FPA of Puget Sound

How to Evaluate a High-Deductible Healthcare Policy

2011-01-04T11:44:00.000-08:00

According to an August survey from America’s Health Insurance Plans, an industry trade group, as of January 2010, 10 million Americans were covered by high-deductible health plans with a health savings account (HSA) feature. That’s up from 8 million in January 2009 and 6.1 million in January 2008.

A 2008 report by the Kaiser Family Foundation and the Health Research & Educational Trust pointed out that the number of workers with high-deductible plans has nearly tripled in firms with fewer than 200 employees between 2006 and 2008 to a total of 11.7 million.

The advantage? These companion policies allow individuals and families to keep monthly premiums relatively low while being able to deposit pre-tax dollars into its companion HSA account that allow account holders to use those pre-tax dollars to pay out-of-pocket medical costs. Earnings on those accounts are also tax-free as are withdrawals used for qualified medical expenses.

But is this choice right for you? Here are some considerations:

Numbers you need to know: HSAs are only available with qualified high-deductible health insurance policies. To get the combo, you must be enrolled in a qualified health insurance plan with an IRS-required deductible of at least $1,200 for an individual or $2,400 for a family. This year and in 2011, individuals may contribute a maximum of $3,050 to an HSA and families can deposit up to $6,150.

Assess the health plan properly: Check lifetime limits for claims (don’t go under $5 million) and make sure the health plan provides first-dollar coverage on preventative care because the new healthcare law requires it. Regular preventative care may end up in significant savings. If you have a particular health history, it may be tougher to qualify for that insurance.

Note the fees: HSA accounts are offered at banks and other kinds of financial institutions. You’ll be charged a onetime setup fee of anywhere from $25 to $75 and annual fees that might be as much. Since these are investment accounts, fees might potentially eat up any gains you’ll earn, so keep them as low as possible. While many employers pick up these fees, self-employed people are generally stuck with them.

Check the investments: Assess the investments in your HSA just as you would a mutual fund or CD (you’ll have a range of investment choices). Whatever option you choose, check what commercial returns are and see if your investment will be competitive. But remember that this account needs to be something of an emergency account to cover your deductible and any other medical costs. So you’ll have to balance higher earnings against safety.

Keep good records: It’s important to track all medical spending from these accounts and to make sure they’re qualified. That’s a particularly important thing to do with upcoming changes due to the health reform law – non-prescription medicines won’t qualify after January 1. Also, weigh carefully the decision of asking a doctor for over-the-counter antacids and pain relievers – some health insurers may accuse you of failing to report a pre-existing condition, which could lead to them dropping your coverage.

Price procedures: If your HSA is going to cover any uninsured procedures or uninsured portions of healthcare costs, make sure you’re comparing costs for procedures. It’s always OK to discuss prices for various procedures with doctors – and to walk away from doctors who won’t discuss them. There are also online resources that might help you make a decision including Healthcare Blue Book [http://www.healthcarebluebook.com/page_Default.aspx], a nationwide site that offers averages on hundreds of medical, dental, laboratory test, surgical and medical equipment costs by zip code. At the very least, these services offer ways to start the pricing discussion.

Watch how you spend HSA funds: Health care reform in Washington has changed the rules on what may be paid for out of funds in HSAs as well as flexible savings accounts. As of Jan. 1, 2011, over-the-counter medications will no longer be considered eligible medical expenses, and the IRS has a full list. Also, there are some insurance premiums that may be eligible medical expenses, including some long-term care insurance plans.

December 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.

Set your Money Resolutions for 2011

2010-12-14T09:33:00.000-08:00

The holiday season brings considerable focus on money issues. People are generally spending more around this time of year, and if one’s financial circumstances are precarious, it’s a time of considerable stress.

In fact, the American Psychological Association’s Stress in America survey, released last month, revealed that money (76 percent), work (70 percent) and the economy (65 percent) remain the most often-cited sources of stress for Americans. That’s why it’s a good idea to make some specific money resolutions for 2010.

If financial stress is part of your life, resolve to extinguish it over the next year. Consider the following resolutions to lead a better financial life in 2010.

1. To put your most important goals on paper: What do you really want out of life? Granted, all great dreams don’t cost money, but many of them do. Money buys freedom – to travel, to retire early, to start a business, to change careers. Putting goals in writing gives them formality and a starting point for the planning you must do.

2. To understand how much risk you can really tolerate: One of the most beneficial things financial planners do is help you articulate your financial goals and establish (or re-establish) your tolerance for risk. Even though the market has recovered from the crash of 2008, it’s worth revisiting your capacity for risk.

3. To track your spending: If you haven’t purchased financial accounting software or set up a reliable accounting method of your own, this is the year to do it. Diligent expense tracking is the first critical step to getting personal finances in order. Free resources like Mint.com also offer financial planning software, but always check the security of your data. By tracking your spending, you will be able to distinguish the fixed committed expenses from the discretionary expenses.

4. Cut back on non-essential spending: Whether it’s designer coffee, nightly carryout or too many trips to the mall, once you start to track your spending, it will be easier to identify areas from which where you can make adjustments. You don’t have to give up treats completely – just make them treats.

5. Get some professional advice: Maybe you’ve always completed your taxes alone and put your faith in your employer’s retirement plans to chart your financial future. If you’re like most people in this position, your goals are still far from reach. Get references for qualified tax professionals and consider consulting with a financial planning professional to discuss your current retirement savings and what steps you can take to improve your situation.

6. Put the credit cards away: If you can’t ever seem to get yourself completely out of credit card debt, make this the year to do it. Take inventory of your balances, figure out if you can consolidate them under your lowest-rate card, and resolve to pay off an amount that exceeds the minimum -- on time, every month. Once your cards are paid off, don’t close them – that could have an adverse effect on your credit score. Just put small repeat purchases on them that you can pay off in total at the end of the month to keep them active. Oh, and pay cash from now on.

7. To save: If you haven’t signed up for your employer’s 401(k) plan or begun a savings plan tailored for the self-employed, this is the year. And resolve to save at least 5 to10 percent of your take-home pay based on your cash flow, and place the maximum in whatever retirement savings plans you qualify for, especially if your employer will match all or part of that contribution.

8. To get ahead on your mortgage: This advice isn’t for everybody, but if you’ve paid off your credit cards, apply the same principle to your mortgage payment. Every dollar you prepay will potentially save thousands in interest over the life of the loan if you plan to stay in your home long-term. In fact, if you make one extra payment a year, either at once or in equal monthly shares over the course of a year, you can cut at least five years of payments on a 30-year loan. Just don’t short your retirement investment plans to accomplish this.

9. To invest in yourself: If going back to college or taking specific coursework will help you advance in your career, plan to do it. If investing in a health club membership that you actually use makes sense for your health as well as your insurance costs, do it.

10. To redefine the way you shop for essentials: Most people were forced to change their shopping habits during the recession, but there are still ways to fine-tune. As a suggestion, get a legal pad and create a centralized shopping list – use a single page for groceries, stock-up goods (it’s wise to start buying essentials in bulk if you can measure the savings), and note bigger expenditures you’ll need to make at specific times. Taking that pad with you wherever you spend money is a good way to keep a grip on your wallet as long as you don’t stray from the list.

11. To attack that miscellaneous column: Do you really need premium cable? How much are you paying for your Internet service? Consider bundling your Internet, cable and telephone service with one provider. Can you wear a sweater around the house and lower the thermostat? In every budget, there are items that can be cut – or at least trimmed. Take a hard look at all your “essentials” to see how essential they really are. Aim for a target of at least 10 percent in savings every time you cut and start setting that money aside on a regular basis.

12. Bid out your insurance: All insurance you buy for yourself – home, auto, health and beyond – should be bid out once a year. Home and auto should be bought together because the savings are generally better.

14. Prescription drugs: Consult with your primary care physician to determine if any of your medication has generic formulary available.

December 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 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.

Favorable Tax Treatment on Roth IRAs Set to Expire Dec. 31

2010-12-08T08:20:00.000-08:00

While individuals with adjusted gross income of more than $100,000 have been eligible to convert their traditional IRAs to Roth IRAs since the beginning of the year, there’s a tax consideration that may make it a good idea for some who haven’t made the move to do so by the end of the year.

Anyone who makes a Roth conversion by Dec. 31 will have a three-year window to pay those taxes, a potentially substantial issue for those converting sizable amounts of assets to a Roth.

Keep in mind that conversion might be a good idea for people in lower income tax brackets. A tax expert or a qualified financial planner can help you decide

Traditional IRAs allow investors to save money tax-deferred with deductible contributions (within certain income limits if either spouse is eligible for a qualified plan at work) until they’re ready to begin withdrawals anytime between age 59 ½ and 70 ½. Roth IRAs don’t allow tax-deductible contributions, but they allow tax-free withdrawal of funds with no mandatory distribution age and allow these assets to pass to heirs tax-free as well. If you leave your savings in the Roth for at least five years and wait until you're 59 1/2 to take withdrawals, you'll never pay taxes on the gains. You can convert a traditional IRA to a Roth, but you must pay taxes on any pre-tax contributions, plus any gains.

Remember that when you do a conversion, you must pay income tax on the amount you are converting. Since you received a tax deduction on your initial contributions to most traditional IRAs, you must pay the taxes due on those initial contributions and any growth in your IRA. But, subject to certain restrictions, you won’t pay tax when you finally need to withdraw your money. That’s where the silver lining comes in for you, or for your heirs if you pass that money on to them.

The conversion issue is a potentially attractive retirement and estate-planning idea for all Americans who want to make sure they maximize the assets they have for themselves and for their heirs on a tax-free basis. And the conversion option isn’t available just for traditional IRAs – it can be used for retirement assets held at other employers and 401(k) holdings. But anyone considering such a move – regardless of his or her income status – should first review their current retirement asset strategy with qualified tax and financial planning professionals.

Things to consider:

How close is retirement? If you have more than five years until you plan to withdraw your retirement funds, conversion of traditional IRA assets to a Roth IRA might make sense. The longer the time span where earnings can grow tax deferred, the greater the benefit of being able to withdraw those earnings without paying tax on them.

What will your tax rate at retirement be? Many people, such as business owners, may be paying taxes now at a fairly low rate. So they might pay higher taxes at retirement. If that’s the case, converting to a Roth might make a lot of sense. Additionally, with Social Security benefits being taxable at certain income levels, Roth IRAs can allow you to limit or eliminate such taxes. Medicare premiums are also based on modified adjusted gross income – if converting to a Roth now will allow a taxpayer to minimize income in retirement, the taxpayer can also save by having lower Medicare premiums and reducing the taxes owed on Social Security income.

Will you absolutely need to use all the money? Converting to a Roth is a good idea for those who won’t need to tap the account every year (Roth’s don’t require minimum distributions as do traditional IRAs). Heirs will inherit the money income tax-free, but that inheritance may be subject to estate transfer taxes.

A Roth conversion can be expensive – can you afford it? You’ll have to pay taxes today rather than defer the taxes until the future – taxes will be due on contributions that you previously deducted, as well as on the accumulated earnings. Also, you need to be aware that conversion could push you into a higher tax bracket, especially if you've accumulated sizeable earnings over the years. This is why a conversion needs to be planned with a tax expert. Why? It may trigger the Alternative Minimum Tax (AMT) due to those high earnings.

Know how the conversion window will work: Keep in mind that 2010 is the only year that a taxpayer can elect to defer the income from a Roth conversion. The Internal Revenue Service has granted taxpayers the option to claim 50 percent of conversion amount as income in 2011 and the remaining 50 percent in 2012. Also, you have to understand that if you choose the conversion period, your tax will be based on the bracket you fit that year. That means swings in income will affect what you pay.

Be careful about your child’s college financial aid: Converting to a Roth will increase your taxable income for the year of the conversion -- or for 2011 and 2012 if you make a 2010 conversion and choose to spread the tax bill over those years. Check with your tax expert and your child’s financial aid office – it could affect your child’s ability to qualify.

December 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.

Don’t Wait Until Dec. 31 to Do Your End-of-the-Year Tax Planning

2010-11-30T12:09:00.000-08:00

For most people, the last week of the year is almost too late to make the tax moves that make the most sense for them. It’s best to review options now before the holidays – and holiday spending – potentially derail opportunities to save money.

The first piece of advice is to get some advice. A financial planning expert such as a Certified Financial Planner™ professional can review your overall financial situation, and a tax professional can add additional expertise. Here are some other ideas:

Start pulling your records together: Even if you have a longtime filing system you trust or computer-based recordkeeping that’s well in place, set aside a day or two to make sure receipts and entries make sense before the holidays and year-end activities swing into full gear. Even the most attentive taxpayer can make bookkeeping mistakes for personal or business taxes. If your tax situation is particularly complex or you’ve undergone significant lifestyle or business changes during 2010 –(i.e. getting married, getting divorced, going bankrupt) or a significant increase in income, a large capital gain or even an inheritance – it might make sense to sit down with your planner and tax professional before New Year’s.

Defer income if that makes sense for you: If you are self-employed or if you operate a company, consider whether it makes sense to defer income until 2011 as a way to save money on taxes. Though this is fairly common advice, it is very tax-situation-specific, so check to see if deferring income is a good strategy.

Remember your retirement: If you and your spouse file jointly, by contributing to a traditional IRA each of you might be able to deduct up to $5,000 if you’re under 50 by the end of the year -- if you’re older by yearend, that deduction rises to $6,000. But consult a tax expert to see if you qualify for those limits based on your other retirement investments and income levels. Some employer qualified plans may also allow large employee contributions prior to year’s end—if you can afford to make one, check with your plan administrator.

Check investment gains and losses: If you have some capital losses in your taxable investment accounts see if it makes sense to sell and offset them against any capital gains you've realized this year. Again, consult your experts to make sure you’re making the most tax-efficient decision.

Prepay property taxes: If it makes sense to accelerate that deduction based on your tax advisor’s opinion, pay those early 2010 taxes before the end of the year.

Prepay state income taxes: Again, if it makes sense based on your tax situation, consider making a fourth-quarter estimated state tax payment due in January before the end of the year to accelerate the deduction.

