LIFE PLANNING GUIDE 2020
3 factors to consider when choosing a mortgage lender What aects credit score? • 3 investing tips for beginners An advertising supplement of the Lewiston Tribune & Moscow-Pullman Daily News
LIFE PLANNING GUIDE
2 | January 25, 2020 | Moscow-Pullman Daily News & Lewiston Tribune
3 FACTORS TO CONSIDER WHEN CHOOSING A MORTGAGE LENDER Courtesy of Metro Editorial
A home is the most significant purchase many people will ever make. Perhaps because of that, many buyers, particularly those purchasing a home for the first time, are understandably nervous about the home-buying process. The decision regarding which home to buy warrants ample consideration, but so, too, does the buyers’ choice of lender. Mortgage lenders can be found all over the internet, and the sheer volume of lender options can make it hard for home buyers to find the right fit for them. Couple that with lending-related terminology that many first-time buyers may be unfamiliar with, and it’s easy to see why prospective homeowners can feel overwhelmed about the process of borrowing money to buy their homes. When looking for a mortgage lender, prospective homeowners should never forget that the choice of lender is, in most cases, entirely theirs to make. When making that decision, a host of variables should be considered. The following are three such factors that, upon ample consideration, may help buyers rest easy knowing they did their due diligence when looking for lenders. 1. REPUTATION/ RECOMMENDATION Just like other businesses, lenders have reputations, and oftentimes
those reputations can be determined comfortable about the home buying via some simple online research. process. Buyers may want to avoid Peruse online reviews to determine what past buyers felt about a given lender. If possible, ask friends, family or colleagues who they worked with to secure a mortgage. 2. FEES Fees vary from lender to lender. Fees should not be mistaken for interest rates, which change daily and are typically dictated by the financial industry and prospective buyers’ credit history and financial standing. When speaking with potential lenders, ask for a rundown of their fees, and the services those fees include, and closing cost estimates in writing, then compare and contrast fees and costs of various lenders before making a final decision. Some lenders may charge considerably more in fees than others, so buyers should put in the effort necessary to comparison shop.
3. PERSONAL INTERACTION Buyers, especially those who have never before purchased a home, will likely have lots of questions. This is where personal interaction with a prospective lender should be noted. Securing financing for a home purchase can sometimes seem like an impersonal process, but it doesn’t have to be, and many lenders are happy to answer buyers’ questions. Lenders who answer questions quickly and clearly can make buyers more
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lenders who seem evasive or unwilling to answer questions in writing.
HOW TO FACE THE CHALLENGES OF SAVING FOR COLLEGE TUITION such costs are unpredictable, so parents should explore other ways to Parents likely don’t need to be told that college tuition is expensive. save for college tuition. • Start saving as early as possible. Whether you’re a parent of a high It’s never too early to begin saving school student on the verge of applying for college or of a newborn for a child’s college education. According to rules governing with decades to go before the first New York’s 529 College Savings college tuition bill comes due, the Program, adults cannot open 529 burden of how to pay for higher education is likely something you’ve Savings plans for unborn children, as beneficiaries must have a considered. Social Security number or taxpayer While the cost of college tuition identification number. However, isn’t on the decline, parents might expecting parents or young adults be happy to learn that such costs who one day plan to have children aren’t rising as fast as they once can open accounts and name were. According to the “Trends in themselves as beneficiaries and College Pricing 2018” report from then change the beneficiary to The College Board, between 2001 their child once the child is born. It and 2012, tuition increases at fourmight seem odd to start saving for year public colleges ranged from 5.7 percent to 13.3 percent per year. college tuition before you even have children, but it’s never too early to Between 2012 and 2018, those start growing a college fund. same schools raised tuition raised • Choose a diversified portfolio. tuition by just 3 percent per year. Most people are familiar with the The challenge of saving for college might be more manageable if tuition costs don’t rise as sharply as they did between 2001 and 2012. But continued on page 15 Courtesy of Metro Editorial
TUITION
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Moscow-Pullman Daily News & Lewiston Tribune | January 25, 2020 | 3
COLLEGE MAJORS
THAT CAN LEAD TO HIGHER EARNINGS Courtesy of Metro Editorial
Choosing a college major is an important decision that many students delay making until their sophomore or even junior years. Only after taking a few courses and uncovering one’s interests do some college students figure out what they want to do with their lives. Each student is different, and while some may pursue a degree based on a particular passion, others may choose majors that can lead to highpaying jobs. While men often lean toward majors like engineering and computer science that have traditionally been linked to high earnings, women have historically gravitated to lower-paying specialties like education and social sciences. But in recent years a shift has occurred, and more women have
begun to choose majors associated with higher post-graduate salaries. Reports from the career guidance site Glassdoor analyzed how much male and female professionals with the same college degree earned and identified many instances in which women went on to earn more than men in the first five years
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of their career. They’ve identified several majors where female college graduates can earn as much or more than their male counterparts and find successful careers. • Architecture • Pharmaceutical sciences • Information sciences • Chemical engineering • Computer science • Electrical engineering • Mechanical engineering • Computer engineering • Business economics • Civil engineering • Sports management Despite these findings, the college resource CollegeFactual and the U.S. Department of Education says that women remain likely to pursue education, design and applied arts, health services, and social work as career options. Female students unsure of which major they want to pursue can take career assessments to help narrow down their options. Working with mentors or engaging in internships also can present a first-hand idea of high-paying career paths.
