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.

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Talk to students about budgeting, credit cards

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

Question: Our son is starting college off island this September. We have set him up with a new checking account and a credit card. He will be living in the dorms and is hoping to find a part-time job on campus. This is his first time living on his own and we want to ensure that he starts his financial well-being on the right track. Do you have any suggestions to offer that we can discuss with him?

Answer: I am thrilled to see that you are being proactive with your son’s financial well-being before sending him off into the real world. Many parents do not discuss this important topic with their new college students and many students leave college with a lot of debt and sometimes ruined credit scores. Managing their finances without a parent’s close supervision can be exhilarating and intimidating.

No budget. This is a mistake practiced by many adults It is because they have not made budgeting a financial habit. Learning this vital skill and making it a habit early in life will certainly help your college student beyond the college years.

Most students often have limited or sporadic income. It is easy to waste money on unnecessary items if they do not carefully track their spending. Sit down with your college student and show them how to create a budget. Inform them that they will have to revise this as their income and expenditures change.

Give them an understanding of needs versus wants and that they may have to be more frugal. Teach them about using coupons and how to take advantage of sales and looking for the best buys. Most millennials are tech savvy and downloading one of the many smartphone apps will make this task much easier.

Not planning. Many students get to college not certain on their major or they decide to change majors. Sit down with your college student and create a plan on how many credits a semester they need to take to graduate on time. Talk about ways that they can expedite their time in college by taking classes during the summer and winter breaks.

Also remind them that senior year will be more expensive with graduation fees and senior projects.

Peer pressure. Living on their own without parental supervision leaves them open for all sorts pf peer pressure. With their newfound independence, some students can get into financial trouble trying to keep up with their friends, who may not be financially savvy or have a larger spending limit from their parents. They may be pressured into eating out more often, buying more clothing than they need, going out on the weekends or planning a costly vacation during their breaks.

Talk to them about how to handle peer pressure and that they should not be concerned how others perceive them by being more financially responsible.

Credit cards. Help your college student understand the pitfalls of using credit unwisely. Credit cards have become a way of life and makes obtaining things extremely easy. Credit card debt that is created in college years can affect their credit score for years after college.

They are just starting their credit history. Many credit cards will offer them high interest rates and hard-to-meet terms. Explain to them how interest works and that making minimum payments each month prolongs the payoff making it much more expensive than the initial cost of the items.

Credit cards can help them build their credit history and improve their credit scores, if used wisely.

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.

Setting your financial priorities

This was originally published on Monday, January 30, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

If you are like most Americans, you have debt to pay off, an emergency fund to build up, and a retirement for which to save. Many people find their budget is quite tight because their monthly debt payments are closer to 20 percent to 25 percent of their net income, versus the recommended 5 percent to 15 percent.

So what should you do?

There has been a long debate between financial experts on whether to pay down debt first or start a savings account. On one hand, paying down high interest rates is simple math. Most interest rates on loans and credit cards far exceed the interest you earn on a savings account. If your interest rate is higher on your debt than the interest you earn on your savings, you are basically losing money. On the other hand, if you don’t save and don’t have an emergency fund, you may be forced to take a loan later, which causes you to take on more debt.

The answer isn’t simple and is based on your individual situation. These are some general guidelines to consider when setting your priorities.

  • Emergency savings. At the minimum, you should put at least $1,000 in savings for a rainy day. Keep it in a savings account and use it only for genuine emergencies. A genuine emergency is a something you may not expect to happen and usually takes you by surprise — a home/car repair, health emergency, loss of a job, etc. Continuously add any amount you can to this account.
  • Max and match your employer’s retirement plan. Start putting money into your retirement account. It is imperative to max out contributions for those closer to retirement. Don’t take money out of your account until you are ready to retire. You can use a retirement calculator online to see if what you have saved is in line with what you should have saved. If not, start saving more. If you receive a raise, start saving that percentage toward your retirement.
  • Start paying off debt. Start with the debt with the smallest balance. Continue to pay on the larger debts. Once the balance on the smaller debt is paid off, put the amount you were paying on the previous debt and add that to the next debt with the smallest amount. Continue this pattern until you are debt free.  If you have a home and that is the largest debt you owe, move all the payments you would have been paying on those smaller loans and apply them to your mortgage. Be sure additional payments go to reduce the principle. The interest is based on the amount of the principle; lower the principle, lower the interest paid.
  • Save for college. If you have a student getting ready for college, you may feel obliged to start saving. Although it is commendable, as much as we want to help it may not be possible. Your student has many opportunities to apply for grants or scholarships, you have daily bills, savings and one retirement in which to save.

