Give your college freshman some money tips

Give your college freshman some money tips

For better or worse, habits formed during the early years of college often harden into long-term lifestyles. This is especially evident in the area of finances. Discipline learned during the college years often pays dividends well into the future. Financial mistakes, on the other hand, may take years to undo. Start your college freshman on the right track with these three tips:

  • Live within a budget. A simple spreadsheet with two columns — one for budgeted amounts, another for actual spending — is all that’s needed. For most young people starting college, the budget should be relatively simple. A schedule that includes tuition, books, room and board, clothes, spending money (the expense side of the equation) and grants, loans, part-time jobs, dollars provided by Mom and Dad (the income side) can be easily prepared. Of course having a budget and living within a budget are not the same thing. But learning to deny oneself a current pleasure (dinner at a fancy restaurant, the latest and greatest video game) in exchange for a future benefit (a nicer car, money for a post-graduation trip) is part of responsible adulthood.
  • Go easy on credit. Credit card issuers seem to hover like vultures around college campuses. Teach your college freshman to look beyond the colorful t-shirt and fancy water bottle. Point out the pitfalls of those seemingly innocuous pieces of plastic. Watch out for student loans as well. The average college graduate heads into the job market with over $20,000 in student loans. Add graduate school and your home mortgage begins to look small in comparison. If debt becomes necessary, the cost of borrowing should be fully researched before signing.
  • Save, then save some more. Show your freshman the benefits of saving even a little each week. If, for example, your son can scrounge up $20 a week which he deposits in a mutual fund from age twenty to age thirty (assuming an annual return of 6%), he’ll accumulate over $14,000. If he stops contributing and leaves that money alone (again assuming a 6% return), he’ll have over $109,000 by age 65. For relatively little sacrifice, he can get a great start on a retirement nest egg. In addition, encourage your son or daughter to develop a habit of setting aside money for emergencies and short-term expenses during those initial college years.

5 great tips for “peace of mind”

5 great tips for   “peace of mind”1.   Execute a will.
Estate planning isn’t just for the wealthy. As adults, we all NEED an estate   plan. Your will specifies what happens to your property when you die. This is   important because your state has a default set of rules for people who do not   leave instructions.
For most Americans, an estate plan is most commonly referred to as a will or   “last will and testament”. It spells out who gets what from your   estate. A hand written will can be valid, however it’s drastically safer to   have a lawyer prepare your will and walk you thru the formal execution of it.   If you have a spouse or children, you really need a will to reduce confusion   and conflict and to make sure your loved ones are properly taken care of.

2. Designate your   health care wishes.
Who will make important medical decisions for you in the event of an accident   or illness?  Without the appropriate legal estate planning, your next of   kin will attempt to make the decisions. But does he or she know all your   wishes?
You NEED to protect your life by at least appointing a health care power of   attorney in your will. This designates the person who will legally make   decisions on your behalf.  Your power of attorney is legally bound to   make the decisions that you want, not what they think is best.
If you want to go an extra mile, you can execute a living will.  This   document was created to legally make known your wishes for different medical   situations, especially when medical care and treatment is prolonged. It can   also be referred to as an advance directive, health care directive, or a   physician’s directive. Then your health care agent will be bound to act   according to this document.  If you chose to neglect both of these   health care documents, your life could end up in the hands of someone you   don’t trust.

3. Select your beneficiaries   and be certain.
Do you have a life insurance policy or retirement plan?  Who are your   beneficiaries?  If you have not listed your beneficiaries, you and your   family could be in for a big surprise.
Life insurance and retirement plans will automatically pay the designated   beneficiary when the policy holder passes away.  To make sure your heirs   get their inheritance, you should designate each of them by name as   beneficiaries. Avoid listing your estate itself as beneficiary. If your   estate gets paid directly, your loved ones, who are your true beneficiaries,   will be in for a long wait before they can be paid and your creditors could   lay claim on your money before them. Those beneficiary blanks are very   critical.

4. Get insurance,   even if you are renting.
Property insurance is an absolute must when protecting your property and it   isn’t just for homeowners.  Even if you rent, you need insurance.    Homeowner’s or renter’s insurance primarily covers you against property loss   due to damage or theft. It can also be important if you’re ever sued.
When guests come onto your property, you legally take on a certain amount of   implied liability for their safety.  If someone is injured while on your   property, you could be held responsible, and even sued.  Fortunately,   the typical property insurance policy will reduce the liability and provide   protection for you.  Guest medical coverage can pay for your guest’s   medical bills, if included in your policy.  For the cost of a renter’s   insurance policy (at most $15/month), you simply CANNOT afford to neglect   this coverage.

