the process until that account is paid off and apply the excess amount to the following account – hence, the snow ball.

Credit Rating

Keep this question in mind, whether you’re car shopping, hunting for a new job or refinancing your home: How’s my credit? Keep your financial house in order by checking your credit report. By law, you’re entitled to a free credit report every 12 months from each of the three rating agencies: Equifax, Experian and TransUnion. Always check for the accuracy of what’s being reported and take action to correct any mistakes. Visit www.annualCreditReport.com to request your free credit report.

Rainy Day Funds

A good rule of thumb is to always have an amount equal to three to six months’ living expenses stashed away in a competitive interest-bearing money market as emergency reserves or a “rainy day” fund. Or have enough saved to cover a year or two of living expenses, especially if you’re retired or have a fluctuating income. Your rainy day fund account may need to be “topped off” to replenish the funds used for your summer vacation, replacement vehicle or that pool table you’ve always wanted.

Tax Payments

Many people are not fond of surprises, especially when it comes to a larger than expected tax bill or an underpayment penalty. Some situations that may affect your tax filing status include the birth of a child, another child leaving the nest (no longer a dependent), marriage or divorce. How about a major transaction such as sale of a residence or business, bonus or stock awards or retirement payout? If any of these apply to you, then it may be time to schedule a meeting with your tax professional and adjust your tax withholdings and payments.

Retirement Savings

What are your plans for retirement and are you on track? Are you saving enough? Are you prudently invested to weather the periodic storms and to last you a lifetime of economic freedom, choices and not being a burden on anyone? Focus on taking maximum opportunity of company benefit programs including company matching contributions to 401k’s, maximum savings limits and catch up contributions. Also, don’t forget to review if you are you eligible to fund a Health Savings Account and are on track to fund the maximum.

Henry David Thoreau said, “One must maintain a little bit of summer, even in the middle of winter.” The warmth, fun and vivaciousness of summer help get us through the cold months and make us anxious for the coming year. Take a moment to assess where you’re at financially, adjust your plan as needed and don’t forget to celebrate the progress you have made. Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal.

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Tips for Parents and Students to Avoid Student Debt

The rising cost of college followed by poor education decisions can lead parents and students into a financial hole. With increasing tuition rates, even for public universities, investing prior to your childrens’ college expenses is an important factor to make the experience more affordable while trying to avoid debt. A recent study shows that from the late 1980s to 2018, the cost of an undergraduate degree has risen by 213 percent at public schools.

Mountains of student debt, deferred or underfunded retirement and misaligned career interests are only some of the severe financial consequences that can occur if parents and students don’t plan well for their future. Student loan debt represents the largest chunk of non-mortgage debt in the U.S. According to the Federal Reserve, the national student debt is approximately 1.6 billion dollars with the average student debt sitting at $37,172.

avoid student debt

The debate’s expanded from self-choice and accountability to making college education free and implementing student loan forgiveness. Currently, New York State is home to the nation’s first accessible college program where more than 940,000 middle-class families making up to $125,000 per year will qualify to attend college tuition-free at all CUNY (City University of New York) and SUNY (State University of New York) two- and four-year colleges per the Excelsior Scholarship. Bill Gates has even invested 1.7 billion dollars to try to fix the U.S. education system.

In the meantime, rather than speculating on the best way to fix the spiraling cost of college, how about doing something within your and my control – let’s avoid getting into or minimize our student debt.

Here are some helpful tips to avoid the student loan burden:

College Savings Plan

It’s never too early to start saving for college, so start now. Think about your options and decide if you can invest in your future by deferring college for a few years. If your child (or you) are already attending college, consider working simultaneously to reduce stress after graduation. Being a college student and working takes a lot of organization but prioritize your financial future and it’ll go far in helping you stay out of debt.

Choosing Your Career

Not all careers require a college education. Plan as far in advance for any career changes and go to college for the job you want to have. If college isn’t for you, there are less expensive career education options you can consider that don’t require a college degree.

Undergrad vs. Graduate School

If your goal is to attend grad school, then why not get your undergraduate at a reasonable cost? Consider saving money you would spend in a four-year university by completing the early years at a community college. This will take additional research on transferable credits, however, it may save you a significant amount of money and will help you avoid taking out large amounts of student loans.

Trade or Vocational Schools

There are plenty of fulfilling and rewarding careers that don’t require a degree. Trade and vocational schools help students develop a marketable skill that lead to successful careers in the workforce. Forbes identified 20 well-paying jobs including administrative service managers, construction supervisors, wholesale and manufacturing sales reps, electricians, plumbers, medical techs and more that don’t require a college degree.

