Beware of Emotions Affecting Your Money Decisions

July 12, 2017
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Today’s impulsive moves could breed tomorrow’s regrets.

When emotions and money intersect, the effects can be financially injurious. Emotions can cause us to overreact – or not act at all when we should.

Think of the investors who always respond to sudden Wall Street volatility.
That emotional response may not be warranted, and they may come to regret it.  In a typical market year, Wall Street can see big waves of volatility. This year, it has been easy to forget that truth. During the first third of 2017, we saw only a minor swing.  Daily retreats of this magnitude have been seen before, will be seen again, and should be taken in stride.

Fear and anxiety can also cause stubbornness.
Some people have looked at money one way all their lives. Others have always seen investing from one perspective. Then, something happens that does not mesh with their outlook or perspective. In the face of such an event, they refuse to change or admit that their opinion may be wrong. To lose faith in their entrenched point of view would make them feel uneasy or lost. So, they doggedly cling to that point of view and do things the same way as they always have, even though it no longer makes any sense for their financial present or future. In this case, emotion is simply overriding logic.

What about those who treat revolving debt nonchalantly?
Some people treat a credit card purchase like a cash purchase – or worse yet, they adopt a psychology in which buying something with a credit card feels like they are “getting it for free.” A kind of euphoria can set in: they have that dining room set or that ATV in their possession now; they can deal with paying it off tomorrow. This blissful ignorance (or dismissal) of the real cost of borrowing can dig a household deeper and deeper into debt, to the point where drawing down savings may be the only way to wipe it out.

How about those who put off important financial decisions?
Postponing a retirement or estate planning decision does not always reflect caution or contemplation. Sometimes, it reflects a lack of knowledge or confidence. Worry and fear are the emotions clouding the picture. What clears things up? What makes these decisions easier? Communication with professionals. When the investor or saver recognizes a lack of understanding, shares his or her need to know with a financial professional, and asks for assistance, certainty can replace ambiguity.

Emotions can keep people from doing the right things with their money – or lead them to keep doing the wrong things. As you save, invest, and plan for your future, try to let logic rule. Years from now, you may be thankful you did.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage.

For more information, please visit www.hfgwm.com or call 832.585.0110.

Gauging Your Financial Well-Being


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Six signs that you are in good shape.

How well off do you think you are financially? If your career or life takes an unexpected turn, would your finances hold up? What do you think will become of the money you’ve made and saved when you are gone?

These are major questions, and most people can’t answer them as quickly as they would like. It might help to think about six factors in your financial life. Here is a six-point test you can take to gauge your financial well-being.

Are you saving about 15% of your salary for retirement? That’s a nice target and will probably amount to $10-20,000 per year. You are probably already saving that much annually without any strain to your lifestyle. Annual IRA contributions and incremental salary deferrals into a workplace retirement plan will likely put you in that ballpark. As those dollars are being invested as well as saved, they have the potential to grow with tax deferral – and if your employer is making matching contributions to your retirement account along the way, you have another reason to smile.

Do you have an emergency fund? Sadly, most Americans don’t.  A strong emergency fund contains enough money to cover six months of expenses for the individual who maintains it. If you head up a family, the fund should ideally be larger – large enough to address a year of expenses. At first thought, building a cash reserve that big may seem daunting, or even impossible – but households have done it, especially households that have jettisoned or whittled down debt. If you have done it, give yourself a hand with the knowledge that you have prepared well for uncertainty.

Are you insured? Some households don’t have life insurance. Why? They can’t afford it. That’s the perception.

In reality, life insurance is much less expensive now than it was decades ago. How much do you need? A quick rule of thumb is ten times your income. Hopefully, you have decent or better insurance coverage in place.

Do you have a will or an estate plan? Dying intestate (without a will) can leave your heirs with financial headaches at an already depressing time. Having a will is basic, yet many Americans don’t create one.  Why don’t more of us have wills? A lack of will, apparently. A living will, a healthcare power of attorney and a double-check on the beneficiary designations on your investment accounts is also wise.  Not everyone needs an estate plan, but if you’re reading this article, chances are you might. If you have significant wealth, a complex financial life, or some long-range financial directives you would like your heirs to carry out or abide by, it is a good idea. Congratulate yourself if you have a will, as many people don’t; if you have taken further estate planning steps, bravo.