Plan a stock donation to charity: If you have stock with a large unrealized capital gain that you’ve held longer than a year, you can give that stock to a qualified charity and claim a deduction for the current fair market value of the security. The deduction is limited however to 30% of adjusted gross income. Any amounts over this can be carried forward 5 years. If you have a stock with an unrealized capital loss, do the opposite – sell the stock, claim the capital loss, then donate the resulting cash proceeds to charity. This is actually better than just donating cash, because you get the same deduction and never have to pay the capital gains taxes from the appreciated security, or you can take a current deduction if you have a loss. A similar donation to a donor-advised fund can provide the same current benefit while allowing you to take your time in appointing the specific charity to ultimately receive the gift.

Make sure donations are documented: You must have a either a receipt or a canceled check to back up any contribution, regardless of the amount, and you can’t simply give away junk and state a “like new” value for it. If you don't have such a written record, the IRS will disallow the write-off if the lack of proper record keeping is discovered in an audit. Also, you can write off out-of-pocket costs you incur while doing good works. Ingredients for casseroles you regularly prepare for a nonprofit organization's soup kitchen, for example, or the cost of stamps you buy for your school's fundraiser count as a charitable contribution.

Look for breaks on student-loan interest: If parents pay back a child's student loan, the IRS treats it as though the money was given to the child, who then paid the debt. A child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student-loan interest paid by Mom and Dad assuming they meet the income test. And he or she doesn't have to itemize their deductions to use this money-saver.

Check those work-related moving expenses: If you moved due to a change in your job or business location, you may be able to deduct certain moving expenses. There are two tests. The distance test requires that the new job be at least 50 miles farther from your old home than your old job location was from your old home. The second is the time test, which means you must work for at least 39 weeks during the first 12 months right after you arrive in the general location of your new job. Self-employed people have to work full-time for at least 39 weeks during the first 12 months for a total 78 weeks during the first 24 months after they arrive in the qualified location.

November 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.

Making Your Dollars Go Further at Holiday Time

2010-11-16T10:57:00.000-08:00

One of the few good things about a tough economy at holiday time is that it underscores the need to consider what’s really essential. And while what’s essential isn’t always about money or presents, setting spending priorities early is a way to keep the year’s biggest spending season worry-free and most important, debt-free.

Here are some suggestions that can help you stay on budget during the holidays and position you for a financially healthy New Year:

Give yourself the gift of solid financial advice: If you’ve never gotten feedback on your overall financial picture before, set aside a certain part of your holiday budget to visit a qualified financial planner. Think big picture – year-round budgeting, planning for retirement and affording other milestones. It will underscore that the money you save and invest today can yield big dividends down the road.

Take the cash challenge: Before you start spending, sit down and figure what you currently owe on credit cards and any other loans. Then figure out how much spending you can realistically do with the cash you have left. That’s right. Cash. See what it will take to cover all your bills and create a list that conforms to what you’ll be able to spend in cash alone.

Reset your gift policy: Does everyone on your gift list over the age of 21 really need a present? The answer is as individual as your family and friends. But, if you think it might be welcome, make a suggestion for a gift drawing, a budget limit, or a moratorium on gifts for adults or some other alternative where you trade off gifts for help with chores or quality time. For instance, you might agree to take each other out to dinner during the New Year or find some other fun way to spend time together. You could help a friend or family member with a household project that could save them money. And in the end, children seem to enjoy their holiday gifts the most, so focus on buying presents for them.

Create a practical, money-saving gift list: For some, this may mean one big sheet of paper you can write on or a computer file that can be printed out on a single sheet. But it’s important to have a list that’s handy and displays everything you need to spend in a single view. This way, if you spot an item on sale, you can snag it and cross it off. Keeping gift ideas on scratch pads and napkins gets disorganized in a hurry, and it’s easy to start spending money in an equally disorganized way. A centralized list lets you check off things as you go, substitute ideas with the click of a pen (or a mouse) and keeps you on track. A computerized list might offer additional advantages:

• You can collect initial gift ideas by name and then re-sort them by store destination, which can save time and gasoline.

• You can add an extra column that reminds you what you bought each person last year as well as sizes and color preferences. You might also note what you spent last year on that person or family.

• If you’re shopping online, you can copy links to the merchandise you’re planning to buy so when it’s time to spend, you don’t have to waste time on a new search.

Browse online, and then compare at local stores: Whether you plan to spend online is a separate issue, but browsing online can be a very good idea. “Shop-bot” price comparison websites can help you determine general price ranges for gifts you need that are sold online. Once you have those ranges, get on the phone and determine whether you can buy the same items more affordably at retailers close to home – if you can save yourself a trip or consolidate your trips, you’ll save time and gas. And if you do end up buying online, don’t forget taxes, shipping or return policies before you click “complete my order.” Those fees and restrictions can end up costing you considerable money.

Get those coupons: Retailers liberally dole out coupons at the holidays, but don’t stop at those that arrive in the mail or inside your local newspaper. Increasingly, online coupon sites can make a huge difference in what you’ll pay for online merchandise in terms of item discounts and deals on shipping. Finding coupons that work can take a bit of trial-and-error – coupon sites come and go and the coupons they list don’t always work. But type the name of your retailer and the words “coupons” or “discount codes,” see what comes up, and then follow the instructions. Manufacturers are another coupon resource – go to their websites and see if they’re offering printable coupons or discount codes for the merchandise you’re looking for.

Don’t forget charity: Tax benefits aside, it makes sense to budget for charities at the end of the year. In a rough economy, people tend to take care of themselves before they take care of others, so set aside money you plan to give before Dec. 31. And if you have kids, helping others is not a bad idea to teach during the holiday season.

November 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.

Strategies to Keep Your Healthcare Spending Under Control

2010-11-09T10:41:00.000-08:00

Healthcare reform promises to offer health insurance coverage to a wider variety of Americans, but it doesn’t mean healthcare is going to become cheaper, at least not in the short term. A September study by Hewitt Associates notes that 2011 health care cost increases will be at their highest levels in five years with an average 8.8 percent premium increase for employers, compared to 6.9 percent in 2010 and 6 percent in 2009.

Hewitt said the average total health care premium per employee for large companies will be $9,821 in 2011, up from $9,028 in 2010. The amount employees will be asked to contribute toward this cost is $2,209, or 22.5 percent of the total health care premium – this is an increase of 12.4 percent from 2010 levels, when employees contributed $1,966, or 21.8 percent of the total health care premium.

And consider this -- average employee out-of-pocket costs, such as co-payments, co-insurance and deductibles, are expected to be $2,177 in 2011—a 12.5 percent increase from 2010 ($1,934). These projections mean that in a decade, total health care premiums will have more than doubled, from $4,083 in 2001 to $9,821 in 2011. Employees' share of medical costs—including employee contributions and out-of-pocket costs—will have more than tripled, from $1,229 in 2001 to $4,386 in 2011.

So what can you do? You need to make a big change in your mindset about what you spend on healthcare, no matter how great your coverage. Increasingly, people will need to shop for healthcare coverage and services much like they comparison-shop for food and merchandise. Employers and insurers will continue to shift costs to individuals for a variety of healthcare services, and though the initial adjustment might be scary, those that get the hang of it early will become better at selecting healthcare overall.

With the cost of medical care, it makes sense to get outside advice. A qualified financial planner can discuss all medical issues you have as part of your financial planning process. But here are some potential money-saving ideas to consider in the future:

• Do a procedure price-check: Yes, it’s possible to know what procedures cost in your area. When time is of the essence, many individuals and families simply want medical procedures done only to find shocking cost numbers later. It’s absolutely appropriate to talk through the various cost factors of operations and treatments at the time you’re discussing the medical benefits of that treatment. In fact, the question, “Why does it cost so much?” is a way to get doctors to fully justify their recommendations on care and to find out if they also might suggest treatments that are just as effective but significantly less expensive. There are also online resources that might help you make a decision including Healthcare Blue Book , a nationwide site that offers averages on hundreds of medical, dental, laboratory test, surgical and medical equipment costs by zip code. At the very least, these services offer ways to start the pricing discussion.

• Plan your FSA strategy: Health-care reform has made some changes to flexible spending accounts (FSA) for 2011. Starting in 2011, employees will no longer be able to use FSA money for non-prescription drugs (except insulin). FSA coverage for children, however, has expanded. Employees can use funds to pay medical costs for any child who is under the age of 27 by the end of the year. However, there will be lower contribution limits in the future. In 2011, employers are permitted to allow contributions of up to $4,000 in FSAs, but that limit will shrink to $2,500 in 2013 – so employees planning expensive procedures might want to stockpile funds there now.

• Take responsibility for your own health: Want to save money on healthcare overall in the future? Lose the weight. Quit smoking. If you have a history of family disease, start examining those risk factors now.

• Involve your doctors in your affordability quest: Yes, there are some doctors who charge a lot of money to do what they do. That doesn’t mean they won’t fight for you if you need a procedure and you can’t afford it or your insurance won’t pay. Hospital administrators listen to doctors who bring patients to their institution, so work together.

• Put your health insurer to work: The best time to understand your insurer’s advocacy processes – assuming they exist -- is well before you need them. Call your claims department and ask how they advocate for insured customers if a procedure bill comes in too high. Obviously, if you do your due diligence on average fees before you need a procedure this will be less of an issue, but it’s important to know if your insurer will work with you to audit and negotiate a hospital bill if your out-of-pocket numbers come in high.

• Scrutinize your bills: When it comes to medical billing, mistakes get made, either intentionally or unintentionally. Talk these issues over with your insurer and go back to the practitioner or institution to get clarification and demand an audit if necessary.

• Get advice from the state: Some states have very stringent laws governing health insurance and medical costs; some don’t. Read as much as you can about how your state insurance and medical licensing departments operate and find out what you can about their role as patient advocates.

• Question follow-ups and other procedures: Whenever tests or visits are necessary, politely ask why. Everyone’s situation is different, but make sure you have a justification for any cost move you make.

• See what cash can do: If your insurance won’t cover particular procedures, see if paying with cash can get you a discount with the institution or practitioner.

November 2010 — This column is provided by the Financial Planning Association® (FPA®) of 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.

The Reality of Bankruptcy and What You Can Do About It

2010-11-03T11:34:00.000-07:00

Proving that the nation’s economic trials are far from over, the National Bankruptcy Research Center reported that bankruptcy filings for 2010 to date are still about 12 percent higher than during the first eight months of last year.

Nationwide, the organization reported that there was one bankruptcy filing for every 110 households. The American Bankruptcy Institute adds that consumer bankruptcy filings are the highest they’ve been since Congress revised the bankruptcy law in 2005, adding that consumer filings remain on track to top 1.6 million filings in 2010.

There is no rule of thumb for when someone should file bankruptcy and others should tough it out. But consider this first. Federal law allows a credit reporting company to report most accurate negative information for seven years and bankruptcy information for 10 years. Any accurate information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer.

And keep in mind that your credit report is accessed by more parties than lenders and landlords – insurers check your credit data and set your rates by what they find. Cellphone companies check your credit before they offer you a rate plan. But most important, employers check credit reports before they hire you – and a bankruptcy sometime in the last 10 years might communicate to a prospective employer that you’re not as responsible as they would like.

Here are some measures you should consider before filing either Chapter 13 (reorganization) or Chapter 7 (liquidation) bankruptcy:

If you own a home, can you refinance? Interest rates are still at all-time lows. If you’ve managed to be mostly on time with payments, you might qualify for a loan restructuring or refinance that can considerably cut your payments. Your financial planner might be able to give you advice on how to solicit this help.

Call your creditors: Again, get advice from a planner on what to say, but if you suspect you might be late with payments, do whatever is possible to see if you can lower your payments or possibly reach a settlement. Many creditors, including mortgage lenders, might settle for lower amounts on principal to make sure they get something.

Focus on high-rate debt first: For most people, this means the highest-rate credit card among all the credit cards they have. Set up a “knockdown list” of your debt from highest rate to the lowest and attempt to pay more than the minimum on balances.

If you’re not budgeting, you should be: Avoiding bankruptcy means accounting for every dollar you spend and finding the additional money necessary to get control of debt.

Either on paper or on the computer, write down every dollar you spend in the average week (and cut off credit card use during that week). At the end of that week, start marking out non-essential items just to see how much you could live without and then pledge to use any extras to pay off debt.

Go for free entertainment, take your lunch and eat at home: Yes, you’re in for a lifestyle change. Avoiding bankruptcy means taking extreme actions to cut luxury spending, and anything beyond paying immediate bills and eliminating debt should be considered extra.

Park the car and do vehicle and home repairs yourself: Assuming you can do these things competently and safely, take over absolutely necessary repairs on your home or your car. If they don’t need the immediate fix to operate, put it off. And learn to ignore cosmetic issues on your property – at least for now.

Buy essentials and focus on buying used instead of new: Internet auction sites supply an extraordinary number of new and near-new products that can save money if you need to make an essential purchase for yourself or your family. Buy used or heavily discounted and direct that money toward your debt.

Pay cash: When you spend money, make sure it’s cash or debit. Don’t cancel your credit cards – it will damage your credit score – but put them far out of reach and avoid using them until you get your situation under control. And once you have saved your credit, keep the credit cards where you left them.

October 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.

When Should You Take Social Security?

2010-10-28T10:46:00.000-07:00

One of the first lessons of financial planning is that you shouldn’t base your retirement future on the prospects for the Social Security system, or for that matter, your work-related pension.

Independent planning is always necessary, and a team approach is a good idea, blending the skills of qualified financial planners, tax professionals and estate attorneys.

But if you’ve spent a lifetime paying into the system – or if you’ve merely started your working life -- it’s wise to check out Social Security projections so you can get a reality check on the size of that benefit.

The Social Security issue is particularly timely as the nation continues to pull out of its economic slump. Many people have watched their retirement portfolios shrink since 2008 after a decade that didn’t match the investment growth levels of the 80s and 90s. And in Washington, there continues to be discussion of raising the nation’s official retirement age to 70.

A good starting point is the Financial Planning Association’s new Social Security Predictor, a web tool that allows you to compute your benefits based on your age and current projections for the future funding of the system.

Once you’ve gotten an idea of the amount you’ll be getting from Uncle Sam, the next important question is how long can you wait to start drawing on the system. You need to explore this for three reasons:

1. You’ll have time to assess your career preferences – not everyone wants to retire at their first opportunity, particularly if they like their jobs.

