I wrote last week about the different life stages we go through, and how it affects our finances. It’s based on the work of Nobel-Prize-winning MIT Professor, Franco Modigliani, who separated our financial life into four distinct phases:

1. Before having children there is often a surplus of income.
2. While raising and educating children, there is often a deficit when the family is spending more than they are earning.
3. When children go out on their own, families often have a surplus again.
4. In retirement, the surplus is small if it is there at all.

I offered a couple of conclusions from this, last week, and (based on feedback, as well as the fact that I still had more in me on the subject) I’m continuing it this week.

What I advised last week:
1) When you are starting out, don’t try to duplicate your parents’ lifestyle.
2) Encourage your children to save as much money as they can in their 20′s.

A few more important financial thoughts — ones which can help create a generational legacy, even change an entire family line…

3) Avoid debt while raising a family.
Expenses multiply once children arrive. The one-bedroom apartment is replaced by a four-bedroom home with a mortgage. If expenses for food, clothing, medical, dental, clubs, camps and lessons aren’t enough, children have their own set of endless desires.

The average cost of raising a child to age 18 in 2012 dollars, totals about $300,000. After a third of a million dollars in payments, the balloon payment comes at the end when college expenses are often financed through student loans and additional mortgages. During these years, many couples wish they hadn’t spent their pre-child surplus!

Families find it challenging to live within their means during this phase of life. But you can live more simply in order to live debt free. Truly — run the numbers on it, and it’s clear — the difference between middle income and multi-millionaire in the long run is a few hundred dollars a month in saving and investing.

4) Stop telling yourself you will get your finances in order later.
The average American family runs their financial affairs in such a way that if they were a publicly-traded company, their stock price would plummet, the business would go bankrupt and the people in the accounting department would be taken away in handcuffs.

You can’t postpone financial faithfulness any more than you can postpone marital faithfulness! Your habits set your financial DNA, and habits are simply habit-forming.

Many people mistakenly believe that life comes in three stages: learning, working and recreation. They think that until they are toward the middle or end of the working stage of life, they don’t need to worry about finances.

Everyone in America can save something. Whatever you save, the magic of compound interest produces incredible results. It is far preferable to know what you need to save than to arrive at retirement unprepared.

5) Get a retirement checkup before you turn 50.
For most families, expenses drop significantly after children leave home. Although starting younger is obviously more ideal, these are the years when many families realize time is running out to prepare for their retirement and they seek professional financial advice.

So the good news is that this period provides a second chance to save and secure a financially comfortable retirement. If you are in this stage of life, you need to know exactly how much you must save to achieve a comfortable retirement. You don’t have the luxury of guessing at the appropriate savings rate.

The lessons to learn from Modigliani’s work are simple: “Before the children arrive, squirrel it away. Don’t eat more nuts than you can afford in the winter … and when spring arrives (when the children go out on their own) you get one last chance to save for that big nut!”

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

A thoughtful estate plan can make your heirs’ lives easier. But it is your parents’ estate planning that will make your life easier.

Not every family has fostered the ability to speak openly in love–I’ve written about that necessity in the past. But if you have begun that process, here is an outline of what grown children need to know about their parents’ business. In fact, adults of any age should update their estate plan every year.

And, as a parent, if you are willing to share some of this information with your children–especially if one of them is also the executor of the estate–they’ll appreciate having the facts and be more prepared emotionally when the time comes. They will know your wishes ultimately anyway, and good communication will lessen any surprises ahead of time. They will benefit from knowing the answers to the following questions:

Do you have enough saved for a comfortable retirement? Many financial planners use a safe withdrawal rate by age to make sure their clients will still have enough money toward the end of their retirement. But this isn’t always the case, and it’s worth looking into.

If your spending is under this withdrawal rate, you have more than enough and probably can leave a legacy to your heirs. But if you are over this rate, you may run out of money and have to compromise your standard of living abruptly. It may be uncomfortable, even embarrassing, for parents to share their finances with their children, but grown children often want to know how their parents are doing.

Where are the important documents? The five documents your children should be able to retrieve quickly are a will, a living will, a power of attorney, a directory of basic information and the latest end-of-year financial statements.

The directory of information should list the assets of your estate along with account or policy numbers and contact phone numbers. It also helps to indicate your intentions for the distribution of each asset, which will help confirm you have the correct titling and beneficiary designations on every portion of your estate.

You may have structured your will to divide your estate equally among your children. But if you have tried to make it easy for one child to access your bank accounts by adding his or her name, you have overridden your estate plan and left that child joint tenancy with complete rights of survivorship. This can be a problem.

Titling and beneficiary designations are legal estate planning actions. It’s best to review them with your legal advisor. Various types of assets are best designated differently in the estate plan. This is not the occasion for do-it-yourself thrift. It is a rare family that has compiled and reviewed a complete list of estate assets: bank accounts, investment accounts, retirement account, real estate holding, life insurance, health savings accounts and so on.

