College Planning Through a Pandemic

By: Becky Eason, CFP®

It’s hard to believe that it’s the beginning of another school year already. Many colleges have already started their fall semester, whether it’s in person, online, or a hybrid of in person and online classes. We are in a period of uncertainty, especially the education system. Some colleges that opened their doors for in person learning have already switched to online classes, within just a couple of weeks. For future college students what does this mean for your college planning and student loans?

If you’re in the college planning process continue pursuing your planning. What I mean by this is to find a variety of schools you’re interested in attending and schedule a campus visit, but know that this campus visit might be virtual. The college planning process is usually a multi year process, so if you delay planning you could lose out on opportunities, especially considering how rapidly everything is changing with the pandemic. 

According to Business Insider, it’s estimated that college enrollment is down 5% - 20% for the fall 2020 semester and nobody knows what future enrollment is going to look like. However this enrollment decline could help future college students negotiate better grants and scholarships because colleges are going to want higher enrollment numbers. In any college planning circumstance we recommend you apply for as many scholarships and grants as possible and to also ask the schools for additional financial assistance if possible. This can work especially well if you have been accepted into multiple colleges, as you can use the financial assistance packages from one college to negotiate with your top choice school. This does take some additional time but additional financial assistance from scholarships and grants reduces the amount of student loans you need to take out, which will save you money in the long run. 

Many college students enjoy going off to college for the college experience and the “freedom” that comes with it. Something upcoming college students may want to consider is the reality that they may not be able to attend in person college, or if they are able to, will they be sent home shortly after arriving? The reason for bringing up this point is because it’s possible that there might be a local college that a student can attend for a year while the education system figures out how to keep students safe. Attending a local college could allow the student to live at home for a year and greatly reduce their cost of attending college by not needing room and board. If you have a dream school in mind and don’t want to pursue a local college another option would be signing up for online classes from the start. This would also save room and board costs but allow you to be a student of your dream school. 

The college planning process is always complicated and when you add in our current pandemic it only makes the process more complicated and emotional. We love to see students have a wonderful college experience, but we don’t want to see them leave school with lots of student loan debt and regret. That’s why we specialize in the college planning process. Check out this video on how our college planning process works. 

Five Money Moves for Graduates

By  Kate Welker, CFP®

Graduation, the day you’ve worked towards for years. Once you walk across the stage (or should we say proverbial stage this year) and take that diploma a new stage of life begins. There will be many new decisions and actions ahead of you, but here are a few simple moves to take as you enter that next stage of life.

1) Keep your cost of living below your income. As your income increases it will be easy to start spending more. You might feel like you deserve to splurge after those years of living like a “poor student,” but if you try to keep that mentality for a few years you will be able to build a solid financial foundation. Housing is one of the largest expenses you will encounter so look at ways to keep this low. Consider a roommate or even moving back in with your parents for a period of time. This will allow you to spend less each month and put that money towards your financial goals.

2- Make a plan for your student loans. Take the time to research your loans and to find out the details of each. Reach out for help if this is something  that you are struggling to understand. There are resources such as Loan Buddy (https://www.loanbuddy.us/), loan counselors, or financial planners like the team at Rooted Planning Group (don’t miss out on Becky Eason’s monthly blog on this topic) to help you work through these. Making moves early on these will get you on the right payment plan. If you are able to pay more on these early and lower your principal this will lower your interest paid over time. 

3- Start an emergency savings account. Get in the habit of putting away some money from each paycheck. Check with your bank to see if you can set up an automatic transfer into a separate savings account with each deposit. I also encourage people to make this money harder to get to so it is not tempting to spend it. Even a small amount will start to add up over time and will be available in the case of an emergency (so that expense does not go on a credit card) or the start of long term savings goals.

4- Take advantage of retirement plans. If your employer offers a 401(k) enroll as soon as you are able. If your employer offers a match your first goal should be to defer as much as they will match, for example if they match the first 3% defer at least 3%. That is like free money into your retirement plan. If you don’t have an employer plan you can open your own IRA. Set up transfers into your IRA to correspond with each paycheck.

5- Track your expenses. Just tracking where your money is going will be beneficial. It will make it easier to build a budget when you are ready for that step. Getting in the habit of looking at your expenses and seeing where your money goes naturally makes you more aware of your money. There are numerous apps to track this automatically or if you like to be more hands on you can create a spreadsheet or just write it in a notebook.

While it is tempting to start bumping up your standard of living after school, slowing that process down and being disciplined with your money will help build a strong financial foundation to take you into your future. If you find ways to keep your expenses low and work towards saving and paying down debt you will be ahead of your finances, less stressed over money, and develop long term healthy money habits.

How Young People Can Financially Prepare for Living on Their Own

Guest Post by: Christopher Haymon

If you’re about to move out of your parent’s house for the first time, this is essentially the beginning of your life as an adult. You’re about to discover the independence that comes with making your own decisions and living life on your terms. You’re also about to discover a new world of financial responsibility.

Needless to say, the whole experience can be an emotional roller-coaster. But it can also be your most exciting and rewarding experience yet. Here are some financial tips to help you start your new chapter off on the right foot:

Explore life insurance.

One of the first steps to consider as you prepare to move out is getting life insurance, because it would help your family out significantly in the event that you unexpectedly passed away. When you look at policy options, it’s important to choose one that fits your current lifestyle and circumstances. For example, a 20-year plan may be perfect for you if you:

1. Are on a tight budget

2. Have a significant amount of debt

3. Pay a 20-year mortgage, and/or

4. Have children

If you die, the right life insurance policy will leave your family some capital or cover funeral costs and medical bills.

Save now.