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4 | January 25, 2020 | Moscow-Pullman Daily News & Lewiston Tribune
WHAT AFFECTS CREDIT SCORE? Courtesy of Metro Editorial
Credit is defined as a customer obtaining services or products before payment with the trust that payment will be made in the future. Credit affords people purchasing power they would not have if they had to pay for something outright at the time of checkout. In addition, credit enables men and women to finance expensive automobiles, buy homes or furnish those homes, contributing much to the foundation of a strong economy. A strong credit history and score is vital to personal finance. The steps people take concerning their finances can greatly affect their credit. Identifying the behaviors that may be detrimental and those that are beneficial can help customers reevaluate their habits and improve their creditworthiness in the eyes of lenders. PAYMENT HISTORY The financial advisement resource Credit Karma says one of the most
important factors affecting credit scoring is payment history. Having a long history of making payments on time is essential for a strong credit score. Missed payments and a reputation for paying late can drive ratings down. It can take some time to recover from late payments. Failure to recognize late or missed payments may result in bankruptcy or tax liens, which are a heavy black mark on credit.
CREDIT UTILIZATION RATE Credit utilization refers to the amount of credit you have available, based on credit card limits, compared to the amount of credit you’re actually using by way of the balances on credit cards, advises the credit tracking company Experian. Lenders prefer to see ratios of around 30 percent or less. To calculate credit utilization rate, divide your credit card balance by your credit limit. So if your balance is $600 and your limit is $1000, that’s a utilization rate of 60 percent.
NUMBER OF ACCOUNTS The number of open accounts you have affects your credit score. Scoring models often look back and consider how many accounts are open and if there are any outstanding balances. LENGTH OF CREDIT HISTORY The length of your credit history is another factor that affects your score, according to Investopedia. Credit scoring takes into account the age of your oldest account, if
you’ve used that account recently, as well as the average age of all your accounts, including the newest. Closed accounts can stay on your credit report for up to 10 years, but when an account closes, this will affect your credit history average. Credit scoring rubrics will determine just how the ratio of new to old accounts and frequency of use will impact your score. Credit scores are important. Understanding them further can help people secure their financial futures.
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THINGS PEOPLE SHOULD KNOW ABOUT CREATING WILLS Courtesy of Metro Editorial
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Drafting a last will and testament is an essential component of estate planning. Despite the importance of having a will, a recent survey from AARP found that two out of five Americans over the age of 45 do not have one. Putting wishes down on paper helps avoid unnecessary work and sometimes heartache upon the death of a loved one. Wills allow heirs to act with the decedent’s wishes in mind, and can ensure that assets and possessions will end up in the right hands. Estate planning can be tricky, which is why many people turn to
attorneys to get the job done right. Attorneys who specialize in estate planning will no doubt discuss the following topics with their clients. • ASSETS OWNED: Make a list of known assets and figure out which assets are covered by the will and which will have to be passed on according to other estate laws, such as through joint tenancy on a deed or a living trust. For example, life insurance policies or retirement plan proceeds will be distributed to your named beneficiaries. A will also can cover other assets, such as
WILLS
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LIFE PLANNING GUIDE
Moscow-Pullman Daily News & Lewiston Tribune | January 25, 2020 | 5
6 OPTIONS FOR FUNDING
YOUR NEXT HOME IMPROVEMENT PROJECT Courtesy of Metro Editorial
Before starting a home improvement project, either on one’s own or with the assistance of a professional contractor, homeowners must first consider the costs involved. According to the home improvement resource HomeAdvisor, more than one-third of homeowners do not understand what hiring a professional will cost, and then cannot successfully budget and secure financing once they have set their sights on a renovation project. HomeAdvisor says that some of the more popular projects, such as remodeling a kitchen or bathroom or building a deck, can cost, on average, $19,920, $9,274 and $6,919, respectively. Homeowners may find that the more expensive renovations require them to secure some type of financing. Those who have never before sought such financing may want to consider these options. 1. CASH-OUT REFINANCING: With cash-out refinancing, a person will begin the mortgage process anew with the intention of paying off the current mortgage balance, and then taking out additional funds for other purposes. Cash-out refinancing is a way to tap into a home’s existing equity for use on improvements or other expenses, such as college tuition.
