Things to consider when sending a child to college

This was originally published on Monday, May 7, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

Q: Next year my daughter will be starting high school. Her goal is to attend college off-island directly after graduating. My husband and I have not started saving for her college and I am worried that we may not be able to afford her educational dreams. I don’t want her to miss out or change her goals because we didn’t plan it financially.

A: It is no secret that the cost of living has increased and continues to increase yearly.  You can see this in the cost of food, housing, and the price of fuel. Unfortunately, the cost of education has risen as well. According to a study done by CollegeBoard.orghere are some staggering facts about college trends in 2017:

  • Averaged published out-of-state tuition and fees at public four-year institutions rose by $800 (3.2%), from $24,820 in 2016-2017 to $25,620 in 2017-2018.
  • Average published tuition and fees at private nonprofit four-year institutions rose by $1,220 (3.6%), from $33,520 in 2016 – 2017 to $34,720 in 2017 – 2018.
  • More than 70% of full-time students receive grant aid to help them pay for college.

Identify aspects in types of colleges

There are significant financial decisions between the types of colleges. There are certain characteristics that should be considered before deciding which college to attend. Identify the goals and consider cost, class size, culture, and environment.

  • 2-year college – these are typically technical or community colleges and provide skills in a specific job in the workforce such as a nurse or mechanic. Costs are usually lower than a 4-year institution and allow students to achieve an associate’s degree. Credits can be transferred to a 4-year institution.
  • 4-year public school – these institutions typically offer a range of majors and student organizations. The student body is typically larger with larger class sizes.  Tuition ranges depending on whether it is in-state or out-of-state tuition. Some out-of-state colleges offer tuition reciprocity (a discount on tuition) to residents of certain states.
  • 4-year private school – tuition at these colleges tend to be higher but students can benefit with smaller class sizes and privately-funded facilities. Many 4-year private schools are religious based.

Know the difference before spending

Though both nonprofit and for-profit colleges can offer an equal level of education, there are some things you need to keep in mind. Their focus of education slightly differs as their goals for success are measured differently as well. This doesn’t necessarily mean that one is better than the other. Know the difference before spending money. Another aspect to look at is if the institution is accredited and if the accreditation is national or regional. Use due diligence when choosing a school and the quality of the education offered.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

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Money matters: Choosing beneficiaries of your life insurance

This was originally published on Monday, April 30, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

No one likes thinking about death, but it is very important to be prepared when it happens. It’s important that you understand your insurance policy and the parameters within that policy.

After you make an informed decision on the type of policy, the next thing you want to consider is who will be your beneficiaries. Selecting a beneficiary is a very personal decision. When choosing a beneficiary, ask yourself a few questions. Who will be bearing the costs of your funeral? Who counts on you financially?

Take time when choosing your beneficiary. When choosing your beneficiaries, there are several points to consider.

Family. For most, this is  top  priority  because they are financially dependent on you. Family members could include your spouse or partner, children, parents or siblings. You can choose multiple family members as your beneficiaries. You can designate branches of a family or lineage and the proceeds are divided equally among the beneficiary and/or their surviving children.

If you named your son and daughter as your beneficiaries, they would receive 50 percent each of the proceeds. If your son passes before you, his children will split his 50 percent equally and your daughter still receives her 50 percent. If your son had two children the proceeds will be divided equally between your son’s children and your daughter.

Legal guardian. If you are appointing a minor or someone who is not mentally or physically able to care for themselves as your beneficiary, you may be required to name a legal guardian.

Estate. You may choose your estate to be your beneficiary instead of a person. You must have your last will and testament drawn and the executor of your will receive the proceeds from your life insurance policy. The executor will have to carry out the terms of your will.

When you name your estate as the beneficiary, it will be the sole beneficiary of your life insurance policy. Talk with your accountant to discuss the taxes associated with your estate becoming your beneficiary. Speak to a lawyer to ensure that your will follows the local laws. If you don’t, your will may end up in probate court and a portion of that estate may go to pay legal and court fees. Also during the probate hearing, creditors have the opportunity to dispute the will to pay off any outstanding debts.

