Posted in College Planning/Children, Save Money/Budget, tagged 529 savings plans, build wealth, children, college, education, financial advice, money tips, saving tips on October 16, 2012|
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Times are difficult for many but they don’t have to be. Parents are the most important teachers their kids will ever have. If you want your kids to grow up to be financially independent, then be a good role model for them.
- Tell your kids school is important. Although a college degree is no guarantee of financial success, those with a college degree tend to make more money than those without. Graduate and professional degree earners tend to make more than those with a baccalaureate. https://moneyprovidesfreedom.wordpress.com/2010/06/18/the-value-of-an-education/
- Don’t display wealth. If you look rich (drive an expensive car, own a huge house, wear expensive clothes/jewelry), most likely you are not wealthy. You are probably living in debt. Be a good role model to your children and let them know that having money in the bank is more important than trying to impress their friends. To achieve financial stability, you must save more than you spend – it’s as simple as that.
- Compounding for decades. When your children are young, open a 529 College Saving Plan for them and set up automatic monthly deposits. I opened 529 College Saving accounts for my kids when they were born. Currently there is about $40,000 in my nine-year olds account and about $34,000 in my seven-year olds account. It’s easy if you start when they are young and make it automatic.
- Teach your kids how to live on a budget, balance a checkbook and to save. When my kids receive money for their birthday or for Christmas, some of the money can be spent but some must be saved for a “rainy day.” Discuss money and bills with your kids in an age appropriate way.
- Teaching personal responsibility. Hard work over time is the only way to succeed for most people. Teach that success and wealth are not entitlements. No one is entitled to a “free lunch.” I don’t believe in allowances. Kids shouldn’t get paid for doing nothing. It’s not that way in the real world. If you want your kids to have spending money, tie the money to the amount of age appropriate chores that they do.
- Don’t bail out your kids too easily. Let them experience the consequences of their actions while they are still living under your roof.
Many parents need to do a better job teaching their children about money. Kids want to learn about money and it is up to parents to successfully nurture their thirst for knowledge. By doing so, you help make sure your kids will have a financially bright future.
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Posted in College Planning/Children, tagged 529 savings plans, build wealth, children, college, education, financial advice, money, money tips, saving tips on October 4, 2010|
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Parents are the most important teachers their kids will ever have. I believe most parents want the best for their children and want them to be financially savvy. However, many parents are actually doing the opposite and are teaching their kids how to be poor. Here’s how:
- Telling your kids school is not important. Although a college degree is no guarantee of financial success, those with a college degree tend to make more money than those without. Graduate and professional degree earners tend to make more than those with a baccalaureate. https://moneyprovidesfreedom.wordpress.com/2010/06/18/the-value-of-an-education/
- Encouraging outward displays of wealth. If you look rich (drive an expensive car, own a huge house, wear expensive clothes/jewelry), most likely you are not wealthy. This type of spending creates financial stress. Famous people who made lots and lots of money but filed bankruptcy anyway include Mike Tyson (boxer), Donald Trump (entrepreneur), Anna Nicole Smith (model-actress), Ted Nugent (rock star), Nicolas Cage (actor) and Larry King (talk show host). You need to save more than you spend to become wealthy.
- Compounding for decades. When your children are young, many parents don’t open a 529 College Savings Plan or Coverdell account. I recommend opening some sort of college savings plan for your child before he or she is one year old so the account has many years to grow.
- By not teaching your kids how to live on a budget, balance a checkbook, or to save.
- By not teaching personal responsibility. Hard work over time is the only way to succeed for most people. Success and wealth are not entitlements.
- By bailing out your kids too easily. Let them experience the consequences of their actions while they are still living under your roof.
Many parents need to do a better job teaching their children that managing money is what leads to a rich lifestyle instead of the money itself. Kids want to learn about money and it is up to parents to successfully nurture their thirst for knowledge.
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The stock market by nature is volatile. Every day the market goes up and goes down in reaction to business, economic, or geopolitical events. Market corrections can be unsettling but as long as you are a long-term investor (>5 years), make smart investment choices, and use dollar cost averaging, you should do pretty well.
To understand market volatility, let’s look at history.
S&P 500 annual returns in % (Ibbotson and Associates, 2008):
Since 1940, the market has ended the year down 17 times. Despite those downturns, if you had invested $100 in the S&P 500 index on December 31, 1947, your investment would have been worth about $84,000 on December 31, 2007. (Bloomberg, 2008).
Dollar cost averaging is a method of investing where you place a fixed amount of money into an investment at regular intervals (i.e. monthly), and not all at once. It forces you to buy more when the price is low and less when the price is high. Additionally, many mutual fund companies will waive their minimum investment rules for investors who use dollar cost averaging.
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If you have children or grandchildren who’ll be heading off to college, it’s important to understand what those four years are likely to cost you. By 2020, it could be as much as $250,000 for a private institution and $130,000 for a public institution. So besides winning the lottery, what saving plans are available?
529s: State sponsored investment accounts. The money grows tax-deferred and is tax-free when withdrawn to pay for qualified expenses. For families with multiple children, funds can be moved from one 529 to another, depending on which kid can use the money more.
Coverdell Accounts: Like the 529s, allows earnings to grow tax-deferred and is tax-free when used to pay for qualified expenses. One drawback is now you can only give up to $2000 per year.
US Savings Bonds: If purchased after 1989, can be redeemed tax-free when the bond owner uses the proceeds to pay college tuition and fees. US Savings Bonds are very safe investments but tend to offer lower rates of return than either 529s or Coverdell’s.
Custodial Accounts: Are opened in the child’s name and the income is taxed at the child’s rate and not the parent’s rate.
- Start saving as early as possible. I opened 529s when my kids were six months old.
- Set up automatic deposits so you don’t have to think about it.
- Rather than giving gifts on birthdays, ask friends and relatives to give to your kids’ college savings plan instead.
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Congratulations graduate! This June about 2.5 million kids will graduate high school. Now what? Should you go to college or look for a job?
On average, college graduates make much more than high school graduates, and the disparity is only increasing as the job market becomes more and more competitive and technical. However, college requires a significant investment of time, money, and energy and is not for everyone.
The Case for College:
- Opens doors in the workplace that otherwise would be unavailable.
- Become a more rounded person because of the experiences you gain.
- Higher earning potential.
- Chance to network with people and make friends for life.
- Become an expert in your field.
The Case against College:
- Lose four working years.
- You won’t necessarily earn less.
- Not required for my career.
- Plenty of other people did just fine.
- You don’t need to be in the classroom to learn something.
Earnings based on level of education:
|Highest Degree Earned
||Average Annual earnings ($)
||Average Lifetime earnings ($ Millions)
|Professional (MD, JD)
|Some High School
Wealthiest people with a degree:
-Warren Buffett, $40 billion, University of Nebraska, Columbia MBA.
-Michael Bloomberg, $17.5 billion, John Hopkins University, Harvard MBA.
Wealthiest people without a degree:
-Bill Gates, $50 billion, Harvard University dropout.
-Larry Ellison, $27 billion, University of Illinois dropout.
In summary, there are many things to consider if college is right for you. However, in today’s tough job market and increased global competition, you are better off with the more education you have. I also believe future trends in employment will require more education and specialized training as we move from the Industrial Age to the Information Age.
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