Is your credit score 700 or better? Today, 685 is considered an average FICO score. If you go below 650, life can get more expensive for you. Hopefully you pay your bills consistently and unfailingly and your score is in the 700s. You can request your FICO score while signing up for a trial period with a service such as TransUnion.

Are you worth much more than you owe? This is the #1 objective. You want your major debts gone, and you want enough money for a lifetime. You will probably always carry some debt, and you can’t rule out risks to your net worth tomorrow – but if you are getting further and further ahead financially and your bottom line shows it, you are making progress in your pursuit of financial independence.

Are You Underfunding Your Retirement?

June 14, 2017
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Many retirees and pre-retirees are drawn to fixed annuities and CD’s because they do not want to assume much risk. After all, there is no stock market risk involved with these fixed-return investments. Some people use them as their only vehicles for retirement planning.

But stepping out of the stock market altogether may not be such a good idea. In fact, for some it could be a serious retirement planning mistake. Here’s why.

Risk-averse investing has risks of its own. Every investment has advantages and disadvantages. Fixed-rate investments are no exception. While you eliminate market risk with a fixed annuity or CD, in a sense you are trading one kind of risk for another. You now contend with opportunity risk (or opportunity cost) and inflation risk. The fixed return you get might be far less than the return that stock market investing could bring you (in the short term and the long term). That fixed return might also fail to match the rate of inflation, leaving you with less purchasing power.  Volatility is something many of us endure in order to try for the kind of returns that may help us reach our financial goals. In the last year, the stock market has been quite volatile. But through the years, some investors have built considerable wealth through long-term stock market investment.

Do you really want to ignore the potential of the stock market? While short-term market movements may make stocks and funds seem too risky, the big risk could be the possibility of severely underfunding your retirement by clinging to fixed-rate investments. The stock market offers opportunities for considerable financial gain – and the chance of returns exceeding those of most fixed-rate investments. While there is risk involved, there also exists a potential for considerable benefit.

If you say “no” to the market’s potential, you may regret your choice later in your retirement. In fact, you may find that you need long-term stock market investment to work toward certain retirement goals.

Explore the possibilities. If you’d like to learn more about investments positioned to take advantage of the market’s potential, be sure to speak with a qualified financial advisor. He or she may be able to help you determine how much risk you’re willing to tolerate, and which investment opportunities are the closest fit with your tolerance level. What you learn might be very illuminating, and it might change your whole investment outlook.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

The Real Consequences of Not Saving for Retirement


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Do you really want to risk facing these potential outcomes?

Saving for retirement may seem an unappreciated task. But you may be thanking yourself later. Putting away a percentage of one’s income, money that could be used for any number of bills or luxuries, is a sacrifice made in the present in order to avoid a larger trouble down the road.

More than a quarter of seniors have no retirement savings. To be more specific, the Government Accountability Office says some households headed by people 55 or older have no savings in a retirement account and no possibility of receiving an employer pension.

What kind of future awaits boomers who have saved less than $50,000 for retirement? It is hard to say exactly what may happen to them financially, but it is possible to make some educated guesses.

  • They will likely try to work into their seventies. If their health permits, they will attempt to stay employed at least part time. Their earnings will presumably drop as they age.
  • They will probably rely heavily on Social Security & home equity. Social Security income by itself will prove insufficient to retire on, so they will look at selling their homes or arranging reverse mortgages to help fund their retirement (if they own homes to begin with).
  • A fortunate few may have a third option: augmenting their inadequate retirement savings with proceeds from a business sale. Some small business owners save relatively little, believing that the money they get from selling their company will fund their future. That is not a given. It may take years for their business to sell, and it may sell for far less than they assume.

Within a few years, they will need to accept a significantly lower quality of life. They may be forced to scale back creature comforts, live in smaller quarters, or relocate to a cheaper, less desirable area (assuming they can handle relocation costs). They may end up doing all of this.

