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Strategies for helping families save and invest for their future.

Use 80/20 rule to maximize savings!

Use 80/20 rule to maximize savings!

80% of results come from 20% of your efforts

The 80/20 rule was discovered by an Italian engineer named Vilfredo Pareto and is often referred to as the Pareto Principle

But how can the 80/20 rule be applied to improve family fiscal management? Well, if 80 percent of results come from just 20 percent of our efforts, the first step is to prioritize your tasks/activities.

What are your most important tasks not just for the day but for the month? Make a list of them: Paying the bills, making a budget, searching for coupons, finding a part-time job, refinancing the car loan, buying kids’ shoes while on sale, replacing lightbulbs with lower cost led bulbs, finding ride-sharing for after school sports, trying to repair a leaking sink yourself, etc.

WOMEN ARE STILL DOING MOST OF THE COOKING AND CLEANING!

After each task write down an estimate of how much time it will take to accomplish. This procedure forces you to identify “bottlenecks” that may have kept you from doing the task earlier. When I follow this procedure in my own life, I am frequently surprised with how little time I think it will take to accomplish ALL the tasks. In fact, it makes me feel more motivated to get started. Why have I been procrastinating so long?

Most valuable?

Now, ask yourself, which of these activities will be most valuable to my family. Those with the highest value should be done first. But, maybe you can’t complete your most valuable task in one day? Not to worry. Complete as much of your #1 task as you can and move on to #2. Accept that there will be interruptions like fixing lunch, picking your child up from school or doing a load of washing. Use these minutes away to ponder your #1 task.

TIME IS MONEY!

At the end of the time you have to work on your fiscal management tasks, place a check mark beside the ones you have accomplished. If you only completed one-half of #1, enter “1/2” next to it. Next morning, get up, get the kids off to school and resume working down your PRIORITIZED task list.

Let’s look at an example. From the list of tasks above, which one has the greatest value to your family? If you don’t pay the bills, the water or electricity may be turned off! But if you don’t make a budget or get a part time job, you may not have enough money to pay the bills? If you can’t refinance the car loan, you may lose it and not be able to get to work! What to do first? You may feel so stressed that you can’t make a rationale decision and start cutting coupons to relieve the stress!

Shorts for kids.
PAY THE BILLS FIRST!

Don’t fall into the trap of doing the easiest tasks first. Frequently these easy tasks are pesky but of the least value to your family. Instead, think which completed tasks would be most valuable to your family. If you pay the bills first, you buy time to complete the other tasks. You can then make a budget for the next month, look for a part time job and refinance the car loan.

In this example, the most valuable task probably took the least amount of time—an hour or so to pay the bills. You might say that 20 percent of your efforts produced 80 percent of the results that kept the family solvent for another month!

Are 529 College Saving Plans Good for Your Family?

Are 529 College Saving Plans Good for Your Family?

Student Load Debt is at crisis levels

Student loan debt has now surpassed the alarming sum of 1.5 trillion dollars ($1,500,000,000,000) and is increasing rapidly! This debt load which averages $37,000+ per student is severely impacting not only the lives of the students themselves but also that of the American economy.

Student loan debt by balance amount.
STUDENT LOAN BORROWERS BY BALANCE AMOUNTS

And here’s what the post-secondary costs are estimated to be by the College Board in 2019.

What is a 529 Plan?

A 529 College Savings Plan (529 Plan) is a tax-advantaged savings plan designed to promote saving NOW for future college costs. Eligible costs include those at community colleges and vocational education schools as well as 4-year colleges. 529 Plans are sponsored by state governments, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code. If you use the money invested in a 529 plan for education expenses, the gain in your investment is tax free! The cost to open a 529 Plan account varies between $15 and $25 generally and enrollment can be done online.

IF YOU ARE THINKING OF SENDING YOUR CHILDREN TO COLLEGE OR VOCATIONAL SCHOOL, READ ON!

What are my 529 Plan options?

There are two types of 529 Plans: Prepaid Tuition and Education Saving Plans:

Prepaid Tuition
The Prepaid Tuition option allows a parent to purchase units for future college tuition and fees AT CURRENT PRICES. So, for example, if tuition is $5,000 a year at your preferred college today, you could buy 100 units for $50 each and have your 5-year-old child’s first year tuition completely paid for when he/she reaches age 18 and the tuition is now $10,000 a year—or more!

Know that each year the price per unit is adjusted to reflect the change in tuition prices so start investing in units as early as possible. Also, be aware that not all Prepaid Tuition plans are guaranteed against loss by the FEDERAL government but some 529 Plans are guaranteed by state governments so be sure to check before you invest.

