June 2008 Financial Articles
Don't Get Swamped by Student Loan Debt | Top
Are you or someone in your family facing heavy student loan debt? Recent graduates left college with an average of $19,646 in student loan obligations, according to a study by the Project on Student Debt. That was up 8 percent from a year earlier, while average starting salaries rose only 4 percent from the previous year, the study found. That means the debt that graduates are carrying is growing faster than their initial chances to earn the money to repay it.
There’s no reason to despair, though, according to the Virginia Society of CPAs (VSCPA), because there are several steps that you can follow to manage weighty student debt.
Lower your payments
If your monthly loan costs are simply too much, one simple and immediate solution is to reduce them by finding out if you can lengthen the amount of time you have to pay the loan — from 10 years to 20 years, for example. You should be aware that extending the loan term means that you will end up paying more interest over time, but lowering the monthly payment amount may be your top priority right now. Remember, you can always increase your monthly payments later — and thereby shorten the length of the loan — if your financial situation improves in the future.
Consider consolidation
Students often sign up for a number of different loans to finance their education. That may mean they end up writing several checks to different lenders at various points in the month. When you consolidate, you take out a new loan that is equal to your total debt and use it to pay off all your existing balances. You then can pay just one student loan bill each month. That will make life easier, but it may not necessarily lower your overall monthly outlay, depending on the new loan terms. If you do find a consolidation loan that will reduce your monthly payments, make sure to examine the loan terms carefully. And remember that if you will be paying off the consolidation loan over a longer period, the loan will cost you more in the end, so it may not be the best choice.
Do well by doing good
Do you wish you could make a difference in the world? It’s possible to cancel some or all of your federal student loan balance by signing up for any one of a number of programs aimed at making positive change. For example, teaching in an elementary or secondary school in a low-income area can reduce some federal loan totals, while serving a two-year term in the Peace Corps can also lead to a reduction in your loan balance. Volunteers for AmeriCorps and VISTA may qualify to postpone loan payments while they are involved in the program and receive stipends that can be used to pay down student loan debt. Health professionals who spend two years working with the National Health Service Corps serving communities that have a shortage of medical help can qualify for loan forgiveness of up to $25,000 a year. In addition, many law schools have loan forgiveness programs for newly minted attorneys who take jobs in public interest law. If you have a strong interest in making a difference, then that commitment can also help you relieve some of your student loan obligations.
Ask a CPA
Whether you are seeking to reduce your regular payments or manage your overall student debt obligation, your local CPA can provide advice on the best way to accomplish your goals. Consult your CPA about smart ways to handle your debt and any other financial questions.
The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has approximately 8,300 members who work in public accounting, industry, government and education. For more information, please visit the Press Room on the VSCPA Web site at www.vscpa.com, e-mail vscpa@vscpa.com or call (800) 733-8272. For more information on financial literacy topics like money management, or to search for a CPA in your geographic region, visit www.FinancialFitness.org.
Money-Wise Advice for New Grads | Top
At this time of year, many recent graduates are leaving collegiate life behind and embarking on their first “real” careers. It is an exciting time, but it’s also a time of new financial responsibilities. If you know graduates taking their first steps into the work world, the Virginia Society of CPAs (VSCPA) advises there are several money-wise steps to make sure recent grads start off on sound financial footing.
Set up a savings plan
Create a realistic budget that balances what you take home in your paycheck against your regular monthly expenses. Among your expenses, include a small amount that will go directly into a savings account. Although your money may not stretch very far at first, it’s important to make savings a habit as soon as possible. When you need the cash for an emergency — or for a well-deserved splurge — you’ll be glad you have a savings plan.
Polish your cooking skills
Balancing work and life when starting your first full-time job can be an experience in itself. Many young people find they have little time or energy to prepare breakfast or dinner for themselves, or to pack a bag lunch to eat at work. That can become a big problem, however, because it means these young workers end up with expensive takeout meals instead of much more economical home-prepared meals. As an example, spending $20 a week on takeout meals adds up to $1,040 a year. That sum could be used to pay a month’s rent or could be the beginning of a down payment on your first house. If you set aside time to plan and shop for each week’s meals, your food costs will drop sharply, and you can make better choices with the money you save.
Keep debt under control
As soon as they enter college, young people begin receiving offers from credit card companies. While it may be tempting to run up a credit card balance in order to furnish your apartment, build a work wardrobe or acquire some new electronics, it’s not a good idea. Many recent graduates already have thousands of dollars in student loan obligations. Adding to that debt makes it more difficult to pay off your balances and begin to save for your future.
If you do take on consumer or student loan debt, be sure to make your payments on time and in full. That will ensure that you maintain a good credit rating so that you can get credit in the future when you need it. If you have a bad credit rating, you could be refused an apartment — or have to pay a higher security deposit for it — be turned down for an auto loan or even face problems in getting a job. Whenever you take on debt, be sure you’re being realistic about your ability to pay it off.
