Email : jude@upperlinefinancial.comPhone: 504-610-5833
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Cash is King – It’s Useful For More Than Mattress Stuffing

Cash Under Mattress 20130709

I seem to be having conversations with clients daily about cash.  We talk about how little they spend in cash anymore, the pennies in interest they are earning in their savings or money market accounts, and about how much they should be keeping in cash at all.  Here are a few short thoughts for you today about Cash and the most common conversations I have around it.

  • Carry Some In Your Wallet – When my 2 1/2 year old wants to play with her cash register, she doesn’t really understand what the paper things in the cash register are for.  She does understand the credit card and how it swipes, and how we use it to pay for things when we go to the grocery store or shopping nearly anywhere.  I now try to carry cash for this reason, to show her that some things we buy are one of the green bills, and some are 5 or more.  It’s a bit early to understand how they’re different amounts, but as your kids get older, can you start to involve them more in the process of understanding how your family spends your money?  If you want a fun question, ask a child where money comes from (even more fun if it’s not your own, I must say).  
  • Save Some For A Rainy Day – Cash in an Emergency Fund or savings account is a critical success factor for financial peace of mind.  When I talk to people who are struggling with spending, it’s a cycle of spending, digging out of a hole of credit cards or other loans, and then they can’t ever seem to make that next step of building up an emergency fund.  Once you have it, you don’t have to be focused on the return that it earns.  Return in an Emergency Fund is just bonus.  The point of it is that you have a stable, secure reserve of cash in the event that there is an emergency.  While you don’t see that return every day, all you need to do is think about a time when you needed some financial backup and it wasn’t there.  The financial return from an emergency fund comes in long-term savings, savings of credit card interest, the ability to have higher deductibles on auto and homeowner’s insurance and the savings you see there.
  • Save Some For An Opportunity – This is really where the old saying “Cash is King” comes from.  Cash isn’t king because you get a little bit of interest on it at the bank.  Cash is King because it allows you to take advantage of opportunity when it presents itself.  When you find the home that you’ve been seeking, having the readily available cash to make an offer and get an affordable mortgage is critical.  When your parents or grandparents invite you along on that big trip you’ve always talked about taking, or you finally decide it’s time for you to do that trip by yourself and you get an email alert about the airfare sale, having the cash on hand to move on it allows you to move forward confidently.

How else do you see Cash affecting your life?

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Save for Retirement Before Saving for a Child’s College Education

Saving for Retirement and College

This post is part of the Financial Rules of Thumb series.  Check out the rest here!

(Today’s post comes from Trevor Acy, an Upperline Financial Planning intern)

This rule of thumb can trigger emotional response. It may seem selfish to begin your retirement savings without putting money toward your kid’s college education first. You want to do right by your children, but it is important to right by yourself too.

The Upperline: If you pay for your child’s college but haven’t saved for retirement, you’ll be depending on them or government care in your golden years. Retiring with dignity should take priority over college savings.

This is a rule of thumb that I agree with.  I want you to be able to save for your child’s college, but you should start your retirement savings first.  Both of these are important reasons to save.  College may seem more urgent since your child isn’t getting any younger and it is easy to delay retirement saving “until later”.  A key to retiring with dignity is taking advantage of the power of compound interest.  The best way to do that is to start saving for retirement as soon as possible.

It is ultimately their responsibility for their education. Your responsibility is your retirement.

Having their parents pay for college isn’t their only option.  Scholarships and grants exists for a reason.  They can work to pay their tuition (did you know that college students that work actually make better grades? See this NYTimes article on a study by Laura Hamilton for more on that topic).  They can also start their education at a community college to get credits for core courses at less expensive tuition rates.

We don’t want to encourage students to go into debt for their education. The number one reason people drop out of college is due to debt, not grades (see this great infographic for other reasons).

One note from Jude: Student loans can be a useful tool, but we have seen clients burdened with what amounts to a mortgage payment for their college educations.  Using debt is always about making smart choices, and it’s important to make good choices bout the potential return one can expect on borrowing money for college.

Doing both is great, if you can afford it.