Education savings plans

Education Savings Plans (ESPs) require you to open an investment account. These plans are sponsored by state governments and have preferred providers. For example, in the state of Nevada, SSGA UPromise is a 529 Plan provider but not in Washington State where the only provider is BNY Mellon. You do not, however, have to use BNY Mellon if you are a Washington State resident as most 529 ESPs can be purchased by residents of any state.

Which 529 Plan is best?

State Income Tax Advantages

The advantage to buying a 529 Plan in your own state could be the opportunity to write off part of your investment against your state income taxes. Over 30 states, including the District of Columbia currently offer a state income tax deduction or credit for 529 Plan contributions. Seven states allow a state income tax benefit for contributions to any 529 Plan. They are:

  • Arizona.
  • Arkansas.
  • Kansas.
  • Minnesota.
  • Missouri.
  • Montana.
  • Pennsylvania.

No Guarantee

State governments do not guarantee investments in ESPs. Education savings plan investments in mutual funds and ETFs are not federally guaranteed either, but investments in bank saving accounts via the ESP are generally insured by the FDIC. Recent legislation.

Make your money work for you!

Recent legislation

Recent federal legislation now also makes K-12 education expenses eligible for 529 ESPs but not Prepaid Tuition plans . Another distinction between Prepaid Tuition and ESPs is the education savings plan’s ability to use proceeds for more than tuition and fees like room and board. You could, for example, have both a prepaid and an education savings plan for your child; the first paying tuition and fees and the latter, room and board.

What returns can I expect from my 529 Education Savings Plan?

The three-year average returns from state-sponsored Direct to Consumer 529 Education Savings plans have been between 30 and 80 percent! California was the worst state 529 Plan with a 32.04 percent return while Montana was the best with a 87.34 percent return! Please see this link for a comparison of the 1, 3 and 5-year returns by state. https://www.savingforcollege.com/529-plans/three-year-529-plan-rankings-direct-plans .

As of July 2019, the 3-year return for the S&P 500 was 37.12%.

AVERAGE RETURN OF S&P 500 FROM 1973 TO 2016 WAS ABOUT 11.69%

Why use a 529 Plan if the returns are similar to those of the US stock market?

The primary reason to use the 529 Plan vehicle is that the GAINS are tax free if used for education expenses. If you are simply invested in the US stock market without a 529 Plan, you will have to pay federal income taxes on the gains in your stock portfolio—at your income tax rate!

Average US Saving Account Rates

In comparison, the average savings account rate among U.S. banks has only recently increased to 0.09% annual percentage yield (APY.) https://www.valuepenguin.com/banking/average-savings-account-interest-rates .The largest banks only offer 0.01% APY on their standard savings accounts. At that rate, a savings balance of $10,000 would earn just ten cents a year. Clearly savings accounts are not the best way to save for college, but they are a smart way to save for emergencies. Online savings accounts offer a slightly better deal, with interest rates of up to 2.00%.

REACH FOR THE SKY!

In Summary…

On average, students with a college degree will earn approximately $1,000,000 more in their lifetime than students who only have a high school diploma. That’s 35% percent or $21,000 less each year than a college graduate.

Between 2000 and 2011 college tuition increased 213 percent and it’s still increasing.

College is only getting more expensive!

In addition, public funding for education has decreased sharply. In 2015-16, appropriations per FTE student were 11% lower in inflation-adjusted dollars than they were a decade earlier and 13% lower than they were 30 years earlier.

BOTTOM LINE—Open a 529 Plan and start saving for your family’s future education expenses NOW! If your children don’t go to college or a vocational school, the 529 Plan benefits can be transferred to you or to another extended family member!

Aren’t Lower Interest Rates good for my Family?

Aren’t Lower Interest Rates good for my Family?

Generally YES!

Lower interest rates mean:

  • Lower credit card interest rates
  • Opportunity to refinance your mortgage
  • Lower home equity lines of credit rates
  • Lower personal loan rates from the bank

When interest rates are lower, it’s cheaper to borrow

Some families may use these lower interest rates to buy a new refrigerator and maybe a new stove to match it while interest rates are low!

The danger is that when interest rates begin to rise, unexpected challenges can arise, too! For example, higher interest rates cause businesses and employers to cut costs. Some of those cost reductions could cost you your job or that of your spouse! Meanwhile, you still have to make those refrigerator and stove monthly payments for maybe two years on one family salary.

Currently, according to the Federal Reserve Bank, since 2008 household debt has increased 19 consecutive quarters to 13.67 trillion dollars. Non-financial corporate debt reached 9.92 trillion dollars the first quarter of 2019. Both are the highest in history.