Are there any special bequeaths? Any promises you want kept should be documented. Your good intentions won’t matter if you aren’t around to implement them. If you have promised money to a charity and want that obligation kept, document it. If you have promised to loan a child money, document it. If you have promised to help fund your grandchildren’s college education, document that. Without documentation, none of these promises can be kept if you aren’t around to make the decisions.

Are there plans to remarry? If parents have remarried, intergenerational estate planning is even more critical. Prenuptial agreements and careful estate planning are required in the case of second marriages to avoid disinheriting children or grandchildren from the first marriage. The default is rarely a good option.

Do you have any prepaid funeral arrangements? Do you want to be buried or cremated? Do you have any preferences for a memorial service? Although it may seem macabre to plan your own funeral, a memorial service takes time and thought. It will be that much more special and comforting to your family when it is filled with your favorite music and readings.

Encourage your children’s interest in your estate planning. Most of the time, their intentions are honorable. They may simply want to understand your values and therefore your wishes.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

In the course of my work, you might think that I get a little “burned out” by all the thinking ahead and planning which my business requires.

Not so. Especially when I want to “get away” from that work. I’m a planner … and I’ve long ago stopped fighting against this impulse, including when it comes to planning for vacations.

So, take it from my personal experience: the last thing you want to do when traveling is worry about any financial loss that might occur as a result of a missed flight, an injury or illness, lost baggage, or any other unforeseen incident. To ensure your peace of mind while away from home, many companies provide several different types of traveler’s protection plans to help ease the burden.

Without insurance, you can lose nonrefundable deposits and prepayments that can add up to hundreds, or even thousands, of dollars. But a good, comprehensive travel insurance plan will often reimburse you for all pre-paid, nonrefundable expenses for a covered loss.

For this reason, though some advise against using these sorts of services (and many reject them in a knee-jerk fashion), I’ve always found that having peace-of-mind — especially when it comes to VACATION, when peace is what we’re after! — is worth the extra investment.

So, here are some worthy options, as you hold on to that peace-of-mind this summer…

Travel Arrangement Protection – This covers you in case of trip cancellation, interruption, or travel delays (these can include inclement weather, lost or stolen passports, quarantine, hijacking or natural disaster).

Medical Protection – Despite having health insurance at home, the moment you set foot on foreign soil or even set sail on a cruise, many health plans are considered null and void, so be sure you get travel medical protection to cover emergency medical expenses, such as illness and accident expenses, and emergency medical transportation to the nearest medical facility.

Baggage Protection – Not only do you want coverage for lost, stolen or damaged baggage, but many plans offer reimbursement for the purchase of essential items if baggage is delayed.

Worldwide Emergency Assistance – If traveling outside of the country, make sure you purchase a policy that covers international emergencies. This can include emergency cash transfer assistance, legal assistance, and lost travel documents assistance.

The cost of travel insurance is based, in most cases, on the value of the trip and the age of the traveler. Typically, the cost is 5-7 percent of the trip cost. Like most every other type of insurance, be it automobile, medical, or homeowner’s, you hope you never need to use it. But it can be a relief to have it when you do need it.

The bottom line is: Before embarking on your next trip, do your homework! Talk to your insurance agent – or call me for a recommendation – and learn more about all the different insurance options available to you, so you can make the best choice for your peace of mind!

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

Alright, brace yourself … this could get slightly complicated.

But it’s very do-able — as are MANY things like this in the tax code (which you’d never believe). But I’m going to do my best to cut through the tax jargon, and give you the bottom line.

Here we go.

If …

1) Your child is younger than 13 and
2) He/she wants to go to DAY camp (overnight doesn’t count!)
3) You are both working (and/or “looking for work”)

… Cha- ching.

You then have a choice — you can pay for it using an FSA (Flexible Savings Account) OR it can give you a child care tax CREDIT (better than a deduction).

With both the FSA and the child care credit, other eligible expenses include the cost of day care or preschool, before-school care or after-school care, and a nanny or other babysitter while you work.

The size of the credit depends on your income and the number of children you have who are younger than 13. You can count up to $3,000 in child care expenses for one child or up to $6,000 for two or more children.

BUT, the size of the credit gradually decreases as income increases. Families earning less than $15,000 can claim a credit for up to 35% of those eligible expenses; families earning more than $43,000 can claim a credit for up to 20% of eligible costs.

All told, it’s a good deal which you should be leveraging, if you qualify.

For most people, it’s a better deal to use the money from the FSA than to claim the child care credit (I won’t go into all the geekery right now, as to why).

But if you have two or more children and your child care expenses exceed $5,000 for the year, you can benefit a bit from both accounts. Here’s how…

You can set aside up to $5,000 in pretax money in your FSA for child care costs, then claim the child care credit for up to $1,000 in additional expenses

By the way, just counting $1,000 toward the child care credit could cut your tax bill by at least $200.