At some point, they may start spending down their assets. If they do enough of that, they will be eligible for Medicaid – a grim consolation in a sad process. Debts may impel them to whittle away their net worth even faster. Then, they may need help from their children. Having little or no income besides Social Security, they will struggle mightily to keep up with the bills. If they own their homes free and clear, at least they will be able to stay in them; if not, they may choose the apartment of last resort and move in with one of their adult children.

Will this be your future? If you want to plan to avoid this financial nightmare, then you must save and invest for retirement. Save and invest as if your entire future depends on it, for it may. Saving and investing now could help you save your quality of life someday.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

What Is Retirement Really Like?


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When most people think of retirement, they imagine leaving a job they’re tired of, getting out of the rat race, and leaving the pressures of employment behind. Often retirement is viewed as a reward for time in the workforce and a benefit of successful financial planning. But retirement is so much more than giving up a job and relaxing. Retirees are entering one of the most exciting and challenging stages of their life. It can be a time to draw on personal and professional experiences to open new doors of opportunity and education and a time to realize potential and accomplish goals previously delayed by careers and raising a family.

Although the opportunities are endless, a successful retirement doesn’t come without its hurdles. There are many things to consider in order to get it right, such as living on a reduced income, creating a health and wellness strategy and evaluating relationships. Also important is the allocation of personal time, determining living arrangements, and recognizing change in social roles. There is also the unfortunate but necessary adjustment to the eventual death of loved ones.

During the first days, weeks, or maybe even months of retirement, people often experience a blissful honeymoon-like feeling. No boss, no job, no worries! Just time to sit around and do whatever crosses your mind. During this period, people generally have little motivation to plan for the future.  But as the honeymoon period winds down, a number of newly minted retirees report a feeling of disenchantment. Retirement no longer feels like an extended holiday. Time begins to weigh heavily on their shoulders. Playing golf five times a week begins to feel like a chore. Projects around the house lose their appeal, and there can be a feeling that causes retirees to ask the question, “Is this all there is?” Frustration and disappointment can mount as some retirees get caught in this vortex and are unable to get out.

The life we lead is a result of the choices we make. That means in pre-retirement and retirement years, it’s important to make the right choices—ones that build a fulfilling and energized retirement. The majority of successful retirees recognize the power of creating a realistic retirement vision and an action plan to achieve it. Armed with this mental model, they are able to make sound choices and progress toward their desired results. You can work in a systematic way towards formulating a clear and focused retirement vision. In a way, your experience in early and mid-life makes you more aware and articulate than ever before concerning your own priorities; a better executive for the next phase of life. Remember, it is equally important to consider how you will spend your time as it to know how you will spend your money.

You can make the difficult transition into retirement easier by exploring your expectations and desires. With some careful prioritizing—and collaborating with your advisor—you can design a working plan for retirement that may surpass all your expectations.

First, imagine yourself in your first six months of retirement, then, at one and two years out. You can then ask yourself to visualize the end of your retirement, when you are 90, 95, or 100+. What are you most proud of? What have you done that has brought happiness to you and to others? What legacy will you leave behind? It’s important to communicate personal desires and goals to your advisor. That way, he or she will be better equipped to help you develop a plan that strikes as close as possible to what will truly make you happiest.

Most people know someone who has made a successful retirement. What is it about those people that you admire? Is it their family relationships, their energy and enthusiasm, or perhaps their overall sense of wellbeing? Think then of those challenged by retirement. In your opinion, what are those individuals doing or not doing that makes them less successful? Is it the exorbitant amount of time they spend watching television, their lack of adventure, or possibly a sense of helplessness toward this ever-changing world? Once you’ve recorded a retirement vision, share it with a partner or spouse, close friends—and of course with your advisor. This process of sharing will provide different perspectives and help shape your final vision.

Optimism is key throughout the retirement visioning process. It’s important to focus on the rewards of a balanced retirement; meditate on the feeling of being complete, enriched, and financially secure. Retirement visions should be reviewed and rewritten as often as necessary, until the vision feels right and is in line with your wants, needs, and beliefs. Meet with your advisor regularly to review your retirement vision. Interrogate and revise your plan to determine what’s working and what is not. You can then identify what changes are required and work on developing targeted ideas and solutions.  As you enter the second-longest phase in your life, take an informed, active role in getting it right. With appropriate guidance and thoughtful planning, you will be able to enjoy life after work, even relish it.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

Getting It All Together for Retirement

May 31, 2017
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Where is everything? Time to organize and centralize your documents.