2. The longer you wait to take Social Security, the greater your monthly benefit will be. For example, if you were born between 1943 and 1954, you can start tapping benefits at age 62, but you’ll get only 75 percent of your benefits based on the current projected retirement age of 66. And the reduction is permanent, so it won’t increase when you reach full retirement age. In addition, there are severe restrictions placed on how much you can earn if you continue to work (more on that below).

3. Simply looking at these facts will allow you to focus on whether your mixture of personal savings and investments, your work-related pension funds and the government’s money will be enough to live on.

Here are some critical things you should know before making your decision when to get benefits:

Start with advice: There is no standard, one-size-fits all answer to this question. A trained financial planner will be able to look at your overall situation with regard to the retirement you want to have and the goals you hope to meet and determine where the money should come from to support you and at what time. It’s also critical to meet with your tax advisor (Social Security payments CAN be taxable) and your estate planner or attorney.

Most of the decisions you’re considering will have tax ramifications and you want to make sure you can manage the taxes and not damage the estate you want to pass on to your spouse or children after your death.

Watch your earnings: If you start collecting benefits before your official retirement age – which may be a moving target in the future -- you’ll face restrictions on how much you can earn from a full- or part-time job if you continue working. For example, those turning 66 in 2010 but with a few months until their birthday will have earnings limited to $37,680. So for every $3 over the earnings limit, $1 is withheld from Social Security benefits until the exact month of their 66th birthday. Even more restrictive is that those who started drawing Social Security in 2010 at the age of 62 have an earnings limit of $14,160, and for every $2 earned over that limit, $1 will be withheld from their benefits.

When is it OK to take Social Security benefits early? Obviously, if you can’t make ends meet, you need to consider the option. It’s possible that it might make sense to draw benefits if you can allow tax-deferred investments to grow until the point you absolutely need to start drawing on them. Also, if you are in poor health and don’t expect to live until retirement age, Social Security benefits may help cover medical costs or other expenses. Or, if you are the lower-earning spouse, it might be advantageous to take benefits before your higher-earning spouse.

October 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.

529 Plans are Losing Enthusiasm Again: Time to Shop Around, Get Advice and Compare Because They’re Still a Good Deal

2010-10-20T08:18:00.000-07:00

While college savers have been placing more assets in 529 college plans since the start of 2009, Boston-based Financial Research Corp. reported that as of the second quarter, 2010, 529 plan assets were down 5 percent. During the second quarter, investors placed $1.9 billion into 529 college savings plans, down from $3 billion during the first quarter.

Yet if investors are skittish about their 529 investments, most experts believe that 529 plans are still one of the best ways to save for college. If anything, it might be a good time to review your 529 investments and make sure your student’s future college funds are in the right place.

A financial planning professional is a good first stop to review your entire college savings strategy, which could be for your child or for yourself. Here’s some basic information on 529 plans and some guidelines on what you should be doing with these dollars now:

Start with a definition: 529 college savings plans – named for the part of the federal tax code that created them in 1996 – allow a parent to open a tax-deferred college savings plan with as little as $25 to start in some states. Any withdrawals are completely tax-free if used to pay for a beneficiary's college tuition, fees, books, supplies, and — for students enrolled at least half time — room and board. Investors are allowed to roll over funds from one state's 529 plan to another state's plan once every 12 months, though it’s possible to transfer funds to another 529 plan at any time if the beneficiary is changed. That means if one kid gets a huge scholarship, his 529 assets can be transferred to a sibling or you if you’re headed back to school.

Start with your goals: SavingforCollege.com has a series of online calculators to help investors determine how much they should put away for the portion of college costs they’re expected to provide out-of-pocket. The typical goal these days if 50 percent. It’s also important to consider time horizon and re-evaluate the performance of funds every year. 529 plans also use target funds – funds tied to the date your student will need the money – so you need to evaluate the providers of the funds and their records.

Changes in 2010: A qualified, nontaxable distribution from a 529 plan this year can be used to cover the cost of computers, peripherals and Internet access. The technology, equipment or services qualify if they are used by the beneficiary of the plan and the beneficiary's family during any of the years the beneficiary is enrolled at an eligible educational institution.

It’s still a good estate strategy: The IRS allows for an accelerated gift option that allows individuals to average gifts over contribute up to five times the annual gift tax exclusion amount ($13,000 per beneficiary, or $26,000 for married couples if they file a gift tax return to show gift splitting) over a five-year period without incurring federal gift tax. So an individual can contribute up to $65,000 per beneficiary in one year and a married couple up to $130,000 per beneficiary without incurring gift tax. (If you give the full amount, you will not be able to give any gifts to the same individual during the five-year period without incurring gift tax or using up a part of your lifetime exclusion.) That’s good news for grandparents or another close relative looking for a way to reduce the value of their estate right away with a larger gift.

What should you ask when evaluating a plan? Here are some basic questions to ask when you’re considering an initial investment or reviewing the investment you have:

Have there been particular criticisms of your state’s plan for any reason? Get on the Internet and start reading.

How is the plan’s money invested? What’s the available diversification?

How has the plan done since inception?

What are the plan’s fees and expenses, and how do their fees compare to the plans of other states you might be considering? Read closely for sales commission information.

Is there a state tax deduction or credit available?

Have plan managers changed over the history of the plan? How many times?

October 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.

Understanding COBRA and Other Health Insurance Options if you Quit or Lose Your Job

2010-09-21T14:33:00.000-07:00

As the economy continues to struggle back from the recession, employers are still cutting jobs or at least holding down their hiring levels. That means the strain is continuing for people who have been out of work for many months as well as those who have recently lost their jobs.

Even if your job seems secure for now, it’s a good idea to have a mental game plan for your health coverage if your employment situation happens. Things you should consider:

Get some general financial advice right now: While health insurance is one of the biggest concerns for the unemployed, it’s a good idea to take a look at your overall finances if your income is under threat. While you’re still working, talk to a trained financial planner about immediate things you can do to conserve money and protect your investments. To find a financial planner in your area, go to www.plannersearch.org.

Research COBRA: The Consolidated Omnibus Budget Reconciliation Act, better known as COBRA, gives workers the right to continue coverage under their employers' group plans after they change or lose jobs. The cost of health coverage under COBRA for displaced workers is usually more expensive than what you were paying while you were working. That’s because the employer pays a part of the premium for active employees, while displaced workers are required to pay the entire premium themselves. Unfortunately, the special 65 percent premium tax credit that had been offered to any COBRA recipient starting Feb. 17, 2009 expired May 31 this year and wasn’t renewed for anyone terminated since. According to a report from Hewitt Associates in August 2010, U.S. workers pay an average $8,800 a year in premium expense without the tax credit. Yet for employees who have no other affordable options, coverage under COBRA can be continued for up to 18 months, and up to 36 months when loss of coverage is due to divorce or disability. One thing to make sure is that you need to sign up for COBRA within 60 days of the loss of your job or another event qualified under the law.

If you’re retired or over 55, check on the Health Coverage Tax Credit: The government will pay 80 percent of your health premiums each month as part of the Health Coverage Tax Credit, available to people receiving pension payments from the Pension Benefits Guarantee Board, aged 55 and older and not enrolled in Medicare, or enrolled in a qualified health plan, including COBRA, a state-qualified health plan or coverage under your spouse’s plan. For more detail, contact your tax advisor or visit the IRS website.

Check the price of short-term coverage…Some insurers offer coverage from one month to a year, and it’s a good idea to compare the cost of that coverage against what you’d pay for COBRA. But keep in mind that any insurer you choose in this category should have a clean record with your state’s department of insurance, and it’s also a good idea to check their rating with A.M. Best.

…against the price of long-term catastrophic coverage: Catastrophic policies are intended to cover medical expenses that are extremely serious. To keep prices relatively low, policyholders must pay a high deductible, anywhere from a few hundred dollars to many thousands, before the coverage will kick in. However, many insurers offer high-deductible policies that do offer some first-dollar coverage on routine procedures like OB-GYN visits or X-rays. Again, check the safety ratings and see what state insurance department officials have to say about their business practices.

Medicare: While this is the government’s healthcare program for individuals 65 and up, it also covers people of all ages with specific disabilities. If you cannot get insurance after you lose your job and can prove a specific disability, you might consider applying for Medicare.

Medicaid: If you’ve reached near poverty-level income and asset qualifications, you may qualify for this joint federal-state health insurance program for individuals. States usually provide Medicaid for individuals who receive federally funded cash assistance payments, such as Social Security. Poverty income levels do vary by state, so you will have to check your state’s Medicaid agency, social service or welfare office.

September 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.

With Open Enrollment on the Way, Check Your Health and Benefits Needs Now

2010-09-16T08:22:00.000-07:00

There was a time when the open enrollment period for health insurance, retirement options and other benefits was a fairly straightforward, stress-free period where you could see what additions your employer was making to your health and other fringe benefits in an otherwise healthy economy.

Today, open enrollment is largely about reading the fine print and determining how you will manage your own out-of-pocket costs and making up any shortfalls in retirement savings.

According to the Society of Human Resource Management’s 2010 Employee Benefits Survey released in June, 72 percent of HR professionals said the benefits offerings at their companies had been affected “in some way” due to the economic downturn that began in 2008. And while 79 percent said they were reviewing their benefits offerings annually, 10 percent reported that they were reviewing them more than once a year.

And in one notable SHRM statistic, 10 percent of respondents said they plan to reduce or eliminate employer match for 401(k)s in the coming year.

That means that for the best benefit deals in the future, employees are going to have to become better shoppers, and where employers are offering incentives for losing weight, quitting smoking or getting certain chronic health situations under control, employees need to change behavior to save more money.

Employee benefits are a very important component of an individual’s financial plan, and in two-income households, they should be coordinated. That’s why it makes sense to talk about your benefit choices with a financial planner to see how such choices fit into your overall financial strategy.

Some critical issues you should check before you choose your benefits for the coming year:

If your company retirement plan is changing, get some help: Most companies allow more than one chance per year to adjust the holdings in 401(k) retirement accounts, but it’s important to get help if you’re planning to change allocations to see if they still fit your age, risk tolerance and the standard of retirement you want. Get some advice, and obviously, if you’re not a member of your employer’s 401(k) or 403(b) plan, try to join, particularly if your employer matches your contribution. Also, if your company cut back on its 401(k) matching during the recession, see if they plan to restore that contribution after the economy improves. You might want to review whether to stay with a company that offers benefits that are below that of its competitors.

Take a health inventory: As you’re reviewing health plan choices, think of all the health issues you’ve experienced throughout the year. It could be a diagnosis of a chronic disease, the birth of a child or the need to place a new spouse or partner on your coverage. A new spouse or child can usually be added with proper notice throughout the year, but open enrollment is a good time to review all current and future situations. If you’re healthy, you might want to opt for a lower-premium plan that requires higher co-pays or deductibles and try to put more into your retirement savings. Just try not to choose any plan that limits lifetime benefits to $1 million or less – you’d be surprised how little time it takes to get there for an accident or serious illness.

Review your prescription coverage: You should look at your prescription needs and find the best insurance choice to cover them. While you may have a co-pay of $5 to $10 for generic drugs, will your plan pay for a brand-name drug that you really need, or will you get stuck with a co-pay of $50 or more? Make sure you understand the tier system within your pharmaceutical plan and pick the right one for you based on your current or expected needs.

Understand FSA/HSA options: A flexible spending account (FSA) is an account some employers offer so workers can deposit funds on a pre-tax basis to pay their out-of-pocket health and dependent care costs. However, workers need to make a good estimate on the funds they’ll use by year-end because excess funds can’t be carried over. Health Savings Accounts (HSAs) allow workers to save pre-tax dollars for health care costs without the "use it or lose it" restrictions in FSAs, though they require the enrollment in a qualified high-deductible health plan, which more companies are moving toward. These dollars often can be directed into different investment accounts and used on a tax-favored basis in retirement. In 2010, individuals can deposit up to $3,050 in their HSA, and those with family coverage can deposit up to $6,150. Individuals above age 55 can add another $1,000 in contribution on both individual and family coverage.

See if you can buy additional coverage: Open enrollment can offer life insurance coverage – or increases in coverage and sometimes long-term care insurance without a medical exam. Check that the insurance providers are highly rated in A.M. Best, and if they’re well ranked, take the coverage and find out if you can keep it going if you leave the company.

September 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 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.

Seattle Financial Planning Day

2010-09-07T08:10:00.000-07:00

The City of Seattle, Seattle King County Asset Building Collaborative and the Financial Planning Association of Puget Sound invite you to participate as a volunteer at the Seattle Financial Planning Day on Saturday, October 23, 2010 at North Seattle Community College.

Seattle Financial Planning Day is being organized in partnership with City of Seattle, CFP Board, Financial Planning Association, Foundation for Financial Planning, and the U.S. Conference of Mayors. The event is part of the national Financial Planning Days initiative, a first-of-its kind effort involving city governments nationwide and thousands of financial planners in an effort to provide free financial education and programming to underserved populations throughout the U.S.

The concept is simple - experts from the Financial Planning Association® and highly qualified CERTIFIED FINANCIAL PLANNER™ professionals will all volunteer to meet one-on-one with local residents to offer personalized financial planning information and to present classroom style educational workshops addressing key financial planning topics.

Questions, or if you would like to volunteer, please call 206.686.4372

Attendees: www.FinancialPlanningDays.org/Seattle
Volunteer: www.FinancialPlanningDays.org/SeattleVolunteer
Volunteer Registration: www.FinancialPlanningDays.org/SeattleVolunteerReg

How to Appeal Your Property Taxes and Why You Should Consider it Every Time

2010-08-17T13:03:00.000-07:00

While housing prices in many communities have fallen, many local governments have failed to adjust their property tax valuations, meaning that many taxpayers still have homes with assessments based on the market’s peak in 2005 and 2006. Add that to the continued financial threat from a slow job market and stagnant pay raises, and expensive tax bills can put a considerable crimp in your financial picture.

What can you do? Appeal. A successful effort could potentially save you hundreds, perhaps thousands of dollars if the municipality doesn’t raise the tax rate at the same time – a higher tax rate can actually blunt any savings from an appeal.

But appealing your property tax rates should be done whenever reassessments happen, and not just in bad real estate markets. It may sound like a pain, but it’s actually one of the most important educational exercises you’ll ever do regarding your finances. The appeal process keeps you better informed about what is probably your biggest asset and the other properties in your neighborhood. It’s important for you to do the necessary research every assessment period and appeal whenever you believe you have a case.