Apply to Scholarships and Grants

Never settle and always explore your options. No two scholarships are the same and there are many scholarships/grants that are being unused due to a lack of applications. Some programs are merit-based, others are needs based and more are available after completing your first year of college. The possibilities for college scholarships are endless and there are many helpful sites that can research all U.S. scholarships available – for free!

Stick to Your Budget

Budgeting is a priceless life skill regardless of the amount of income you earn. It can be a simple spreadsheet or an online tool such as YNAB. Keys to budgeting include knowing where your money goes as well as reserving for future expected expenses and “surprises.”

Get Roommates

Although moving away to college or moving into the dorms might be fun, living costs are cheaper when you’re living at home or with roommates. Living off-campus might be more advantageous economically and will reduce dorm distractions.

Plan for Graduation

An estimated six out of 10 four-year college students don’t finish on time. Worse yet, those are students who pay the expense but don’t earn their degree. A prolonged college career from switching majors costs you in two ways: added expenses and lost earnings. Speak to guidance counselors and professors to get you on track to graduate.

High school students are expected to know what they want out of life, however, even at 25 they’re still trying to figure things out. Secure your life wisely by avoiding student loan debt today and 20 years from now. When you’re with a group of your colleagues having a drink, don’t forget to ask this question: “What did you major in college and what are you doing now?” Life is easier when you plan, budget and hold yourself accountable.

This article can also be viewed on the Reno Gazette Journal.

For additional insights on how to budget and pay for college, take a listen to NPR’s “Paying For College: What To Know Before You Go.”

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Interest Rates A-Comin’. The Ins and Outs of Debt.

The level and trend of interest rates impacts each of us differently. Generally, lower rates benefit us by stimulating the economy, equity and real estate investments. Borrowers are also big fans of lower rates. You can reduce your payments and possibly shorten your loan payoff date by refinancing. Or if you’re making a major purchase – car, home or business acquisition – you might be able to borrow more. However, re-read the prior sentence and reconsider before taking on new debt.

Here are four areas to consider before taking on new debt:

All rates aren’t equal

The news about the Feds raising or lowering interest rates may be misunderstood. Federal Reserve officials determine the federal funds rate – which is only the overnight interest rate that banks charge each other when doing inter-bank lending, in order to meet the required reserve levels. Changes impact short-term and variable (adjustable) interest rates – e.g. Certificate of Deposit (CD) rates, lines of credit and even some car loans. However, they don’t set mortgage rates that you’d be interested in for your home or an office building, for example. Those rates are determined largely on the secondary market where mortgages are bought and sold, and factors related to you – credit scores, home mortgages, down payments or equity, and loan terms. For example, the federal funds and prime rate for the year to date remain unchanged; however, the 10-year treasury yield has dropped about 0.7 percent.

Could housing be more affordable?

An important part of affordability is the determination of house-buying power: how much you can buy based on changes in household income and fixed 30-year mortgage rates. Lower interest rates should increase buying power. Using some national figures – the average 2018 household income of $65,400, five percent down payment, and a 4.5 percent 30-year rate – the consumer house-buying power was $372,060. Now, assuming a 0.5 percent mortgage rate decrease, house-buying power jumps by more than $20,000 or 5.8 percent. However, in hot real estate markets, that gain may be lost to escalating home prices.

Budget savings from refinancing

Mortgage applications are up about 15 percent from the prior year according to the Mortgage Bankers Association. This has been driven by refinances which are up about 31 percent annually as homeowners have taken advantage of lower interest rates. Here’s an example. Assume you have a 30-year mortgage of $250,000 and principal and interest payments of $1,419 a month. If rates were one percent lower and you refinanced, your payment would drop to about $1,266 and save you about 15 percent in interest payments over the life of the loan. Alternatively, you could refinance and maintain the same monthly payment and payoff the loan six years sooner, saving you about 39 percent in interest expense.

Be smart with cash outs

Real estate owned by U.S. households totals about $25 trillion. Net homeowner equity totals about $15 trillion after $10 trillion of mortgage debt. Home equity is an idle asset and available only if you sell or borrow against it. People can tap into home equity by taking a cash-out refinance. Freddie Mac estimated that the average “cash-out” borrowers increased their loan balance by five percent and represented 83 percent of all conventional refinances (Freddie Mac’s Quarterly Refinance Statistics, Fourth Quarter 2018). Cash-outs in the fourth quarter totaled $14.8 billion, down from $20.4 billion a year earlier, and significantly down from the peak quarterly cash-out of $104.8 billion in the second quarter of 2006.