Be Prepared for a rise in interest rates!

As interest rates are decreased by the Federal Reserve Bank to help keep the economy growing, families need to be prepared for their eventual rise. I recommend not financing the purchase of the new refrigerator and stove just because interest rates are low, especially if the current appliances are in good working condition. Instead, save for the new appliance and pay cash, if possible.

PUT PEN TO PAPER!

Review Special Offers Carefully

Be careful about entering into agreements to buy appliances on an offer of ‘interest-free” for a period of time. If you are late on one payment, you will be charged not only a late fee, but you may be liable for interest on the item for the entire eighteen to twenty-four months!

A few months ago, as interest rates were falling, I thought about replacing my 2003 Maytag washer and dryer which were still working well. I went to Home Depot and spoke with a repair tech. He told me I would be better off keeping my 16 year-old Maytag appliances and replacing parts as needed.  He said most new washer and dryers are not as reliable these days and don’t last as long! His estimate for a new refrigerator was a life of five years; my current Subzero fridge has been with me for 25 years!

Spend Wisely…

As a general rule, if both of you are working, try to contain your total revolving monthly expenses (rent/mortgage, utilities, car and food) to the salary of one spouse and save/invest the other spouse’s income. You’ll be happy you did when that emergency knocks at your door.

Budget Budget Budget…

Of course the secret to successful family financial management is a BUDGET!  If you are a single parent, the monthly budget, prepared in cooperation with your children, is an absolute necessity. If it’s not in the budget, it’s not being purchased. It’s not the fashionable attire your wear that makes people seek you out, but rather the “content of your character” that makes you their friend.

Really Necessary?

Note: Higher interest rates are good for bond investors and retirees depending on their retirement funds for income.

DEALS

DEALS

Return WEEKLY for family friendly DEALS

Jeans for kids

Best wireless earbuds

COUPONS browser extension–free

Best QUALITY laptop

Saving matters…

Saving matters…

Family Budgets Rule!

THE PROBLEM

Fully one-third of Americans report they would have difficulty coming up with the money to cover an unexpected $400 expense. Twenty-seven (27) percent report they would have to borrow or sell a belonging to raise the $400, but 12 percent say they would not be able to come up with the money at all! These conditions are all according to a longitudinal study the Federal Reserve has been conducting since 2013 titled, The “Report on the Well-being of U.S. Households 2018.” Credit card delinquencies and unexpected medical bills are responsible for some of the lack of savings.

FAMILIES ARE EXPENSIVE

As we know, raising a family is expensive! It seems there’s a never ending need for new clothes as children grow, unexpected school fees and an ever increasing cost for food. What’s to be done?

KNOW YOUR EXACT INCOME AND YOUR NEEDS

The first step is to know the total amount of monthly income you have and receive regularly. Don’t count your savings. With that number in hand, make a list of your absolutely necessary monthly expenses. Things like rent or your mortgage payment, lights, heat water, internet, groceries, car payments and required insurance payments.

LIST DISCRETIONARY EXPENSES

Next list your discretionary expenses. These expenses are things like clothing, dining out, Starbucks coffee, movie rentals, snacks, magazines, hair dying, massages, nail salon visits. lottery tickets. alcohol, jewelry, comic books, you get the idea.

MAKE A BUDGET

Now make a simple budget with these categories: Savings, Utilities, Rent/Mortgage, Food, Car expenses and Non-Essential items. Look at last month’s expenses and use those amounts to estimate future necessary expenses.

PAY YOURSELF FIRST

Put 10 percent of your income in a savings account for emergencies as soon as you receive it. If you can’t qualify for a savings account, I recommend a reloadable prepaid debit card. There are many reasons people choose a reloadable prepaid card over a credit card. First, a prepaid card requires no credit check or other qualification. Second, a prepaid card charges no interest and no late payment fees. Third, and perhaps most importantly, a prepaid card can act like a checking account, without the high monthly fees and potential overdraft charges.

Prepaid Card?

USE PREPAID DEBIT CARDS?