The basic appeal process involves looking for discrepancies in your taxation board’s math and documenting comparable properties close to yours that are actually paying less in taxes than you do.

Should you always do it yourself? You certainly have the option to get help. In most communities, consultants, attorneys and real estate agents have formed businesses that will appeal your taxes for you. But many will charge up to 50 percent of the first year’s successful reduction. It is also possible that some appeals boards are more likely to consider appeals from individuals.

In any event, the first stop in the process is at your local assessor’s office or website for the forms you’ll need to appeal. You will also find records where you can get an idea of what valuations are on comparable properties similar to yours. It’s generally recommended that you assemble five or more convincing examples to prepare your case.

Key tips:

Recalculate your bill: Property taxes are based on a percentage of a property’s value multiplied by a tax rate set by the local government. Yet government isn’t infallible, so check that your property description is accurate and that the bill makes sense. Make sure that basics like the number of rooms, baths and other key features look exactly like what you own.

Don’t take a bath on a renovation: While renovations tend to bump up the market value of a home and therefore its valuation for tax purposes, there might be some wiggle room on various additions and renovations that are not habitable year-round and therefore not equal to a new full-time space.

Wear and tear can save money: If you can prove to an appeals board that your roof leaks and you haven’t been able to afford to fix it, that your windows need replacement or if there’s a local nuisance like a major road project nearby, there might be an argument to lower the value of a home.

Get help if necessary: Again, there are law firms and other entities that can essentially field the process for you. But check the fees and make sure your appeals firm has a solid record. And ask to see any materials they accumulate on your filing.

Don’t let the fact that you’ve never appealed keep you from trying: There may be opportunities to eliminate key inequalities in what you’re paying no matter whether or not you’ve ever appealed before. It may be a daunting task, but these days, the chance to save money is paramount.

Keep deadlines in mind: Check the calendar. Make sure you file your appeal in advance of any critical deadlines that will allow you to lower your payments faster. Your newspaper’s real estate section should make you aware of any appeal deadlines in the county where you live.

If you’re doing it yourself: Ask for proper advice in putting together a proper application and rehearse your presentation before you make it. Consult local newspaper reports that discuss the process, and organize your questions if you have to go down to the county building for advice or forms. And be polite if you do – employees for the local assessor’s office tend to be very busy during appeal season.

August 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.

Working Abroad Requires Some Detailed Planning

2010-08-10T13:45:00.000-07:00

Working abroad is no longer something someone does during the course of a traditional career. College internships increasingly involve overseas appointments. Many college graduates seek work-abroad experiences before they even start their careers, and many retirees consider overseas work and volunteer assignments as part of an “encore” career.

For example, The Peace Corps reports that 5 percent of their volunteers are age 50 and over, and that’s a number that’s growing.

Whatever the reason you may be considering a work-abroad experience, remember there’s a necessary financial planning component that’s as individual as you are. A work-abroad assignment of as little as six months may have important ramifications for your overall financial planning, affecting everything from your current living space to tax,, retirement and estate issues.

That’s why the first move you should make after making the big decision to pack up and go is a call to your tax, estate and financial advisors.

First of all, just because you’re skipping off to work full-time in another country, don’t think you’ve cut ties with Uncle Sam. As long as you are an American citizen or a resident alien, you will be responsible for filing a return with the Internal Revenue Service (IRS) every year, and the paperwork can be complex.

Here‘s some general information to consider if you’re thinking about an overseas move:

Uncle Sam might give you a break: The IRS has rules that prevent U.S. citizens from paying taxes in the United States and the foreign country where the citizen works. The foreign earned income exclusion addresses the most common risk of double taxation on wages and self-employment income earned abroad.

To qualify for the foreign earned income exclusion, a U.S. citizen or resident alien must have a tax home (your main place of business, employment, or post of duty, regardless of where you maintain your family home) in a foreign country and income received for working in a foreign country, otherwise known as foreign earned income. The taxpayer must also meet one of two tests: the bona fide residence test or the physical presence test. For tax year 2010, the maximum foreign earned income exclusion stands at $91,500, with a base housing allowance of $40.11 per day, or $14,640 for an entire calendar year.

If you work in a country that charges no income tax, the exclusion becomes particularly valuable because once the first $91,500 is removed the first dollar of taxable income is taxed in the lowest income bracket. That means there’s a chance you might pay less tax than if you had stayed home and earned all that money in the United States.

You may also qualify for separate housing cost tax credits and deductions that will bring down that overall income deduction.

And because many multinational corporations create “tax equalization” packages for employees working abroad that charges employees the tax amounts they would have paid in the states while picking up the entire tax bill in the U.S. and the overseas location. It’s important to make sure, however, that employers are figuring in all the potential taxes you’d pay for benefits like an overseas housing and your kids’ school allowance, relocation fees, childcare and other perks possibly related to expatriate work.

Even if you’re working for one of the most employee-friendly companies on the planet, it’s important that you bring your own tax advisor into the process to make sure all your bases are covered.

Be wary if you’re self-employed: Some countries have special laws that govern taxation for self-employed individuals that may result in U.S. expatriates paying special taxes for the self-employed. There may be reciprocal agreements between countries governing such tax issues, but that’s why self-employed people in particular should seek out help from qualified tax professionals on managing tax and spending issues abroad.

Get advice on record-keeping: If you’ve been lackluster at keeping track of your financial activities while working in the States, it’s time to change your ways. Get advice from your tax and financial planning experts on the best ways to sort and keep financial records either physically or on computer. And since you might be tempted to ask more questions about the care and feeding of your finances while you’re abroad, ask your professionals what it will cost to have these discussions and whether there’s anyone you can talk to where you’re going.

Update your estate plans: Whether you’ll be stationed in the lap of luxury or a remote African village with no running water, it’s important to have an up-to-date will, health and financial powers of attorney and any country-specific legal documents to ensure proper care of your money and assets should you become incapacitated or die. This is why it might also be important to involve an estate attorney with international experience in this process.

Take time to review your real estate options: Given the continuing sad state of real estate in many U.S. communities, a quick sale of property before you pack up and go may not be possible. So explore the tax consequences and management responsibilities of renting out your property before you go. And by all means, make sure you have enough set aside to pay monthly mortgage, insurance and upkeep bills and a foolproof way to make sure those bills get paid on time in your absence. You don’t want to destroy your credit rating in your absence. Also discuss your overseas status with your insurance agent since renting out your property or leaving it empty could affect your premiums. Also, make a security plan for your property whether it’s occupied or not – an alarm system might help, but it’s important to inform trusted family members and neighbors as well.

Make a disaster plan and designate your point person back home: If you’ve done your homework on estate issues, this person might also be the executor of your will, but it’s important to have one trusted person back home as a central conduit if anything goes wrong for you abroad or if an emergency happens at home. In any event, this person should be an individual you trust to go through your mail, contact loved ones or possibly make health or money decisions on your behalf. Start by making a “worst-case scenario” list and work backward to prepare for such problems, including designating who might be your best representatives for health, property and money issues back home.

August 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.

Making Sure Your Departing College Student is Properly Insured

2010-08-03T13:33:00.000-07:00

Clothes, check. Laptop, check. MP3 player, check. Insurance? Better check.

Before you cram the last of your freshman’s personal effects into the SUV, it’s important to check whether they have adequate insurance coverage for their personal items, their health and their car whether or not they’re taking it to campus.

It’s not a good idea to assume that all personal coverage will simply travel with your child to school. More than ever, health as well as property and casualty insurers are going through claims with a fine-tooth comb, and the worst time to wonder if they’ll pay is when your student actually has a problem.

So in the weeks before they leave, call your agent and review the following:

Health coverage: If your child is already on the family plan, by all means, keep them there. This is an even better option today because the passage of the Patient Protection and Affordable Care Act – better known as the landmark health reform passed earlier this year – allows children to stay on their parents’ plan until age 26. This provision goes into effect next month and is particularly important for students who have taken time off or are continuing their education in graduate school.

But keep in mind that if your child goes out of state, it’s likely they may not get the coverage they’re enjoying now, particularly if you’re enrolled in a health maintenance organization (HMO) that doesn’t cross state lines. Likewise, if you’re covered by a preferred provider organization (PPO) with the only in-network doctors where you live and nowhere near campus, that could present an expensive problem if your child becomes seriously ill out-of-network.

If for any reason you find that family insurance does not apply, check out various health plans that might be offered on campus. Plans are available that cover everything from accidents to major medical needs, and see what makes sense for you and your child. You can also consult with an independent insurance agent to buy a separate policy for the student, but make sure you compare the cost and coverage with other available options.

Other options include qualifying for Medicaid if your family meets certain income or circumstantial requirements. It also makes sense to investigate your state’s Health Insurance Pool that would cover high-risk conditions for a student not covered by conventional private insurance. Beyond that, there are community-funded health centers and public hospital emergency rooms, which are not the best resources for extensive care.

And while this is not an insurance issue, it’s always a good idea to research the various medical centers near campus to check their size, quality or fit with any chronic treatment issues your student might face. An emergency is no time to wonder if your child is getting the best quality of care.

Property coverage: Check your home insurance policy to see if your coverage extends to a child’s property within a school dormitory. Some insurance policies extend around 10 percent of your total home contents coverage to dorm property. If your child ends up in off-campus housing, consider rental insurance. If your child has a lot of valuable computer equipment or other expensive technology, you might need to pay extra to boost your insurance or acquire a separate rider that might extend to campus. Every insurance company has different rules, so check.

Auto coverage: As long as the car doesn’t travel to campus, you’ll likely save money on your premiums if your child’s campus is more than 100 miles away because he or she will be home on rare occasions to drive the car. If the child takes the car to school, make sure your agent knows exactly where the car will be because location is relevant to premium cost. If the school is in a tough neighborhood, your premiums will likely adjust upward – so it’s worth making that call ahead of time before letting your child to take the car to school in the first place. Above all, keep your child on your policy unless they’re officially on their own, because even though children of driving age are expensive to insure, their portion of the bill will likely be lower based on multi-policy discounts if you keep your car, home and other insurance with the same company.

August 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.

The Economics of Renting vs. Buying

2010-07-28T11:20:00.000-07:00

As the housing market continues its long crawl back, it makes sense to ask whether it really is a better idea to rent than to own a home. But it’s a decision that goes beyond the current state of the market.

One of the best first stops is a visit to a financial planner, someone who is trained to look at the big picture of an individual’s finances. The decision to rent vs. buy is an important financial decision due to the sheer amount of money most of us spend on housing – but some people think of it as the only major financial decision they should make. Whether to rent or buy is only one part of a complete financial picture – in some regions, housing prices might make buying and all its requisite tax benefits a better deal. In others, it might be better to rent and put the extra expenses related to property ownership in other investments or toward other purposes.

The bottom line – the decision to buy or rent doesn’t exist in a vacuum. It should always be tied to other factors – lifestyle, community, and where your personal investments stand. And most lenders are now sticking to that old caveat that you shouldn’t spend more than 28 percent of your monthly income on a mortgage payment.

That said, there are some interesting resources that have surfaced to help you start the decision-making process. A website called Trulia.com and research from the Center for Economic and Policy Research in Washington, D.C. have reported their opinion that homes are fairly valued in a city when they cost about 15 times a year’s rent. In simpler terms, if you’re spending $18,000 to rent a place and the house costs more than $270,000, then think twice about buying. The New York Times also has an interesting rent vs. buy calculator that’s worth checking – it goes beyond what prices are doing in an area and adds other factors like how long you plan to stay in your home.

Here are other factors to consider:

Understanding neighborhoods: If you’re seeing pricing capitulation in a neighborhood you really like, it’s going to be a tighter call between renting and buying. But if a neighborhood takes a turn for the worse or you see an opportunity to move somewhere else, a renter can make a move much quicker than an owner.

Understanding the responsibilities of ownership: The condominium movement has created a class of homeowners who never have to trim a bush or mow a lawn, but they obviously have to pay for those services. Renters don’t have to care about painting a home or paying an assessment – they don’t have ownership, but they have freedom. And with a look at motivation and financial considerations, it’s possible to make a more informed decision.

Understanding what it really costs to buy a home: Assuming you can’t pay cash, it costs money to get a mortgage -- closing costs can run into the thousands at the start of the game. A financial planner can help you detail the typical financial outlay at the start of home ownership and advise you on how not to get into spending trouble once you get the keys.

Understanding risk: Homeowners today understand risk as never before. Most have seen the value of their property stagnate or fall in the past three years. As with any investment, the question with homeownership is the same – can you handle the risk of an extraordinary drop in value? If not and other factors work, it might be better to rent.

Understanding your lifestyle: Lifestyle means different things to different people, but renting can be a relatively low-headache lifestyle with the right property. It also allows for relative freedom to move and away from the financial responsibilities that come with ownership. People often say that if you expect to live in a community for a short time, renting might be the best choice; age is also a factor. Only you know what will be the best indicators based on your life situation.

Understanding your savings and investment picture: The high cost of home ownership may limit travel, lifestyle or other opportunities. Renting may enable a more comfortable life from a financial perspective for some people. But this is why it’s so important to examine this question with a financial and tax expert – because everyone’s experience is different. Big financial decisions need to be made with the widest selection of variables.

July 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.

Understanding the New Overdraft Law

2010-07-20T14:11:00.000-07:00

Being financially smart means keeping an eye on fees – all fees.

Starting July 1, new federal rules kicked in that require banks to require customers to opt in for overdraft coverage. Overdraft coverage is a line of credit that kicks in when account holders make purchases that exceed their available checking and debit account balances.

To get customers to sign up, some banks are slashing their overdraft fees. Under the new law, if account holders don't opt in, banks won't be able to cover their charges when their account balances fall short. The charge simply will be declined, and the customer won't be charged an overdraft fee, which at some banks had gone well over $30.

Yet if you have overdraft protection, that means you will have to pay a fee, sometimes on a rising scale that takes you back to the fee you were paying when you didn’t opt in for such coverage.

So how do you avoid overdraft fees entirely? Start acting responsibly.

Don’t join, but keep an eye on that balance: If you don’t opt in, you won’t be charged overdraft fees, period. But then it becomes your job and your job alone to make sure your accounts are covered. Redouble your efforts to record transactions and double-check those balances. If you bank online, you can do this every day if you choose.