2. HOME EQUITY LINE OF CREDIT: The financial experts at Bankrate indicate that a HELOC works like a credit card, with the house as collateral. There is a credit limit, and borrowers can spend up to that limit. The interest rate may or may not be fixed. However, the interest may be tax-deductible if the financing is used to improve, buy or build a home. 3. HOME EQUITY LOAN: Individuals also can borrow against equity in their homes with a fixed interest rate through a home equity loan. Most lenders will calculate 80 percent of the home value and subtract a homeowner’s mortgage balance to figure out how much can be borrowed, according to the financial advisory site The Simple Dollar. 4. PERSONAL LOAN: Homeowners can shop around at various financial institutions for competitive personal loans to be used for home improvement purposes. Funds may be approved within one business day, which can be ideal for those who want to begin their improvements soon.
5. PERSONAL LINE OF CREDIT: A personal line of credit allows borrowers to borrow only the money needed at the time, and offers a variable interest rate that is generally lower than fixed loan rates. Again, like a credit card, PLOC gives a person a maximum borrowing
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amount and is ideal for ongoing purchases.
6. CREDIT CARDS: In a pinch, credit cards can be used to finance improvements, but they do come with the cost of very high interest rates if the balance is not paid in full by the time the bill comes due. However, for funding smaller projects and maximizing rewards points through home improvement retailers or specific credit card company promotions, credit cards can be a way to earn various perks in addition
to the benefit of improving a home. Homeowners looking to finance their next improvements should speak to a financial advisor and shop around for the best types of funding for them.
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3 INVESTING
TIPS FOR BEGINNERS Courtesy of Metro Editorial
Investing is a key component of longterm financial planning. By choosing the right investments, investors can ensure their money outgrows inflation, making it possible for them to realize their retirement goals and live comfortably long after they have stopped working. Risk is a part of investing, and many veteran investors recognize that. However, the fear or losing their hard-earned money might compel would-be beginners to avoid the markets altogether. That can be a costly mistake, and it’s one research suggests millennials are making, choosing to keep their money in savings accounts, which provide very little return in terms of interest, rather than invest in the markets. According to a recent analysis from the online financial resource NerdWallet, a 25-year-old millennial who is not investing today and does not
partnerships, also generally have a higher potential risk for loss, and vice versa. Investors should only accept a level of risk they’re comfortable with. 2. DIVERSIFY YOUR INVESTMENTS. Principal¨ notes that one way to manage risk is choose a mix of
investments from various asset classes. For example, stocks and bonds traditionally move in different directions. So when stocks are up, bonds may be down, and vice versa. Investing in
INVESTING
continued on page 13
invest until he or she retires at 65 could lose out on more than $3.3 million in retirement savings. It can be nerve-wracking for novices to begin investing their money, but these three investment strategies can help calm those nerves and pave the way for a bright financial future. 1. IDENTIFY YOUR RISK TOLERANCE. Young investors may be told that they’re in prime position to choose risky investments because they have less responsibilities than older investors and more time in the workforce to make up for losses. While that’s true, young investors should only be as risky as they’re comfortable being. The financial experts at Principal¨ advise beginners to identify their risk tolerance before investing. Investments with a high potential for return, which might include emerging markets and limited
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3 WAYS TO CUT THE COSTS OF OWNING A VEHICLE Courtesy of Metro Editorial
When buying a new vehicle, many consumers are fixated on sticker prices. And that’s understandable, as the automotive resource Kelley Blue Book noted that, in March 2018, the average transaction price for light vehicles purchased in the United States was more than $35,000. But as any veteran vehicle owner knows, the costs of owning a car or truck go beyond sticker price. Maintenance, insurance and fuel are some of the additional expenses that are part of owning a vehicle. And while it can be hard to get dealers to lower a sticker price, drivers can take other steps to reduce the cost of owning a vehicle. 1. MAKE A LONG-TERM COMMITMENT. Many drivers finance their auto purchases with loans from the bank. When loans reach maturity, or if
drivers pay the loans off early, only then are they free from monthly payments. But over the years many drivers have equated the maturity dates on their auto loans with a time to buy a new car, essentially starting the process all over
again. By resolving to keep their cars once their loans are paid off, drivers are making a long-term commitment to their vehicles and saving some money along the way. Even keeping a car that required a $400 monthly loan payment
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for one year after paying the loan off can save drivers nearly $5,000 in loan payments, and even more if drivers reduce their insurance coverage once the vehicle is officially theirs. 2. DOWNSIZE YOUR VEHICLE. Parents cart kids around town in minivans or SUVs that have the capacity to hold sports gear, musical instruments, etc. But if the kids are out of the house or still under your roof but now behind the wheels of their own car, consider downsizing to a small vehicle. Small vehicles are typically less expensive to purchase, and they won’t cost as much to insure or fill up at the gas station. 3. SKIP THE BELLS AND WHISTLES. Today’s drivers may want their cars to be mobile offices and entertainment centers outfitted with all the latest gadgets and accessories. Though such accessories might be nice, they aren’t necessary to get you from point A to point B. When buying a new car, buy the base model or one step up from the base model, which could save you thousands of dollars right off the bat. Driving is a necessity that does not come cheap. But there are many ways for motorists to reduce the costs of vehicle ownership.
