#2 – Secrets to Personal Financial Success: Have Vivid Dreams

Be sure that your dreams (goals) are clear and written down.

The things that you want to achieve in life should be written down in clear and precise language and in a place where you can easily see and review them regularly.

Our dreams are what keep us going.  Dream Big.  As the song says in the musical, South Pacific, “If you don’t have a dream … how you gonna have a dream come true?”  Pay attention to what makes your heart sing and your spirit soar.  And then go for it.

If you have not read “The last Lecture” by Randy Pausch, get a copy and read it.  You might want to buy a copy and make it part of your permanent library  When he wrote the book, Randy was a 48-year-old professor at Carnegie Mellon University who was dying of pancreatic cancer.  The book is based on a presentation he gave to 500 of his students, colleagues and friends just before he left the University for the last time.  The topic of the lecture is “Achieving your Childhood Dreams.”  It talks about his life experience and the importance of  having and following your dreams.

You can see the original presentation on YouTube at the following link:  http://www.youtube.com/watch?v=ji5_MqicxSo  .  It’s well worth he 76 minutes it takes to watch.

Unfortunately, Randy Pausch passed away in late 2008.  His legacy, however, lives on through is book and his life.

Napoleon Hill says that “A goal is a dream with a deadline.”  Make sure that your dreams have time frames attached.  A simple way to do this is to use the SMART goal system which tells you to make sure your goals are Specific, Measurable, Achievable, Realistic and have a Timeframe attached to them.

If your goals are not clearly documented, spend some time doing getting them down in writing.

#1 – Secrets to Personal Financial Success: Take Personal Responsibility for Your Life

One of my favorite authors is the American Philosopher, James Allen, Author of “As a Man Thinketh”.  In one of his essays, Allen wrote “A man sooner or later discovers that he is the master-gardener of his soul, the director of his life.”

In today’s world, it is easy to feel that we have no control over our own lives – but it’s not true.

There are some things that we cannot control, but we don’t have to let those things run our lives.

I meet with people who tell me that “I want to, but I just can’t.”  I want to save money, but I can’t.  I want to participate in the 401k, but I can’t.  On and on.

The truth is that you are in charge of your life and responsible for what you get out if it – in all areas.   Anything is possible.

Henry David Thoreau wrote:  “Man is the artificer of his own happiness.”

Where we are today is the direct result of all of our past actions.  Where we will be in the future will be the direct result of our actions from this point on.

This is the first step to financial success.

– It Was Not a Good Time to Bail Out

The market (DJIA) closed up today – up about 23% from its low for the year just 3 weeks ago.

Flash back 17 days ago – March 9th, 2009.

The Dow Jones Industrial Average reached a low for the last year of 6440.  In fact, it was actually a 12-year low.

Everyone who follows the stock market was nervous – very nervous.  The fear was gut-wrenching.  People felt sick and nervous.  I felt sick and nervous.  How far down is it going?  Should I bail out now and cut my losses?

We don’t know where the market is headed from here, but the past seventeen days have indicated to us that would have been a bad decision to bail out of the market at that point.  If you had, you probably would have missed out on this incredible growth over the past 17 days.

The problem with timing the market, is that we don’t have any ida really where the market is headed.  Timing strategies require that you make two decisions:  When to get out and when to get back in.  There is no evidence that anyone has ever made these decisions isuc repeatedly and successfully.

The strategy that has proven to be successful is a strategy of holding a risk-appropriate, well-diversified portfolio of low-cost mutual funds operating in tandem with a reasonable re-balancing strategy..

I believe that we will look back in a few years and realize that this is the best strategy for optimizing your returns.


Paying for College: Beyond Student Loans

Elizabeth Barrett, MA, CFP®

Talk to a parent about paying for college, and chances are you’ll soon be discussing student loans. But your options go far beyond borrowing at the time your child enters school. Numerous possibilities are available to save in advance of college and to win scholarships. What’s your best college savings option? Most ACA advisors follow the rule to save in the most efficient place now and spend from the most efficient place later. Because tax laws and our lives are always changing, it’s dangerous to conclude that any one option is the best place to save for something that’s 10 or 20 years down the road.

Often the best place to save for a child’s college education is the parent’s Roth IRA, if the parent is eligible. There are several advantages:

• The savings grow tax deferred, and the contributions can be taken out without penalty.

• The money stays in the parent’s name, where it remains in the parent’s control and typically has a smaller impact on college financial aid awards.

• Money in the Roth IRA can be used for various family members’ college expenses.

• When money is withdrawn for college expenses, the Roth’s earnings may be taxable but are penalty free.

• And of course, the funds may be needed for retirement instead of college. (Like many ACA planners, I remind clients that children can always borrow to go to college, but their parents can’t borrow for retirement.)

If Roths aren’t an option for parents, either because they have already maxed out their contributions or aren’t eligible, the next choice may be a Roth in the child’s name. If children have earned income, they can make a Roth contribution, which can later be used for their college education. And if the Roth isn’t used for college, teenagers have either college money for their own little ones in the future or for the down payment for a house. (Or maybe you’ll enjoy a fun golf partner because with such an early start, your child may retire by age 40!)