Keep a particular eye on debit transactions: Many in-store debit transactions will not automatically be rejected, so that’s why checking your account often is so critical. That’s why that if you don’t use financial planning software to download your transactions on a daily basis, it might be time to do so. Checking your banking statistics at regular intervals will not only help you keep an eye on overdrafts, it will help you spot bank or personal errors and possibly I.D. theft.

Sign up for bill payment alerts or keep a reliable calendar: Most banks and credit card companies will give you the option to have bill payment alerts sent to you five or more days before they’re due. Even if you write these dates in a calendar, it’s not a bad idea to have backup.

What about other fees? Keep in mind that overdraft fees are not the only bank charges you need to watch. Last September, Bankrate.com released the following data on ATM and checking account fees:

• NSF or bounced check fees rose to a record high of $29.58 in 2009, rising 2.7 percent annually on average over the last decade.

• ATM surcharges – fees for when you use an out-of-network ATM – rose 12.6 percent from 2008-2009 with an average fee of $2.22. According to Bankrate, ATM surcharges have gone up at an average rate of 7 percent a year since 1999.

• Interest-bearing checking accounts had fees averaging $12.55 a month, up nearly 5 percent from 2008 levels, though non-interest bearing accounts hit a new low of $1.77 a month.

And don’t forget these other nagging fees you should watch:

Credit card fees: Late fees, processing fees, and surcharges on cash advances are just some of the fees that banks and credit card companies use to increase their revenue. Just as you become more diligent in examining your banking options, apply the same standards to your credit cards.

Retirement plan fees: If you work for a company, it makes sense to ask your human resources department how much they’re paying in fees to your 401(k) plan manager – or managers. As for your personal retirement investments, check your portfolio management fees: Also known as assets under management (AUM) fees, these are various fees that might be assessed against professionally managed portfolios. It is always important to understand these fees, see how they compare with competing types of portfolios and investments and keep an eye on what triggers them.

Restocking fees: Avoid retailers who charge restocking fees, particularly for electronics. While certain chains have dropped them due to customer protests, make sure you call the store or check their sales policies online before you spend.

If you do a financial checkup every six months, it might not be a bad idea to start examining the fees you pay to all sources and determine whether there’s a more affordable way to save, spend, shop and invest. Weigh these options against any incentives you might gather along the way.

July 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.

10 Ways to Cut Your Debt Now

2010-07-13T15:14:00.000-07:00

For many, the decision to get out of debt is preceded by weeks, months or possibly years of worry about these obligations. But it’s important to know that getting rid of debt can actually start with some very small steps and strategies that you can begin today.

Advice is a good first step. A meeting with a professional financial planner can help you investigate all sources of income and total up all your obligations – most will make you bring all your bills with you – and tailor a plan that matches your needs and circumstances. But in general terms, here are 10 steps you should follow:

1. Get a grip on the amount of debt you have: You can’t overcome a debt problem without knowing how much you owe. Start pulling together every bill with a balance where you’re charged non-tax-deductible interest – credit cards, auto loans for a start – and get a total. If you’ve missed any payments on any of these balances, bring those current first. Then organize the rest of the debt along interest rates and set a payment order that attacks your highest rate balances first. Also, this is a good time to check your credit reports to make sure there are no other surprises in your credit picture. For the three credit reports you are entitled to for free each year, go to this site: www.annualcreditreport.com. Any other credit report with the word “free” in its name that asks for a credit card number will likely charge you – avoid those.

2. Put the credit cards away: Cut up your cards if you have to, but at the very least, put them in a safe place where they’re far away from your wallet and your phone or computer (so you don’t use them for catalog or web orders). Once your debt is paid off, then you can consider which accounts you will use – sparingly – in the future. (Hint: The cards with the lowest rates.)

3. Now get a grip on spending: It’s time to make a budget. For a month, start tracking your spending – every dime. You can do this on paper or on a computer-based solution like Quicken or Mint.com. As you go through the numbers weekly, start identifying things you can live without – coffee and doughnuts, expensive lunches (carryout is a huge budget-buster) and any other frills that can be cut or eliminated. Once you start to suspect that a particular spending item isn’t absolutely essential, cut them immediately – don’t wait for the end of the month. When you get to the end of the month, build a spending plan that covers the essentials, a few small treats and then directs any additional savings you’ve identified toward paying off the debt.

4. Try to refinance your home debt: If you have not recently refinanced your mortgage or home equity debt, see if there’s an opportunity to do so while rates are still low. You’ll need at least 10 percent equity in your home and a credit score exceeding 740 to qualify for the best rates, but start negotiating with your current lender first and see how well you do.

5. Try to refinance your credit card debt: If you are facing an overwhelming amount of credit card debt, talk to each credit card company directly to see if you can lower rates or monthly payment amounts. Don’t fall for the 2 a.m. come-ons from debt resolution companies – they generally charge high fees and take the payment process out of your hands, which may mean late or missed payments. It’s not easy to negotiate a better deal and you may need to insist to speak with several supervisors. But if you succeed at getting a more favorable deal, it’s better if you keep the payment process in your hands so you can keep a constant eye on how your situation is improving.

6. If you need outside help, use some smarts: The provisions of the new Credit Card Accountability, Responsibility and Disclosure Act that took effect in February 2010 require that credit card issuers print a toll-free number for a nonprofit credit counseling service on every bill. It’s important to know that the credit card companies fund these nonprofits, so they’re not acting completely in your interest. Nor are they foolproof in making sure bills get paid on time – any time you let someone else handle your finances you face that risk. But if you are looking for outside assistance and negotiation with your balances, these agencies are a better option than those credit-repair agencies you’ll see advertised on TV. Yet a financial planner may be able to offer specific negotiation tips that can help you keep better control of your debt issues.

7. Learn to use cash or debit: Try to migrate as much spending as you can to cash as long as you get receipts that help you track that spending. A more efficient solution – particularly if you download your bank transactions into a financial tracking computer program – is the debit card. Debit cards wearing a bankcard logo are typically welcome at most stores where credit cards are accepted. This way, you pay cash without carrying cash. If you don’t have such a card, you can probably get one from your bank to replace your traditional ATM card, but remember to tell them to limit your buying power on the card to only what you have in your account. Then keep a close watch on spending so you don’t overdraw.

8. If you can do it safely, DIY: You don’t have to pay for a hand car wash or a lawn service if you can do such things yourself. For any home or auto maintenance chores you may have during the year, learn as much as you can about those tasks and how much skill, money and time it takes to do them. Previous generations made do-it-yourself a necessity. See if that option is right for you and you might save considerable money doing it. Also, for bigger jobs, pair up with friends and family and you can help each other save money.

9. Plan your shopping in advance: Impulse buying had its own role in the debt crisis. It’s time to stamp it out at least until your debt issues are fully under control. Start making a centralized list of necessary shopping items – keep the list for grocery, discount store and other locations on one page if you can so you can see everything you’re considering. Mark off what seems less than necessary. And use coupons and other discounts – the same goes for online purchases. Always do a search for coupon and discount codes to save money on shipping and overall purchase price. Oh, and when you can, buy used – recycled clothes, furniture and home goods will save you money, and if you’re making smart purchases, no one will care. Again, direct all savings toward debt.

10. At the end of the rainbow, don’t restart the problem: Once the slate is clean, don’t start spending again. Start saving and investing.

July 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.

Things You Should Do Before Working for a Startup Company

2010-07-07T09:30:00.000-07:00

In a tough economy, it’s understandable to wonder if you might have a better chance of holding down a job in a startup where you’d at least have a stake in growing something new. Indeed, the Kauffman Foundation reported in 2009 that based on U.S. Census Data, startup companies are a major contributor to job creation even in the worst recessions.

But even in the most desperate employment situations, the risks – and potential rewards -- of joining a startup should be carefully considered no matter what your age. Whether you’re presently employed or unemployed, it’s a good idea to check in with an experienced financial planner or tax expert to get their feedback on where you stand financially. It’s not a bad idea to grill them about questions they’d ask if they were in your shoes.

Anytime you look for a job, it’s your responsibility to kick the tires of the organization before you join. With a new company, that’s particularly important because they don’t have a track record, and remember that the U.S. Small Business Administration estimates that half of all new businesses fail in the first five years. So be prepared to ask the following:

Who’s running the show? If you’re fresh out of school, you’re not as likely to have the networking experience of someone who’s been working 5-10 years longer than you have. But that’s no excuse not to do your homework. An enthusiastic founder with an interesting business idea isn’t enough. Consult professors, professional associations, news reports, experienced friends and colleagues in that industry and any other resource you can find to find out about the key people in this venture, their experience, and most important, their funding.

Are they selling something their customers can’t wait to buy? Whether the startup is creating a product or service for consumers or business, don’t go with the founder’s praise of his/her creation. Become a student of that industry – see what companies currently lead the market, understand why they’re ahead now but what their vulnerabilities might become later and where the startup fits in. If you can’t figure out why this new company will blow away the market, maybe lenders and customers can’t either.

What’s the new company’s financial position right now? If you get in for a formal or informal interview, don’t be afraid to ask how well the company is funded and be prepared to confirm it through back channels. The best way to start is to ask the founder about funding. However, expect some generic responses. Most founders want to keep their financing and other matters confidential to all but the most senior or desired hires. Many startups struggle with getting capital which is why you’ll see companies close their doors before they even have a product in the marketplace. If they say they’re waiting for funding from investors, be very wary unless you know this is a team that’s had unusual success securing funding in the current tough economy. And don’t believe just what you’re told. Use whatever resource you can to back up this information.

See where the future money to operate the business is coming from: It’s not unusual to see young firms “bootstrap” their operations in the early days – that means plunging in personal savings or family contributions. Afterward, startup companies may approach angel investors (generally, rich strangers who invest less than $1 million of their own money in young, “early stage” companies that look promising) and afterward, venture capitalists (VCs) that pool even more substantial sums that look for specific industries to support. While some VCs invest in early-stage companies, they tend to look at slightly more mature firms that look like good candidates to go public, which means a big payday for everybody involved. What does this mean for a job seeker? Ask who these investors are, and check to see if they’re known for a good track record in the industries where they focus. Also, learn the language of “rounds” of financing (successive infusions of capital that help the business through all of its pre-profit growth stages). Bottom line, good companies attract smart investors that stick with them.

Who’s on their board? Boards of directors exist for companies as small as a couple of people, and it’s a good idea, even if they’re known only as “advisory” boards. It’s always a good idea to ask about them just to see who’s on the board, what function the board serves and whether it’s a good mix of investors and industry experts. You want to see smart people on a board (not just cheerleading friends and family members) who understand the company’s business and can provide tough advice that helps companies grow.

What will I get out of this besides a paycheck? Startups are risky ventures. You need to understand what personal and professional rewards you’ll get from joining up. And while people dream of getting in on the ground floor of the next Google, you may gain greater value from the chance to hold a more senior leadership position in an organization that’s trying something completely new. You ultimately will have to decide what value this new opportunity has for you and what safety nets exist if it fails.

June 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.

FPA Diversity Scholarship

2010-06-29T15:23:00.000-07:00

FPA’s Diversity Task Force, a national volunteer workgroup, established a merit-based scholarship program in which award recipients can attend FPA Denver 2010 to collaborate with the FPA community and promote inclusivity and creativity within the financial planning profession.

Scholarship applicants must fit one of three criteria:

Raising awareness of the profession in diverse communities;
Serving diverse communities with financial planning; and/or
Increasing professional opportunities for diverse communities within the financial planning profession.

The Task Force believes that the key to serving diverse clients is through a financial planning profession that reflects that diversity itself. Through these scholarships FPA strives to increase professional opportunities for the widest spectrum of people so that all may join and thrive in the financial planning profession.

Scholarship awards include one year free of FPA membership and admission to FPA Denver 2010, including accommodations and some travel expenses.

Scholarship Guidelines
Application

Financial Planning for Special-Needs Children Needs to Start Early

2010-06-14T14:15:00.000-07:00

According to a study released in December by the U.S. Centers for Disease Control, an average of one in 110 children have autism spectrum disorder -- a range of conditions that could lead to problems with socialization, communication and behavior. For parents affected by these conditions or other physical, emotional or developmental disabilities in their children, financial planning should be part of the response.

Why? Because like other financial goals, planning properly for the future of a special needs child requires money, skill, time and foresight. In addition to the medical, educational or therapeutic expertise necessary to help the child lead as normal a life as possible, parents need help planning their finances to assure there are resources to support the child as long as such resources will be necessary. In some cases, that will be long after the parents are gone.

Because parents of special needs children have so many other issues to consider, it’s good to bring in trained expertise, including financial, legal, tax and estate help. A financial planner is a good first step.

Many parents have trouble grasping the necessity of a plan. According to a 2005 MetLife study, 60 percent of parents don't expect their child with special needs to be financially independent. Yet 68 percent said they hadn’t written a will, and 29 percent had done nothing to plan for the child's financial future. The report says that most parents are aware of the need to make plans, but they don’t know where to turn. As a first step, the study showed that 85 percent turned to their doctor for financial advice.

There are planners who specialize in special needs issues for family members of all ages. PlannerSearch, a service provided by the Financial Planning Association®, can help sort planners by expertise and location. Here are some common financial planning activities that parents of special needs kids should explore:

Revise – or make – an estate plan: Most individuals think of an estate plan as a safety net for when they die at a very old age. In fact, everyone should make an estate plan as if they expected to die tomorrow. This is particularly important for parents of special needs children. With special needs cases, an estate plan needs to be specifically tailored to make sure that assets are properly disbursed for the specialized care of their kids after they die. The first step of the process is making a will with specific directives for the child as well as yourself if you are incapacitated and can’t make decisions for the child.

Start thinking about the child’s assets: A child can have no more than $2,000 in total assets to qualify for federal benefits, so special planning is necessary. It’s particularly important to make sure that the child not be named a direct beneficiary of any assets that would put him or her over the $2,000 figure at any point in time, so it’s important that proceeds from life insurance, IRAs, annuities, 401(k)s, 403(b)s and any other inherited assets be placed in something called a Special Needs Trust. These trusts can be set up to accumulate, manage and disburse monies for any child with a disability. (There are also Community Trusts that are set up by various nonprofit institutions that perform the same function.) The trust itself can be made the beneficiary of any inherited assets and with very few limitations won’t affect the child’s eligibility for government benefits. Parents also need to consider whether or not to go through the guardianship/conservatorship process to take legal/financial control of their children’s lives. In the case of a minor child, generally guardianship or conservatorship will terminate when the child turns 18 or, in some states, upon marriage if the child marries before age 18. Then, obviously, parents need to decide whether a disabled child needs a trustee other protections to carry him through adulthood and their death.