Check with your employer to see if they offer scholarships for children of employees. If you have a sizable savings, have paid off most of your debt and are on track to retire, then helping your child get an education is possible. Otherwise, stick to your financial goals.

Just like any other financial advice that I offer, what you do is based on your specific situation. What works for one household may not work for another. What matters the most is you achieve your financial goals.

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

Financial tips for your college-bound child

This was originally published on Monday, Ju;y 4 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: My son recently graduated from high school and will be attending college stateside. We will be giving him a credit card and a debit card. Do you have any financial tips I can send with him?

Congratulations on your son’s graduation! College years can define what your son’s financial future will look like. It is in these years that spending habits are formed and debt can easily start to stack up. Talk to your son about how money, debt and credit work. These tips are good for all that are heading out into the real world.

  • Create a budget. Sit down with your graduate and create a budget. Include how much you will be giving them monthly. Include expenses such as rent/dorm expenses, food, laundry, household needs, school necessities, and of course a little for entertainment.  If your child learns how to stay on a budget now, it will be much easier once he or she graduates from college.
  • Debt. If you are sending your graduate to school with a credit card, add that to their budget as well. Teach your graduate about interest charges associated with a credit card and how it is important that the credit card be paid off in full each month. If they pay off just the minimum amount required, they could be paying off a $500 expense over several years.  Instruct them that the credit card is to be used only for emergencies.
  • Savings. Now is a good time to start saving. They are still independent but still under your care. They may be frugal enough to build up a savings that they can use once they are out of college. If they are getting a job while going to school, encourage them to invest in the company’s retirement fund. Teach them how, unlike debt, compound interest in savings can make you rich.
  • Track spending. Today’s technology makes this easier than ever to track what they spend. There are free apps that can be downloaded to their phones or tablets to help them keep real-time budgets. They need to understand where their money goes and make adjustments as necessary.
  • Wants versus needs. Explain the differences between wants and needs. Wants are what they would like versus needs, which keep them alive and sheltered. It is fine to have wants if they are budgeted. Teach them to be selective on their wants. Let’s say they want a pair of shoes. It’s fine to purchase a better quality of shoes that will last longer.  Alcohol, high phone bills, and other quick-to-use services/items bring little to no return on the investment.  It is fun while it lasts, but once it’s gone you can’t resell it.
  • Money versus card. Swiping a credit or debit card is much easier than handing over cash. When they see money leaving their wallet, they can tangibly see the money leaving their possession. Unlike with a credit/debit card, the money is not seen until it is viewed in a statement. It is easier to stay on budget with cash than with a card.

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

Kids’ college dreams can be achieved

This was originally published on Monday, February 9, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

As parents we inherently want the best for our children. We can’t help but beam with joy when our kids express that college is an educational goal. Then the overwhelming stress of paying the bill is realized. Rest assured newly graduated high school students can find many strategies to aide them with college tuition.

• Apprenticeships: Large companies, state and federal governments offer high school graduates the opportunity to gain on-the-job training and related classroom instruction. Usually after a few years of training and education they are promoted within the organization.

• Training corps: In exchange for community service, some training corps will pay a majority if not all of a college student’s tuition. Some of these programs are Health Services Corps, Peace Corps, AmeriCorps and the Reserve Officers’ Training Corps (ROTC). Some organizations will even give a stipend to supplement living costs while attending college.

• Technical schools: Perhaps your child’s goal is to be a software program designer. They don’t necessarily have to go to a four-year traditional college. Instead, they can attend a school that specializes in that occupation. Specialty colleges are becoming more popular because it takes less time to earn your degree, therefore costing less to obtain a degree or certificate. Most technical schools offer tuition assistance and can even help secure a job after graduation.

• College assistance: Some colleges offer tuition assistance or scholarships to aide in paying tuition. You also may look into work/study programs on campus. My nephew is in a work/study program, which helps with his day-to-day costs while away at college. Some businesses on campus look to hire students. Students can also work for the school as teacher assistants’ or lab/research technicians. It is also common that if a student performs well and is placed on the Dean’s List or President’s List the school will offer a discount for the next semester.