Another option is a Section 529 plan or Qualified Tuition Program. The donor (usually a parent or grandparent) makes a contribution into a Section 529 plan and investments are purchased within the plan, much like a 401(k). Investment options vary by state. Withdrawals are not taxable when less than or equal to annual qualified higher education expenses, adjusted for tax-free education assistance and amounts used to figure education credits. A 10% penalty is imposed if the funds are not used for college education, but only the earnings are penalized. If a grandparent or parent has an estate tax problem, they can reduce their liability with a contribution to the beneficiary’s 529 plan. This is considered a “completed gift,” so it’s no longer in the grandparent’s or parent’s taxable estate. Section

529 plans differ from other college savings options in many significant respects:

• Unlike Roth IRAs or other options, Section 529 plans aren’t subject to income limits: you can contribute no matter how much you earn. • Unlike certain prepaid plans, you can invest in another state’s plan, and the student can go to school in any state.

• Unlike UTMA (Uniform Transfers to Minors Act) accounts (custodial accounts), the donor maintains control and ownership, so if your oldest child doesn’t attend college, you can use the account to pay for another child’s (or other relative’s) college expenses. The proceeds of a Section 529 plan can be used not only for tuition but also for books and room and board. (If the child lives at home, he can pay a room and board allowance specified by the school to Mom and Dad.) And if your scholar receives a full tax-free scholarship, the money can be taken out without incurring the 10% penalty. Not all Section 529 plans are created equal.

Ask your ACA advisor for help identifying the best plan for you and your beneficiary. A related college savings option is the Upromise Credit Card (www.upromise.com). When you make purchases at any of more than 8,000 restaurants or 600 online retailers or you buy eligible items at the grocery or drugstore, a cashback percentage is directed into your Upromise account, which you can then use to fund a Section 529 plan or to pay college expenses or a student loan. Of course, just about the only thing better than saving in advance for college is going to college for free. Websites such as http://www.Fastweb.com and http://www.Collegeboard.com/ScholarshipSearch can help you search for a fit between the student and any of thousands of available scholarships totaling over $1 billion. (One caveat: such sites can be rife with ads and special offers, so be careful when filling in information and checking boxes.) Other sources of college aid information include http://www.WiredScholar.com, http://www.FinAid.com, http://www.eStudentLoan.com, and http://www.Scholarships.com.

Trying to decide among all your college financing options can be confusing. A call to your ACA advisor can help you determine which options are best for you and offer you the greatest chance of realizing not only your family’s college dreams but your other goals as well.

Good Money Sense in an “I Want it Now” Society

A great article by fellow ACA Advisor and friend, Erin Baehr, CFP®, EA Shawnee-on-Delaware, PA

My six-year-old niece asked for an iPod this past Christmas. Not some kid-sturdy version of a portable CD player, not an MP3 player, but specifically an iPod. She didn’t get it (thanks to my sister-in-law’s good sense). But the fact that she knew to ask for it—an expensive name-brand electronic device—astounded me. Maybe it shouldn’t have. Between what they spend themselves and what they convince their parents and grandparents to buy, American children have influence over nearly $1 trillion each year. Naturally, the advertising industry is well aware of our kids’ buying power. Like it or not, your children are a crucial marketing niche. Of course, the marketer’s dream can be our nightmare. Who hasn’t experienced the shopping aisle meltdown of a child who thinks you are the meanest parent in the world for not letting him get that new toy he saw advertised on TV? How many of us have tried to reason with a teenage girl who very seriously believes her life will be ruined by wearing clothes purchased from the wrong store? If it seems like a losing battle, it’s no wonder: the average child is exposed to 40,000 commercials each year, manipulated by some of the most astute minds in the business world. So it’s also no surprise that our free-spending teens grow into young adults with poor financial habits and a skewed perspective about money and spending. What does the future hold for young people who embrace a consumer lifestyle that can harm their long-term financial health? Constant exposure to the message that they deserve a fantasy lifestyle unfortunately leads many young adults to aspire to lifestyles their salaries can’t come close to matching.

Here are some startling conclusions from a United Services Automobile Association (USAA) survey, High School Confidential:

An Inside Look at Teens and Money:

• Teens—half of whom aren’t earning their own paychecks—spend nearly as much in “fun money”

every month as their parents do.

• One teen in five expects to earn $60,000 or more at their first full-time job after high school or college.

• Nearly two thirds of teens expect to be millionaires in their 40s—or sooner.

• Forty-two percent of teens expect to retire by age 60.

Despite these findings, teens who learn good habits can become financially functional and successful. The present state of the economy presents an ideal teachable moment, allowing us to reinforce the lesson that our society, in many cases, is paying the price for living beyond its means. Use this opportunity to give your children an understanding of financial realities, and teach them to make responsible choices with money. For example, if your teen gets a pile of birthday money, you can explain that without a plan, it could soon be frittered away. Help your kids realize they have choices about spending that money.