8 | January 25, 2020 | Moscow-Pullman Daily News & Lewiston Tribune
LIFE PLANNING GUIDE
CAREGIVERS: HOW TO MANAGE A LOVED ONE’S MONEY Courtesy of Metro Editorial
COMMUNITY BANK
The number of retirees is on the rise. Data from the U.S. Census Bureau points out that, by 2030, there will be 81.2 million Americans over age 65, and many of them will need help taking care of themselves. Caregiving is a big responsibility. One crucial role caregivers may take on involves managing a loved one’s finances. AARP states that acting as a money manager becomes especially important if a loved one begins having trouble keeping a checkbook or becomes confused about money. The Family Caregiver Alliance¨ indicates millions of Americans are managing money or property for a family member or friend who is unable to pay bills or make financial decisions. Juggling one’s own finances and the responsibilities of another person’s money can take its toll. Here are several ways to navigate these often tricky waters.
decisions on their behalf. This also protects family interests, so that another relative like a sibling, who may want his or her share of a loved one’s money, will not have access. Documenting fiduciary changes in the letter of the law can serve as a measure of protection against potential problems.
• PUT YOUR PRIORITIES FIRST. You may end up running yourself emotionally and financially ragged catering to a • DISCUSS PLANS IN ADVANCE. Have loved one’s needs. According to a 2015 conversations even before an aging study from the National Alliance for loved one needs caregiving. Talking Caregiving, an estimated 43.4 million through difficult topics when parents are American adults provide unpaid care healthy can simplify decisions later on. to an adult or child. Taking repeated time off of work or paying for loved • OPEN A JOINT ACCOUNT. Joint back ones’ needs out of your own pocket accounts make it easier for caregivers can take its financial toll. Do not take on to manage loved ones’ money if the unmanageable debt. person becomes physically or mentally incapacitated. When necessary, you can • ASK FOR HELP. Speak with a financial step in as a money manager to pay bills, advisor and/or elder care attorney about make deposits and withdrawals and the best ways to manage a loved one’s monitor account balances. money to ensure an aging parent or child will be provided for. Arranging • MAKE LEGAL FIDUCIARY CHANGES. assets in certain ways can make AARP suggests drawing up legal individuals eligible for certain benefits. documents to manage all financial Managing money is just one of the accounts. A power of attorney is a legal many tasks associated with being a document in which one person assigns caregiver. another the power to make financial
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Moscow-Pullman Daily News & Lewiston Tribune | January 25, 2020 | 9
Courtesy of Metro Editorial Passive income streams require upfront time and financial investments, but tend to produce steady streams of revenue over time.
WHO NEEDS LIFE POTENTIAL PASSIVE
INSURANCE? Courtesy of Metro Editorial
Life insurance is one of many components of estate planning. Statistics from the insurance industry groups Life Happens and LIMRA indicate that 70 percent of Americans consider life insurance a necessity. However, 41 percent of respondents in 2017 did not have any life insurance. Even though most people deem life insurance important, it is not necessary for everyone. Determining if you are a good candidate for life insurance involves doing a little research. These qualities often make life insurance a smart move. YOU’RE MARRIED OR IN A COMMITTED RELATIONSHIP If you are married or in a relationship in which your partner depends on you financially Ñ even if just partially Ñ it is smart to have a life insurance policy. This way your significant other does not have to rely entirely on his or her income to pay off debts or maintain the quality of life you currently enjoy. Many households cannot function without two incomes. Life insurance can ensure financial burdens do not rest entirely on the shoulders of surviving loved ones. YOU HAVE CHILDREN If you have children who depend on you, life insurance is a must-have. If your
spouse and children could not continue their standard of living on one income, then life insurance can fill in the gap or pay for future plans, such as college educations. Even if you are a stay-at-home parent, your contribution to the household still holds weight. Should you pass away, your spouse will have to pay for tasks that you would normally perform, such as child care, cleaning services, cooking, and transportation.