Remember retirement
Retirement may be a long way off, but CPAs recommend that you begin contributing to a retirement account early. That’s because you’ll set aside more money over time and your nest egg will have more opportunities to grow. Begin contributing to your company’s 401(k) if one is available or open an individual retirement account. Each choice offers tax-advantaged opportunities to build for your future.
Your CPA can help
As you start your adult financial life, it’s a good idea to get to know your local CPA. He or she can help you understand your choices and make the best decisions for your financial future.
The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has approximately 8,300 members who work in public accounting, industry, government and education. For more information, please visit the Press Room on the VSCPA Web site at www.vscpa.com, e-mail vscpa@vscpa.com or call (800) 733-8272. For more information on financial literacy topics like money management, or to search for a CPA in your geographic region, visit www.FinancialFitness.org.
Finances for Two: Newlyweds and Money | Top
June is a popular time for weddings, and it’s important that newlyweds get off on the right foot as far as their finances are concerned. A total of 84 percent of couples said that money causes arguments in their marriages, according to a Money magazine survey. But taking the right steps now can save a lot of tension and disagreement later, according to the Virginia Society of CPAs (VSCPA). Here are some recommendations for getting the right start financially.
Be honest
To avoid unexpected surprises, talk before you tie the knot about each person’s financial situation. A marriage is sure to get off to a rocky start if one spouse learns that the other has thousands of dollars in debt or earns far less than he or she claimed. Your spouse will find out your financial secrets at some point, so it’s best to reveal them before marriage so that both parties enter the union with realistic expectations.
Share your dreams
It’s also important to be candid about your financial hopes so that you’re sure your spouse shares them. There could be disagreements down the road if one spouse is aspiring to a luxury lifestyle while the other has a more low-key approach in mind. Sit down together before the wedding and have a truthful discussion about your income, your assets and liabilities and plans for the future. Talk also about how you will make financial decisions in the future and how you will handle regular bookkeeping and investment planning. Understanding each other now will cut down on disagreements later.
Get your documents in order
Marriage triggers several changes that should be reflected in key financial paperwork. For example, you may want to add your new spouse as the beneficiary for your insurance policies, 401(k) plan, individual retirement account, investment and savings account or any other assets. If you are taking your spouse’s name, make sure the name change is made on your Social Security card, driver’s license and other identification as well as on insurance policies and bank or retirement accounts.
Review your insurance
A newly married couple may find that their combined insurance leaves them with too much or too little coverage in some areas. If you are moving into a new home or combining households, assess your homeowner’s or renter’s policy to make sure it fully covers your new location. Look into each spouse’s health insurance, as well, to see if one policy is cheaper and if it can be used to cover both spouses. This is also a good time to begin analyzing your life insurance options to ensure that each spouse is well provided for and that you have chosen the policy that best suits your needs.
Look to the future
To set a sound foundation for your future, create a budget immediately that is based on your newly combined incomes and monthly expenses, and stick to it. A realistic budget can help you avoid financial problems and disappointments down the road. It’s also a great tool to use when setting your near- and long-term financial goals.
And, as you begin your new life together, don’t forget to write or update your wills. This step will ensure that there are no unnecessary delays with inheritances later.
Your CPA can help
Smart financial planning can help contribute to a long and happy marriage. Turn to your CPA for advice on any important financial questions.
The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has approximately 8,300 members who work in public accounting, industry, government and education. For more information, please visit the Press Room on the VSCPA Web site at www.vscpa.com, e-mail vscpa@vscpa.com or call (800) 733-8272. For more information on financial literacy topics like money management, or to search for a CPA in your geographic region, visit www.FinancialFitness.org.
Avoid Money Mishaps When Children Move Back Home | Top
It’s graduation time, and many college graduates are returning to live at home for the first time in several years. In years past, many of these graduates quickly moved into their own apartments or homes, but today that trend is changing. Because of an uncertain economy, many young adults have decided to spend a few years living with mom and dad until they have a stronger financial foundation. Others are seeking ways to minimize living expenses while they pay off hefty student loans, attend graduate school or save for a down payment on a home.
The prospect of living with an adult child may fill parents with delight or dread. In either case, the Virginia Society of CPAs (VSCPA) advises that it’s important to be aware of the financial challenges that parents will face in this situation. Families that address these issues beforehand have a better chance of preserving harmony.
Talk it over
Families may have a lot of unspoken questions about how the new living arrangements will work, so it’s best to discuss everyone’s expectations in advance. For example, will the child be expected to pay rent? How much will he or she chip in for groceries and other expenses? If your child’s initial income is very low, you could consider charging them a token percentage of that income or asking them to take on certain household responsibilities, such as shopping or yard work. That’s a realistic way for your child to make a contribution despite his or her limited funds.