Establishing a financial and retirement plan: Even though one or both parents undergo a massive lifestyle change to support their disabled child – a responsibility not unlike a second career – they can’t forget planning for retirement and healthcare needs in their old age. As difficult as it sounds to make parents’ lifestyle needs a priority, it’s essential.

June 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.

Wedding Season is Here: Planning for a Financially Secure Marriage

2010-06-10T15:12:00.000-07:00

Even for couples that have been living together for awhile, the decision to marry marks a new financial beginning, the first real moment that two people will share a lifetime financial future. The irony, however, is that for so many couples, the first big discussion about money doesn’t involve affording a house, car or kids, but how to pay for a big party that lasts only a few hours.

All marriages should start with a celebration. But if more couples thought about the benefits of financial planning first and celebration second, their marriages could be on a firmer footing with potentially fewer money worries in the future. In fact, the latest Condé Nast American Wedding Survey reports that the price of the average wedding is now a little over $28,000 (not counting the engagement ring or the honeymoon).

So before anyone rents a hall or starts assigning the bridal party, it might be wise to take the following steps:

Start looking for advice: Find a financial planner, such as a CERTIFIED FINANCIAL PLANNER™ professional, to help you map out a formal financial plan. While most planners recommend potential spouses plan with an eye toward merged finances, if certain assets and liabilities are to be managed separately, it’s best to make a plan for that as well. It’s also good to find a qualified tax professional to handle your joint tax matters as well as an estate attorney to get your wills and special directives in place once you’re married – this is particularly important if you’re bringing kids into the marriage. The other steps that follow may actually come before you meet with any of these people, but it’s good to commit to solid professionals at the start of a marriage who can help you plan from day one.

Set aside a week for full financial disclosure: This is a move that all couples should make before moving in together, but when the issue is marriage, it’s a necessity. Each partner needs to show up with their latest credit reports (go to annualcreditreport.com for to get all three for free) and their latest pile of bills and whatever tracking software or system they use for their spending. Bankruptcy records need to be disclosed and discussed if they exist. If there is debt of any kind, both parties need to see the numbers and figure out how it will be paid off and when. If there are children being brought into the marriage, there needs to be significant time set aside to discuss which expenses will be paid by the newly married couple and which might be shouldered by ex-spouses and partners. There also needs to be a full discussion of income and career plans, retirement funds that exist at work and individually and what each partner’s money priorities really are, not the least of which will be plans for buying a home and starting a family. The couple also needs to discuss how they will manage their money going forward – individually, jointly or a hybrid of both methods. With all these priorities decided, then it’s an appropriate time to focus on how you’ll split household expenses.

Take a course: Many religious denominations as well as colleges actually hold courses on marriage and cover financial topics as well. Most people think such courses are only for young marrieds, but don’t be so sure. Check around – your community may offer some excellent seminars and courses that might teach you a lot more than you think you know right now. (Your CFP® professional might know of one that might be right for you.)

Create a day-to-day budget: A budget tells you how much and where you are earning and spending each month. You need to initially track what you both spend on groceries, clothing, utilities and other bills. It doesn’t matter if you keep these records on paper or on a computer, it’s just necessary you keep them accurately. If you’re not keeping what you’re spending below your income, it’s time to start adjusting those spending numbers downward. And remember – two do not live as inexpensively as one.

Discuss housing plans: One might be moving into the other’s apartment or home, but how long will that last? It’s good to discuss housing priorities for the long-term, including the kinds of real estate and geographical areas where you’d want to live.

Talk about investment goals and how you’ll make them happen: At whatever point in life you’re entering a relationship, you need to discuss not only how set you are for retirement but what you hope your retirement will be. Talk about assets in your 401 (k), IRA and other investment accounts. If one or the both of you haven’t taken any steps to plan for retirement, you’re going to need to change that. If you vary widely in age, it’s wise to ask for advice since one spouse will be retired long before the other. It’s also important to study whether your merged investments are diversified enough and whether that combined portfolio reflects a shared level of risk tolerance.

Navigate now how you’ll handle pre-marital debt and family issues from previous marriages and relationships: A financial planner can also help you determine how you should handle pre-marital money issues like business assets or significant debt – you may want to consider the need for a prenuptial agreement as well. At the same time, if one or both spouses have children or other relatives from previous marriages that represent a financial obligation, it’s wise to settle those issues well ahead of the wedding and in writing.

June 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.

South Seattle Community College Offers a Live Review in West Seattle

2010-05-25T12:00:00.000-07:00

Monday, June 21 – Friday, June 25, 2010
8:00 a.m. - 5:30 p.m.

Make the best use of your time as you prepare for the Board Certification Exam.

South Seattle Community College’s Live Review provides you :

Focus only on those areas that will most likely be tested.
Experienced CFP faculty to eliminate confusion.
Tips and techniques for taking the exam.
Practice with analyzing case studies.
Organized final review.
Time to concentrate on only the upcoming exam.
Peers to study with.

South Seattle’s class is taught in affiliation with the College for Financial Planning and uses their materials. The College for Financial Planning has more years of documented success as a provider of financial planning than any other institution. Their students have a significantly higher pass rate than the national average.

Cost for the workshop: $925 includes 5 days of instruction, access to the faculty after the course, a set of workbooks with problems and case studies to be used each day, parking and a discount on purchasing College for Financial Planning review materials.

South Seattle Community College is located in West Seattle, just five minutes from the West Seattle Bridge.
6000 16th Ave. SW, Seattle, 98106

For more information or to register: http://www.learnatsouth.org/ or call 206-768-6782
lmotten@southseattle.edu

Protecting Your Summer Vacation

2010-05-18T10:42:00.000-07:00

For many families, finding money for a family vacation has been tougher since the economic downturn. More than ever, trips are an investment worth protecting – volcanic ash from an Icelandic volcano proved that for hundreds of thousands of travelers in mid-April.

Protecting your vacation isn’t simply about protecting what you spend on airfare, transportation and hotels, though that’s a big part of it. But it’s also about protecting your own health and safety and your home while you’re away.

Protecting your vacation:

It’s all about what could go wrong on your trip: Where are you going and how long will you be there? Overseas or domestic? Are there multiple destinations? Who’s traveling with you? How’s your health and the health of everyone traveling with you? How much do you stand to lose in airfare and deposits if any stage of your trip is delayed or canceled? What happens if someone steals your wallet? The steps you take should start with a worst-case scenario assessment of all of these aspects first, and one more tip – start this process the minute you start making arrangements.

Check your own protections first: Do you have enough money in your emergency fund to cover any lost deposits or nonrefundable expenses on a trip? Will your own health insurance or Medicare cover any medical expenses at your single or multiple destinations? What protections might your credit card company offer? Will your home insurance actually cover such things as lost luggage on trips? It’s possible you are already paying for coverage that might protect you on an upcoming trip. Make some calls.

If there are still gaps, investigate travel insurance: Travel insurance is typically a good idea for longer, more expensive trips because cancellation for air or ground delays, medical problems or thefts can leave more of a financial impact on an extended trip than a quick weekend getaway. If the trip is outside the country, it’s especially important to check all your existing coverage because most health insurance doesn’t apply internationally. Here are some other things to know about travel insurance:

• Start searching for coverage the minute you make your travel plans: InsureMyTrip.com is a market leader and a good first stop in analyzing coverage – you start by punching in the necessary information on your trip (dates, age of travelers, medical coverage needed, etc.) and it spits back a variety of possibilities at all price levels. Clicking on any of the choices will give you a detailed view of what those policies will and won’t cover.

• Follow up by phone: Understand exactly how various coverages work before you buy. Will cancellation insurance cover a missed hotel stay or will it also cover meal and transportation expenses in the city where you’re stuck? Also keeping the Icelandic situation in mind, see whether weather-related delays or natural disasters are covered. Also ask if your policy covers delays covered by hurricanes. Even if you’re not in a hurricane zone, hurricane activity can cause delays over a wide area. The 2010 hurricane season begins on June 1 and will run through November.

• Be honest about pre-existing conditions: If you’ve recently had surgery or have a chronic health condition, practice full disclosure and make sure your condition will be covered before you buy.

Protect your money while you’re away: Most people travel mainly with plastic these days, but don’t get clobbered with overseas credit or ATM fees. Check with your credit card company and bank to see if you’ll be charged any extra fees, particularly overseas. See if you can have those fees waived. Also, if you become a frequent traveler to a specific location, you might want to open an account at a local bank that has locations where you’ll be. Many multinational banks are right for this purpose.

Protecting your home

Tough economic times may mean that your personal property is at greater risk of theft or vandalism, and the opportunity for those risks go much higher when you’re away. So make sure:

Your home insurance is up to date: If you’ve made any major investments in the structure or grounds of your home, it’s time to update that information with your agent anyway. But mostly, review your coverage and make sure it’s paid up.

Check your home security system: If you have a burglar alarm or any lights or camera systems around your home, make sure they’re working properly. Let your security company know exactly when you’ll be away.

Have someone you trust check your property while you’re away: Make sure this person has keys and security entry codes in case they need to go in to your home or office for any reason. And make sure they know how to reach you.

Check your phone and Internet service before you go: Make sure your cellphone works wherever you’re traveling, particularly if you are going overseas. Also, it’s important to check in with your cell carrier in advance to make sure you understand the cheapest way to make calls home or to use your computer for Internet use abroad.

Protect your computer and documents from thieves: If you don’t have a security password on your home computer, install one. And if you have credit card numbers or passwords programmed into banking, investments or shopping sites, remove them. And if you have a cheat sheet near your desk with every login code you need to operate your life online, lock it up.

Protecting yourself

Make a disaster plan: Nobody wants to start a dream vacation thinking about worst-case scenarios, but doing so could save considerable time, worry and money. Before you leave, make sure you have a battle plan for lost wallets, cell phones and health issues. Make sure your wills and durable and health powers of attorney are current and make similar checks on your disability and life insurance. Have a plan to access your passport number in case your passport is lost or stolen while traveling – make sure you know in advance how to reach the embassy or consulate where you’re going. And have an emergency contact at home checking the State Department website for foreign travel alerts to make sure your family and employer know of your circumstances if there’s an emergency.

Check your health insurance: Again, a health crisis while traveling doesn’t just threaten a vacation. It might threaten your overall financial security. What if your health benefits won’t cross state lines, much less international borders? If the answer is no, see whether your credit card company offers health care coverage there and if so, what it costs and what it entails. The next step is purchasing specific travel health insurance that will be accepted at your destination, which may be sold in a package with other coverage. Call the concierge at your destination to get information on the best nearby hospitals and clinics so you can check if your coverage applies, and see what ground or air transport options exist to get you to the best hospital. Transport can be costly if you’re in a remote location. Keep in mind that travel health insurers will demand to know about recent surgeries and pre-existing conditions.

May 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.

Federal FAFSA Forms Are Due June 30 – Tips for Last-Minute or Future Filers

2010-05-12T08:53:00.000-07:00

As the busy High School and college graduation time approaches, it’s worth a reminder that June 30 is the online filing deadline for the Free Application for Federal Student Aid (FAFSA) for school year 2009-10.

FAFSA is the form the federal government requires before you can qualify for any federal education aid. Most state governments have already had deadlines pass for their forms, but that doesn’t mean that students and their parents shouldn’t file anyway – some states continue to award money until their funds for financial aid are depleted. If you have a student already in college, this deadline means it’s time to focus. If your child is a few years away from college, the date provides a good chance to learn and plan.

The National Center for Education Statistics reported in reported in April that about 76 percent of first-time, full-time students received some kind of financial aid for the 2007-08 academic year, up from about 73 percent the previous year. The jump from year-to-year was likely fueled by recessionary pressure on parents and students. But this raises an important point: Unless there’s absolutely no doubt that you can pay cash for an undergraduate or graduate education, it’s essential to fill out both state and federal FAFSAs while keeping an eye on all potential sources of college aid.

A financial planning professional is the best first stop for long-term college planning, but they can also provide strategic advice for students and their parents who need to find short-term funding solutions for tuition, room, board and books. It’s increasingly important to get as much individualized assistance as major changes are going on in the college-funding picture both in the private and public sector.

But FAFSA is all where it starts. Today, the application is an online process on the U.S. Department of Education’s Federal Student Aid website. It’s a lengthy process, but the site takes students and parents through each stage step-by-step.

Even if your child isn’t headed for school for a few years, it makes sense to go over the FAFSA form as soon as possible. The form assesses the student’s and parents’ income, investments and other financial resources, and arrives at something called an EFC number, short for Expected Family Contribution. The online version allows you to test those numbers in advance. A college takes your EFC and does a simple calculation, taking the total cost of attendance, subtracting your EFC and ending up with your total amount of financial need. And based on that computation, the school’s financial aid office will prepare a financial aid package that will be summarized in a letter.

If you’re a student or a parent, here are the main items you’ll need to complete the form:

1. The student’s Social Security number

2. Driver’s license number (if available)

3. The student’s most recent tax return (if available)

4. The parent’s most recent federal and state tax returns (for students registering as dependents)

5. 2009 untaxed income records

a. Child support received

b. Workman’s Compensation

c. Veteran’s non-education benefit records

6. Bank account information

7. Documentation forms for resident aliens.

Here are a few starting points on the financial aid process:

If you’re not sure about your overall college finances, get advice first: A CFP® professional can start by helping you sort out your finances and affordability options for various college choices. Also, planners can tell you what assets should and should not be included on the FAFSA form to give you the maximum opportunity for aid.

File early: Federal deadlines are firm, and keep in mind that during the economic crisis, state budgets for college aid are tight, and those deadlines are generally earlier anyway. Get the necessary application information in early to be first in line for grants – the best form of college aid because grants don’t have to be paid back. Also, keep in mind that Washington has bumped the 2009-10 maximum scholarship for the Pell Grant up to $5,350, up $619 from last year’s award.