Trust. A trust is a legal agreement that allows a third party, or trustee, to hold assets on behalf of the beneficiary or beneficiaries. You can make the trust your life insurance beneficiary. You can specify the terms of a trust controlling when and to whom distributions may be made. A trust can also protect your estate from your heir’s creditors or from beneficiaries who may not be adept at money management.

Charity. You can name a charity to receive some or all of your proceeds.

Mortgage. You can make your mortgage institution a beneficiary of your life insurance policy. Be very specific about the amount and account number when doing so.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Different types of life insurance policies: What best suits you?

This was originally published on Monday, April 23, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

Question: My wife and I just had our first child and I want to make sure that she is taken care of in case something happens to me. I know that life insurance will ensure this, but I am not sure what type of life insurance I should purchase.

Answer: Congratulations on your new baby! Once you become a parent your priorities change. You are no longer focused on you but on the well-being of your children and family. Thinking about your future is a must.

Life insurance is a great way to cover any lingering health or burial costs or to make up for the loss of income. Be careful; not all policies are created equally. There are different types of life insurance and you should shop around to find one that best fits your needs.

Term life insurance

Term life insurance is sometimes referred to as “temporary” life insurance. It is typically the most affordable and simplest life insurance because premiums are usually lower.

It offers protection for a specific number of years. Most policies are usually for 30 years. The annual premium remains the same throughout the life of the policy.

Whole life insurance

Whole life insurance is permanent for the entire life of the insured. Your premium payments are divided among the insurance, administrative fees, death benefits and the investment or dividends that your policy incurs.

Withdrawals that you make toward your policy are tax-free up to the amount of premiums you paid, minus the dividends paid out and previous withdrawals. You can use the dividends and cash buildup to pay the premiums of the policy.

These policies have a higher premium payment because they are permanent and provide not just death benefits but cash.

Universal life insurance

Universal life insurance is also known as flexible life insurance. Like a whole life insurance policy, it’s permanent and provides cash value.

The premiums, level of protection, and the cash value can be adjusted as needed. The amount of cash values can be guaranteed to earn a specific minimum. The cash value also is tax-deferred just like the whole life insurance.

Life insurance is a great way to have peace of mind that your loved ones will be protected when you pass. It should be reviewed annually and you should take the time to understand the coverage.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Money matters: Ways to increase your income

This was originally published on Monday, January 15, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: This year I want to be able to save money, but right now it is difficult and I find myself living paycheck-to-paycheck. I am making my monthly payments on time, but I can’t seem to save or even enjoy the money I do make. Do you have any suggestions to help increase my income?

Answer: According to a CNN.com article from November 2017, in the United States “unemployment inched down to 4.1 percent, the lowest since December 2000.” That same article also sites that “wages took a step back. They grew only 2.4 percent in October compared with a year earlier.”

Although many are employed, the wages they earn aren’t sufficient to keep up with inflation and the rising cost of living. Most would say: “Get a better paying job.” But at times it isn’t that simple. You may actually enjoy the job you have, the people you work with, or maybe even your work schedule. Here are a few ideas to help increase your income:

Part-time job. The tried-and-true method of making more money is taking on a second job. You can look for another job or work from home. Part-time jobs add up.

Many people are getting creative and selling their skills. A talent that seems ordinary to you might be extraordinary to someone else. Can you speak a second language? Perhaps you can be a tutor or help companies as a translator. Are you good with pets? Many people are looking for someone to watch Fido or Kitty while they are on vacation. Are you a good cook? With today’s hectic schedules people are looking for alternatives to fast food; a personal cook may be a niche that needs filling.

Just think, if you cut grass for five of your neighbors for $50 twice a month you will earn $500 a month. That is $6,000 a year!