I personally like the Bluebird Prepaid card by American Express. It has very low fees and is great for budgeting. You can get as many as four cards (for teenagers?) and set spending limits on each one. If you live in a remote area, there may not be a lot of locations that accept American Express so be sure to check on that issue.

https://secure.bluebird.com/Signup?tempcard=no&intlink=us-bluebird-marketing-home-prospectslp-jun2015prospects-getacard-upperheader-optb

“The BlueBird Card from American Express is as close to a no-fee card as we’ve found. With no monthly or annual fees, no transaction or purchase fees, no bill pay fees, and no initial card fee if you order online, the Amex BlueBird Card can save regular users a lot of money.
Additionally, there are no ATM fees if you use one of the more than 25,000 MoneyPass® ATM locations. But perhaps the best feature of the BlueBird Card is the set of personal finance and money management tools that comes with it. Using the Insight® app lets you categorize, track and set spending limits for up to four separate cards. You can also monitor and manage your account from anywhere. In fact, the BlueBird Card is a great way for anyone to establish or relearn good budgeting and money management habits.”

If you can’t use the American Express card my second choice is the. Chase Liquid® Prepaid Visa®.

https://www.chase.com/personal/debit-reloadable-cards/starbucks?jp_cmp=rb/liquid_redirect/off/redirect/na

The Chase Liquid® Prepaid Card offers free direct deposit, free online bill payments, and free PIN and signature transactions, all for a low monthly fee of $4.95. Withdrawing money is also free at any qualifying Chase ATM or bank branch location.
Additionally, reloading doesn’t cost a thing at thousands of Chase ATMs and bank branches, or online through the Chase online banking site or mobile application. Plus, use Chase’s mobile app to instantly deposit a check to your account.

HAVE FAMILY BUDGET DISCUSSIONS

Now that you have secure and convenient access to your money, the next step is to draw a long line under the last budget item. It represents days 1-30 in the month. Write the day ON THE LINE that each of your necessary payments is due. What is the last day you can pay each bill without incurring interest? This is especially important if you receive a paycheck every two weeks instead of monthly.

Is it in the budget?

Now it’s time to get the family together to discuss their necessities for the ensuing month. Add each approved expense to the budget. Try to keep 20 percent in reserve for unanticipated expenses. Now as the month moves forward and you’re at the grocery store with your children and they want to buy some magazines, you can simply say: “No, they’re not in the budget we all agreed to last week.”

For information on allowances for your children, please see the page in this Blog titled “Should children get an allowance”? I hope you will also be able to allocate some money in your budget for your children’s post secondary education. Future Blog articles will discuss the best ways to save for post-secondary education expenses.

PLEASE SHARE YOUR TIPS AND TRIBULATIONS FOR LIVING WITHIN YOUR BUDGET WITH OUR OTHER SAVE FOR AMERICA BLOG PARENTS.

How learning influences saving…

How learning influences saving…

Ready and excited to learn!

From birth, we are a voracious learning center full of curiosity. By age 4 or 5 our brain has quadrupled in size. (Goswami 2008) Yet, the ability for us to learn as we grow is dependent upon our cognitive development. Just as children need to walk before they run, they also need personal, enjoyable experiences with money, like shopping with their parents, to prepare them to understand basic financial concepts like counting money, a skill not typically acquired until age 5.

DISCOVERY LEARNING REIGNS!

Early on, we learn by imitating the actions of our parents. From then on, it’s all about discovery learning. Providing children with abundant experiences within a trusted learning environment prepares them to tackle new problems with confidence and try different strategies to solve their problems. (e.g. Chen & Siegler, 2000) This ability, known as metacognition, is valuable in resolving financial dilemmas or better yet, avoiding them later in life.

Make saving a fun experience!

‘You can lead a horse to water but you can’t make him drink,’ is another way of saying learning is more effective if we’re motivated. Children need to understand the relevancy of a proposed activity to their life or they may rebel feeling it’s not worthwhile. Explaining the relationship between the activity and their situation will also give them confidence they can succeed at a task–at their appropriate cognitive level. For example, you wouldn’t ask a 5 year-old to make change. (Gelman and Merk, 1986)

CULTIVATE A STRONG RELATIONSHIP

Finally, a parent’s relationship with their young child strongly influences the child’s cognitive ability. Reading to your child, language development activities, responsiveness and warmth of interactions influence positive growth and development as well as the motivation to learn. (eg. Grolnick, 2009; Melhush, 2010)

LEARNING BEHAVIORS INDICATE READINESS

As we explore ‘saving’, we will often refer to the extent to which the following cognitive learning behaviors are necessary and relevant to the skill to be acquired. i.e. receiving an allowance. To have a positive learning experience, we will discuss the necessity for a child:

  • To exhibit self-control
  • To plan for future events
  • To be attentive
  • To remember instructions
  • To apply learned concepts
  • To perceive causal relationships
  • To comprehend that skills learned today will be of future benefit

Please share your tips and advice on teaching money management skills with other parents by leaving a comment. All comments are screened for appropriateness. We look forward to hearing from you!