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Cutting the Financial Cord: Adult Children

Cutting the financial cord with adult children can be a very hard thing to do, and most people put in this situation don’t have a good answer on how to make the situation better.   There are now three generations that find themselves providing some sort of financial aid to their adult children. The silent generation, the baby boomers and now Generation X have all managed to find themselves in similar situations. What started as lack of job market, generosity or by simply “helping out” as the generation prior had, these generations are offering loans, giving cash or paying bills to their adult children at record levels. It is no secret that unless these situations are managed properly, it can create a big hole in their finances, even jeopardizing their retirement. A July 2014 survey by the Boston nonprofit American Consumer Credit Counseling found that a higher proportion of U.S. households (1 in 3) provide financial assistance to adult children than support for elderly parents (1 in 5).   This is putting a huge wrench into retirement savings,” says Pamela Villarreal, a senior fellow with the National Center for Policy Analysis in Dallas. “The more boomers put out for adult kids, the less they can put aside for themselves.” As a result, some older adults are going back to work, reducing their own living expenses or even declaring bankruptcy.   What can help for parents who want to help out their adult children is to determine if the money that they are giving is going to fix the problem or merely delaying the inevitable. “Loaning money works well,’ says Kathleen Gurney, who runs the Financial Psychology Corporation, “If the process is objective and well planned.”   Here’s a look at three ways parents can financially assist their children in the area of home ownership:  
  • Gifting a down payment. This allows a borrower to use money that has been gifted as a down payment. A married couple can each give $14,000 to a child and the child’s spouse, for a maximum of $56,000 in four separate gift checks.
 
  • Offering a family loan. Giving a loan to a family member is a winning combination, as the parents would get more interest from the loan then they would from a typical Certificate of Deposit, and the child would be able to get a lower interest rate then they would from a bank. Also a borrower whose offer is not contingent on obtaining financing could realistically offer the seller a quicker closing, which could be a huge advantage in such a competitive sellers’ market.
 
  • Cosigning the mortgage.If an adult child’s income is too low to qualify for a mortgage on the home they want, a parent can cosign on the mortgage. One thing to remember however, is that this will show up on your credit as an outstanding obligation, which could complicate matters if the cosigner wanted to refinance or buy another home.
  Helping grown children with financial obstacles can be a very positive thing in the right circumstances. Take to your financial advisor before you commit to any major or long term financial lending situation to make sure you can comfortably afford to help without jeopardizing your financial security. If you don’t have a financial advisor and would like more information, Midwest Wealth Management can help. Visit us at www.midwest-wealth.com, or call 317-288-4989.     Hymowitz, Carol. Parents are risking their retirement to subsidize their kids. Bloomberg Businessweek. 5, Mar. 2015. http://www.bloomberg.com/news/articles/2015-03-05/parents-risk-retirement-to-support-millennial-kids   Gustke, Constance. Reopening the Bank of Mom and Dad, to Help Adult Children. The New York Times. 9, Oct. 2015. http://www.nytimes.com/2015/10/10/your-money/financial-assistance-to-adult-children.html?_r=0
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Life after College: Discussing Finances with your College Graduate