Renting. Do you have an extra bedroom in your house? You may want to consider renting out a room and taking on a roommate. In this economy, many single people are looking for others to help ease the cost of rent and utilities. With the rise in rentals, a roommate could lighten some of that financial stress.

You can also rent out your room to visitors. Airbnb has made a few headlines on Guam lately. I was surprised to see how many rooms/houses were available on Guam. If you are interested in turning your home into a rental, be sure you follow the correct procedures and visit the Department of Revenue and Taxation, or you could run into some costly penalties.

Skill and worth. Ask your boss how you can be more valuable to your company or organization and what you would need to do to earn a higher wage. Take what your boss says and do it. It may involve gaining additional skills, a degree or certification. The most important asset to a company is human capital. It takes a lot of money to train and hire people. If you can stand out and show incentive to want to make a difference for the company, it may just pay off in the long run.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

 

For next year, set financial resolutions

This was originally published on Monday, December 18, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

There are just a few more weeks left in 2017. Have you started reviewing your end-of-the-year financial checklist? Now is the perfect time to start reviewing and setting your 2018 New Year’s resolutions.

With that in mind, here is a look at some end-of-the-year financial tasks to tackle:

  • Schedule a meeting.If you have a financial planner, schedule a meeting. A financial planner can help you prioritize your goals. If you use a tax accountant, meet before the end of the year to review your finances and take advantage of any last-minute tax breaks.
  • Minimum distributions.In the year following the year you reach age 70-1/2, you must take the required minimum distribution from your IRA by April 1. If you don’t, a substantial penalty will be taken on the amount you should have withdrawn.
  • Tax-withholding. If you got married, divorced or had kids in 2017, you probably need to update your tax withholding with your employer’s human resources department. Receiving a large tax refund means that you have overpaid your taxes and the government “borrows” the money you overpaid. Instead, you can lower the amount the government withholds during the year and use that money to pay debt or invest it. The idea is to owe as close to zero as you can at tax time.
  • Capital loss. If you have an investment that is trading at a significant loss, you may want to consider selling it and using the capital loss as a deduction. A capital loss is the result of selling an investment at less than the purchase price or adjusted basis. Talk to your broker or financial adviser. Just like with any tax break, there are certain criteria to be able to utilize the loss.
  • Flexible spending account.A flexible spending account is a special, tax-free account in which you can contribute money that will pay for health care services your insurance doesn’t cover.  Check with your benefits adviser to find out deadline for using that money. If you don’t use it by the end of the year and you don’t have a roll over plan, you may forfeit some of that money.
  • Solar energy credit.Unfortunately the tax benefit for residential alternative energy equipment terminated for property placed in service after Dec. 31, 2016. However, the credit for solar electric property and solar water heating property is available for property placed in service through Dec. 31, 2021, based on an applicable percentage. The applicable percentages can be found at the Internal Revenue Service website, irs.gov.
  • Talk to your family and let them know where the family stands financially. Access your current financial situation and review the past year. Answer questions honestly with your spouse and children. If there is an area that needs improving, commit to it as a family.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Evaluate finances before 2018

This was originally published on Monday, December 4, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

It is hard to believe 2017 is coming to an end. In a few weeks we will be ringing in the New Year.  December often flies by with holiday parties, present wrapping and cookie baking.  With all of the commotion happening around us, take some time this month to review your personal finances.  Here are some items to check-off of your end of the year checklist.

