10 Things New College Grads Should Do to Plan Their Financial Lives

The Class of 2010 is stepping into an uncertain job market with big financial responsibilities. The College Board reported last August that based on 2008 figures, one third of all bachelor degree recipients had college debt exceeding $20,000, with 6 percent owing more than $40,000.



Yet every college graduate, no matter how much they owe, possesses the most valuable asset any adult has when it comes to money, and that’s time – lots of it. The average 22-year-old college graduate has 43 years to plan for retirement at age 65. And if they decide to work until age 70 (the starting date many experts now recommend) that span goes to 48 years. Those years can allow for plenty of time to set goals, make decisions, correct problems and accumulate assets.


With that in mind, smart grads might consider the following once they grab that diploma:


1. Start by talking to a financial planning professional: A visit with a financial planner is a great “clean slate” move. A one or two-hour meeting with a CFP® professional can you examine your current finances including college debt and what it will cost to live independently. You’ll also get the chance to establish and start a plan for all your long-term goals leading up to retirement – that would include travel, buying real estate, planning for a family or even a trip back to graduate school. The best planners are also a great sounding board for job decisions as they can help you evaluate how a potential employer’s pay and benefits offerings fit into your overall plan. You can find a planner in your area by visiting www.PlannerSearch.org.

2. Start saving for retirement immediately: You might not have $5 to your name after graduation. Or you might have gotten a nice little pile of graduation money that’s burning a hole in your pocket. Save some of it for celebration, but give some thought to investing in your first IRA and plan to start contributing to it on a regular basis over time, even if it’s only in small amounts for now. The 2010 contribution limit for taxpayers under 50 years of age to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for the year. The amount can be split between a traditional or Roth IRA, but the combined limit is $5,000. And the moment you qualify for an employer 401(k) plan, contribute the maximum, particularly if your employer matches.

3. Think used: The Great Recession has reset the consumer mindset considerably over the past couple of years. There are reasons to spend money for higher quality items that make sense – a good suit to impress a future employer or clients, for example. But there’s no reason why a well-maintained used car can’t work for a few years (unless there’s a good mass transit option) or your first apartment can’t be furnished at garage sales, auction sites and thrift shops. Of all the things you might need or want, ask yourself: Do you really need to buy new? If so, hit the dollar store.

4. Track that spending: Ongoing budgeting is crucial for a lifetime, not just the first few years after graduation. Whether you have a paper-and-file-based system or you go with paid or free online options (like Mint.com), make it a policy to do weekly tracking of spending, saving and investing.

5. Even though you’re young, you need insurance: If you’re single, it’s not time for life insurance, but you must have auto, rental insurance and yes, disability insurance. As for health insurance, there’s some good news if your employer won’t cover you immediately – under the new federal health care reform law, you’ll be able to stay on your parents’ health care family coverage until age 26. If you’re driving an older car, determine whether you need to keep collision coverage on it. Don’t forget renter’s insurance because a break-in can cost you thousands of dollars. If you’re driving a used car, you may not need to keep as much collision insurance on your car. Don’t forget to insure the contents of your apartment – one break-in can cost you thousands of dollars you don’t have. And check your employer’s disability coverage – it might be a good idea to buy separate disability coverage that you can raise the limit on over time. Think of how losing a paycheck for six months or more would hurt your finances.

6. Start an emergency fund: Everyone should have money set aside in a safe place to cover up to six months of basic living expenses if you become ill or lose your job. If you have to start the fund by cutting back on coffee and after-work drinks, do it – then put that money in an interest-bearing account you promise not to touch in case there is a genuine emergency.

7. Get some tax help: Some folks are really good doing their own taxes, particularly if their finances are very simple. But over time, it’s a good idea to get qualified tax help because these professionals, like financial planners, can not only help you spot opportunities to save money, but ways to save and invest that might leave you with more money in the long run.