Many of our client’s children and grandchildren are beginning to graduate college, and they could not be happier. After all the trials and tribulations that come with being a parent, this is one of the truly rewarding experiences. It is after this walk across the stage that clients start to experience a mix of emotions: their children permanently leave home, tuition payments cease and they become a spectator to the decisions that lie ahead.   This often times becomes an unfortunate scenario, because as parents you still have so much to offer. Being able to draw from your own personal experiences and mistakes you or your peers made are very valuable experiences to share as your children begin to enter the “real world.” As much as future generations love to argue that things are not the same as they use to be, many of the same actions happen on a very similar timeline (Ages 22-32). Regardless of what decade you were born in, these things have almost remained a constant:   o Beginning of Career (First, Second, Third Job) o Apartment Rental or Home Purchase o Wedding Funding & Marriage expenses o Children   These all become major events in the path towards adulthood and ultimately a successful future, but the one theme we as wealth managers point to is that they all have a big impact on your financial future. Done incorrectly or at an inopportune time, the effects can be lasting and ultimately alter lifestyle and retirement choices.   As clients would continue to voice their frustration with the lack of fiscal direction their children had or the inability to communicate with them on these subject matters, we saw it as a great opportunity to help be in intermediary in this area. The parents have trusted us with the family’s wealth and wanted the same level of support and fiscal education for their children- So we built a program helped to bridge this gap, knows as the YP Access Program.   The YP Access Program helps young investors establish a trusting, working relationship well before the discussions of investing for retirement happen. This is done by giving personalized planning advice, asset allocation, risk assessment and industry insight that many high-end professionals, entrepreneurs, and foundations have leveraged for years. Below are some of the best practices we have been able to assist clients with:   Emergency Fund– We normally recommend 3-6 months living expenses, set aside immediately. This is the first opportunity to prove independence, you do not want to have it short lived by not being prepared for life’s often unexpected expenses.   Budgeting- With a new paycheck bi-weekly, recent graduates can get caught up in the idea of being able to immediately replenish funds. Understand what your fixed overhead expenses and create your budget around that.   Savings- This is the most difficult conversation to have, because it is often tough for recent graduates to see the big picture. The first place we start is to make sure that contributions to an employer sponsor plan are being contributed at a minimum to what their employer will match. There is no other place that can guarantee you 100% return like the matching program in employer-sponsored plan.   Salary Negotiation- Just like in investing, the effect of compounding return can have a significant impact in regards to the salary at your job. Do not be afraid to ask early in your career (if warranted) for a raise. Employers expect this as part of the employer/employee relationship and one of the worst mistakes they can make it just settling for what the employer offers. Five or ten years down the road that 7% raise could be worth much more had it been compounded off of earlier incremental salary raises.   “Hedonic Treadmill”– This is a theory that states regardless of any major positive or negative events, we quickly return to the same level of happiness. The danger here is that the more we have, the more our expectations rise and temptation to splurge or expectations can rise. Young professionals need to realize that many of benefits their parents enjoy are not going to come immediately and it is a process to get to that point.   About Midwest Wealth Management, Inc.   Midwest Wealth Management, Inc. was formed by Greg Shields, a 30-year financial services veteran to offer sophisticated investors an alternative when looking for a more strategic path for long-term investing. As a private investment group, Midwest Wealth Management, Inc. offers a proprietary trading platform, alternative investment offerings and dedicated advisory support for a select audience. For more information, please visit www.midwest-wealth.com
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From Indianapolis to Irvine: everyone, everywhere should have a budget.

Here’s a surprising, but not encouraging fact: Americans, whether they are from the Midwest in Indianapolis or out west in Irvine, aren’t very good at saving. How many of us have $1,000 in the bank? Only about 30 percent. And almost half of us couldn’t even cover a $400 emergency.   This lack of saving is even more concerning when you think about the costs of raising a family. In 2013, according to the U.S. Department of Agriculture, raising a child born in 2013 to the age of 18 will cost you just over $245,000. And that cost is before you take into consideration family vacations, college funding, and other “extras.” Multiply that by two, three or four, and you’re running a million-dollar household.   Thankfully, there are steps you can take to effectively take control of your finances, and that is by using a budget. Even with this straightforward strategy, a recent study by U.S. Bank shows only 41% of Americans are using one.   No matter where you stand financially, a budget should be a priority. Having a budget will help you determine how much you’re spending. And when you line the numbers up, they won’t lie. You know where your income is going, and what things you can cut back on to free up some finances and help reprioritize your saving power.   When you do build your budget, make sure to account for every dollar you make and make sure you cover the necessities first. (After all, do you really need that grande latte?). It also helps to use some budgeting software. There are a lot of options to choose from, and you don’t necessarily need a program with all the bells and whistles to accomplish your goals.   One more thing to remember: Budgeting is an ongoing process. Your expenses will probably go up and down over time, so don’t assume that the budget you make today is going to be the exact one you follow a year from now. Keep aware of little changes in your expenses, (gas prices going up, did you account for that?) and act accordingly.   If you would like to learn more about budgeting and how it affects your wealth management strategy, we invite you to learn more at www.midwest-wealth.com or call us at 877-243-2132.

 

References: Are Your Kids Ruining Your Retirement Plans? US News. 12, May 2016. Backman, Maurie. Nearly 3 in 5 Americans are making this huge financial mistake. CNN Money, 3, Oct. 2016. Gordon, Whitson. Top 10 Tricks for Building the Perfect Budget.

 

About Midwest Wealth Management, Inc. Midwest Wealth Management, Inc. was formed by Greg Shields, a 30-year financial services veteran committed to offering sophisticated investors an alternative when looking for a more strategic path for long-term investing. As a private investment group, Midwest Wealth Management, Inc. offers a proprietary trading platform, alternative investment offerings and dedicated advisory support for a select audience. For more information, please visit www.midwest-wealth.com.
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Worth the price Indiana? The true cost of pet ownership.