• GI Bill: If you are a veteran you may be entitled to education benefits through the GI Bill. Depending which GI plan you have you may be able to transfer money to your dependents, including your spouse, to attend college. Go to www.gibill.va.gov to learn more about your GI Bill benefits.

• Military benefits: If you are military and retire in certain states, your children may be able to attend a state college or university at a discounted or free tuition.

• Employer: Some jobs offer a scholarship or grant to children of employees. Your human resources department should be able to assist you.

Sometimes going to the college of their choice may not be an option. Be upfront with your child about the costs of college. They may have to go to a community college or local university instead of leaving island. Many college graduates get their core credits at home where costs are lower, then transfer colleges to finish off the credits for their majors. Research if the credits will transfer to the new school. Many colleges and universities have residential and non-residential tuitions. Non-residential tuition can be quite a bit more expensive. Living in that state to meet the residential requirements before going to college will help lower costs as well.

Going abroad to study also may be an alternative to high college costs. Besides education, your child has the opportunity to learn about another culture and make lifelong memories.

Unless you have planned to include college tuition in your nest egg or 401K, don’t dip into your retirement fund. There are lots of opportunities for your child to go to school; do not put your retirement in jeopardy.

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.

Consider your possible tax deductions for 2013

This was originally published on Monday, February 10, 2014, in the Pacific Daily News.  Click here to subscribe to the PDN.

Getting started on your taxes is always overwhelming, but once you collect and organize the necessary documents and decide if you will be itemizing or taking the standard deduction, then you are halfway there.

The next step is to start thinking about any major life changes that you experienced during 2013. Did you get married or divorced? Did you have a baby? Retired or start a new job? Did you or a family member start college? Or did you buy or sell a house?

The Internal Revenue Service, IRS, usually has a tax break or payment associated with major life moments.

Here are some deductions to think about:

• Extra income/winnings. When filling your taxes, you must include not just your wages, tips or interest you made on bank or stocks, you may have to report other types of miscellaneous income as well. If you won a prize through a raffle, contest, drawing or an award, the cash value of the prize is taxable. Also, the winnings from poker tournaments, lotteries, bingo and other gambling income must be taxed.

• Other income, such as child support, inheritance, welfare benefits or gifts are usually tax-free.

• Court. If you appeared in court and are instructed to pay for punitive damages, this most likely will be taxable. On the other hand, if you were awarded money or won a settlement for personal injury or sickness, you most likely will not have to pay taxes on them.

• IRAs. Also if you took money out of an IRA, you most likely will have to pay taxes. Money taken out of a Roth IRA is usually tax-free. Although your IRA contributions must be deducted from your paycheck before the end of 2013, you can still make contributions to your IRA through April 15, 2014, and it will count on your 2013 tax return.

For more information on whether you are to pay taxes on your extra income, go to the IRS website, www.irs.gov, and download IRS Publication 525, Taxable and Nontaxable Income.

• College. If you or your child(ren) attended college in 2013, you may get up to $2,500 from the American Opportunity Tax Credit or up to $2,000 from the Lifetime Learning Credit. Most universities or colleges will send you Form 1098-T. Note that you can only report the amounts that you actually paid in education expenses throughout 2013. To help you, go to the IRS website and find the Interactive Tax Assistant for step-by-step assistance.

• Social Security. If your only income during 2013 was your Social Security benefits, your payments are not taxable. If you had other income during 2013, you may have to include your Social Security payments as income.

Taxable benefits

According to the IRS, here is how you decide if your benefits are taxable:

• Take one half of your Social Security payments you received during the year and add it to your other income(s) such as pensions, wages, interest, dividends and capital gains. If you are married and filing jointly, perform the same calculations for you and your spouse’s income using one half of both of your incomes and adding it to your other incomes.

• If you are single and your total comes to more than $25,000, then your benefits may be taxable.

• If you are married and filing jointly and your sum is more than $32,000, your benefits may be taxable.

• If you are married and filing separately, your Social Security payments may be taxable no matter what the sum is.

To learn more if your Social Security payments are taxable, use Publication 915.

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.