FAMILY FINANCE

By Erin Serrate

 

How To Create A Budget You Will Actually Follow

 

We have all done it. We set a goal and get off to an ambitious and determined start. Then life happens or the excitement wears off and we begin to lose focus on why we set the goal in the first place. While all goals are important, setting and following through on your financial goals can have a lasting impact on your future. This starts with creating a budget, one you can actually follow.

The first step is to figure out exactly how much money you bring home each month, your net pay. Stick with your base pay and don’t include any overtime or bonuses. Those aren’t guaranteed and your budget should be reflective of that. Next, make a list of all “must pay” expenses. Include rent/mortgage payments, child care, estimated monthly utilities, insurance, estimated grocery costs, and other loan payments. Now compare the two. How much money is left after you pay these expenses? If your monthly expenses are greater than your income, it is time to evaluate the situation you are in and make changes. This can lead to tough decisions but your financial position is not sustainable in this scenario. The amount of income left after your expenses is your disposable income, what you can spend or use for other things.

Just because we call it disposable income, doesn’t mean you should throw it away. The first thing you should do is determine how much of that you can save or pay down debt with. This will only lead to greater financial strength in the future. Now, set yourself an allowance with the remainder. Determine how much you are going to limit yourself to spending on fast food, shopping, splurges and hobbies. Consider opening a separate account for “must pay” expenses and keep your allowance or disposable spending funds separate. This allows you to be aware of how much and what you are spending your money on to make necessary adjustments. Awareness is key. If you stay aware and avoid impulse spending, stop and think before swiping, budgets aren’t so hard to follow. Just do your homework.

Education 101

It is no secret that paying for a college education today is expensive. Although tuition increases in recent years have slowed their pace a bit, they still continue their steady upward march. So what options are there for those looking to save for future college expenses?  Here are 3 possible solutions.

529 Plans

These have become one of the most popular savings vehicles for college.  They allow for tax-deferred growth and earnings are tax-free if used for qualified educational expenses.  There’s a lot of flexibility with these plans.  You can change the beneficiary and cover things outside tuition like books and computers.  You can also take out an amount equal to any scholarship without incurring penalties.  Contribution limits are set at $15,000 a year per person in 2018, with a lump sum option of up to 5 times that amount.  Some of the drawbacks are limited investment options, and a 10% penalty and taxes on earnings if not used for educational expenses.  Additionally, as of January 1st,up to $10,000 a year can be used for elementary and secondary expenses.  While this allows for more flexibility, if the funds are used too early, the benefits of tax deferral are greatly diminished, so it is still most valuable as a college expense solution.

UGMA/UTMA

These accounts allow for the transfer of assets to a minor without the cost to draft a trust.  While these accounts allow for great flexibility in investment options and payouts, they are also a permanent gift to the child.  In Kentucky, that at 18 these funds legally belong to the child.  Because of this, many people give pause to contributing large amounts.  Also, as of January 1st of this year, income will be taxed at the trust tax rate, meaning the 37% tax bracket is reached at just $12,500 of income.

Educational Trust

This is probably the most underutilized solution for education planning.  While there is an initial expense incurred to draft the document, there is an immense amount of benefits.  Unlimited investment options, personalization to meet a family’s needs, ability to keep the money in trust or have payouts at defined ages, and even protection from creditors or foolish spending habits.  For families looking for a customized solution, this is the best option.

 

 

 

 



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