Before retirement begins, gather what you need. Put as much documentation as you can in one place, for you and those you love. It could be a password-protected online vault; it could be a file cabinet; it could be a file folder. Regardless of what it is, by centralizing the location of important papers you are saving yourself from disorganization and headaches in the future.

  • What should go in the vault, cabinet or folder(s)? Crucial financial information and more. You will want to include…
  • Those quarterly/annual statements. Recent performance paperwork for IRAs, 401(k)s, funds, brokerage accounts and so forth. Include the statements from the latest quarter and the statements from the end of the previous calendar year (that is, the last Q4 statement you received). You no longer get paper statements? Print out the equivalent, or if you really want to minimize clutter, just print out the links to the online statements. (Someone is going to need your passwords, of course.) These documents can also become handy in figuring out a retirement income distribution strategy.
  • Healthcare benefit info. Are you enrolled in Medicare or a Medicare Advantage plan? Are you in a group health plan? Do you pay for your own health coverage? Own a long term care policy? Gather the policies together in your new retirement command center, and include related literature so you can study their benefit summaries, coverage options, and rules and regulations. Contact info for insurers, HMOs, your doctor(s) and the insurance agent who sold you a particular policy should also go in here.
  • Life insurance info. Do you have a straight term insurance policy, no potential for cash value whatsoever? Keep a record of when the level premiums end. If you have a whole life policy, you need paperwork communicating the death benefit, the present cash value in the policy and the required monthly premiums.
  • Beneficiary designation forms. Few pre-retirees realize that beneficiary designations often take priority over requests made in a will when it comes to 401(k)s, 403(b)s and IRAs. Hopefully, you have retained copies of these forms. If not, you can request them from the account custodians and review the choices you have made. Are they choices you would still make today? By reviewing them in the company of a retirement planner or an attorney, you can gauge the tax efficiency of the eventual transfer of assets.
  • Social Security basics. If you have not claimed benefits yet, put your Social Security card, your W-2 form from last year, certified copies of your birth certificate, marriage license or divorce papers in one place, and military discharge paperwork and a copy of your W-2 form for last year (or Schedule SE and Schedule C plus 1040 form, if you work for yourself), and military discharge papers or proof of citizenship, if applicable. Take a look at your Social Security statement that tracks your accrued benefits (online or hard copy) and make a screengrab of it or print it out.
  • Pension matters. Will you receive a bona fide pension in retirement? If so, you want to collect any special letters or bulletins from your employer. You want your Individual Benefit Statement telling you about the benefits you have earned and for which you may become eligible; you also want the Summary Plan Description and contact info for someone at the employee benefits department where you worked.
  • Real estate documents. Gather up your deed, mortgage docs, property tax statements and homeowner insurance policy. Also, make a list of the contents of your home and their estimated value – you may be away from your home more in retirement, so those items may be more vulnerable as a consequence.
  • Estate planning paperwork. Put copies of your estate plan and any trust paperwork within the collection, and of course a will. In case of a crisis of mind or body, your loved ones may need to find a durable power of attorney or health care directive, so include those documents if you have them and let them know where to find them.
  • Tax returns. Should you only keep your 1040 and state return from the previous year? How about those for the past 7 years? Have you kept every one since 1982 or 1974? At the very least, you should have a copy of returns from the prior year in this collection.
  • A list of your digital assets. We all have them now, and they are far from trivial – the contents of a cloud, a photo library, or a Facebook page may be vital to your image or your business. Passwords must be compiled too, of course.

  

This will take a little work, but you will be glad you did it someday. Consider this a Saturday morning or weekend project. It may lead to some discoveries and possibly prompt some alterations to your financial picture as you prepare for retirement.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

Do Women Face Greater Retirement Challenges Than Men?


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If so, how can they plan to meet those challenges?