There are plenty of items Indiana residents need to keep in mind when figuring out their budget, but what might get missed is the true cost of pet ownership. Especially for a dog, lifetime ownership costs can vary greatly based on a number of factors, including the size, breed (and typical health concerns associated with that particular breed) overall health and where the pet lives — big city vs. small town.   One thing is for sure: no matter what size or type, Americans love their pets. And the money spent on them shows it. The American Pet Products Association concluded that total U.S. pet industry expenditures were $60.28 billion for 2015, and 2016 figures are estimated to be $62.75 billion. Kiplinger recently published an article that estimates that in the first year alone, you will spend between $700 and $2,000 on your new furry friend, and that is not taking into account any special extras like dog walking, pet insurance or grooming.   So assuming you have a pretty healthy dog or cat and you stay on the conservative side of things, here is a quick estimated breakdown of the average first year costs (according to the ASPCA) of pet ownership for one medium-sized dog or cat: pet ownership Bulk food or fancy food? Cat or dog sitting? These could all affect costs, and with so many variables to consider, it might be a good idea to get that pet insurance, especially if you have a breed that is prone to health issues. “Owners will likely incur at least one $2,000 – $4,000 bill for emergency care at some point during their pet’s lifetime”, says Dr. Louise Murray, vice-president of the ASPCA’s Bergh Memorial Animal Hospital, in New York City.   And that brings us to one final word of caution: Don’t mistake your own emergency fund as a go-to source for dipping into if you want to pay for pet expenses. Money you are saving for your own emergencies should be used for that not pet emergencies, so make sure you set some money aside for the non-human member of your family.   More questions about budgeting or more complex financial strategies? We can help. Visit Midwest Wealth Management at www.midwest-wealth.com, or call us at 877-243-4132.   Resources: Weliver, David. The Annual Cost of Pet Ownership: Can You Afford A Furry Friend? Money Under 30. 1, Sept. 2014. http://www.moneyunder30.com/the-true-cost-of-pet-ownership Lilly, Amanda. 9 Costs Every Dog Owner Should Budget for. Kiplinger. Sept. 2011. http://www.kiplinger.com/slideshow/spending/T063-S001-9-costs-every-dog-owner-should-budget-for/index.html  
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Adult Children and Money. How to help them without financially hurting you.

Cutting the financial cord with adult children can be a very hard thing to do, and most people put in this situation don’t have a good answer on how to make the situation better. Even though they are helping their adult children by offering loans, giving cash or paying bills, this generosity can blows a big hole in their finances, even jeopardizing their retirement. A July 2014 survey by the Boston nonprofit American Consumer Credit Counseling found that a higher proportion of U.S. households (1 in 3) provide financial assistance to adult children than support for elderly parents (1 in 5). “

 

This is putting a huge wrench into retirement savings,” says Pamela Villarreal, a senior fellow with the National Center for Policy Analysis in Dallas. “The more boomers put out for adult kids, the less they can put aside for themselves.” As a result, some older adults are going back to work, reducing their own living expenses or even declaring bankruptcy.

 

What can help for parents who want to help out their adult children is to determine if the money that they are giving is going to fix the problem or merely delaying the inevitable. “Loaning money works well,’ says Kathleen Gurney, who runs the Financial Psychology Corporation, “If the process is objective and well planned.”

 

Here's a look at three ways parents can financially assist their children in the area of home ownership:

 

  • Gifting a down payment. This allows a borrower to use money that has been gifted as a down payment. A married couple can each give $14,000 to a child and the child’s spouse, for a maximum of $56,000 in four separate gift checks.
  •  

  • Offering a family loan. Giving a loan to a family member is a winning combination, as the parents would get more interest from the loan then they would from a typical Certificate of Deposit, and the child would be able to get a lower interest rate then they would from a bank. Also a borrower whose offer is not contingent on obtaining financing could realistically offer the seller a quicker closing, which could be a huge advantage in such a competitive sellers’ market.

     

    .
  • Cosigning the mortgage. If an adult child's income is too low to qualify for a mortgage on the home they want, a parent can cosign on the mortgage. One thing to remember however, is that this will show up on your credit as an outstanding obligation, which could complicate matters if the cosigner wanted to refinance or buy another home.
  Helping grown children with financial obstacles can be a very positive thing in the right circumstances. Take to your financial advisor before you commit to any major or long term financial lending situation to make sure you can comfortably afford to help without jeopardizing your financial security. If you don’t have a financial advisor and would like more information, Midwest Wealth Management can help. Visit us at www.midwest-wealth.com, or call 317-288-4989.