This resembles a little déjà vu or scenes from the movie “Groundhog Day,” where some used their home equity as a personal ATM and the Great Recession hit. There are absolutely prudent cases or emergency needs for cash-outs where you need to finance something instead of using more expensive credit cards. But why would you turn a new ski boat that you’ll resell in 5 years, kitchen appliances, or wedding or college expenses into a 30-year debt? Instead, how can you be a savvy borrower and lower your interest expense over the long term and not risk your long-term security?

Perhaps design an aggressive debt repayment schedule or help your kid find a less expensive school that won’t put you/him/her in debt. An ancient proverb goes: “There are four things every person has more of than they know: sins, debt, years and foes.” Debt can be a menace, but it also can be a tool.

Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal.

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Learn How To Be Financially Prepared for a Natural Disaster

Why do people build or live in areas prone to natural disasters such as flood, hurricanes or wild land fires? This was the topic of conversation for a former Federal Emergency Management Agency (FEMA) Chief, Brock Long, at a recent financial planning conference. Mr. Long helped lead the development of a new emergency management road map for FEMA which included building a culture of preparedness which included financial wellness. He led through two tough years of some of the worst natural disasters – Hurricanes Harvey, Irma, Florence, Michael and Maria, and the California wild land fires.

Emergencies happen and FEMA and other agencies respond with community lifelines including safety and security, food, water and shelter, health and medical, power and fuel, communications, transportation, and more. However, individuals need to be prepared financially as well.

Most families don’t have $1,000 in savings to cover an emergency per Bankrate’s January Financial Security Index. About one in three respondents said they or an immediate family incurred at least one major expense in the past year and 36 percent of those said the largest unexpected bill was $5,000 or more. In addition, suppose you lost your home to a disaster – lost all possessions, had no insurance coverage and turned to FEMA. Did you know that the average FEMA grant to victims is $3,000 to $4,000 (to replace the house and contents), the maximum grant is approximately $33,000, and the homeowner still needs to pay off the mortgage? That’s a band-aid at best.

learn how to be financial prepared for a natural disaster

Many people live in disaster-prone areas because they have the belief that they won’t get flooded or a tree won’t fall on their house – “bad things don’t happen to me; they happen to other people.” Similarly, people assume life transitions such as job loss, illness, divorce, and death only happen to others. We like to believe that we make rational and logical decisions. However, we’re also human and thus can make decisions based on emotions or biases. We are rationally irrational. This type of cognitive bias that can distort our thinking – tree won’t fall on me – is called the optimism bias. We can overestimate the likelihood that good things happen to us, and understate the probability of negative events. Experts say we can’t always avoid our biases; however, we can be aware they exist, and they can lead to poor life decisions.

So, how can we be better prepared financially to achieve our goals in life, and protect us for the possibility of storms in our path?

Have a written plan

A comprehensive financial plan serves as your road map reminding you of your desired destination, the actions required to get there, and a process on making the occasional detour along the way. It also gets reviewed and updated.

Build emergency reserves

Sixty percent of people in the Bankrate survey did not have $1,000 in savings. Faced with a $1,000 emergency expense, 15 percent said they would put the charge on a credit card, 13 percent said they would borrow from a friend or family, and six percent said they would take out a personal loan.  Emergencies happen and building a rainy-day fund through budgeting can help keep household finances on track. Funds can be held in a savings or an online money market account paying competitive interest rates, or you can secure your cash in a safe place.

Maintain insurance

Have the right insurance coverage for the hazards you may face. Periodically review your plan as your situation may change and make sure it is competitively priced. Mr. Long also recommends reviewing flood and earthquake coverage. More damage is caused in a hurricane from rising water than by wind, and Mother Nature doesn’t recognize flood zone maps. Also, protect your earning potential with adequate disability and life insurance.

Diversify

This applies to investment strategies and developing multiple sources of cash flow. We have been drilled not to have all our eggs in one basket to (a) earn the required return to achieve our goals and (b) “smooth” those returns – trade “never make a killing” for the eternal blessing of “never getting killed.” Also diversify the cash flow sources whether it is in business, having a side gig, or multiple checks in retirement (Social Security, pension, IRA distributions, etc. and subject to various tax treatments).

Realistic expectations

Recognize that life changes (life stages and transitions, and business and market cycles) and adjust accordingly. For example, next month will mark the longest modern-day expansion but it has also been the weakest (cumulative post-recession GDP). Forecasters predict lower returns.

I respect the former FEMA Director’s push for Americans to develop a true culture of preparedness. I also better understand the frustrations of “the tree won’t fall on me” realities – outdated building codes, living in New Orleans without flood insurance, lack of three days of supplies, and those with “liquidity time bombs.” One of our roles as financial advisor is to continue to educate and nudge on best practices.

This article can also be viewed at the Reno Gazette Journal.

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