8. Stagger your credit reports – and make sure they’re free: You have the right to receive a free credit report from the three main credit reporting agencies once a year to check for inaccuracies and the risk of I.D. theft. Keep in mind there is really only one place you can truly do this for free and the web address is www.annualcreditreport.com. This website is sponsored by the three credit reporting agencies, TransUnion, Experian and Equifax, so you won’t be asked for a credit card number. Also, don’t order all three reports at one time – stagger them throughout the year so you’ll be able to catch any threats or inaccuracies that pop up.

9. Learn to check those investments: Many workers choose specific funds or fund categories in an IRA or 401(k) plan and go to sleep for a bunch of years. Don’t let that be you. That’s one of the great reasons to have access to a financial planner because you can examine all of your investment choices on an annual basis and determine whether they still fit your age and goals.

10. Read: Learning about investing is personal. While planners and tax professionals can be an enormous help to your financial future, their work doesn’t take the place of the investigation all investors need to do before making financial decisions. With the Internet, it is easier to learn about the economy and investment and savings news than ever. Set aside a portion of time each day to do so.

April 2010 — This column is provided by the Financial Planning Association® (FPA®) of Puget Sound, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Puget Sound if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

Does It Make Sense to Sell a Sizable Life Insurance Death Benefit For Cash?

One of the most important decisions about any investment asset is the end game – how it will be sold or passed on. People don’t always think of life insurance as an investment or an asset, but during this tough economy, there’s much more talk of various transactions that will turn life insurance into cash. In some cases, these options are good ideas. But it’s important to get advice first.



At one point, the buzzword was “viatical settlements,” a practice of selling one’s active life insurance policy to a company that would pay the insured the estimated present value of the death benefit so uninsured healthcare costs and related expenses could be paid. Such settlements grew in popularity during the 1980s AIDS crisis, when insured individuals, mostly young men at the time, desperately needed funds for what was at the time an almost guaranteed immediate death sentence. That business eventually attracted some unscrupulous dealers.


Yet these policy sales opportunities remain for seniors, either as viatical settlements, if the holder is not expected to live for more than two years, or as a “life settlement” that essentially sells the policy to an investor in exchange for a cash amount. A financial advisor or a tax advisor should be consulted first to determine the tax treatment for either transaction – generally, viatical settlements are not subject to income tax but life settlements are.


A life settlement is usually made through settlement brokers to investment companies for amounts that potentially could be far greater than their surrender value to the insurance company. The amount a policyholder could get depends on such factors as age, gender, overall health, actuarial factors like life expectancy and whatever cash value the policy has. The buyer typically takes over the payments on the policy if more payments are due.


A financial planning professional can be a first step in getting you the advice you need on whether to accept any offer to buy an insurance policy. Here are some steps to consider:


Is there any other source for the cash you need? Life insurance has a purpose. It is there to protect your family’s assets in case you die. Elderly policyholders may have other alternatives like home equity loans or to tap the loan value on the life insurance policy, which would leave the coverage in force. It’s important to check with a CFP® professional to weigh the pros and cons of borrowing against any life insurance policy and it’s particularly important to see if the rate the insurer charges is lower than the insured may be paying on other debts.

Is it legal to sell a life insurance policy to a settlement broker in your state? Unscrupulous players are forcing more scrutiny on the life settlement business in various states and Congress as well. A call to your state insurance commissioner might be a good idea as you start your investigation. Keep in mind that the life settlements business is controversial and there may be efforts underway in your state to scrutinize these transactions, which could slow or stop your plans.


What impact will such a settlement have on your taxes? Depending on the laws in your state and your own circumstances, you might end up paying considerable taxes on the gain. Check with a reliable tax expert first.


What about your heirs? Will they need the death benefit? It’s worth talking to family about such a move.


Will your settlement be higher than the surrender value of the policy? In some cases, it can be significantly lower.


What effect will this decision have on the rest of your estate? Granted, most people who attempt such a decision may have exhausted other assets, but it’s important to do a full review of one’s finances to see how a life settlement decision may weigh against other financial realities.