You’ll probably have other issues to consider beyond the economic ones. What chores will the child be responsible for? Can the child stay indefinitely or is there a time limit to the arrangement? Parents should discuss these and other questions with their children before they move in. You might even consider writing up an informal agreement that covers all of these details so there are no misunderstandings later.
Consider insurance issues
Remember to consider both health and auto insurance issues for your child when he or she moves in. For example, your child will likely be too old to be covered under your own family health insurance plan. If he or she does not receive health insurance through an employer, it’s important to find the best plan for him or her — and decide who will pay the premiums. In addition, if your adult child will be driving your family car, your car insurance payments will probably go up. Find out what the increase will be and decide how that cost will be paid.
Target your support wisely
Beyond providing a place to live, should parents offer their adult children financial support during this transition time in their lives? If you are able to help your child financially, the best idea is to agree to pay for items that represent an investment in their future. That means that helping them buy books for graduate school is a good investment, but paying for an expensive new car may not be. Subsidizing an apartment in a safe neighborhood is a good idea, but financing a Caribbean vacation is not. Parents want to help their children as much as possible, but the most valuable assistance will enable them to stand on their own feet financially.
Consult your CPA
It’s certainly possible to live harmoniously with your adult children, but you may have questions about managing the financial aspects. Your local CPA can help you understand and address these and other financial concerns facing your family.
The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has approximately 8,300 members who work in public accounting, industry, government and education. For more information, please visit the Press Room on the VSCPA Web site at www.vscpa.com, e-mail vscpa@vscpa.com or call (800) 733-8272. For more information on financial literacy topics like money management, or to search for a CPA in your geographic region, visit www.FinancialFitness.org.
Tackling Money Concerns in Remarriage | Top
Roughly 75 percent of those who have been divorced will ultimately remarry, according to government statistics. Money can be a source of tension in any relationship, but the Virginia Society of CPAs (VSCPA) advises that there are steps that couples who are remarrying can take to preserve harmony.
Take a new approach
Old habits die hard, but you may have to change some of your spending, saving and planning habits in a new marriage. While many newlyweds are just beginning their adult lives together, those who are getting remarried already have experience in sharing a household with another person and making financial decisions together. Their approaches to money may be completely different. One person may have spent a lifetime being a meticulous planner, while the other may never have reconciled their checking account statements. It’s a good idea to understand these differences now and to develop a financial approach that will suit your new family. Decide how you will make decisions and monitor your finances.
This is also a good time to discuss your current and long-term financial goals to be sure you are on the same page. Discuss, too, the terms of any previous divorce decrees if they include payments to a former spouse or children that will affect your financial future together.
Yours, mine and ours
As part of your discussion about your financial philosophies, decide what kinds of accounts you will share or keep separate. Some remarried couples pool all of their money in newly opened checking and savings accounts, while others retain their own individual accounts as well as a joint account. There’s no one right way to do it, but how you handle your money is a decision that should be discussed before you are married. Decide, also, whether you will be adding each other’s names as beneficiaries on insurance policies, 401(k) plans, individual retirement accounts, investment and savings account or any other assets.
Consider a prenup
Prenuptial agreements are not only for the very rich. They can help any couple establish guidelines about assets in case of divorce. Many people believe they are unromantic, but they can be very useful tools, particularly if one or both spouses have children from a previous marriage or if one spouse will be quitting a job to stay home with the couple’s extended family. The prenuptial agreement can spell out what assets each spouse is bringing to the marriage and how money will be distributed if the marriage ends. Don’t try to work out the details in the prenups yourselves. Instead, share your wishes with your attorney and let them negotiate with your spouse’s lawyer. When everyone in your blended family knows where they stand financially, it can mitigate unnecessary future tension.
Think long term
A will is an important document that can ensure your wishes are followed after your death. Wills are particularly valuable in remarriage because, like a prenuptial agreement, they provide a legal basis for how money will be distributed. Your new marriage may also prompt you to make changes in the beneficiaries for your life insurance policies or retirement accounts, or to increase your life insurance to cover new family members.
Meet with a CPA
A new marriage clearly raises many financial questions. Your local CPA can help you navigate through these questions to help you get off to the right start.
The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has approximately 8,300 members who work in public accounting, industry, government and education. For more information, please visit the Press Room on the VSCPA Web site at www.vscpa.com, e-mail vscpa@vscpa.com or call (800) 733-8272. For more information on financial literacy topics like money management, or to search for a CPA in your geographic region, visit www.FinancialFitness.org.
© 2008 American Institute of Certified Public Accountants
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