Spring cleaning:
When is it time to sweep up financial records?

Determining which financial records or family documents to keep can be an intimidating task. While it’s tempting to keep everything “just in case,” there is no need to fill a closet with years’ worth of monthly credit card and bank statements.

Documents like tax returns, paid-off loan certificates and titles, on the other hand, should be kept longer
and stored appropriately. Refer to the box on page 2 for a sample of documents and suggested guidelines on how long to keep them.

Safely store important documents

Another key consideration is where you store the most critical documents – the ones you don’t toss and the ones that are too special for an ordinary file drawer. These include items like property deeds, trust documents, automobile titles, wills and estate plans, as well as marriage and birth certificates. Such records should be kept safe and secure, but easily accessible in a time of need.

The best alternatives are a rated home safe designed to withstand fire and floods or a safe deposit box at a neighborhood bank branch. If you opt for a safe deposit box, which can be rented for a small monthly fee, you may consider keeping photocopies of the vital records in your home and with your financial advisor so they can be easily accessed by both of you without a trip to the bank. In the event of an emergency, this will also allow a friend or family member to access the file if you aren’t available to do so. It’s also wise to entrust a family member with access to the safe deposit box in the event of an emergency.

Electronic storage

Do you use a financial software program and prefer to keep records electronically? That certainly keeps the clutter and filing to a minimum. Today, most bank statement debits and credits, credit card transactions and investment account details can be downloaded right into your financial software program. If you insist on a complete statement – but prefer electronic records as much as feasibly possible – most financial institutions offer paperless delivery, and you can save a PDF to your hard drive.

That brings us to a very important point. Back up all computerized records. While electronic records keep the mess to a minimum, if your computer has a meltdown, your financial picture will be lost. A small investment in a portable hard drive or, for less, a small flash drive is an excellent insurance plan and can give you peace of mind. An alternative to backing up your files and documents to a portable drive is cloud computing. In simple terms, you pay a fee to a third party to store your files for you. Reservations remain in the minds of some with respect to the privacy of your documents, but for those that choose cloud computing, they have the benefit of accessing their files anywhere and from any computer or handheld device.

Review records annually and schedule the same time every year. Start with the easy documents. For example, expired product warranties and insurance policies as well as closed credit card accounts should be the first to go. And whenever possible, hit the shredder and not the trash can, to protect against identity theft.

Setting goals:
Don’t ignore the monster in the closet

Setting financial goals for your family can feel like an overwhelming, and frankly scary, undertaking. Worse, though, is ignoring that monster in the closet until it’s too late to make a plan for your child’s education or your own retirement. So, you fall in love, get married and start a family. During this time, there are too many distractions for most families to sit down and map out a plan. After the dust settles, the worry of financial goals usually hits the to-do list. When this time comes, it’s important for you to be part of that process. And keep this in mind … establishing goals and a strategy will ease worry and stress about your future. You may need to adjust your goals along the way, but having a blueprint to start with will make things a lot easier.

Break it down into manageable parts

Take it one step at a time and consider the following guidelines when you sit down to talk with your financial advisor.

1) Establish a list of goals for the entire family. Do this together and write them down or incorporate into a financial software program.

2) Identify everything that may require a significant investment or expense: tuition, vacations, weddings, paying off debt, a second home, retirement plan and portfolio investments.

3) Break the goals down into different time horizons. What will you need to address in the next year versus the next 10, 15 and 20 years?

4) Be realistic. Identify reasonable financial goals based on your income and career objectives, not a laundry list of “dreams and wishes.”

5) Financial goals should also incorporate a safety reserve to help weather the burden of an unexpected event like the loss of a job or the need to care for a dependent parent.

6) Review and continuously adjust for life events that impact existing goals.

When disagreement hits

Through this process, couples often discover that while all seemed perfect at “I do,” their goals aren’t lining up with each other a few years down the road. This is particularly the case when it comes to retirement. In fact, studies show that 80% of couples disagree on at least one major aspect of their retirement planning. Differences include when and where to retire, how to handle expenses, and how much to leave for children and other family members. When this monster rears its ugly head, find areas you agree on first; then tackle the differences.

Communication is vital in every relationship, especially when it comes to something as important as establishing financial goals for your family. Like marriage, creating a plan requires trade-offs and adjustments. The earlier you discuss and negotiate, the better the chances of achieving a satisfying and fulfilling family life. Get started today and put that monster to bed.

It’s never too late to save for college tuition

Use tax-advantaged savings strategies to help pay for rising costs

Although it’s best to start the college investment process when your children are young, it’s never too late to start, particularly given the growing cost of tuition. According to The College Board, tuition is rising at rates higher than inflation. In the 2010-2011 academic year, the average tuition cost ran $119,000 per year for a private college and $33,000 per year for an in-state public university. In addition, these figures don’t include incremental costs like room and board, books, supplies, equipment and software.

With these costs in mind, any amount of savings helps and there are many tax-favorable plans available to help maximize your savings no matter when you start. When choosing a plan, consider the following:

• What are the tax benefits?
• Who controls the funds?
• How much risk is involved?
• Are there contribution limits?

Types of tax-favorable college savings strategies

One of the most popular tax-shelter vehicles is the 529 Savings Plan (529). Administered by a state government, a 529 invests in a combination of stocks and bonds and offers advantages like generous contribution limits, transferability of unused portions from child to child, and tax-free earnings when used for qualified education expenses. If considering a 529, be aware that portfolio allocations may only be made once a year or when the funds are transferred to another beneficiary.

A Prepaid 529 Plan varies from a traditional 529 in that it allows you to purchase a certain percentage of tuition over time that is guaranteed to be equivalent to the same percentage of tuition in the future. This is a great alternative to protect against rising tuition costs; however, unlike a regular 529 Savings Plan, earnings are taxed and school choices may not be as robust.

Although not designed to fund educational costs, UGMA/UTMA (Uniform Gifts/Transfers to Minors Act) custodial accounts are savings options that allow you to accumulate funds for a child without the higher costs associated with a traditional trust. Major benefits include lower taxes on earnings based on the child’s rate and no annual contribution limits. As a note, a custodial account is not a specific college savings plan, and therefore, you lose control of funds when a child reaches age of majority.

With the many college savings strategies available, it is critical to choose one that’s most appropriate for you. Selecting the wrong plan – or not investing properly within the right one – can prohibit you from maximizing your savings. With the help of a financial advisor, choosing the right alternative can be easy.

College financial aid and savings plan scams are on the rise

Don’t pay to find programs

As a rule of thumb, if you have to give money to receive college aid, a scholarship or to invest in savings plans, it’s most likely a scam. The majority of legitimate financial programs don’t even require an application fee. And if they do, it’s generally modest or often waived.

If you or a family member is in search of financial aid or scholarships to help with tuition costs, you don’t need to pay a private financial aid services firm to help. Chances are, you’ll pay more for the service than the actual support received or never receive any advice at all. Instead, turn to free resources like the U.S. Department of Education’s web site, a college or career school financial aid office, high school counselor or public library.

If a college savings plan is for you, be on the lookout for “insurance salesmen” who market themselves as college and financial aid experts that are interested in selling you an annuity rather than getting you into a more appropriate 529 College Savings Plan. In fact, insurance companies and brokerage firms often offer free financial aid seminars that are actually sales pitches for insurance, annuity and investment products. It is a violation of federal regulations and state insurance laws to require purchasing a product as a prerequisite for student aid.