Monday, December 5, 2016

Educational Savings Accounts for kids future

Q. We have three preschool grandchildren, and they get tons of stuff for Christmas every year. We’re in really good shape financially and would like to do something for their future this year instead of giving a toy that might get thrown in the corner. Do you have any suggestions?

A. I’d do both. You don’t want to be those grandparents who only hand envelopes at Christmas to 4-year-olds. No, they need things to play with. They’re kids and they should be allowed to act like kids and be happy at Christmas. The good news is you can do both without spending an arm and a leg.

In addition to a few special toys, perhaps you could work with their parents to launch Educational Savings Accounts (ESAs) for them. This would get their college funds started, and it’s what we do. We use mutual funds in their ESAs, where each child is allowed to have up to $2,000 contributed in their name per year.

The beauty of the ESA with the mutual fund inside is that it’s growing completely tax-free. You have to name a custodian of the account until the child turns 18, and that could be you guys or their parents. Just make sure that together you don’t over fund the ESAs and cause yourselves tax problems.

Wednesday, November 9, 2016

Should we take a vacation trip while in debt

I work for a small company that just won a cruise trip for all the employees. The prize covers just the cruise tickets, and we have to pay for everything else. The problem is that my wife and I currently have more than $50,000 in debt, not counting our home, and about $10,000 of that is in collections. We’re trying to fix our finances and start saving money, but we just don’t feel like we should take a trip right now. How do I tell my boss?
— Ricky

Dear Ricky,
First, let me say how proud I am of you and your wife. Most people would be really irresponsible in a position like this and simply borrow more money to take the trip. The fact that you’re behaving like mature adults tells me you’re on your way to getting out of debt and solving your financial problems.

I’ve got to wonder, is there a lot of pressure from your company to go on this trip? I understand the benefits of team building and socializing with colleagues, but when you have no savings and are that deep in debt — and a chunk of that includes some in collections — it’s no lie to say you can’t afford to go. A decent company will understand.

Just sit down with your boss or owner, and explain why you can’t make it happen right now. You don’t have to unload all the details, but let them know that you can’t do something like this in good conscience when you’re trying to get your finances under control and already owe a lot of money.

That’s one heck of a temptation you’re standing up to, Ricky. I love that you and your wife are on the same page and have made the decision to take control of your finances together.

—Dave 

Monday, November 7, 2016

Young man laid off and steps from financial ruin

Dear Dave: I'm 23, and I lost a good job a few days ago due to layoffs. My wife has been a stay-at-home mom with our 10-month-old daughter, and we have very little in the way of savings. What can we do to keep our heads above water? — Seth

Dear Seth: I'm really sorry you're going through this. I've been there, so I know this is a scary time for you. There are some short- and long-term goals to think about in a situation such as this, but let's look at the immediate future.

Go crazy about finding some kind of income. I don't care if it's delivering pizza during the week and working at the mall on weekends. Even if it doesn't completely replace your previous income, it will give you some cash to pay bills and stay afloat. On your off days, and before and after work, you can line up and do interviews for a more stable, full-time job. You may even have to trade off baby-sitting duties with your wife so she can earn some money, too.

While all this is going on, have a garage sale and sell anything you don't need or want anymore. Just about anything that can be turned into income should be turned into income. In the process, prioritize your bills and other financial responsibilities. Take care of food first, then utilities, the mortgage or rent, then transportation. You guys don't need to see the inside of a restaurant for a while unless you're working there, and if things don't get better by Christmas, any gifts you give should be handmade crafts.

This is doable if you two work hard, pull together and focus. God bless you guys.

Thursday, November 3, 2016

Small business tip: Keep a separate bank account for your business

Dear Dave: I've just started my own small business. As the owner and only employee, how do I determine my profits? — Brittany

Dear Brittany: Here's a basic Accounting 101 definition for you, regardless of how many employees you have or how big your business may be. What you take in, minus expenses — in other words, your revenues minus your expenses — equal profit. Believe it or not, it really is that simple.

Since you're just starting out, I'd strongly advise you to set up a separate checking account for your business. That's the only way to accurately tell exactly what's going on within the business. When you co-mingle business money with grocery money and things like that in your personal account, you'll never have an accurate picture of what's really happening with your business.

Good luck, Brittany!

Tuesday, October 25, 2016

Average wedding costs in America now $32,641


The cost of the average wedding in America rose to $32,641 last year. But when it comes to what you can reasonably afford, I think it becomes relative to exactly how much debt you have and what kind of income we’re talking about.

If you have $5,000 in debt but you make $150,000 a year, stop worrying, pay off your debt, and save up for a great wedding. If you make $28,000 a year but you have $30,000 in debt, then you need to have a really minimal wedding. Anywhere from $3,000 to $5,000 would be reasonable in that kind of situation — and even then it’s going to be tight.

The more debt you have in relation to your income, the smaller your wedding expenses should be. A $32,000 wedding would be ridiculous for someone with a $28,000 income. But $28,000 is a below-average income, so you shouldn’t reasonably expect an average wedding in terms of cost. It really all boils down to ratios.

Just remember, the amount of money spent on the ceremony, reception and all that stuff isn’t what’s important. It’s the love that two people have for each other that makes the ceremony special and the marriage one that will last a lifetime!