  • Your net worth. Calculate what you own and subtract what you owe.  This is the best way to start figuring out if you met this year’s financial goal and how to improve and set next year’s goals.
  • Credit report. You are entitled to one free of each of the three major credit reports from TransUnion, Equifax and Experian. It is best to request one at different points in the year to catch errors or irregularities.  Pull your credit report at AnnualCreditReport.  Look at your report and verify that there are no errors.  Not happy with your score?  Work on any past due or collection debt, make payments on time and lower your debt to improve your credit.
  • Insurance coverage. Review your life, home, auto and health insurance policies.  If you have had a major life change such as a new baby, marriage, or divorce you will want to make sure your insurance reflects those changes.  Many policies, especially health, have an open enrollment period which is the only time you can make changes.  Know when that period is and make the necessary changes.  If you have made any structural changes or improvements to your home, make sure you have informed your insurance company and it is reflected in your homeowner’s policy.  Now is also the time you can get quotes from other insurance companies to ensure that you are getting the best coverage for your money.
  • Estate plans. If you have sold or gained property, had a major life change, opened or closed a new account, you may want to appraise your will and make the necessary changes to reflect your new status.  Also examine your living trust and health care power of attorney. If you don’t have a will, living trust or health care power of attorney, make that a goal for 2018.
  • Review your beneficiaries. A lot of change can happen in a year: births, marriage, divorce, death, adoption, etc. Ensure that you have the appropriate person or persons listed as your beneficiaries on your insurance, retirement accounts, and even checking/savings.
  • Donate to charity. December 31 is the deadline for charitable contributions you plan to deduct from your 2017 tax return.  This includes money, clothes, cars, or even stock.  Be sure that you get a receipt of your donations to include with your tax forms.
  • Use up FSA. If you participate in a health or child care flexible spending account, double check the balance on that account. If you don’t use it, you’ll typically lose it. While there may be a grace period to submit an expense for reimbursement, the actual expense needs to have been incurred by the end of December.  Double check your plan’s terms to be sure.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

 

 

College decisions impact financial future

This was originally published on Monday, September 11, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Many college students do not realize that their financial performance in college will impact them long after they graduate. Decisions they make on using their credit cards, financial aid, and over spending can impact their job search, their credit score, and their ability to payback what they borrowed.

Getting a good financial start out of college will ease the stress of the transition and open many more opportunities.

Failing classes. For many years your child has had a structured learning environment. They go to school and follow a strict schedule. After school, parents enforce homework and studying times.

College is very different from what they have been accustomed. Many professors don’t expect students to be in class every session and depending on their course load they may have a lot of time that they may consider free. Socializing is also a big part of the college experience. This new freedom could lead to academic troubles and financial troubles.

Retaking a class is expensive and could prolong their time in college. If it becomes a trend, they may be put on academic probation or worse, expelled. There may be fees associated with failing a class and loss of scholarships and/or grants. Being accepted by another college will become difficult. Student loans still must be paid off even though they are not in college.

Scholarship and grants. Being a student in college doesn’t mean they cannot continue to look for other scholarships and grants. Most believe that scholarships and grants are just for high school seniors going into college. In fact, there are many scholarship and grants that are targeted to students who are currently in college.

Have them speak with their academic adviser or counselor about these opportunities. They can also do some research online. Even if the amount is small or pays for certain expenses such as books, these opportunities can be a huge help. There is no rule to how many scholarships or grants you receive.

The more assistance you get the less you will have to pay or borrow.

Inappropriate use of assistance. Most scholarships or grants are paid directly to the school. But some are not and many student loans are paid directly to the student. This is very tempting to use unwisely. This money should not be used to fund a spring break trip.

Many students do not understand that paying for these loans right out of college is difficult. Most college students won’t be earning six-figure salaries at their first job; many of us don’t reach that level of income during our careers.

Large student loans. College tuition has been on the rise for years and it does not look like it will be leveling off any time soon. Many parents can no longer afford college tuition, living expenses, books and other incurred financial education related expenses.

Student loans are becoming a more popular way to fund higher education with the students being solely responsible. With that in mind, students should consider the cost of their education. Choosing a more affordable college in an area with lower living costs will certainly lower their debt. Be sure to understand the terms of the loan be for accepting it.

Even though your child is still in college, advise them to make monthly payments to keep the accrued interest from growing too large. The sooner they pay on the loan the better.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.