5. Separate your   business.
If you run your own business, you should consider a limited liability   business entity.  Running a sole proprietorship is simpler, but it   exposes you and your family to certain risks. This same fact applies to   partnership entities as well. Creditors and even dissatisfied clients can   come after you personally, putting your personal assets, such as your home,   in jeopardy.
To alleviate this concern, you can easily setup a basic corporation or a   limited liability company (LLC). Consult with your attorney to determine   which entity is right for you. This way, when you sign contracts and incur   business debt, you are only putting the business on the line.  Once your   business is a legal entity, it’s important to run the business properly to   shield your business from liability. Without being a formal business entity,   you have no way to limiting your personal liability.

What to consider in choosing a successor for your business

Studies show that only 30% of family businesses survive the transition from the founder’s generation to the next generation. Of the companies that weather such transitions, less than half successfully transfer the business to a third generation. Such statistics demonstrate the importance of succession planning, a task that can be especially difficult for small businesses. Ownership and management of such firms are often vested in the same person or small family group, so identifying and grooming those who will lead the company forward is critical and fraught with risk.

What factors should a business owner consider when evaluating potential successors?

First, you’ll want to know whether the candidate shares your values and vision for the firm. Perhaps you’ve built a reputation for strong customer service and paying bills on time. If your successor lacks that same commitment, your customer base may crumble. Vendors who for years have trusted your company may become less responsive to the company’s needs. Also, any potential successor should exhibit certain minimum technical competencies. He or she may not be expert in every aspect of the business, but any candidate should have a basic understanding of your critical operations, accounting systems, and products.

A family member who’s grown up with the business and has a strong interest in its future profitability may be a great successor. But just because your son shares a bloodline or name, don’t assume that he has the skills, temperament and motivation to nurture your company. Many firms crash and burn when junior takes over the helm.

In many cases, a family member — although the best choice for the long term — must “pay her dues.” That may mean spending time at another company, obtaining formal education in business or accounting, working her way up from the warehouse to the sales department to the executive offices. If possible, potential successors also should work alongside existing management for a transition period before assuming full management responsibility.

Remember as well that your successor will not operate in a vacuum. To make the transition as smooth as possible, your choice of a successor should be clearly communicated to employees, well in advance of the full transition. In a best case scenario, handing over the reins of your company should be a gradual and natural process — for employees, customers, suppliers, and anyone directly involved with your business.

If you need help with this important decision, give us a call. 970-207-9724

Don’t let emotions drive your investment decisions

Remember August 8, 2011?

That’s the day the Dow Jones Industrial Average fell more than 600 points after the first-ever Standard & Poor’s downgrade of U.S. debt. The Dow’s one-day drop was its biggest point loss in a single day since December 1, 2008, and the sixth biggest point drop in its history. On that day the Dow closed down 634 points (5.6%) to 10,810. That single day’s decline in stock values wiped out about $2.3 trillion in investor wealth in the U.S. What happened to investors who panicked and sold their stocks or stock mutual funds that day? By letting emotions control their investing decisions, they locked in their losses.

According to studies in the field of behavioral finance, various biases tend to drive our investment decisions. For example, many people succumb to “anchoring” bias. That’s the irrational decision to hold on to something — a stock, a car, a piece of information — just because you already own it. Or you might fall prey to “recency” bias, the assumption that events in the recent past are a reliable predictor of the future. The stock market’s been going up, up, up. So you jump on the bandwagon, assuming that the next twelve months will mirror the prior year. Don’t count on it. When emotions rule the day, investment portfolios suffer.

To curb emotional investment decisions, consider the following two time-tested strategies:

  • Dollar-cost averaging. This is a strategy in which equal dollar amounts are invested at regular predetermined intervals. Percentage contributions from your biweekly paycheck to a 401(k) account are a good example of this type of investing. When the market’s falling, you buy more shares in a stock mutual fund because the price of those shares is falling. Conversely, when the market’s climbing, you enjoy the appreciation of your existing shares and buy fewer shares at premium prices.
  • Diversification. Because markets seldom move completely in unison, the strategy of investing in different industries, different countries, and different types of investments (stocks, bonds, and real estate, for example) can help reduce risk without substantially diminishing overall returns.

Above all, be honest with yourself. Sometimes a trusted advisor can provide an objective set of eyes to steer you away from poor investment decisions. You might also want to keep a journal to help you slow down, analyze your investment decisions, and allow your emotions time to cool off.