Worcester Jewish Chronicle, August 11, 2005

Nothing Succeeds Like Success- Part II

William E. Philbrick, CPA, MST, CVA, CFF

In part I, we looked at a number of possibilities for easing the two biggest financial problems individual Americans face:  too little savings and too much debt.

Let’s now embark on what I like to call—and what CPAs across the country are calling—“360 Degrees of Financial Success.”  It’s an approach that looks at the life events that require your financial attention—childhood, parenting, college, jobs, home ownership, unexpected crises, retirement, and estate planning.  We are going to pinpoint strategies that will help keep you financially healthy during each of these life cycles.

In other words, wherever you are in the “Financial Circle of Life,” I’ll offer you ideas and suggestions for staying on solid financial footing and hopefully stimulate your thinking and your desire to financially protect yourself and your family.  You can follow up on your own…or with a financial adviser.  The only wrong thing to do is to do nothing about protecting your financial future. 

Let’s start with homeownership.  Here are some tips that will keep the dream of owning a home from turning into a nightmare:

• Decide if this is the right time to buy—both personally and based on the real estate market in which you are interested.
• Investigate financing early on. Shop around for the best rates and terms.
• Be sure you can afford the monthly mortgage payments.  A rule of thumb:  Generally, your monthly housing expenses (mortgage principal and interest, real estate taxes, and homeowners insurance) should not exceed 25 to 30 percent of your gross monthly income.
• Use a real estate attorney—at least for the closing.
• Always consider the future marketability of your home.  You never know when you’ll have to sell.
• Make sure you have enough home-owner’s insurance…and comparison shop for the best premiums, starting with companies who currently insure you in other areas.
• Consider how you will pay for needed repairs, both at purchase time and in the future.
• Avoid charging high-ticket items in advance of your  home purchase. It might detrimentally impact your credit rating.

As a parent, you face two challenges: teaching your children about money and managing your finances so your kids will have every opportunity to become productive, responsible adults.

 Educating your children about money management is rated G—good for any age.  Here are a few tips for various age groups.

 For 5 to 8 year olds:  This is a great time to start with an allowance.  Monthly is better than weekly for this age group, so they can learn a bit about planning ahead.  Also teach kids how to comparison-shop.  For example: let them select two kinds of orange juice from the supermarket.  A name brand and a store brand and do a blind taste test.  If they see no difference, they’ll learn it’s pointless to pay more.  Also teach them to wait for sales and specials on items like clothes and electronics—whether they’re spending your money or theirs.

 For 9 to12 year olds:  This is the ideal time for kids to start earning money to supplement their allowance.  Lots of possibilities: a lemonade stand, dog walking, fence painting, leaf raking and snow shoveling are all terrific options.

 For teens:  A critical time for kids to learn money management skills. During their high school years, they should become progressively more versed in keeping a job, budgeting what’s earned, learning the do’s and don’ts of spending and overspending.  Teens should have a checking account and/or a debit card, but absolutely no credit card.

 For college students:  Staying within budget needs to be part and parcel of the lessons college students learn.  Bailing themselves out, curbing their spending lust and foregoing nonessential items are absolute musts.  As much as you would like to help, you have to stay out of the financial messes into which they may get themselves.  Too often, parents with the best intentions enable the worst financial behavior.

 In addition to teaching your children sound financial management principles, as a parent you also have to plan for the contingencies that come with parenting.

 Here’s a sobering thought.  In the year 2000, an average family had spent about $165,000 to raise a child to age 18.  Those numbers don’t include college.

 You can see how critical it is to plan for your kids’ financial future in good times and bad.  Forget the dolls. Forget the no-occasion presents.  Forget the umpteenth video game.  Save the money. Put it aside instead. The best gift you can give your children is financial security.

 Now let’s talk for a moment about college.  The price tag is staggering.  Of course, you should be putting money aside—from the day your child is born, but most of us don’t…many of us can’t.  When we do save, funds earmarked for college can get used for unexpected emergencies.  Does that mean your child can’t go to college?  ABSOLUTELY NOT.  You have a number of options available that can keep the door to higher education wide open, such as:

• Financial aid—There are so many more opportunities available in the public and private sectors about which parents are not aware. Time spent doing some research can pay big dividends.
• Scholarships and sponsorships—Many schools, organizations, communities and companies offer fellowships or scholarships for both academically and financially deserving students. Check out these opportunities.
• Part time jobs—Either on or off campus, students can earn needed tuition and spending money.  Just about every college is set up to help students find work.
• Delayed admission—Many colleges will accept a student and then let him or her defer attendance for a year.  During that time, both you and your child can put away funds to help finance college.  Or, consider a less expensive junior college for two years, followed by a transfer to a four-year program for the balance.

 In the next installment, we will be looking at other key areas on our “Financial Circle of Life” and how to deal with the surprises life brings.

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William E. Philbrick, CPA, MST, CVA, CFF is a Senior Vice President and Director of Taxes and Forensic Services with Greenberg Rosenblatt Kull &Bitsoli, P.C. of Worcester, Mass. He can be reached at wphilbrick@GRK&B.com.