YOU’RE A BUSINESS OWNER Entrepreneurs benefit from life insurance since it can help pay off business debts, advises the online financial resource Nerd Wallet. When business owners pass away, their heirs might be able to use life insurance payouts to pay off estate taxes or fund a buy-sell agreement. YOU WANT TO LEAVE AN INHERITANCE If you do not have a vast accumulation of assets, investing in permanent life insurance can provide a small sum of money to heirs upon your death. A life insurance policy is a wise investment for people whose survivors could benefit from some financial assistance in the wake of their deaths.
INCOME STREAMS Courtesy of Metro Editorial
Jobs may be how many people earn their money, but there are other ways to generate income that may not require the level of effort of a nine-tofive gig. Passive income streams can be a great way to earn substantial amounts of money. Passive income can be earned through investing in stocks, money market funds, real estate, livestock, or savings bonds. Lending money also can provide passive income. Though such income streams are described as “passive,” they require an investment of time and/or money to get started. Passive income streams enable the average person to make some extra money without taking on a full-time job.
Unlike active income, where the more you work the more you earn, passive income often generates a flat level of return over time without the same level of commitment. Passive revenue streams are continually evolving. Modern passive investments are varied, and can include the following ideas.
HOME-RENTAL SERVICE Popular sites like Vacation Rental By Owner (Vrbo¨) and Airbnb put interested parties in touch with potential landlords. Vacation property owners or people who do not spend a lot of time at a primary residence may find this
PASSIVE
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10 | January 25, 2020 | Moscow-Pullman Daily News & Lewiston Tribune
HOW FINANCIAL PLANNERS
CAN HELP YOU EVERY DAY
retire, while others might have to work much longer than they hope to. While Financial planning and retirement go hand in hand. Without effective planning, financial planning is essential to achieve long-term goals, planning also can many people would never be able to Courtesy of Metro Editorial
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make it easier for people to meet their everyday financial needs. Managing money is a big responsibility, and it’s one that many people may need help with. A recent survey from Pew Charitable Trusts found that 55 percent of Americans spend as much or more than they earn. That’s not only compromising their financial futures, but also making daily life more stressful, as the American Psychological Association’s annual “Stress in America” survey routinely finds that money is a top cause of stress among millions of Americans. Adults who are finding it difficult to manage their money on a day-to-day basis may benefit from the services of a financial planner. Financial planners can help people create effective long-term financial plans, and they also can be vital resources for people who need help managing their money every day. • PLANNERS CAN LOOK AT THINGS FROM AN UNBIASED PERSPECTIVE. An honest assessment of monthly expenses is essential when creating a monthly budget. However, many people tend to be biased when it comes to their monthly expenses. For example, some
may feel that three streaming service subscriptions are something they cannot live without. That can make it difficult to trim some of the fat from their monthly expenditures. A financial planner will begin by examining your monthly expenses and may or may not make unbiased suggestions regarding where you can save. • PLANNERS HAVE THE TIME. The average household is a hectic place. Adults with commitments at work and home often cite a lack of time as one of the reasons they aren’t more on top of their finances. A 2018 survey from Bankrate.com found that 16 percent of respondents aren’t saving more money because they haven’t gotten to it. Financial planners have the time to help clients save, and over time a planner can be an expense that pays for itself if families are saving more as a result of enlisting the services of a planner. • PLANNERS HAVE THE EXPERTISE MANY PEOPLE LACK. One of the reasons people struggle financially is that it can be hard to navigate the world of investments, insurance and taxes. Planners have the financial literacy necessary to navigate those waters successfully and can help people realize both their short- and long-term financial goals. Financial planners don’t just help people plan for retirement. Many planners are equally effective at helping clients achieve their daily financial goals as well.
