Monthly Archives: January 2016

Tips For Financial Planning and Awareness in 2016 For Families

Once you have a family, your whole financial picture changes. Raising children is expensive, but with a little common sense, some solid planning, and goals in place for your children’s future, that’s one less worry about raising your children that you will have to have. After all, raising children is no easy task, so any worries you can lessen make your life that much easier.

Just like if you were a single person, the first thing you need to do is create a budget. I realize anything you read about financial planning almost always starts with “create a budget,” but that should be evidence about how important having a realistic budget is to financial planning.

Certainly, we all hope that our children will get full scholarships to the best schools, but we also know that in reality, we need to plan to pay for those schools. As I always say, plan for the worst case scenario and then you can always be happy and grateful when things go better (which they usually do).

money advice

One of the most popular savings plans for college today is called a “529 plan.” The name comes from the IRS code which created these types of plans in 1996. Since they have been around for a decade now, you can rest assured that most of the glitches have been worked out, so it is not a “fly by night” kind of thing that you will end up losing money on. Just like most things involved in financial planning, time is your best ally. The sooner you start saving for your children’s college, the better financial position you will be in when the time comes for your children to head off to college.

Most states offer at least one 529 plan, but each state has the right to decide if they want to offer one and what type of plan they will offer. Some states will offer more than one type, so if your state offers more than one type of 529 plan, you should look closely at all of them to determine which best meets your needs. Since 529 plans were created by the IRS they all offer certain tax advantages. Again, this is why researching each plan is important to determine which will work for your family. You want to make sure that you get the tax benefits that work best for you as well as have a plan that meets as many of your other needs.

Even though these are state plans, they can be used for out of state colleges. In fact, you don’t even need to choose a plan within your own state. You can live in New York, invest in a plan in Texas, and send your child to a school in Massachusetts. It all depends on the plan you choose, which is why I keep repeating that you should look into multiple plans to find which is the best for you.

There are two types of 529 plans, prepaid or savings plans. A savings 529 plan works much like an IRA or 401K. There are several options of what type of investments you can choose, so depending on how the investment plan you choose is doing, the value may go up and down. Remember though, when it comes to long term savings like this, going up and down is normal, and there are always choices of the level of risk from little risk to high risk. It’s up to you to choose what you want.

Prepaid plans are exactly that. You are pre-paying for the costs of a public college in-state. It is still possible to convert these prepaid plans for an out of state school or a private school. Private schools also offer their own Private Institution 529 plans.
Just remember to do your due diligence and look at as many plans as possible to find which offers the best value for you and your family.

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