The Change of Seasons

$MART TALK

Money Smarts for the Real World

September 16, 2011

The Change of Seasons

As we're on the cusp of fall, we notice a chill in the air - that may or may not be the weather. The financial pressures that many are feeling have left some attainable goals less within reach. Those nearing retirement may have had to re-think their time frame or change their expectations in retirement. Those planning for college costs may seem overwhelmed trying to keep up with the escalating costs, which average 7% per year. Teaching kids how to deal with money shouldn't get lost in the shuffle. Now more than ever it is time to share the challenges we face, so that they are prepared to weather the storms they may face some day.

Setting the Right Example

If there's one thing that parenthood has bestowed on us, it's the desire to be a better person. Suddenly with a pair (or pairs) of little eyes watching you closely, you become more aware of your habits (good and bad), your diet, your manners, and your temper - because someone is learning from you. Well, there's a biggie that most of us haven't given much thought to: money. For those of you with small ones, consider this time as good behavior training because even if your kids are too little to notice now, recent research indicates that children as young as 8 are ready to learn about money; and, the greatest impact on their knowledge is not any course they can take (if you can even find one) but on the behavior they observe at home. The study went on to say that behavior modification in older children is difficult; the key is to catch them early. So even though many of you have younger children, it's never too early to get your household on track. This way, the practices your children adopt will be healthy ones that will come naturally to you. These simple first steps will lay a solid foundation:

When we have dessert, it's served after dinner - When a child sees that Mom or Dad doesn't always immediately gratify their retail purchasing urge, it teaches that not everything you want is needed, or some things are worth the wait. With toddlers, the currency can be giving up the bottle or diapers to "buy" something that they want. Having older children partake in saving for a portion of a pricey purchase can help teach them about setting goals and working toward achieving them, as well. In addition, they will start to understand the sacrifices you make to afford your lifestyle.
Make sure your eyes aren't bigger than your stomach- Showing children that bills are paid in full and on time sends them the signal that they need to keep a handle on how much they spend. As you write the checks, let them know what you are doing and why you need to pay it on time. If carrying credit card debt is something they don't see in life, it makes them less likely to abuse the cards themselves. This lesson is the single most important one to your future financial well-being. Click here to read more.

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Finding Financial Strength:

Giving Up Some Luxuries Buys Some Peace Of Mind

Michael and Susan Walker thought they had it made in the shade. After years of ups and downs, Michael's business had finally turned the corner and he was able to give himself annual compensation of $250,000. After staying at home raising their two kids, Susan had reentered the workforce and had worked her way up to making $100,000 a year. The couple had managed to pay off their home mortgage and to fund their children's college costs without taking any drastic measures. It looked like a worry-free retirement was in the cards.

But that was before the stock market went into free-fall at the end of 2008. The stocks and other retirement plan assets that the Walkers were counting on to help pay for luxuries when they retired-a seaside cottage, a new top-of-the-line Mercedes, and lavish weddings for their children-lost about a third of their value. The recession hit Michael's business, too, forcing him to cut back his salary to $200,000. Now, with Michael at age 60 and Susan 58, they are left with stocks worth $1 million, a combined $700,000 in their 401(k) plans, and $500,000 in Michael's IRA. Their home, which had been worth $900,000, now would sell for $750,000. Click here to read more.

$mart Question

What is the best way for us to save for our daughter's college education? We keep hearing about 529 plans, but we are a little uncomfortable about locking up all the money for education costs.

There are many options when it comes to saving for college costs. 529 Plans and Coverdell Education Savings Accounts allow money to grow without the effect of taxes, and the money can be withdrawn tax-free, as long as the money is used to pay for education expenses. 529 Plans can only be used for higher education expenses, such as tuition for college or vocational school, room and board, and books and supplies. Coverdells can be used for the same types of expenses, but covers these expenses as early as elementary school and up through college. Another difference is that anyone can set up a 529 Plan, whereas the Coverdell has income restrictions. In addition, 529s allow for large contributions, whereas the Coverdell only allows for an annual maximum contribution of just $2,000 per year. Both allow the account owner (usually the parent) to change the beneficiary to another family member. For example, if a child decides not to go to college or vocational school, or does not use the full amount of the account, another family member can use these funds. Even a parent returning to school could use the money from this account.

There are, of course, ways to save that aren't specifically geared to education, such as bonds, Gift to Minor Accounts, Roth IRAs, and mutual funds, to name a few. A Roth IRA may be a good fit if you want to be able to have the funds grow without the effect of taxes. Click here for a comparison of the different options.

In This Issue

Setting the Right Example

Finding Financial Strength

$mart Question

$mart Move

$mart Move:

Consider Starting a Business

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A difficult economy and high unemployment rate make it hard to have confidence. Even jobs once thought of as "secure" are in danger of facing cuts. Instead of hoping to be spared (or, hoping for a job) consider starting a business. There are many free resources available to help you get started with thinking through your idea, conducting market research, writing a business plan, and even obtaining financing. Of course, it's best to start with something that has low overhead and allows you to keep your day job.

Not sure where to start? Consider attending the Building Business in Brookhaven Event, sponsored by the Brookhaven Business Advisory Council on Tuesday, September 27th from 5:30 PM to 8:00 PM. There you can meet with members of the NY State Small Business Development Center and Small Business Administration. Whether you are from Brookhaven Township or not, this is a valuable opportunity to network and explore the resources available to start-ups.

Admission is free and complimentary food will be served, but registration is required. For more information, click here.

Look for Real$martica, Inc. and ATI Investment Consulting, Inc. -- we'll be there! We hope to see you, too.

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