I hope this helps. And know that this is just the tip of the iceberg. There really are two tax systems in our country–one for those who know this stuff (and use it) and another, much harsher one for those who don’t.

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

As of this writing, it’s a fact that almost 60% of Americans don’t have a basic will, and that’s a big problem.

One of the big reasons that most families don’t yet have this in place is because of some incorrect thinking about whether it’s right for them, or if it’s even necessary. And sure, some people just haven’t gotten around to creating a will or trust. Others think they don’t need an estate plan because they’re not rich. I’ve even heard from people that they don’t want to put it in place because when they do, it’s sending some sort of death wish into the universe (or some such).

Well, I’ll start by busting THAT myth: Preparing a plan for your succession will not speed your demise. Easy enough.

But here’s the problem–if you continue without an estate plan, you could leave a legacy of bad feelings and attorneys’ fees.

But, I’ll move off of that easy one, and speak to some of the more common misconceptions out there. I’ll start with two this week, and address three more in a future Note.

Marshall MythBusting #1: Only rich people prepare estate plans.

Do you own ANYTHING? Because if so, you need a will. You see, a will allows you to designate who will receive your property should anything happen. Continuing without one ensures that your assets will be distributed under the terms of your state’s “intestate succession” laws. That means your money and property could end up with family members you haven’t spoken to in years, instead of who you’d really like to see control your assets.

I won’t go into all of the different components of a will, trust, health care directive etc., as my purpose here is to emphasize that failing to plan is simply a decision to trust your assets to government bureaucrats.

Even if you think your situation is pretty straightforward, you may feel more comfortable hiring a lawyer to guide you through the process.

Marshall MythBusting #2: Everything goes to your spouse, if something happens.

Unfortunately, that’s not always the case. We deal with clients from different states around the country, and state laws vary. In fact, in most states, if you continue without a will (intestate), your inheritance will be divided among your spouse and your children. In New York, for example, when someone dies intestate, the spouse gets the first $50,000 of the estate and what’s left is divided 50-50 among the spouse and the children.

You can imagine how this could create all kinds of problems, particularly if your spouse was financially dependent on you or you have children from a previous marriage.

I’ll send a few more in the weeks ahead, but I hope you can already see that things are not always as we “think”.

I hope this helps. To your family’s financial and emotional peace…

Financial Advisor Richmond
Financial Planner Richmond
Financial Planners Virginia

As I mentioned last week, I’ve made a close study, over the years, of how money “works”, and just what it is that propels certain individuals and families into great quantities of resources … and what also brings them down.

I hate to see those with resources squander them, simply because they fell prey to the rampant fear.

Watch out for it in your own heart, in that of your children and spouse — and avoid these behaviors of the poor:

*They use credit habitually for “lifestyle” purchases: Delayed gratification isn’t something that they’ve heard of, and if they want something they just put in on credit. After all — it’s at a 0% interest rate for the first 3 months! One purchase leads to another, and before they know it they’ve got thousands in credit card debt.

Debt loads in the wealthy can look different, but the principles remain the same. Avoid leverage these days; keep your powder dry. Your lifestyle isn’t worth expensive cashflow.

* Always pay more than they have to: Often people who are broke have gotten there because they don’t know how to shop for a deal, negotiate or ask for a discount. You can get a discount on just about anything — from electronics to health care. Never pay more than you have to.

Why is it that the wealthy take perverse pride in paying full retail? It goes before the fall, as they say … so don’t become pennywise/pound foolish — but neither should you eschew effective negotiation in multiple categories.

* Fall prey to lifestyle inflation and “keeping up with the Joneses”: This is a biggie for the wealthy. Even people with higher incomes have problems with staying ahead in their budget because they fall prey to lifestyle inflation. Instead of banking and saving raises, they raise their standard of living — buying a bigger better house, a new car and a new wardrobe. They feel like they have to keep up appearances with everyone in their neighborhood.

Take a good hard look at what motivates your purchasing, and clean out the dustbunnies of comparison, lest they fill your brain with poverty-thinking.

* They rely on others to fix their problems: We’ve probably all known someone who is always going to their parents, family or friends to bail them out. They create a pile of debt, and then rely on the kindness of others to get them out of their bind.

* They forfeit future gains for fun today: These people often have a hard time visualizing how saving and hard work will pay off down the road, and instead live for the fun and pleasures of today. They don’t realize how saving for tomorrow can improve their quality of life today.

Don’t sacrifice your retirement (or your eventual estate) on the altar of present-ease.

Obviously, I’d like to help you move past these behaviors, if any apply. You may not carry every one of these traits, but just one or two can get you into hot water.

If you feel that you’re slipping into any of these traps, please do let us know … we’re here to help as your Family’s Personal Financial Guide.

Financial Advisor Richmond

Financial Planner Richmond

Financial Planners Virginia