 

  Hymowitz, Carol. Parents are risking their retirement to subsidize their kids. Bloomberg Businessweek. 5, Mar. 2015. http://www.bloomberg.com/news/articles/2015-03-05/parents-risk-retirement-to-support-millennial-kids

 

Gustke, Constance. Reopening the Bank of Mom and Dad, to Help Adult Children. The New York Times. 9, Oct. 2015. http://www.nytimes.com/2015/10/10/your-money/financial-assistance-to-adult-children.html?_r=0  
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Utilizing technology and finance: budgeting in Indianapolis has never been so easy.

Before the marriage of technology and finance, many families in Indianapolis knew that maintaining a budget on paper wasn’t an easy task. Over-sized ledger books, somewhat legible writing and stacks of statements were all part of this unwieldly process. But as one page in a ledger book closes, another one opens. In this case, there are now apps that can help you easily set a budget and log your expenses on the go, so you can tell just how far your money will go.   There are budgeting and personal finance apps for adults, as well as apps that can help parents talk and teach their children about money. Starting with the grownups, here are a few favorites according to Tom’s Guide:   1. Mint.com Personal Finance. (Android, iOS). Allows in-depth personal budget management and expense logging and lets you sync your bank and card details for an up-to-date and secure look at your financial state.   2. Expensify. (Android, iOS.) If you are a business traveler, you’ll love this handy app that allows you to manually track expenses, photolog receipts and import purchase info from your credit card for eReceipts.   3. IOU Debt Manager. (Android, iOS). Now you can keep track of who owes you what or what you owe other people.   4. PocketGuard (Android, iOS). This all-in-one bank account tracking and budget management app shows you how much is in your account and what you can afford to spend for the day.   5. Home Budget with Sync (Android, iOS). Includes a neat Family Sharing feature that allows users to easily set a budget, and then sync income and expenses between multiple devices. Also contains charts and infographics.   Most adults appreciate using a convenient app to help with their finances, but it is a different story when it comes to their children. A survey by T. Rowe Price found that about 3 in 4 parents admitted to not being honest with their children about money, including how it affected their own personal finances. Even so, “the best way for children to learn finance skills is to handle real money,” says Nancy Phillips, author and financial blogger of Zela Wela Kids.   To get your kids used to the idea of handling money, there are apps that help them learn money skills. To learn more, go to: www.tinyurl.com/kidmoneyapps. You find seven different apps that use a smartphone to teach your children savings and budgeting lessons developed for different ages, from 5and 6-up to 13 and up. For more information and financial tips, visit Midwest Wealth Management at www.midwest-wealth.com, or call us at 317-288-4989.   Corpuz, John. 10 Best Budgeting and Personal Finance Apps. tom’s guide. 28, Apr. 2016. http://www.tomsguide.com/us/pictures-story/548-best-budget-expense-apps.html   Palmer, Kimberly. Parents: Stop Being So Awkward With Money. U.S. News & World Report.11, Apr. 2012 http://money.usnews.com/money/personal-finance/articles/2012/04/11/parents-stop-being-so-awkward-with-money
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529 college savings plan misconception’s every grandparent needs to know.