Why are women so challenged to retire comfortably? You can cite a number of factors that can potentially impact a woman’s retirement prospects and retirement experience. A woman may spend less time in the workforce during her life than a man due to childrearing and caregiving needs, with a corresponding interruption in both wages and workplace retirement plan participation. A divorce can hugely alter a woman’s finances and financial outlook. As women live longer on average than men, they face slightly greater longevity risk – the risk of eventually outliving retirement savings. There is also the gender wage gap, narrowing, but still evident.

What can women do to respond to these financial challenges? Several steps are worth taking.

  • Invest early & consistently. Women should realize that, on average, they may need more years of retirement income than men. Social Security will not provide all the money they need, and, in the future, it may not even pay out as much as it does today. Accumulated retirement savings will need to be tapped as an income stream. So saving and investing regularly through IRAs and workplace retirement accounts is vital, the earlier the better. So is getting the employer match, if one is offered. Catch-up contributions after 50 should also be a goal.
  • Consider Roth IRAs & HSAs. Imagine having a source of tax-free retirement income. Imagine having a healthcare fund that allows tax-free withdrawals. A Roth IRA can potentially provide the former; a Health Savings Account, the latter. An HSA is even funded with pre-tax dollars, as opposed to a Roth IRA, which is funded with after-tax dollars – so an HSA owner can potentially get tax-deductible contributions as well as tax-free growth and tax-free withdrawals.  IRS rules must be followed to get these tax perks, but they are not hard to abide by. A Roth IRA need be owned for only five tax years before tax-free withdrawals may be taken (the owner does need to be older than age 59½ at that time). Those who make too much money to contribute to a Roth IRA can still convert a traditional IRA to a Roth. HSAs have to be used in conjunction with high-deductible health plans, and HSA savings must be withdrawn to pay for qualified health expenses in order to be tax-exempt. One intriguing HSA detail worth remembering: after attaining age 65 or Medicare eligibility, an HSA owner can withdraw HSA funds for non-medical expenses (these types of withdrawals are characterized as taxable income).
  • Work longer in pursuit of greater monthly Social Security benefits. Staying in the workforce even one or two years longer means one or two years less of retirement to fund, and for each year a woman refrains from filing for Social Security after age 62, her monthly Social Security benefit rises by about 8%. Social Security also pays the same monthly benefit to men and women at the same age – unlike the typical privately funded income contract, which may pay a woman of a certain age less than her male counterpart as the payments are calculated using gender-based actuarial tables.
  • Find a method to fund eldercare. Many women are going to outlive their spouses, perhaps by a decade or longer. Their deaths (and the deaths of their spouses) may not be sudden. While many women may not eventually need months of rehabilitation, in-home care, or hospice care, many other women will.

Today, financially aware women are planning to meet retirement challenges. They are conferring with financial advisors in recognition of those tests – and they are strategizing to take greater control over their financial futures.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

Paying for College Can Be a Family Affair

May 24, 2017
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College planning isn’t for parents only. It’s an investment that should involve the whole family and offer students their first taste of financial planning. It’s a time for parents to be realistic about what they can afford and for students to give serious thought to the value of a college education and where it will get them in life. Most important, an in-depth discussion requires families to sit down at the kitchen table and talk about money.

The psychological barriers to this discussion can be huge. Parents who think it’s their obligation to pay for their children’s college education (because their parents paid for theirs) are feeling guilty because they haven’t saved enough. Children who never had to worry about paying for things before and who want to preserve their childhood a little longer don’t think they should have to worry about where the money will come from. None of these attitudes will help get the FAFSA form filled out. Better to face the realities of college head-on now and use the experience as a lesson in financial planning.

Lesson 1: Goal Setting
Most families scrambling to pay for college may now regret not having set college goals earlier. Families will, however, need to adjust the goal-setting process to account for the fact that college is upon them and no longer a vague event some 18 years in the future. Once a child gets to high school, goal-setting needs to be practical and realistic. No pie-in-the-sky dreams about obtaining multiple degrees at private colleges. And it needs to involve the child.

Moreover, it should go beyond the four years of college to include career plans, income targets, and lifestyle goals to determine how much debt the student feels comfortable taking on. Will an elite private school pay for itself in higher postgraduate earnings? Or would the child prefer a less expensive school in order not to be burdened with debt and therefore free to pursue a lower paying career such as teaching?