HOW FINANCES CHANGE WHEN STARTING A FAMILY Courtesy of Metro Editorial
Financial changes are a fact of life. Changes occur at every turn, including when students leave home for the first time, people get married and when families purchase their first home. One of the biggest financial changes occurs when starting a family. Starting a family can come with a measure of sticker shock, particularly for young couples without much financial history. Since the 1960s, the costs associated with raising a family have risen exponentially, says the financial resource MarketWatch. Between 2000 and 2010, costs rose by 40
percent. Data from Money.com indicates that, as of 2015, American parents spent, on average, more than $230,000 on child costs from birth until the age of 17. The U.S. Department of Agriculture says that today that number is closer to $245,000 per child, which does not include the cost of college. BabyCenter.com offers a cost comparison tool to help prospective parents get started on creating family budgets. When mulling the cost of starting a family, prospective parents can
STARTING
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HOW CREDIT SCORES CAN AFFECT YOUR FINANCES FOR YEARS TO COME Courtesy of Metro Editorial
Monthly budgets help people make the most of their money. While a person’s income will affect how much they can spend on housing, food and clothing each month, another, more abstract factor can have a big impact on monthly budgets as well. Nearly every adult has a credit score, which can fluctuate daily. Various factors, including a person’s age and track record in regard to paying bills, combine to produce a credit score. According to the credit reporting agency ExperianTM, credit scores range from 300 to 850, though most consumers’ scores fall somewhere between 600 and 750. The Fair Isaac Corporation create what’s known as a FICO¨ Score, which is used by many lenders to determine prospective borrowers’ credit worthiness. FICO¨ scores are often characterized using five terms: • VERY POOR: Scores between 300 and 579 • FAIR: Scores between 580 and 669 • GOOD: Scores between 670 and 739 • VERY GOOD: Scores between 740 and 799 • EXCEPTIONAL: Score between 800 and 850 Some consumers may feel that
these are just numbers on a page. But in certain instances, such as when consumers attempt to buy a home, a credit score can have a dramatic effect on a person’s monthly budget. When borrowing to buy a home, borrowers with desirable credit scores may be eligible for considerably lower interest rates than borrowers whose scores fall into the “Very poor” or “Fair” range. Over the length of a standard, 30-year, fixed-rate mortgage, a low interest rate can save borrowers tens of thousands of dollars in interest fees. In addition to paying more in interest fees, ExperianTM notes that borrowers with subpar credit scores may have to do even more to earn the trust of lenders. Borrowers whose scores fall into the “Very poor” range may be required to pay a fee or make a deposit when opening a new credit account, and some might not be approved for credit at all. Borrowers whose scores fall into the “Fair” may be classified by lenders as subprime borrowers, making it hard for them to open new credit accounts or secure loans without a cosigner. Consumers can benefit from knowing their credit scores and how to improve them. Taking measures to improve low or subpar credit scores can put more money in consumers’ pockets, both in the immediate and distant future.
EXPLAINING WILLS & TRUSTS Courtesy of Metro Editorial
It’s never too early for adults to think about estate planning. Estate planning is an important part of money management. While it’s easy to think of estate planning as just a way to dictate how your assets are allocated after your death, estate planning also can protect people and their money should accidents or injury make them incapable of managing their finances on their own. Some familiar terms may come up when people begin planning how they hope to transfer their assets. Two more common terms are wills and trusts. Understanding the distinctions between the two can help people as they begin estate planning.
WHAT IS A WILL? The online financial resource Investopedia notes that wills are legally enforceable documents that dictate how people want their affairs handled and assets allocated in the wake of their deaths. Wills should include a host of information, including who a person wants to assume guardianship of their minor-aged children should they pass away. This is especially important information to include in a will, as surviving relatives may have to go to court to contest guardianship if parents
WILLS & TRUSTS continued on page 12
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LIFE PLANNING GUIDE
12 | January 25, 2020 | Moscow-Pullman Daily News & Lewiston Tribune
LEARN THE BEST WAYS TO BUILD A COLLEGE FUND Courtesy of Metro Editorial
College is the next logical step for many newly minted high school graduates. The National Center for Education Statistics indicated that, in fall 2019, roughly 19.9 million students were slated to attend colleges and universities in the United States. Statistics Canada stated that, for the 2015-16 school year, the most recent for school statistics, just over two million students were enrolled in Canadian universities and colleges. Families need to begin thinking about how to pay for college as early as possible. According to the Wall Street Journal, the average college graduate’s student loan debt is $37,172. And the most recent data from the Federal Reserve Bank of New York indicates the overall student loan debt in America alone is roughly $1.3 trillion. The average expense of sending a child to college has been rising at double the rate of inflation for more than a decade, offers CNBC.
A robust college savings account can help future students avoid considerable debt. The following are some ways to save for college.
• OPEN A TAX-ADVANTAGED 529 COLLEGE SAVINGS PLAN. The U.S. Securities and Exchange Commission says a 529 is a savings plan designed to encourage saving for future education costs. The person funding the account pays taxes on the money before it’s contributed to the 529 plan. Funds can be used for education expenses. There are two types of 529 plans: prepaid tuition plans and education savings plans. The prepaid plans allow account holders to purchase units or credits at participating colleges and universities. With education savings plans, account holders open investment accounts to save for qualified future higher education expenses, including room and board.