Grandparents are often the first to help new children prepare for the high cost of college tuition by opening some sort of savings vehicle in their name. A popular choice as of late has been tax-advantaged state-run 529 plans. These savings plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.   When utilizing these plans, what many grandparents may not understand is that if your grandchildren live in Indiana and you are in Florida, you do not have to use an Indiana’s 529 plan. Out of state, in-state or private colleges do not play a factor in starting a 529 or choosing a state’s plan. You are more than welcome to use any state’s 529 plan. In fact, 34 states currently offer residents a full or partial tax deduction or credit for plan contributions. The contributor can make their decisions based on tax credits, fees, asset allocation or historical performance, and these decisions are usually determined with the advice of the contributor’s financial advisor.   And a 529 plan offers many other benefits any grandparent can appreciate: For one, they can be assured the money they are giving their grandchildren will be used for its intended purpose. Savings in a 529 account must be spent on qualified education expenses such as tuition, books and some room and board to avoid incurring income taxes and a 10% penalty on the earnings portion of the withdrawal.   It also does not matter if one recipient has multiple accounts set up because the tax advantages will be the same. Earnings in 529 plans are not subject to federal tax, and in most cases, state tax, so they will grow tax-free as long as you use withdrawals for eligible college expenses, such as those listed above. If one grandchild does not use up all the funds you have provided, you can change the beneficiary to another grandchild without any tax implications.   These 529 plans are a great way for a grandparent to help out their grandchildren (and their own children) manage the high costs associated with college. To learn more about these and more college savings opportunities, visit us at midwest-wealth.com or call us at 317-288-4989. The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that a college-funding goal will be met. In order to be federally tax-free, earnings must be used to pay for qualified higher education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10-percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.     An introduction to 529 plans. U.S. Securities and Exchange Commission. http://www.sec.gov/investor/pubs/intro529.htm   Flynn, Kathryn. Eight Reasons why Grandparents love 529 plans.savingforcollege.com. 16, July.2015 http://www.savingforcollege.com/articles/eight-reasons-why-grandparents-love-529-plans-671 Name the top 7 benefits of 529 plans. savingforcollege.com http://www.savingforcollege.com/intro_to_529s/name-the-top-7-benefits-of-529-plans.php   728x90MW
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Purchasing a Vacation Home. Good Idea?

February is the month we receive the most calls from our clients inquiring about the potential purchase of a vacation home. Most have just spent time on the beaches of Hawaii, slopes of Colorado, or in the desert air of Arizona and now they are enthralled with the idea of purchasing property in these locations. If you or your loved ones have found yourself discussing this exact thought, here are some issues to consider when discussing if a purchase is right for you.   Why are you buying?   Before buying a home, we encourage clients to really consider their motives. Are they purchasing it for family retreats? Are they purchasing it with the intent of moving post retirement? Or are they purchasing it just for the status symbol?   For those that intend to use a vacation home as their principal residence once they retire, please consider the following: medical care facilities, proximity to children and grandchildren in retirement years, and the estate taxes accessed by the estate.  Purchasers also look at this as a potential investment opportunity, with the ability to receive rental income and price appreciation to potentially offset other expenses. Online vacation rental sites have made it easier than ever for owners to rent out their properties:   • Airbnb.com • Homeaway.com • TripAdvisor.com/vacationrentals   Where should you buy?   Current hotspots for vacation home purchases have included Florida, Colorado and Arizona. The specific area has greatly differed as some enjoy being away from the busy main areas and being able to relax with family. Others have loved the resort areas that makes enticing friends and family to visit much easier, as well as subsidizing rental income. With 34% of all vacation homes being more than 500 miles away, a major factor to consider is travel costs associated with the new location. This has caused some buyers to underutilize their purchase and not get the number of family visits they initially anticipated.   A good way to research potential markets is leveraging the depth of information the internet can provide. Clients have utilized tools like:  
  • Zillow.com: Ability to search by location and price
  • Realtor.com: Involves real estate agents, connected with National Association of Realtors (NAR)
  Although these tools can be great for the information gathering stage, we highly encourage clients to visit multiple times to learn the area trends and locals before making any final decisions.   How much can you afford?   The median purchase price for vacation homes in 2013 was $168,700, with prices actually rising 12.5% during the year. On average buyers were making a 30% down payment and taking advantage of historically low-interest rates1. If you plan on renting the property, most banks charge a higher interest rate than a typical mortgage on a personal residence.  This step is where we highly encourage everyone to consult with their financial professionals. It is important to bring all parties involved in your financial planning together to ensure prudent and accurate advice is given.   What unusual ownerships costs will you incur?   Property Insurance: Insurance for location-specific risk: Sinkholes, hurricanes, wind and flood Property Taxes: Can vary substantially depending on where the property is located. Look up homes previous tax history before making an offer Homeowners Association (HOA) dues: Dues for pools, guard houses, golf courses, health facilities and general maintenance.   Potential Tax Issues   We also advise clients to consult with their tax professionals when making this important decision. Issues can arise when seeking rental income from the property you have purchased, as there are very specific income tax laws regarding the rental of vacation homes. Those rules go well beyond the scope in which we could cover in an article.  Each state also has varying laws regarding taxes on estate issues and income. These can be important factors when considering the timing of your move and the amount of time spent at your new property.  Having residences in multiple states can also cause complex estate issues. The type of ownership can be critical in ensuring that estate expenses upon death are minimized.   1 Association of Realtors Survey, 2013.
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