Bring your tax professional into the discussion: A financial planner can offer extensive advice on the college planning process, but tax professionals can help you find more tax-efficient ways to structure your finances and plan for college that won’t negatively impact your ability to qualify for financial aid.

Stay close to the financial aid office throughout the process: Not only is it important to make sure the necessary paperwork is in the aid office at each of your student’s chosen schools, it’s important to keep the aid office informed if there’s a sudden change to a family’s financial circumstances, such as a job loss or change in marital or health status.

Focus on scholarships and grants: Employers, clubs, fraternal societies, trade associations related to your field of study, professional networking associations related to your eventual career (many of these groups have chapters at colleges) and companies that employ parents or summer interns are great potential resources for scholarships and grant money. If any of these options have a scholarship fund, do whatever it takes to find out about qualifications for these programs. Though with so many states in budget trouble, it makes sense to keep an eye on any grants you receive from local or state government. It’s entirely possible that public funding shortfalls can endanger grants when the student needs to pay bills.

Public service might buy loan forgiveness. The College Cost Reduction and Access Act of 2007 established a public service loan forgiveness program that discharges any remaining school debt (remaining interest and principal) after 10 years of full-time employment in public service. The borrower must have made at least 120 payments as part of the federal Direct Loan program in order to qualify. Only payments made on or after Oct. 1, 2007 count toward eligibility in the program. Which jobs count as public service jobs? A partial list includes jobs in emergency management, military service, police and fire positions, certain health employees, public education and public legal services. For more details, check www.federalstudentaid.ed.gov.

May 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.

Helping Your Kid Manage Money and Opportunity on Their First Summer Job

2010-05-04T09:22:00.000-07:00

Your teen’s first experience working for an employer marks a milestone in their lives. While they might have earned allowances when they were younger for chores and for neighborhood babysitting, that first real job with a paycheck is a chance for a child to learn how to make smart choices with the money they earn.

Hopefully you’ve had a chance to teach them about putting money aside in a piggy bank or saving for particular toys, treats or activities long before now. When it comes to the job search or counseling on money issues, here are some things that parents can do:

Talk about your own work values: Kids learn by example. At ages earlier than most parents might believe, kids pick up whether their parents have a good or bad relationship with work and money. Think about what you say about your own job – do you complain a lot about your boss or co-workers? Do you gripe about your paycheck? Are you realistic about the good and bad days? If you’re passionate about what you do, do you talk to your child about that in a way they can understand? One of the best lessons a parent can teach a child about work is a simple one: Do what you love. Once a child understands this, they’ll begin to understand that work isn’t about money alone.

Discuss what a child likes to do: Sometimes the best job in the world for an unfocused teenager might be in fast food or construction because those jobs are tough, tiring and not-too-subtle reminders that getting a college degree can vastly widen one’s horizons. But if they have special skills, such as working with computers or teaching kids, that’s an opportunity to get them thinking about jobs that are more rewarding and pay potentially more than minimum wage. So don’t discourage self-employment. The skills a teenager uses to earn income at 14 or 15 might pave their way to a college scholarship at 18. Also, don’t fail to mention the benefit of working summer internships in their chosen interests when they get to college.

Know the law: If your child gets a job at a nationally known employer, chances are that standard work rules will be followed. But it’s good for parents to know what those rules are and to make sure their kids know them too. Parents and teens can do some research themselves about teen work, work rules and safety by visiting the U.S. Occupational Safety & Health Administration’s Teen Workers Web site.

Teach your kids to job-search like an adult: Get your kids to start looking for work months ahead of when they’ll need the job. Get them to read the want ads. Have them check salary averages for the jobs they’re thinking about on the Internet. Have them check out prospective employers as well – the Internet will allow them not only to learn about the company, but possible problems the company has as well. There’s really no reason to wait – anything you’ve ever done to check out a future employer, teach those skills to your teen. Also, encourage them to talk to family members, teachers and community leaders you trust about job possibilities nearby – it’s never too early to learn how to network.

Sit down with that first pay stub: If you can, take a minute to make sure your teen sees exactly how much of their pay goes toward taxes and other key withholding items and what that will potentially mean at tax time. Then encourage them to have a little fun with that first paycheck before they go on to save the others. They worked hard for that money.

Make sure they have a bank account: Many employers do direct deposit, so a bank account will probably be a necessity for your child. But encourage them to start both a checking and savings account so they understand that some money is for savings and some is for spending, particularly if they’ll need to have a role in saving for college or paying for a car and maintenance.

Prepare yourself to deal with their mistakes and failures: Your child may have rough times on the job; they might lose their job or fail to get paid. Don’t fight their battles for them, but be ready to offer advice that will encourage them to work well with people, always look for better opportunities and make sure they’re being valued for their labor. The best work lessons are not always about money.

May 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.

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

2010-04-27T13:18:00.000-07:00

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?

2010-04-20T15:01:00.000-07:00

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

2010-04-13T14:34:00.000-07:00

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.

Invest in Yourself to Make Your Business, Personal or Job Prospects Brighter

2010-03-30T11:13:00.000-07:00

When we think of investments, we often forget that the best place to make an investment of money or time is in ourselves. So if you’re in a job you might want to change as the economy improves or if you feel a major lifestyle change in the offing, it makes sense to consider these kinds of investments:

Commit to an annual business plan – even if you don’t have a business: Even if it starts with a pro-and-con list that focuses on what you want to do with your life, come up with a list of solid goals for the year and how you plan to accomplish them.

If you want to make a career change, do your research: If you’re planning to stay in your field or make a complete change, one of the most detailed yet neutral resources for investigating career fields and their salary and hiring forecasts is the U.S. Bureau of Labor Statistics’ Occupational Outlook Handbook. This extensive online resource not only lists major career groups, but the leading occupations in it, educational requirement, and most important, salary data. If you haven’t been in the job market for a while, this kind of research is a good way to reset your knowledge of your industry and whether its hiring prospects are bright.

Get some advice: If you want a new job, to head back to school or plan to take a year off, it makes sense to get tax and financial advice. A financial planning professional can help you evaluate your current benefits package and retirement savings or talk through what you should be looking for at your next job if you’re unemployed.

Plan for a return to school: Going back to college – even community college – can be a major investment. If you’re going to have to finance your education yourself, it’s necessary to have a plan and knowledge of federal, state and local loans, grants and scholarship programs. The Obama Administration has streamlined the Free Application for Federal Student Aid (FAFSA) form and increased Pell Grants by $500 to $5,350 for 2009-2010 and created the American Opportunity Tax Credit, a new $2,500 tax credit for four years of college tuition. Additional information on Federal Student Aid and Tax Credits is available at www.fafsa.ed.gov and www.irs.gov. It is important to understand the eligibility criteria and limits associated with each program.

Invest in new equipment: We’re not talking about machine tools here. Whatever your job or interest, there’s usually equipment to support it. For example, if you’re planning to learn new skills that involve a computer or software, now may be the time to invest in those items. Think about how this equipment will boost your productivity and the time it will take to earn back what you paid. If the numbers work, go for it.

Network: It’s important to get face-to-face with people in the field. You don’t want to do a job search on your employer’s time, but if you can get away at lunch or after work to attend networking functions, it’s worth your time for two reasons. First, you might meet your next boss there. Second, simply by talking and getting to know people already doing the job you want, you’ll get a ground-level view of whether the industry is for you and which employers are the most popular. You’ll also get an idea of which companies to avoid.

Consider timing issues at your current employer: If you are up for a salary review soon, it might make sense to hold off on interviews until you have a better idea of what you’re worth in the marketplace. Also, as the end of the year is coming, you might want to use up any money in your flexible benefits accounts for medical appointments, glasses or dental work before you leave.

Plan to maximize your take-home pay at the next job: This is where a call to your tax or financial planner comes in handy. Some fringe benefits may be taxable, which means your real take-home pay might be less than you expected. To the extent that you get to negotiate your benefits on your way into a job, do it in a tax-smart way.

Decide what you’ll be doing with your 401(k) and other retirement funds: You may not want to make any moves for awhile, but it’s good to talk with a financial planner about whether you’ll be moving that money to private accounts. Also, make sure you know when you can enroll in the company 401(k) and other retirement offerings at your new employer.

Secure your insurance: You might wait a few months to a year for new health coverage to kick in at a new job. You might need to buy private insurance until then or go onto a spouse’s health plan in the meantime. Also, consider separate disability coverage if you’ve not done so – company coverage goes only so far, and if you are laid off or leave to start a business, you should have coverage of your own that you should buy while you’re still earning a salary.

Lose some weight, upgrade the wardrobe: We don’t like to admit it to ourselves, but appearance matters – sometimes a little, sometimes a lot. Potential employers, clients and business partners like to do business with someone healthy and presentable, and that’s why paying attention to oneself really does matter. It matters for another reason as well. Even if health reform makes it easier for people to become insured with preexisting conditions, increasingly insurers are taking a dim view of obesity and will still tie the cost of health insurance and other policies to your weight and overall health quality. Make 2010 the year you make this happen.

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.

Going Green Can Save Big Green, Thanks to the Blue Economy

2010-03-24T11:21:00.000-07:00

“Going green” gets plenty of attention for what it does for the environment. But people often forget that environmentally smart behavior can save money as well.

Earth Day is right around the corner – April 22. One of the best ways to celebrate is to do a “green check” of how you spend your money and make both energy- and money-smart plans for your home and lifestyle going forward. Some ideas:

Start a home repair and appliance replacement list: Knowing when you did a home remodeling job or replaced a major appliance is a way to keep track of the lifespan of these improvements and a way to signal when you’ll be in the market again. Why is this a green practice? Because if you have an idea when new renovations may need to happen or when new appliances need to be bought, you’ll have time to investigate the most energy efficient choices and the greenest materials and building practices that should be used. Also, it’s a good list to have available when you finally sell your home or rental property – buyers like to know exactly how old renovations and installed appliances really are. Keeping an honest, detailed list communicates that you’re a good homeowner who has taken great care of the property.

Do a transportation audit: Think about all the ways you use your car. Is owning a car absolutely necessary? Can you get more out of a necessary car trip by consolidating errands and activities? Better still, can you save significantly more through public transportation or telecommuting? The Washington, D.C. American Public Transportation Association features a transit savings calculator on its website that can help you make a cost comparison between mass transit and operating your car.

Remember transportation-related tax breaks: It might not seem like a lot, but if you run a company and have one or more employees who ride their bike to work at least three days a week, you qualify for the $20-a-month employer reimbursement for reasonable bike expenses offered by the federal Bicycle Commuter Act. As of Jan. 1, 2009, employers who provide bike parking, bathing facilities, tune-ups, or other support for bicycle commuting, can deduct up to $20 a month per participating employee from their own taxable income. Work with your tax professional or your financial planning professional to make sure you qualify for the break.

Also, the Internal Revenue Service allows employers to offer employees ways to offset their mass transit costs either as a direct subsidy or a pretax deduction from their paychecks. For the 2009 tax year, those limits were set at:

     • $230 per employee per month for vanpool, bus, ferry, rail (all public transportation);

     • $230 per employee per month for qualified parking; or

     • $460 per month per employee for both public transportation and qualified parking.

Do a utility audit: Simple actions like designating an “indoor sweater” policy so you can turn down the thermostat a bit are a good place to start. Shut off lights and vents in any area of the house you’re not using. Get a programmable thermostat that can adjust heat and cold based on when you’re going to be in the home. Consider low-flow showerheads, toilets and faucets to conserve water. And be smart about when and how you run appliances – don’t run washers, dryers or dishwashers until you can give them a full load. You should also think about the kind of light bulbs you’re using as you replace them. Compact fluorescent light bulbs (CFL) cost more than conventional bulbs but consume a third of the power and last up to 10 times as long. Oh, and if you’re not using lights or appliances in a particular room, turn them off, and better yet, unplug them if you’re not going to be using them for a significant amount of time.

Be smart about replacing appliances: It’s smart to check the Energy Star website to see how a particular brand of home appliances ranks for energy efficiency. But it’s also wise to keep any eye on Washington D.C., particularly this year. As part of the nation’s economic stimulus efforts, the federal government has set up a “cash for appliances” program that will be rolling out state-by-state this year. Similar to the “cash for clunkers” program in the auto industry, this federal program will offer significant discounts for buying new appliances to replace older ones that don’t meet federal energy-saving guidelines. Start by checking with your state’s energy department to see what kind of appliances will qualify for these discounts.

Keep an eye on renovation incentives: The federal government has also extended throughout 2010 a series of energy-efficient renovations on primary residences. Windows, roofs and heating/air conditioning upgrades are part of the program, so start by going to the Energy Star website to start determining which products and brands qualify, because not all do.

March 2010 — This 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 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.

Affording Graduate School While You're Still Working

2010-03-16T08:27:00.000-07:00

According to U.S. News & World Report, today’s average master’s degree holder earns an average annual salary of $52,000 compared to $42,000 for someone with an undergraduate degree. Those who’ve earned professional degrees such as law or medicine earn an average of about $82,000.

Yet costs can vary widely among U.S. graduate schools. Some average a few thousand dollars a semester in tuition – not cheap, but doable for many working people. However, Business Week estimated in December that the average tuition for a two-year MBA program now tops $60,000 – that doesn’t include room, board or other fees. So for top graduate schools in many fields – not just business – the whole graduate school bill can easily top $100,000.

As a personal finance issue, there are several key questions you should answer “yes” to before making the expensive leap into graduate school, including:

1. Have I researched my career field fully to determine whether a graduate degree in this subject will improve my earnings and professional advancement? If I have significant experience in my chosen field, do I really need the degree?

2. How quickly do graduates from my school of choice find employment and what is the average opening salary in my chosen field?

3. Do I have the time and focus to attend school while I’m working, and have I set a reasonable deadline to graduate? Will it place an undue burden on my family, career or social life?

If you’ve made your decision on a Top 3 list of schools, then the next step is to determine how you’ll whittle down what you’ll spend to get that diploma. One of the first steps in that process is to evaluate your total financial picture. Many early and mid-career students have additional expenses to consider, not the least of which includes family.

That’s why it’s good to get an impartial view on your current financial situation with a financial planner such as a financial planning professional. Other ideas:

Investigate endowments: A university’s endowment is its nest egg – a pile of investment dollars that produce investment income going to a variety of purposes. One of those purposes is grants and scholarships, the most attractive form of college aid because students don’t have to pay that assistance back as they would a loan.