Let me be clear that your goal should be becoming financially capable of saving for retirement and college.  If you are able, these two should be done concurrently. But while you are working toward that goal, your retirement takes priority over college savings.  Don’t forfeit your retirement in order to be a blessing to your child now only to become dependent on them later.  Refer to our post on how much to save for retirement and if there is more discretionary money to spend then you can begin funding an Education Savings Account (ESA) or 529.

We will cover education saving vehicles in an upcoming series, but be wary of using the following for college savings:

  • Insurance
  • Savings bonds
  • Zero-coupon bonds
  • Pre-paying tuition

These do not provide maximum growth or keep up with inflation well enough to be a good savings vessel especially when ESA and 529 plans exist.

What are your questions about saving for college?  Let us know and we may answer them in a future post!

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Teaching Kids Using “Money As You Grow”

The President’s Advisory Council on Financial Capability recently released a wonderful website and poster called “Money As You Grow”, targeted at helping parents and children have more conversations about money.

Talking about money with kids is a topic that often comes up when meeting with clients, and I’m glad to see such a well-done tool become available to the public.  It breaks down children into age ranges, from 3-5, 6-10, 11-13, 14-18, and 18+ and provides 4 specific pieces of financial education (called Milestones) focused on each age group.  Each ‘milestone’ comes with 4 activities that can foster conversation and understanding between children and parents on the topic.

It seems there was a shift some years ago, where money became a taboo topic.  Families don’t discuss money at the dinner table, and parents often try to hide money struggles from their children (which rarely works, just ask your adult children if you have them.  They know when things are good and when they aren’t).  It’s my hope that we can all talk more frequently about money.  The more we talk about something, the less scary it becomes and the better decisions we can all make.

Take a moment and check out the Money As You Grow tool, and please share your thoughts with me about it and other tips you’ve got on teaching children about money!

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Lending Money to Adult Children? 4 Points to Consider

I had a conversation recently with a retiree who was approached by their child for a loan to start a business.  Lending money to children can be a messy business if not done properly.  As a new parent, I can understand the drive to want to help your children in every way possible, but as an advisor there are important factors to consider for all loans to children.  I outlined 4 points to my client, which I’ve listed for you here below:

  1. Don’t compromise your lifestyle.  If lending money is going to mean that you have to reduce your standard of living in order to make this loan, it should be a no-brainer to hold off.  Yet, I’ve seen circumstances where retirees even go back to work because the loans that were made have decreased their income substantially.  If lending the money is going to cause a huge strain on your finances, you’ve got to say no.
  2. It’s ok to lend to one child, and not another.  This isn’t about playing favorites as a parent, which I know you would never do.  It is about knowing your children and understanding their financial personalities and their ability to repay the loan that you’re making to them.  Some are more credit-worthy than others and there’s no reason that shouldn’t play a factor in your decision.  Lending your financially-responsible child money for a down-payment on their home is one thing, lending your more creative child money to take a spiritual trip around the world is another.
  3. Get it in writing.  Just because it’s a loan between family members, doesn’t mean that you don’t need to take care of the legalities.  In fact, it’s all the more reason to make sure both sides are protected.  What is the interest rate that they will pay on the money?  When are payments due?  What happens if they can’t make payments?  Better to discuss these factors in advance rather than assume you’ll be able to deal with them if something happens.  It’s much easier to talk about these questions before trouble arises so be courageous and have the conversation.  Get all parties to sign on the dotted line, and stick to the terms.
  4. Consider equalizing your estate.  If you pass away before the loan is repaid, consider having your executor equalize the estate with other assets.  This still relieves the child of the obligation to repay your estate, as well as setting up a mechanism for your other children to not feel like they received less money from you because of the loan that was made to their sibling.

These four points can be the starting point of a healthy discussion about lending money for you and your child.  Are there any other items you’d add to my list? Please add them in the comments below!