The goal-setting process at this stage requires the student to think beyond college majors and freshman year beer busts and do some real life planning. While the choices may be difficult, the process is invaluable. The younger a person is when life-planning and goal-setting skills are developed, the more empowered that individual will feel throughout life.

Lesson 2: Tax-Deferred Compounding
Regrets often provide the greatest life lessons. It’s too late now for the parents of a high school senior to compound savings over 18 years, but they may be able to use this missed opportunity as a lesson in saving for their own retirement. And you can bet that a child with no college savings is determined never to come up short again, making this a perfect time to discuss some finance basics: save 10% of your income; max out your IRA; save up for what you want rather than going into debt.

Let’s not forget the compounding lesson, which paradoxically, is sometimes made more difficult by the large end-dollar amounts promised. For example, a young person can accumulate over $1 million in 50 years by saving just $150 per month at 8%. The financial services industry often holds these large amounts out as a carrot to motivate people to save, but they just make the monthly savings amount seem too pitiful to make a difference. One might as well blow it on the latest indulgence. But that $150 is the crucial seed that gets the whole ball rolling. In time, the earnings will represent a larger share of the whole, but only if the seed money is invested first. Perhaps the compounding lesson should focus on the amount going into the account, not the pot of gold at the end.

Lesson 3: Budgeting and Cash Flow
College is the perfect time to introduce young people to the essentials of budgeting. Even if credit cards, payment plans and parents help smooth out the cash flow, students should not go off to college without knowing how much everything will cost. The College Board breaks down college expenses into five categories: tuition and fees, room and board, books and supplies, personal expenses, and travel. If college is a few years away, families can use the average costs listed in the College Board’s “Trends in College Pricing” (http://trends. collegeboard.org/college pricing) to develop a preliminary budget and make basic decisions about which type of college to go to, private vs. public, instate or out, and so on.

Even so, families will need to consider their own individual circumstances. Will parents visit the school several times throughout the year? (Add airfare and hotel/meal costs.) Will the child have a car at school? (Add insurance, gas, parking, and maintenance costs.) Will the child go to Miami for spring break? (Not exactly a college expense, but it should be part of the budget.) Even if parents are able and willing to pay for everything, the off-to-college budgeting exercise is a meaningful way to prepare kids for the financial responsibilities of life. And no matter how tight or loose the budget is, it never hurts to look for ways to reduce college costs.

Lesson 4: Debt Management
Any child who has ever borrowed money from his parents has had some experience with debt. But it probably didn’t involve interest or fees and it certainly didn’t introduce the child to the nation’s most unforgiving lender, Uncle Sam. Student loans seem so magnanimous at first—no payments till after graduation and forbearances relatively easy to obtain—but once the money is borrowed, the debt must be managed with care, because default is not an option.
The principles of debt management seem obvious to adults, but children swept up in the financial aid game need to learn them: don’t borrow more than you can afford to repay, shop around for the best rates and terms, and understand the full cost of the loan over the entire payment period. Loan consolidation, for example, may seem like a good deal until you calculate the total interest over the life of the loan. Students will need to be reminded that many of those nice student aid people who are helping them obtain money for college are really in the business of selling loans and may not have students’ best interests at heart.

Next to retirement, college planning is one of the most serious aspects of financial planning, because it influences a young adult’s total lifetime earnings. The type of degree, where it comes from, and the people the student meets in college all help shape the career direction and opportunities the student will have in life. The planning process may be considered an important part of the student’s education, as it prepares the student for the many financial- and life-planning issues that will come up in the years ahead.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

10 Tips For Maximizing Financial Aid For College Students


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Every year the College Board faces a public relations challenge: how to accurately report trends in college pricing without discouraging high school students from going on to college. So in addition to its annual booklet “Trends in College Pricing,” the College Board publishes the annual report “Trends in Student Aid,” which describes the widespread availability of money for college.

