Happy Thursday and welcome to the December edition of Jump-Start Your Financial Plan with NAPFA! We have advisers Patricia Jennerjohn, Bobbie Munroe, Guy Holman, Delia Fernandez Brian Carlton and James Ruff on hand to answer your questions today.
Let's give everyone another minute or two to get logged in.
Hi, I'm Bobbie Munroe CFP, a fee-only financial planner working in Atlanta, GA and Tallahassee, FL. My thanks to NAPFA and Kiplinger for giving us this wonderful opportunity to work with the public.
Hello, everyone! Thank you so much for joining us today.
Greetings from the West Coast!
Sorry, this is Brian Carlton CFP in Lynchburg, VA -- bring on the questions!!!
While we wait for our first question, let's talk about the holidays for a second -- because who doesn't spend a ton of money this time of year?!
What would you all say is your best bit of financial advice for everyone out there for the holidays?
And even if I think I know my budget, sometimes there are some last minute events or gifts that I need to spend money on. So I try to estimate some extra money in my budget, maybe 10% - 15% over what I think I'm going to spend. So that's my advice; pad your budget for the last minute expenses.
My method: shop local or online and set a budget! Wandering through stores presents a lot of temptation to overspend.
Studies show that spending money on things for ourselves doesn't bring much satisfaction, the same studies show that spending on others often does. This makes it very easy to get carried away. Start with a budget and stick to it. Try to save the money BEFORE the holidays rather than paying it off after the holidays. Even my high earning clients are trying to do this kind of savings. Then, when the budget it spent, you are finished.
Oh, it's true. This year the family put up Wish Lists so we could all shop online and it helped avoid temptation of walking through the store.
I second that. Make the budget and stick to it. It's so easy to go overboard this time of year.
It's the season of giving and let's start there. Many of us in the office have setup a charitable gift fund at Schwab and it truly saves time and is an easy way to give to any non-profit in the country. If you have appreciated securities-that's a good place for them.
So many of my clients decide to set up a gift exchange so that they're buying one gift for one person, instead of one for each of the 15 people in their family. That helps a lot. Plus the idea of just buying for the children and not the adults.
Well...except for your spouse, of course. You'd definitely buy a gift for that adult in your life .
Gift cards are great - don't have to worry about the right size or flavor and helps you stick to your budget too.
In my family of 25 we do the gift exchange and it is a blast.
Here's a question we got via Twitter:
Any suggestions on how to purchase a 529 plan - but avoid some of the fees?
The adults in my family decided to draw names from a hat rather than having everyone try and get something for everyone else. We have a strict cap on the gift amount too. It helps us keep the bulk of gift giving focused on the kids who are really the ones that matter!
Gift giving within families can be problematic, especially when some earn much more than others. I'm all for a gift exchange or at the most, giving just to the kids (I had to write a letter a couple of years ago to several of my nephews telling them they weren't in that group anymore.....).
Vanguard has a very low-fee structure in their 529 plan, which you can take advantage of either directly or through the Utah 529 plan.
Another terrific resource is savingforcollege.com. Look for plans that have low administrative expenses at the plan level, and that offer diverse investment choices with low expense ratios at the fund level. I also think the Utah 529 plan is a good choice, but also consider the plan in your own state as there may be valuable state income tax benefits available.
How about a word on identity theft. A client asked me about this last week, even before the news broke that Target customer information had been hacked for those doing in-store purchases. So I did some due diligence and looked at all the "identity theft protection providers." I had used one of these services in the past when the cost was something like $25/year. But now it is much more. So I agree with Atlanta consumer guru Clark Howard. Don't pay for such services. Instead, check your credit report several times a year, put fraud alerts at the major agencies, and, if you are still worried, put a freeze on your credit with those same agencies. With a freeze, NO ONE will be able to apply for new credit in your name. Caveat, when you are applying for new credit (or even some services that check your credit like telephone companies) you will have to unfreeze your credit. There can be a charge for every freeze/unfreeze but it is usually nominal. What do other NAPFA advisors say?
I agree with Bobbie. I've frozen my credit report, but it does create some difficulties. Since financial entities and others ping your credit report to verify your identity, you have to unfreeze it to open bank accounts and even to check your Social Security records online.
Mike, you can use 529 funds for books, and some living expenses if the scholarship does not cover everything. But, if it does, you can terminate the plan without penalty if the plan beneficiary has received a scholarship. However, the earnings will be subject to income tax.
Hi Mike. If your child has a 529 plan and gets a scholarship, then you may not need all the funds in the 529. So if there are excess funds in the plan after college is done your options would include keeping the funds in the account for future use by that child (e.g., for an MBA); transferring the account to an eligible younger family member; or taking the funds back out of the account. On that last option though, just be aware the earnings portion of the remaining balance will be subject to income taxes.
Speaking of credit cards, what advice would you give someone thinking about opening their second, third, or even fourth card? How is that going to affect their credit scores?
I suggest that anyone looking for a 529 plan check out the Utah plan. It uses Vanguard funds and has very low expenses.....total fees to include administration that are less than most mutual funds. Mike, my clients usually only fund about half the cost of college with 529 plans to allow for the fact that one of their children might get a scholarship or not attend college (that does happen). It is sort of like hedging your bet. Still if some funds aren't used, you can save them for yourself (taking classes in retirement can be a great way to stay active) or for your grandchildren. You can always change the beneficiary.
Bobbie, you are not the first to suggest that Utah plan!
Mike, you could transfer the funds back to yourself, and then back to a grandchild.
K, I like Missouri Most as well but Utah has been a great one for years. That said, some states give tax credits for using the in-state plan. In Georgia (James?) I think you can get a credit for the first $2000/yr in contributions which would save you $120 (6%) on your taxes, depending on your income. But there is no reason to put more than the $2K/year in that plan and you can use another plan for the rest. You can have different accounts for the same child.
K, I did NOT know that about withdrawing the scholarship amount without penalty. As always, you are providing such good info.
That's what we're here for!