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Baby Steps Aren’t Just for Babies

If you’ve been reading this blog for any period of time, or following my personal account on Twitter (@HJudeBoudreaux), you know how much I’ve loved watching my 13 month old daughter grow.  It has been an incredible experience.   Now, she’s starting to walk and explore her world in a new way.  I often find myself reflecting on the lessons I seem to be learning from her every day.

  • Big progress comes from small lessons.  She’s a pretty good walker for being 13 months old, and I saw that progress happen organically.  It might feel like it happened in a flash but it was a series of steps from rolling over, to kneeling, crawling, standing, and then walking holding on to things.
  • Clap for yourself.  Every new task learned is met with incredible enthusiasm from my wife and I.  It’s wonderful to see her smile and take pride in the new things she’s learning.  She’s learned to clap and is quick to give herself some applause when she finally conquers a new task.
  • You’re going to fall down. A lot.  Just because she’s done something once doesn’t mean that she can sit down and do it again.  Sometimes she gets frustrated with that (sorry honey, you get that from me), but most of the time she simply picks herself up and tries again.
  • It’s ok to ask for help.  She’s finally reaching the age where she understands she can ask for help with things, and I’m glad to help her.  She watches intently and while she’s got the attention span of a 13 month old I can see her trying to do the things that I’ve shown her.

I see her doing the above things over and over, and it’s wonderful to watch as a parent.  My wife and I are patient and supportive of her as she plays and explores.

Yet, I have no patience for myself with my own growth and exploration.  

I’m naturally a long-term thinker, which is a wonderful thing to have in your financial planner.  It does drive me crazy that the future that I envision doesn’t quickly happen.  It frustrates me to no end when I can’t pick up a new piece of software and instantly be an expert at it.

So, starting today I’m going to be mindful of these 3 lessons I’ve learned from my daughter and try to apply them to my business and my life.

  1. Take a small step.  It’s really easy to lose sight of this in our financial lives.  It’s natural to want to search for large changes, but those large changes often come from small steps.  Where can you take a small, meaningful step in your financial life towards something worthwhile?
  2. Who can help?  Is there a mentor, friend, or family member that can help you learn that new behavior?  Can you and your partner help each other learn and grow together?
  3. Celebrate the wins.  When I was involved with the Entrepreneur’s Organization Accelerator program, Scott Fritz would remind us at the end of every meeting (and regularly within our companies) to celebrate the wins.  How are you celebrating the milestones that you’re reaching?  Give yourself some applause!
What baby steps can you take today to continue your growth as a person?  

 

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Heading to College? A Quick Lesson on Credit Cards

If you (or someone you love) is heading off to college soon, find a few minutes to have a conversation with them about credit cards.  With the un-ending debate about the national debt and problems with mortgages around America young people might assume that debt is part of the American way of life.  It’s important that we take a few minutes to have a conversation about debt, and what impact it has had on our lives.

Students heading off to college are dealing with freedom on so many different levels, and really learning what it is like to have to budget and make a lot of spending decisions on their own.

  • Debt is attractive.  It seems that when we’re younger (28 seems to be the cut-off) it does.  According to a recent study by Rachel Dwyer and Randy Hodson of Ohio State University and Laura McCloud of Pacific Lutheran University, younger people might “experience debt as an investment in the future” and feel a boost when spending on credit.

I know from personal experience that this is true.  I managed to spend on credit cards during my college years and suffered for it after graduation.  Those nights out are fun while you’re having them, but paying for nights out from years ago while you’re scraping by in your first real job after college is no fun at all.

  • Compared to Student Loans, the amounts are so much smaller.  College students are borrowing at historic levels.  When you’re borrowing tens of thousands of dollars in student loans, carrying credit card debt of thousands seems like a much smaller amount in comparison.
Next comes the ease of access:
  • Swiping is easier than counting cash.  Unless you’re at a restaurant, the amount we are spending is rather invisible to us.  All you have to do is swipe a card and sign.  Spending cash forces us to think about our money in a different way.
When you’re trying to control your spending and make good decisions, cash is king for one reason:
  • Cash is a great scorecard.  I recommend that college students decide on what their weekly entertainment budget is, and take that amount out in cash on the same day each week.  If you’ve got cash and get a late invitation to go to dinner, you may decide that you want to do it.  But if you have no cash in your wallet, you’ve got a choice to make.
What credit card lessons would you add to my list?