Both publications run 40 pages or more. And to make sure students and parents understand why they should spend all this money or take out all these loans, there’s the report “Education Pays,” which offers a cost-benefit analysis in its 50 or so pages. The typical bachelor’s degree recipient can expect to earn about 60% more annually than the typical high school graduate, according to a 2014 report by the Bureau of Labor Statistics. Or, to put it another way, by the age of 36, the typical college graduate who enrolled at age 18 has earned enough to compensate for not only tuition and fees at the average. Average cost of a college education. So what does it cost to achieve this lifetime enhancement? The average cost of college (tuition, fees, room, and board) is around $19,000 for in-state public schools and $43,000 for private, as reported by the College Board. Keep in mind that these are averages. Also keep in mind that these amounts are for one year of college only. To plan accurately for college costs, it’s best to 1) identify the college the student is likely to attend and use those numbers; 2) multiply the one-year cost by 4 (or even 5); and 3) add an inflation factor.

Applying for student aid your income may lead you to think it’s not worth the trouble of applying for student aid. But because a greater portion of institutional grants is now going to higher-income families, and because subsidized loans offer such attractive rates and terms, anyone with a child enrolling in college should fill out the FAFSA (Free Application for Federal Student Aid at www.fafsa.ed.gov). College tuition is so expensive that even high-income families can get offers of financial aid. Your first step is to complete the federal forms, and then contact the school directly to further negotiate a financial aid package.

Even parents with students who are several years away from college should become familiar with the FAFSA so they can rearrange their affairs if necessary, perhaps contributing more to retirement plans (which are considered exempt assets) or spending down UGMA/UTMA accounts so those assets won’t raise the expected family contribution (caution: UGMA assets must be spent on the child and may not be for necessities; summer camp, cars, and computers are OK). Also, remember that the FAFSA must be submitted every year that the child is enrolled.

Here are some tips for filling out the FAFSA:

  1. Do it early. At many schools financial aid is distributed on a first-come, first-serve basis. Although the federal deadline on the form is June 30, the aid deadline set by individual schools could be as early as the end of February. Deadlines for state aid also vary. And although it asks for the prior year tax information, which may not be in yet, financial aid counselors advise using estimates or basing the figures on last year’s tax return rather than waiting.
  2. Do it online. Because of the FAFSA’s complexity, it’s common for people to make mistakes when filling it out. Paper applications with errors or missing information will be returned for corrections; therefore, their processing will be delayed. The online version of the form issues an alert for missing information and even recognizes some obvious errors.
  3. Do not include exempt assets. Retirement plans and home equity are exempt assets and should not be included in net worth information on the FAFSA.
  4. Keep all records. Make a copy of the completed application and save it, along with all records used to complete the FAFSA. Not only will this help in filing next year’s form, but documentation may need to be produced if yours is one of those selected for verification. The U.S. Department of Education checks FAFSA information against data from the Social Security Administration, the Veterans Administration, and the Internal Revenue Service. It also selects about one-third of all applications for verification.
  5. Read all questions carefully. The words “you” and “your” refer to the student, not the parents. Do not leave any answers blank. If the answer is “zero” or “not applicable,” enter “0” or “N/A.”
  6. Do not send letters of explanation with the FAFSA. Although it is a good idea to make financial aid officers aware of any unusual circumstances, such as a job loss or reduced income, such letters should be directed to individual schools. If they are attached to the application, they will be thrown away. General tips on maximizing student aid. Apart from the FAFSA, parents may want to contact the financial aid departments at individual schools to increase their chances of receiving a favorable financial aid package.
  7. Don’t discount expensive schools. Some families automatically cross high-tuition schools off their list. But interestingly, those colleges may actually be more affordable because they are often well endowed and can meet more of the need.
  8. Reconsider early decision. Some schools allow students to get a jump on the application process if they will commit to attending if admitted. While this may help the student’s chances of getting in, it could reduce the amount of aid that is offered, because of the student’s reduced bargaining position.
  9. Ask for a review. To try to receive a better aid package, ask that it be reviewed. Avoid using the words “bargain” or “negotiate,” however; financial aid officers do not like being put in that position, and they especially hate having offers from competing colleges waved in their faces. Counselors advise thanking the school for its generosity and then expressing doubt at being able to meet the family’s expected contribution as a way to ask for more aid.
  10. If outside scholarships come in, ask that loans be reduced first. Some students have discovered that outside scholarships from community organizations such as the Rotary Club end up going straight to the college. That’s because the grant portion of the aid package is reduced dollar for dollar by the amount of the scholarship. Ask that any outside scholarships be applied against the loan portion of the package.