They can share it. One effective antidote for materialism is to stay mindful of the needs of others. Children exposed to the need around them in their community and the world at large have an easier time resisting that tempting pair of $90 jeans. The feeling your kids will savor from realizing the importance of the charitable donation can’t be matched by any material luxury. Of course, encourage your kids to be purposeful about their giving, deciding on an amount or percentage to give and where they would like to donate.

They can save it. Teach your children to save at least 10% of their income, whether they receive it from their allowance, gifts, or a job. Aside from the obvious benefit of building their savings, developing the habit of saving will encourage them to live within their means. Offer rewards for reaching milestones in their savings, such as a monetary match or a family outing.

They can spend it. Help your kids recognize the difference between needs and wants and then choose their spending accordingly. We insisted on two rules when my kids first started making spending decisions: they had to wait at least a few days to make sure they’d still want the item, and they had to search for coupons and sales before buying anything. You could also have them list three other ways they could spend that money before they actually do. Of course, teach your kids to use credit responsibly. They will be inundated with offers of easy credit, and they must understand the real cost of that credit and the consequences for default. They also need to know the value of their credit score and how to protect it. Let them try out credit with a loan from you for something they want, and if they default, repossess what they’ve bought. Better to learn by losing a small item now than a car or a home when they’re older.

They can pay taxes with it. Sooner or later, we all learn that along with the privilege of living in this great country comes the duty (and in many ways the privilege) of paying taxes. Don’t wait for them to be disillusioned by the take-home amount of their first paycheck. Collect a “family tax” on their income, and use it for something to benefit the whole family, like a group activity.

Parents can take heart: you are still your children’s greatest and most important teachers (despite what your teens may tell you). Don’t let the only messages they hear about money come from others with an agenda. Take the time to communicate your financial values to your children. Reflect on your personal financial philosophy, and be clear with yourself about your values and what you want to model for your children. Despite the efforts of clever and powerful marketing, you can counter the influence of our consumer-crazed society effectively.

Choosing a Guardian

I found this great article by Alexis Martin Neely and decided to pass it on just as it is.

How to Choose the Right Guardian for Your Children – Just in Case

By Alexis Martin Neely

Nobody wants to think about the worse befalling their family. But if you want what’s best for your children, you would be wise to choose a guardian to take care of your little ones, should any unplanned tragedies happen.

It’s not easy to think of anyone else raising your children, no matter how loving your family members or friends are. But by taking a few moments to appoint the best guardian possible, you could possibly make a tremendous difference in your child’s life.

Consider these three steps.

Step One: Make a List of Possible Guardians

Make the longest list you can stand of everyone you know who might possibly be a good guardian. When considering whether someone should be on the list, ask yourself, “Would they provide a better home for my children than the foster care system?”

If the answer is yes, include them.

Step Two:  Decide What Matters Most

Choose a few factors that are most important to you and rank their order of priority. Here are some factors to consider:

• Maturity and patience

• Do they have children already?

• Religion or spirituality

• Relationship with your children

• Integrity and stability

• Marital or family status

• Willingness to serve

• Physical well-being

• Social and moral habits and values

• Availability of free time to raise your children

• Parenting style

Your perfect guardian choice would score high on every measure.

Because we all have different values, you may want to focus on a few characteristics that are most important to you.  As you create your shortlist of possible guardians, consider that some factors can be influenced by you and others cannot. For example, a person’s integrity is something you cannot change.
But if having an at-home parent is important to you, your prospective guardian might be willing to stay at home to raise your child if you make it possible through a well-structured and funded plan.

Do not put too much emphasis on financial resources as a factor. It is your responsibility as the parent to provide enough financial resources, either through insurance or savings, to take care of your children financially.

Step Three: Match People to Priorities

Use the factors you chose in step two to narrow your list of candidates to a handful. As you consider each person or couple as guardian, listen to your body and feelings. Using this shortlist, you will need to rank the people you would want first, second, and so on.

In doing your estate planning, you will want to work with an attorney experienced in helping parents of minor children. When you name a couple as a guardian, your lawyer will likely ask you the following question:  “If the couple divorces or, because of death or incapacity, only one can serve, would you like either one to be guardian, or would you prefer to move to the next name on the list?”

Regardless of which spouse’s family or friends appear more frequently on your final list, it’s important to keep both families involved. One way to do that is to name members of one family as guardians to care for the children, and members of the other family as trustees, to manage the assets for the children.  If there is a likelihood of conflict between these family members, be sure to share this with your attorney so that your guardianship can be customized to encourage them to keep the lines of communication open.

Again, I know it’s not easy to think of anyone else raising your children. But your children depend on you for a bright future. Start planning ahead now.
Initiate the estate planning process. Most importantly, choose the right guardian for your children now!

About the Author: Alexis Martin Neely is a mother, writer, speaker and Personal Family Legal Expert who teaches parents how to protect their children and their assets.  Now, parents can learn more about choosing the right guardians, plus how to avoid the common mistakes parents make when choosing guardians, at http://www.KidsProtectionPlan.com.

December 19, 2008