For those that want to do further reading on the psychological research, below are a few papers to get you going.

What, Me Worry? Young Adults Get Self-Esteem Boost from Debt – Dwyer/Hodson/McCloud

Spending ‘Til It Hurts – Carnegie Mellon

How You Spend Affects How Much You Spend

 

 

 

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Creating a Digital Trust Fund for your Child

I was quoted recently by Reuters on the topic of investing in your child’s digital footprint.  In less than an hour, you can reserve their identity in a few different tools.  Below are the steps you need to take, and ideas for what to do with them once you’ve got them established.

As a parent, I understand that we all want to do everything we can for our kids and their future.  One small and easy thing to do is to set up what I call a “digital trust fund” for your child.  We’ve all seen the rise in importance of the internet, and I can’t see that changing in the future.  Here are 3 things you can do now to secure your child’s digital future.

1.  Register their name as a domain name.  Not only is having an online presence growing in importance, but being able to control that presence.  It’s easy to go to a service like Register.com, type in your child’s name (for example, I’ve registered mine as judeboudreaux.com) and then proceed to “buy” it.  With Domains you have to pay an annual fee for registration that is about $12 per year.  It’s a small price to pay to have your name as a domain name.  Once you have that domain name, you can host a personal blog there, use it to share family photos, or just hold onto it for future use.

2.  Register a Gmail account.  I received an early invite to Gmail, and I’m quite glad I did.  While I have my name, we’ve never been able to register my wife’s real name since somebody else has claimed it.  Go to gmail.google.com, and click on the “Create an Account” button on the bottom right of the screen.  The next page will ask you for some basic information, and for a desired login name.  I’d suggest firstnamelastname, but you may have to use a middle initial or full middle name if the others are taken.  Fill out the rest of the information on the page, and you’re all set.  Use a password that you’re likely to remember, and be sure to use your email address as the “recovery email” address in case you lose access to the account down the road.

Having the Gmail account has been a lot of fun for us.  We knew what our daughter’s name was going to be once we found out our baby’s gender, so I set up the account then.  We could then email her thoughts as we were going through the final months of pregnancy, and I still email her from time to time to share special thoughts and memories with her, that hopefully she will appreciate when she’s older.

3.  Sign up for Twitter.  Twitter may or may not be around in a few years, but I’m taking a shot that they will be.  The service is growing at a rapid pace, and having your own name as an identity is an advantage here as well.  Simply go to www.twitter.com.  On the right hand side of the home page, is a place to enter your name, your email address (you can use your child’s newly created Gmail address from the previous step) and a password.  Click on sign up, and it will bring you to another form where you choose the username.  I’d recommend you choose something as close to your child’s real name as possible.

That’s how I started our daughter’s digital trust fund!  Can you suggest anything I’ve missed?

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The Pros and Cons of Prepaid Cards for Teens

I was recently quoted by Sheryl Nance-Nash of DailyFinance, an AOL Money & Finance Site about the value of prepaid cards for teens.  Her article explores the pros and cons of prepaid cards and overall I think Sheryl does a great job.

I see far more negatives than positives when it comes to prepaid cards for teens.  The main plus that you get as a parent is a hard limit on spending.  However I see several minuses, including:

  • Expenses of the cards.  Prepaid cards often come with many expenses, such as charges to open the account, add funds, and even calls to customer service to find out your balance.
  • Not like spending cash.  When you spend with a debit (or credit) card all you need to do is swipe and sign your name.  Little to no thought about the spending and amount occurs.  When you spend cash, seeing those green dollars leave your wallet makes a much deeper impact.
  • No benefit to their credit scores.  I believe that managing credit and the ability to borrow will be critical over the coming decade.  Prepaid cards don’t do anything to help a teen or college student establish a credit history.  A better solution may be a prepaid card, or a card with a small credit limit that has their parents on as cosigners

What do you think?  Are any of you prepaid card users?

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