If you start saving money before you move out, you will not only establish the habit, you can begin your new chapter with a safety net. First things first: Get (and keep) a job if you don’t already have one. If you’re not paying for things like rent, utilities or groceries, this is the perfect time to put away the money you make. Open a savings account, put a majority of your earnings in that account, and keep the rest in your checking account. That way, you’re taking advantage of having low expenses but can still enjoy the occasional entertainment or dinner out.

Learn how to budget.

Another way to prepare for moving out is to learn how to create a budget. Knowing how to create and stick to a budget is an invaluable skill that you will probably use for the rest of your life. Sit down with your parents and/or a financial mentor or advisor and learn the basics of calculating your expenses and income. Even educating yourself on the most basic forms of budgeting can help you avoid getting in over your head in debt by your early twenties.

Each time you accrue a new expense (or new form of income), be sure to update your budget and make any necessary adjustments so that you’re still saving money. For example, once you move out, you will be responsible for a wide range of new living costs. Understanding how to plan for these costs will save you a lot of trouble and keep you in a position to succeed.

Start your credit.

Finally, it can also help to start building your credit history before you move out. For one thing, it can be difficult to get an apartment without a credit history, and if you want to fully embrace the independence of moving out, you may not want to rely on your parents to cosign the lease. Establishing a credit history is also important if you ever want to purchase a car or get approved for a credit card with a higher limit. If you have a poor credit history, it will likely be difficult to buy a home. Most lenders will require that you have a minimum credit score before loan approval.

Get a secured credit card, make a purchase and immediately pay it off. Then, don’t use the card again until you’re completely confident in your financial responsibility. Another way to start building your credit is to make all your federal student loan payments on time.

When you have a financial plan, you can make the most of the independence and responsibility that comes with moving out. Be sure to check out life insurance policies that can create a safety net for your family. Before you move out, start saving most of your paycheck, learn the ins and outs of budgeting, and begin establishing your credit history. You will have a lot to learn along the way but having an understanding of these essential principles will help put you on a good path.

About Chris

Shortly after I graduated college, I made a lot of financial mistakes. Between a swanky apartment, brand new furniture and tech gadgets to fill it, and a student loan bill I wasn’t prepared for, I found myself in over my head pretty quickly. 

I didn’t mean to be reckless with my money. I just had no idea about the basics of healthy finances, including credit, a debt-to-income ratio, and emergency savings.

That was five years ago, and I’ve learned a lot from my experience. My goal is to help prevent others from finding themselves in a similar situation.

 Photo Credit: Pexels

SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019

At the very end of 2019 the SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019 was signed into law.  It gave this weeks blog author and Financial Planner, Amy Irvine, CFP®, EA, MPAS®, CCFC, flashbacks to the 2017 tax law changes that happened at the very end of that year too. There are a lot of little nuggets in this Act, below is our interpretation of the Good, the Bad, and the Weird …

The Good

• If you are turning under the age of 70½ this year, you can now push the required minimum distribution down the road.  The new age is now 72.

• Beginning this year (2020), if you continue to work past the age of 72 (was 70.5), you can now make a contribution to your Traditional IRA.  Prior to this Act, even if you had earned income, you couldn’t contribute once you reached the “magic” age.

• This does not change the Qualified Charitable Distribution age though, that is still 70½ 

• If you receive a stipend or fellowship, that is now considered qualifying income for an IRA (or Roth IRA) Contribution.

• Small businesses will be able to join a pooled employer plan (called a MEP or Multiple Employer Plan), which is meant to reduce the cost to small employers  And if the employer plan has an automatic enrollment feature, they get a small tax credit.

• If you are a volunteer firefighter or EMC, then you will have a one-year repeal of the SALT limit on your federal tax return.  Remember SALT stands for State and Local Tax.

• If you are planning on having a baby, or adopting a child, in 2020 you can now take a $5,000 distribution from your retirement plan WITHOUT penalty.  Of course you have to pay tax on it, but if you redeposit it within 60-days of withdrawing it, then it would not be considered taxable.

• We are thrilled that you can now withdraw up to $10,000 during your lifetime from a 529 plan to repay student loans WITHOUT tax or penalty.

The Bad

• If you turned 70½ in 2019 but elected to defer the RMD until 2020, sorry, but you still have to take it before April 1, 2020.  Also, only those that turn 70½ in 2020 can defer until age 72. If you’re 71, sorry, but you still have to take yours.

• Stretch IRA’s won’t be able to stretch as far in the future.  Historically, your beneficiaries have been able to elect to take the remainder of your IRA over their life expectancy.  That has been nixed in the SECURE Act and the maximum number of years they can defer the account is 10-years. This does not apply to spouses, disabled beneficiaries, chronically ill beneficiaries, certain minor children (until they reach age of majority) and existing inherited accounts.  Based on this, we will be looking at our clients situation to determine if it makes sense to convert taxable retirement accounts to Roth Sources.

• Employers will now be able to add annuity options to their retirement plan programs.  This was fought for very hard by insurance companies and we are very concerned about how this is going to play out. We are not the only ones that feel that way.    Read Rick Kahler’s commentary in an article published on December 30 - “Accessing the Damage Done by the Secure Act.”

The Weird 

We think these are weird considering the Act is called Setting Every Community Up for Retirement Enhancement and the following have absolutely nothing to do with retirement.

• The credit for installing an electric car charger has been restored

• Anyone under the age of 21 will be prohibited from purchasing cigarettes and e-cigarette products (i.e. vaping)

• The medical expense deduction was set to go up to 10%, but the Act has it at 7.5% once again in 2020.

• 529 plans can now be used to pay for Apprenticeships

We will be looking at each of our clients' individual situations to determine how this new Act will fit into their financial lives...so more to come!