EDUCATION SAVINGS ACCOUNT. A Coverdell account is a taxadvantaged method to contribute up to $2,000 per year to a child’s account. Individuals need to be under a certain income level to contribute.
The funds will grow free of federal taxes.
WILLS & TRUSTS
and working with an attorney who specializes in estate planning can help men and women determine which type of trust, if any, is best for them.
FUND
continued on page 14
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Courtesy of Metro Editorial Parents and guardians should start saving early to help finance children’s college educations.
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do not dictate who they want to serve as guardians in their wills. WHAT IS A TRUST? A trust is a relationship in which another party is given authority to handle a person’s assets for the benefit of that person’s beneficiaries. When making a trust, a person will need to designate someone as a trustee, who will be tasked with distributing assets in accordance to the terms dictated in the trust. There are many types of trusts,
IS IT BETTER TO HAVE A WILL OR A TRUST? Both wills and trusts can be useful when estate planning. In fact, wills are often used to establish trusts, and many people have both a will and a trust. Estate planning is an important part of managing one’s finances. A qualified attorney who specializes in estate planning can help people write their wills and, if necessary, establish trusts that can help surviving loved ones in the wake of their death.
LIFE PLANNING GUIDE
Moscow-Pullman Daily News & Lewiston Tribune | January 25, 2020 | 13
STARTING
• WILL I NEED DAYCARE? In order to afford added expenses, both parents may have to work. BabyCenter. com states that a family’s average childcare costs are roughly $755 per month.
continued from page 10 ask themselves the following questions to get a handle on their finances. • CAN I AFFORD BIG-TICKET BABY ITEMS RELATED TO SAFETY AND COMFORT? Items may include a new vehicle with high crash-test ratings, or renovations to a home to provide a safe nursery. If renovations are unlikely, then would-be parents may need to consider the costs of moving. • HAVE I CONSIDERED DAILY CHILD EXPENSES? Diapers, formula, laundry detergent, clothing for each stage of growth, and various other items are necessary when raising a child. Make a list of such items and their potential costs.
PASSIVE
continued from page 9 is a lucrative way to earn some extra money. Properties located in popular tourist areas may garner considerable income.
• DO I HAVE ADEQUATE HEALTH INSURANCE? Pew Research states that expenses for a delivery institutions from the lending process. Lenders serve as the “bank,” and the consumer pays interest on the principal. The loans can be handled through an intermediary like The Lending Club, which is regulated by the Securities and Exchange Commission.
REAL ESTATE INVESTMENT TRUSTS Real estate investment trusts, or REITs, offer the benefits of being a landlord without the hassle of dealing with fixing broken pipes or handling rowdy tenants. REITs are like stocks in real estate market. You purchase a share in a company that owns, manages or invests in various real estate properties. The higher the dividend rates PEER-TO-PEER LENDING the higher the risk, so investors must According to the financial wellness weigh REIT considerations carefully. site MyMoneyWizard.com, peer-to-peer Passive income streams are another lending (P2P) is the practice of lending way to earn extra money and can be money to borrowers who may not qualify lucrative for those who take time to for traditional loans. P2P is a growing invest. market that removes large financial DIGITAL PRODUCTS Digital items, such as expert advice guides, books, informational articles, digital photography, digital artwork, and more can be sold online. The product only needs to be created once, and then it can be sold infinite more times to generate an ongoing revenue stream.
INVESTING
continued from page 6 different types of assets is known as diversification, which can help investors protect themselves against risk. 3. MAKE CHANGES AS YOU AGE. As investors age, their aversion to risk should grow. The closer you get to
retirement the closer you are to needing all the money you have invested and earned over the years. Speak with a financial planner about how to reallocate your investments as retirement draws near. Investing requires risk, but novice investors should not allow that to keep them on the sidelines.
can range from $3,000 to upward of $37,000 per child for a normal vaginal delivery, and from $8,000 to $70,000 if a C-section or special care is needed. Consider how much your health insurance will cover and how much adding a child to a policy will increase your rates.
• CAN I AFFORD LIFE INSURANCE? Once you begin a family it is important for both parents to have a life insurance policy in place to provide for surviving family members in the event of an untimely death. Couples who want to start a family can make the transition go smoothly by figuring out their finances before welcoming a baby into the family.