Check on fellowships and assistantships: Depending on the advanced degree you’re going for, you might be able to fund your education through fellowships or assistantships. Fellowships are a sum of money awarded to promising students that can go toward paying tuition and room and board. Generally, they are awarded on the basis of merit and don’t have a work requirement. Assistantships are a bit like a prestigious work-study program. Students who have a promising future are awarded a stipend or salary based on 10-20 hours a week of helping professors grade papers, conduct research, teach classes or supervise lab or workshop courses. Of course, any student considering these options also needs to consider whether they can support the workload while excelling in class.

Borrow smart: Most undergraduates exit college with debt in excess of $20,000, so without a pile of savings built up from their careers, most grad students end up borrowing heavily. The National Center for Education Statistics reports that based on 2004 data, 73 percent of all graduate students received some form of financial aid with an average amount of $15,100. Generally it’s smart to tap all government-sponsored lending programs before turning to private borrowings. Stafford loans are generally the cheapest way to go with lifetime average. Subsidized lending rates for the 2009-2010 school year are currently at 5.6 percent (the unsubsidized rate is 6.8 percent), and their lifetime borrowing limits are at $138,500 for most degree programs and up to $224,000 for health professionals who spend the most on their education.

Check your qualifications for tax credits: Recent economic stimulus legislation has loosened up more tax benefits for new and returning students. The new American Opportunity Credit allows a rebate of up to $2,500 for each qualifying student in a family for the first four years of college. The full credit is available to individuals whose modified adjusted gross income is $80,000 or less or $160,000 for married taxpayers. This replaces the $2,000 Hope credit for the first two years of school and the Lifetime Learning credit that applies at a lower amount afterward. Go to IRS.gov for more information.

Get your employer to pitch in: Take advantage of every educational break you can take before you leave your company. If they require you to stay in your job a certain amount of time after accepting that aid or attaining your degree, work that into your plan.

Check local scholarships and grants: See if there are sources of grants and scholarships not only in your community, but also within your industry. Go online and do a general search for such aid among local nonprofits and professional organizations.

Consider a functional degree. All sorts of colleges – even the nation’s most prestigious schools – are considering abbreviated graduate and post-graduate programs that give students exactly the amount of education to upgrade their skills and head back into the workforce. In other words, if one year of college will do, why pay for two or more?

Get that PhD: If you’re in a field where a Ph.D means something – added status, added money or both, go for it because funding options might actually be more plentiful. Colleges want the best possible students in their Ph.D programs and load on tuition and living benefits to make sure that they choose their program and more important, that they complete those degrees.

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.

The Early Bird's Last Squawk

2010-03-09T13:42:00.000-08:00

March 15 is the last chance to save $100 on the 2010 FPA NorCal Conference.

Quick and easy registration is available at www.fpanorcal.org.
The savings are significant, but the benefits of attending FPA NorCal are even more important.

* World-class keynote speakers.

In 2010, that list includes Marci Rossell of CNBC's SQUAWK BOX, and Andrew Ross Sorkin, a reporter for The New York Times, and the author of a major new book, "Too Big to Fail: How Wall Street and Washington Fought to Save the Financial System ‹ and Themselves. "

* More than 40 breakout sessions.

Speakers you will not want to miss on topics that are absolutely essential to your success. There's Michael Kites, Bob Veres, FPA President-Elect Tom Potts, and Schwab's Mark Palmer among many, many others.

* Continuing education credits galore.
* Endless opportunities for networking.
* Special prices on luxurious Palace Hotel rooms if you're going to stay for a night or the entire weekend.

Best of all, you can take advantage of all the learning and all the excitement and save yourself $100 if you register now.

Early Bird registration for the 2010 FPA Conference is available until midnight, March 15 at www.fpanorcal.org/.

10 Things New Couples Should Do About Money

2010-02-24T10:44:00.000-08:00

Valentine’s Day is a time when couples usually spend money on each other, but not discuss how that money should be spent.

But a survey on couples and money released last November by Capital One pointed out that younger people (18-34) are more prone to conflicts with their partner about money: 36 percent disagree monthly (or more frequently) with their partner. Sixty-five percent of those between ages 18-24 and 41 percent of those between ages 25-34 report that they have argued about money during the last 12 months.

Money problems can overwhelm a relationship, particularly a relationship on the verge of marriage or a live-in arrangement. Here are 10 ways to avoid at least some of that conflict:

1. Agree that money is something that should be talked about: Not every couple needs a set date and time for a monthly money meeting – though that might help a lot of people. The first discussion any couple should have about money should deal with whether they can talk about it. It might be worth discussing how each person’s parents dealt with money issues and whether those practices would be worth copying or avoiding. Most important, money problems will happen in relationships – it’s important to discuss how you want to handle disclosure and working things out.

2. Swap credit reports: Before discussing who will pay the energy bill, couples need to know if they can afford it. Individuals should check all three of their credit reports – from Experian, Trans Union and Equifax - on a staggered basis throughout the year to get an idea of debt amounts and to catch inaccuracies that might surface during the year. Ignore all the heavily advertised “free” credit report services and go to www.annualcreditreport.com for credit reports that are actually free. Swap reports when they arrive and check the other’s data for inaccuracies and changes from the previous reporting period that might signal an increase in borrowing or the possibility of identity theft. And again, make sure you talk about it.

3. Discuss all the past baggage: If couples have been previously married or in other live-in relationships, there might be expenses associated with kids to consider or previous debts and bankruptcies. If you’ve seen each other’s credit reports, that might also add a few topics for discussion. You’re not ready to handle money until you understand how both sides have handled it in the past. Talk about money priorities for the kids, and how one or both of you will extinguish debt.

4. Discuss money dreams: Part of the reason money discussions can be so stressful for couples is that most discussions focus on problems. Make sure you also discuss positive stuff – like how you’ll afford travel you both want to do, how and when you’ll be able to buy a house, future tuition dollars or how you’ll afford to start a family.

5. Build a first budget: If you’re moving in together, you need to create a budget. The first step is tracking current income and spending data for at least three months and making sure you’re noting important expenses coming up in the future. If you want help, it’s easy to get. A financial planning professional can help you measure where your money is currently going and where you might have opportunities for necessary spending or saving.

6. Decide how – or whether – you’ll merge your money: Being a couple means building shared financial connections. The extent of those connections is up to you. Talk about combined checking and savings accounts and access to each other’s investments. This is a particularly important talk to have if you’re planning to marry. Joint checking accounts have several advantages – they allow for simplified recordkeeping and greater transparency on what both sides are doing with money. Separate checking accounts allow for greater independence and individual responsibility over money.

7. Be very careful about joint credit: There was a time when women couldn’t easily get credit and were solely dependent on the credit history of their husbands while their men were alive – once the male spouse died, so did the wife’s credit opportunities. That changed with a broadening of lending law in the 1970s, and it’s particularly important that both partners establish credit in their own names with a good history of using that credit. Surviving spouses have the freedom to establish credit, but without a solid history, it may be particularly tough to get credit at a time when they really need it. Also, surviving spouses have to pay off outstanding credit held jointly, so it’s critical to keep those accounts under control.

8. Consider a prenuptial agreement: If one or both partners or potential spouses have sizable assets or particular priorities about allocating money for specific purposes, charities or family members, a prenuptial might be worth a discussion. A financial planning professional can work with tax, estate and matrimonial attorneys to work out that agreement in a way that’s advantageous to both sides.

9. Talk about long-term savings, investing and estate issues: Even couples who keep separate finances need to prepare their income and retirement plan together to maximize the money they’ve worked for. A financial planning professional can help couples sort through their goals and what it will take to get there and how a potential inheritance may affect these plans and potential estate issues.

10. Plan for the unexpected: Couples should begin building safety nets from the beginning. Building an emergency cash reserve fund to cover between three to six months of living expenses should be a first goal. Then, depending on living circumstances and whether children or significant assets are involved, couples should develop estate plans as early as possible including wills, powers of attorney and specific plans to pass or dispose of business assets. A discussion about beneficiary designations on life insurance policies, 401(k) plans and IRAs is also a must. While worst-case scenarios don’t make for the most enjoyable conversations, these discussions are better done before death, illness or a financial emergency makes such plans essential.

February 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.

Planning Tax-Smart Home Improvements for the Summer

2010-02-16T08:06:00.000-08:00

Even as winter weather still lingers in some parts of the country, it’s not a bad time to start budgeting for home improvements during the warmer months. Federal, and in some cases, state economic stimulus dollars are still available on a host of projects and appliances that might add value to a home and over the course of time may save money.

The bad news is that paying for these improvements may be tougher since consumer and residential lenders are being tougher on borrowers who may have spotless records but find their home values depressed to the point where they can’t get financing to cover larger projects. For individuals in that situation, it may make sense to prioritize projects over a period of years and check in with a tax advisor or financial expert such as a financial planning professional to get guidance on finding money and being generally careful with borrowing options.

Here are ways to prepare for these projects:

Check those federal tax credits: The Obama Administration has extended many of the energy-related tax credits for structural projects and appliances into tax year 2010, so make sure you check the Energy Star website to see the latest summary of tax credits and other incentives to improve your home.

Keep an eye on the neighbors: It never hurts to take a close look at the work other people in your immediate community are doing on their homes. It’s a good way to see if there are state and local incentives for certain renovations. And on a ground level, it’s a good way to see which local contractors do the best work on a particular kind of project.

Invest in a professional home inspector: If you’ve owned a home for a number of years and might want to sell once home values recover, it might make sense to get a trained set of eyes on your property as a whole. A trusted realtor, bank officer or friends and colleagues who have recently bought or sold property might know the name of a certified property inspector who can issue an objective opinion on the need for structural repairs and the state of installed appliances to give you an overall priority list. This advice might cost a few hundred dollars, but they are trained to spot emergencies that should be dealt with ahead of aesthetic projects. You can also tap the inspector’s knowledge of costs as well as how to solicit bids and supervise the work that’s being done. Also, you may get a better view of projects you can do yourself based on your own skills.

Do your own credit inspection: If you want to be in a better position to borrow now or in the future, keep your credit record clean and do as much as possible to lower your debt since ratings agencies are looking at overall borrowing levels more closely than ever. Start by checking your credit report -- you have the right to get all three of your credit reports – from Experian, TransUnion and Equifax – once a year for free. You can do so by ordering them at www.annualcreditreport.com, but do so at staggered times throughout the year so you can catch potential errors in your report as they happen. Also, if you need to clean up any bad behavior – late bills or heavy credit card debt - clean it up before you wander back into the real estate market. Remember that a bad credit score can raise the total cost of your mortgage.

Check those federal tax credits:

Measure the payoff of various projects: During the housing boom, people thought virtually any renovation would offer big returns. That wasn’t true then, and it’s particularly untrue now. Take the time to figure out what renovations have the best chance for return on investment now – go to Remodeling magazine’s annual Cost vs. Value online report and check project cost averages for your region of the country. Just keep in mind that the days of reaping big profits from renovations are over for now. Renovate because it’s going to bring a practical benefit, not a windfall.

Focus on your property taxes: Many homeowners are getting two particularly bad pieces of news these days. First, that home values have fallen and they might owe more than their homes are worth. Second, that cash-strapped communities aren’t rushing to lower taxes based on that loss of value. That means homeowners will need to go on the defensive – it’s time to learn how to appeal your property taxes if you have never done so. Also, once is not enough – get in the habit of appealing every time you’re reassessed.

Don’t forget to deduct applicable sales tax: If sales tax was imposed on a major renovation or if your state or locality imposes a general sales tax on the sale of a home or the cost of a substantial addition or major renovation, you might be able to deduct it. This alternative is particularly valuable in low-tax states, and the sales tax paid on the purchase of some large items including the purchase of a home or major addition can be added to the table amounts.

Make sure your renovation makes your home salable: A discussion with a real estate agent or someone familiar with the value of improvements in your immediate neighborhood can tell you what will add to value or take it away. For instance, a big addition can take away from the value of a home if it’s not aesthetically in tune with the rest of the neighborhood. Obviously, any renovation that keeps your house on the market longer better be worth it now because it might damage your sales prospects later.

February 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.

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.

South Sound Education Event - February 19, 2010

2010-02-09T09:27:00.000-08:00

Join financial planners across the Puget Sound region for a South Sound Education Event - February 19, 2010 at Fircrest Golf Club, 1500 Regents Blvd., Fircrest, WA 98466

Registration: 11:30am

Program 12:00pm-3:30pm

$48 FPA Members

$63 Non-Members

3 Hours CFP Credit Approved

2 Hours Insurance Credit Pending

Speakers:

Cheri McDonald, RHU, LUTCF, CLTC of Lehman Woods and Associates of Bellevue
Update on recent regulatory changes impacting long term care insurance and long term care expense planning.

Dan Weedin, CIC of Toro Consulting

Review and discuss property insurance and casualty insurance and answer the question, "What should financial planners look for when reviewing a client's property and liability insurance coverage and needs?"

Kathy Suits, EA, ATA, ATP of Summit Capital Advisors

Tax law update and review for financial planners

Register online today at http://www.fpanet.org/Chapters/FPAPugetSound/MeetingsEvents/ChapterMeetings/

2010 Symposium Wrap Up

2010-02-02T14:04:00.000-08:00

January 29, 2010 - Bell Harbor International Conference Center, Seattle

The 2010 symposium focused on "Critical Times, Critical Conversations" for financial planning professionals.

Keynote Speaker: Lt. Col. (Ret.) Brian Birdwell a 9/11 Pentagon survivor shared his story of survival and courage with financial planning professionals. Mr. Birdwell conveyed the importance of having a competent financial planner during critical times.

Luncheon: Financial planners joined in networking exercises that continued with lively discussions, challenges, and successes of the financial planning profession.

Seminars: Carol Anderson & Amy Mullen, Connecting Money & Life-The Key to Creating an Effective Goal Setting Process; Michael Kitces, Safe Withdrawal Rates-Mechanics, Uses, and Caveats; Tracy Beckes, Essential Alignment - Reengineering Firm Success; David Fisher, Investing in the New Normal; Paul Guppy, Health Care Reform; Susan Galvan, Forging Resilient Client Relationships; Glenn Price, Estate Planning; Rich Stearns, Critical Conversations - Addressing Poverty in Critical Times.