April 2010 — This column is provided by the Financial Planning Association® (FPA®) of Puget Sound, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Puget Sound if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

Plan Your Family’s Summer Vacation at Bargain Rates

The U.S. economy may be recovering, but spenders at all levels are hanging onto their wallets. And travel experts say the vacation deals available last year are still going to be around for stingy travelers this year.


Here’s why. A March Gallup study reported that upper-income spending (households making more than $90,000 a year) dropped to a new low in February. That’s meaningful for everyone since wealthier travelers tend to support higher prices on virtually every type of goods or service. Mintel, a marketing research firm, reported in February that while slightly more people will be vacationing in 2010 than 2009, most tourist spots won’t be raising their prices and in some cases will be offering bigger deals.

With that in mind, here are some ways to save on travel this summer:

Go online: Yes, there are a few leading travel websites where you can do price checks, but if you have specific destinations in mind, go to comparison sites to see what the best rates might be across hotel and transportation choices. And then follow up online or by phone with the hotels, cruise, rental car and airline companies to see if they’re offering special deals and discount codes to save more. Also, if there’s an airline, rental car or hotel chain you frequent, make sure you’re a member of their point clubs and social networking sites to earn points and get timely discount information.

Go all-inclusive: If they exist where you’re going, head for the all-inclusive air/hotel/rental car packages whenever possible because making your reservations a la carte will almost always cost you more.

Fly standby: This is a bit tougher with family or during peak travel times, but flying standby – essentially waiting for seats to open up on an unfilled plane within minutes of takeoff – can allow you to fly at a discount. But this practice requires flexibility and an ability to improvise in similar fashion when you get to your destination.

Do a home exchange: One of the best ways to cut a hotel bill is to simply avoid staying in a hotel. An increasing number of websites – including HomeExchange.com, which bills itself as the world’s largest home exchange club – allow you to stay in someone else’s home while they stay in yours. It makes good sense to research the terms and conditions of these arrangements and talk to people who have shared homes before you commit.

Go where summer is the off-season: Admittedly, it’s tougher with kids since they can only travel when school’s out, but if you can schedule flexibly, start traveling out-of-season all the time. Vegas and Aruba might be hotter than blazes in July, but you’ll save money on hotels, meals and other expenses that dip in price when the crowds are low. For family friendly venues, you might want to check prices on the edges of summer when schools are still letting out or going back into session.

Consider a staycation: Cash-strapped states are working especially hard to boost in-state tourism business. Check out your home state or city’s tourism website for coupons and other discounts. Also, sign up for e-mail from your local transit agencies and check their websites – you might hear about special deals at local museums or parks and free parking sites where you can leave your car before you pick up the train or bus.

Check out your motor club: Major organizations like AAA negotiate good prices on popular tourism locations around the country, even places like Disney World. Again, even if you don’t have kids, check your motor club’s offerings on hotel, destination, rental car and even train discounts.

Save money on food while traveling: There was a time when families traveled with a picnic basket full of sandwiches and a thermos. Those days might be returning. It’s also not a bad idea to ask for a hotel room with a kitchenette or a microwave where food from the grocery or leftovers from the previous night’s meal might be warmed up.

Leave or return on a Monday or Tuesday: Play around with the days of the week that you can schedule your trip just to see if you can find significant savings on hotel and airfares. Fighting to get home on a Saturday or Sunday can cost you money.

Pinch those gasoline pennies: If you’re driving your own car on trips, focus on maintenance and when and where you’re buying your gas. Keep your tires inflated and make sure your engine is in good shape for maximum fuel economy. Also, don’t carry tons of stuff – heavier cars burn more gas. Consider joining a wholesale club that sells their own gas onsite – you might save a considerable sum not only at home, but in out-of-town locations where you’re staying (hit the Internet and check before you go). Also, buy gasoline mid-week when prices generally stabilize from spikes entering the weekend and starting the workweek. Last but not least, buy gas when daytime temperatures are lowest. Why? Because during cool hours, gasoline is densest and packs more fuel power.



April 2010 — This column is provided by the Financial Planning Association® (FPA®) of Puget Sound, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Puget Sound if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.