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14 | January 25, 2020 | Moscow-Pullman Daily News & Lewiston Tribune
BUYERS’ GUIDE TO FINANCING A VEHICLE Courtesy of Metro Editorial
The price of the average car continues to rise. Analysts at Edmunds estimate the average transaction price of a new vehicle now hovers at roughly $36,000. Few people can walk into a car dealership and pay such a price in cash, which means that savvy shoppers need to familiarize themselves with the financing process in order to get their dream rides. In addition to finding the perfect car or truck, buyers must spend time researching the ideal way to pay for it. Car loans are key to the carbuying process. Too often shoppers wait until they’re in the negotiating seat at the dealership before they even know what they can spend, and this can be a mistake. A poor
financing deal hurts buyers over the long run and may lead to defaulting on the loan and dealing with the credit fallout that defaulting produces. Vehicle financing is a step-bystep process that should begin long before consumers even pick out a car.
• EXAMINE YOUR SPENDING AND SAVING. Start by looking at your finances and establish a budget. How much cash do you have on hand for a down payment? Also, how much can you comfortably devote to a new car payment and requisite auto insurance? You can use automotive loan calculators to get a rough idea of what a particular car will cost you in terms of monthly payments.
• KNOW YOUR CREDIT STANDING. Great credit will give you financing leverage. Understand your credit score and which factors may be bringing it down. Resolve any issues well before you apply for financing so a bad score will not hurt you.
• VISIT LENDERS. The financing deal offered by the dealership might not be the best price possible. You can get preapproved/prequalified for an auto loan the same way you do for a home mortgage at banks and
LIFE PLANNING GUIDE credit unions. This helps you secure the best interest rate possible. It also provides negotiating power. A preapproval letter puts you in the position as a stronger “cash buyer,” states the financial resource NerdWallet. • SET A FIRM BUYING PRICE. Preapprovals and working with a third-party lender gives you a specific amount of money you know you can borrow. Use this as a tool to keep the negotiated price low because you cannot exceed your preapproved amount. It also may be a way to push dealership finance mangers to contact their own captive lenders to try to beat the rate offered by your existing lender. Work is needed to secure the best price on a new car, and that work begins long before visiting a dealership.
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FUND
continued from page 12 • CONSIDER A UNIFORM TRANSFER/GIFT TO MINORS ACCOUNT. This is a custodial account that holds and protects assets for beneficiaries, who are typically donors’ children. The custodian controls the assets until the minor reaches legal age. The money will not grow tax-free, and it can be used for purposes other than school expenses. The account also may count against the student and parent when applying for financial aid, which is something to keep in mind.
• OPEN AN IRA. IRAs are often associated strictly with retirement savings. However, they also can be used for qualified college payments as long as the contributions have been made for at least five years, advises Nationwide Insurance. • Use a standard savings account. Even though it may not grow as quickly as investment accounts, routinely saving money in a savings account can be another means to saving for college. Starting early can give families ample time to save substantial amounts of money for youngsters’ college educations.
LIFE PLANNING GUIDE
Moscow-Pullman Daily News & Lewiston Tribune | January 25, 2020 | 15
WILLS
continued from page 4 photographs, clothing, cars, and jewelry. • GUARDIANSHIP: Parents’ wills should include a declaration of who they want to become guardians their underage children or dependents. • PETS: Some people prefer to use their will to also dictate guardianship for their pets and to leave money or property to help care for those pets. However, pets do not have the legal capacity to own property, so one shouldn’t gift
money directly to pets in a will.
shift investments from aggressive to conservative mutual funds as continued from page 2 children age. • Take your tax deduction. Families adage, “Don’t put all your eggs are faced with a host of bills each in one basket.” That adage is month, and that can make some especially noteworthy when saving parents wonder if it’s even possible for college. Many people recognize to contribute to college savings that simply saving for college isn’t accounts. Speak with an accountant enough, and that directing college to help you make room in the budget savings into a 529 plan that allows for such contributions, which are that money to grow is a savvy way often eligible to tax deductions that to build college savings accounts. When choosing investments, parents make it easier and more sensible to save for college. can combat market volatility by Saving for college tuition can be investing in diversified portfolios that made easier by employing various makes their savings less vulnerable strategies to grow college savings to loss. In fact, the NY529 Direct without adversely affecting monthly Plan allows parents to choose agebudgets. based options that automatically
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Courtesy of Metro Editorial It’s never too early for parents to begin saving for their children’s college tuition.
• FUNERAL INSTRUCTIONS: Settling probate will not happen until after the funeral. Therefore, funeral wishes in a will often go unnoticed, states the legal advisement resource Find Law.
should be willing to serve and be capable of executing the will. People who die without a valid will become intestate. This means the estate will be settled based on the laws of where that person lived, and a court-appointed administrator will serve in the capacity to transfer property. This administrator will be bound by laws and may make decisions that go against the decedent’s wishes. To avoid this outcome, a will and other estate planning documents are crucial.
LIFE PLANNING GUIDE
16 | January 25, 2020 | Moscow-Pullman Daily News & Lewiston Tribune
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