The availability of student aid should not keep parents from saving for college. But because grants and loans are such an essential part of college financing today, even high-income families, who aren’t used to appealing for financial help, will probably want to participate in the student aid game rather than automatically writing checks to their kid’s college.

What is the Right Formula for Funding Education?


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Education is truly an investment for a lifetime.  The gift of a college education can open the door to a world of opportunity for your child or grandchild.  Saving, even a little at a time, can make a big difference down the road.  With the cost of a college education continuing to increase, the key is to start saving early and regularly. There are many different methods to fund education expenses.  Determining the best method for your family should first start with an honest conversation regarding your goals.  At HFG Wealth Management, we utilize the life planning approach; our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values.

Ask yourself:

  1. How much of my children’s or grandchildren’s education do I want to fund?
  2. What is a feasible savings amount based on my financial situation?
  3. Which other funding methods (i.e. scholarships, work-study, student loans, financial aid) are likely to play a part in funding education?

Once these key questions are answered, a plan can be implemented to fund education.  I have provided some helpful information on the various education funding methods that you may want to use to begin the planning process:

529 Plans 

529 plans are one of the most popular tax-advantaged college savings options.  They include both college savings plans and prepaid tuition plans.  With either type of plan, your contributions grow tax deferred and earnings are tax free at the federal level if the money is used for qualified college expenses.  Each state may also offer their own tax advantages.  With a college savings plan, you open an individual investment account and select one or more of the plan’s mutual fund portfolios for your contributions.  With a prepaid tuition plan, you can purchase tuition credits at today’s prices for use at specific colleges in the future and there’s no individual investment component.  With either type of plan, participation isn’t restricted by income, and the lifetime contribution limits are high, especially for college savings plans.

Coverdell Education Savings Accounts 

A Coverdell education savings account is a tax-advantaged education savings vehicle that lets you contribute up to $2,000 per year.  Your contributions grow tax deferred and earnings are tax free at the federal level (and most states follow the federal tax treatment) if the money is used for the    beneficiary’s qualified elementary, secondary or college expenses.  You have complete control over the investments you hold in the account, but there are income restrictions on who can participate.

U.S. Savings Bonds 

The interest earned on Series EE and Series I saving bonds is exempt from federal income tax if the bond proceeds are used for qualified college expenses.  These bonds earn a guaranteed, modest rate     of return, and they are easily purchased at most financial institutions or online at www.treasurydirect.gov.  However, to qualify for tax-free interest, you must meet income limits and other established criteria.

UTMA/UGMA Custodial Account

An UTMA/UGMA custodial account is a way for your child to hold assets in his or her own name with you (or another individual) acting as custodian.  Assets in the account can then be used to pay for college.  All contributions to the account are irrevocable, and your child will gain control of the account when he or she turns 21 (varies state to state).  Earnings and capital gains generated by assets in the account are taxed to the child each year.  Under the kiddie tax rules, for children under age 19 and for full-time students under age 24 who don’t earn more than one-half of their support, the first $1,050 of earned income is tax free, the next $1,050 is taxed at the child’s rate and anything over $2,100 is taxed at your rate.

Financial Aid

Many families rely on some form of financial aid to pay for college.   Loans and work-study jobs must be repaid (either through monetary or work obligations), while grants and scholarships do not.  Most financial aid is based on need, which the federal government and colleges determine primarily by your   income, but also by your assets and personal information reported on your aid applications.  In recent years, merit aid has been making a comeback, so this can be really good news if your child has a special talent or skill.

It is most likely a combination of the education funding methods above will be utilized in order to meet your own family’s education goals.  We recommend custom tailoring an education funding plan based on your family’s needs.  Additionally, the plan should be reviewed on a periodic basis and adjustments made accordingly.

At HFG Wealth Management, we embrace a more holistic method of financial planning known as Financial Life Planning™.  We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan.  As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values.  At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future.  We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage.  For more information, please visit www.hfgwm.com or call 832.585.0110