Reaching the Summit

I survived the 11 day trek at Philmont with my son Jimmy and even managed to climb Mount Baldy. It rained on us 10 of the 11 days, as is typical for the monsoon season in the mountains of New Mexico. A couple of us had a short bout with a stomach issue, one scout had the worst case of blisters I’ve ever seen, I had to buy brand new boots the very day of our departure on the trail (another story), and I lost 10 pounds over the 14 days I was gone. It was great!

Why do I mention this? One reason is the what is learned during a 11 day trek. It is not about getting to the day’s destination first or the fastest. It is about reaching the day’s goal as a crew, while working to provide for each others’ basic needs of shelter and food in a safe environment. (Yes, we saw bears and signs of mountain lions. Our sister crew came across a five foot diamond-back rattlesnake. With proper behavior, however, the biggest threats to life are lightning, exhaustion, and dehydration.) In the process, leadership is developed, boys and a few girls (in Venture clubs) evolve ever closer to being men and women, and everyone overcomes challenges - personality clashes, personal physical limits, or an ego that can’t let go fast enough. One lesson rings true: “Slow and steady wins the race”.

Most of the readers of the Financial Tip are college and high school students and it is the time of year that student are beginning a “trek” into the wilderness of another school year. Being successful in this trek requires financial resources, particularly for college students. Remember that tuition, while expensive, is providing an investment in the student that has an average financial return much greater than most investments in the market. (Of course, the one in whom the investment is being made must work hard to assure that the investment is blue-chip and not simply a parental paid expenditure allowing a four year (or five or six year) membership to Country-Club U!) So, what are the sources we can use to pay for college?

Personal Savings – If one has had the foresight to save for college expenses, use it. We won’t go into the preferred ways to save for college in this “Tip” but it is sufficient to say that the return on liquid accounts in today’s markets is much less than the expected return on a quality education; whether it be college or a technical school.

Work – Make sure you fill out a Free Application for Federal Student Aid (FAFSA) form. You might be eligible for work-study programs at your school or, perhaps, a subsidized student loan that does not accrue interest, until you are no longer in school. Besides, the FAFSA form has gotten much easier to complete and I am shocked by the number of eligible students that don’t bother to contact their financial aid office to complete the task.

If you don’t qualify for work-study, look for off-campus employment. While working at a job that supports your academic interests is great, sometimes a job in sales, waiting tables, or providing child-care for a family can provide higher earnings. I recently talked with a talented student who made over $60,000 in one summer selling knives! (This is not typical. It is, however, clearly possible.)

Loans – First, of course, if you qualify for a subsidized student loan, exhaust it as a resource. Then, if you need additional money, look to private lenders. Be certain to understand the expected salary you will be able to earn with your degree, prior to borrowing a lot of money. I’ve seen too many MIZZOU journalism students that have borrowed their entire four year degree and they all can’t be the next Joe Kernen (CNBC’s Squawk Box) or Walter Cronkite. (I provide a link, as our younger readers likely don’t know who Mr. Cronkite is and what he meant to the American public. He is recently deceased and represents journalism from time when news was reported and not made, as it is by much of the media.)

Ask – Talk to your school and see what they can do to help you. If your parents have recently lost their job, gotten divorced, or experienced any change in their economic situation, do not be too proud to ask for help. This is particularly true for better students or the most promising students. The worst that can happen is that they will say “No” and you’ll be right back to where you are now – except that you have tried and you have learned.

The bottom line is that your “summit” is graduation and you must employ the resources you have in support of that goal. You’ve a crew to help you - your family, friends, and other institutions - or you’re on the trail alone. Regardless of your circumstance, do not be dissuaded from taking the next step on the trail, as each step takes you closer to “financial success”.

“Many people think they could do much better if they only had the opportunity that they don’t realize they already have.” – Waite Phillips

- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211

Tip on Tips

I’ve a friend that carries a tip chart in his pocket, to allow him to visually see what is correct for 15% or 20% of the bill. Then, if there is a group of us, we usually just ignore him and throw in money – more if the service was exceptionally good or the waiter/waitress is a loyal employee of our favorite spot. (These “throw-ins” have been known to greatly exceed standard gratuity practice.) On the other hand, I’ve been with people that refuse to tip more than 10%, regardless of the service they receive from the, often, lower-than-minimum wage employee. Practices vary and most of us only know what we learned from watching mom and dad.

Since I’m traveling with a bunch of Boy Scouts while you read this, I doubt that there will be much tipping going on. I wondered, however, if others might sometimes wonder what is customary. So I consulted The Wall Street Journal Guide to Starting Your Financial Life, by Karen Blumenthal and found a chapter devoted to this very topic. To top it off, I agreed with most of what she said. See what you think.

• Waiters and waitresses – 15% to 20% of the pre-tax charges. More for very good service and, if you don’t order a drink but your water glass is well attended to, I’d lean toward the high side.


• Pizza/food delivery people - 10% is customary, more on busy “game days” or if the monsoon is what is keeping you from driving to the restaurant.


• Coffee bars and other quick-stop, face-to-face food places – these people generally get paid minimum wage, so nothing is expected. If, however, you’re a regular and you get special service, you might occasionally put a dollar in the cup.


• Coat check – We don’t do this much in Columbia, MO, but it is generally acceptable to pay $1 per item checked.


• Bartenders – Treat the tab, as if it were a waiter or waitress bill in a restaurant. If you pay as you go, $1 added to the price of the drink will assure that the bartender sees you when you come back for another….which reminds me of taxi cabs…


• Taxi drivers – 15% is generally accepted, $1 per bag if s/he helps with your bags. Perhaps more (20%) in a megalopolis like New York City or if you just feel like it is the right thing to do.


• Hair stylist or barber – Here, practices vary considerably across the country and by markets. For markets where it is accepted practice, 15% - 20%, unless they own the store. If in doubt, ask the receptionist what is common practice or round-up on their Holiday gift.


• Massage – (Now we’re talking! After I backpack for 12 days this just might be the ticket!) Generally, masseuses expect a 15% to 20% tip depending on the quality of their service.


• Hotel doorman - $1 for hailing a cab, $1 for helping you find the best local haunt or eatery, $1 per bag for the bellman, and $1-$2 per night for housekeeping, especially in large cities. (Personally give it to the housekeeper, if you see them on the last day and you know they’ve been responsible. It is great for their confidence.)

That is about it for a Tip on Tips. I hope this gets to you, given my challenges with technology and the fact I’ve been away from my desk for 8 days. We recently had a day-long session with about 30 Missouri high school personal finance teachers and many of them said they often use the MU Financial Tip in their classroom, as a point to begin discussions. I love that and I encourage you to send it to others, especially those that work to improve the financial literacy of others. At Personal Financial Planning at MIZZOU, we believe that “Financial literacy is the key to personal freedom and economic development.” If you agree, even if only slightly, please share your financial success by helping to build financial literacy in others.

- Robert O. Weagley, Ph.D., CFP(r)

Chair, Personal Financial Planning

University of Missouri

Columbia, MO 65211

My biggest health care mistake: Choosing the wrong plan

The costs of health care are top of mind lately, and like everyone else, we've felt the effects. I remember the days 10 to 15 years ago of $5 copays for doctor's visits . As a full-time elementary school teacher before we were married, M's doctor visits were completely covered by her paycheck deductions.

Now copays under my current employer's plan are $20 to $25 (though routine physicals and annual checkups are "free"). Meanwhile deductions from my paycheck have increased as well, relative to just a few years back. I don't know if the federal government has the right answer, but at least President Obama is asking some tough questions.

A sweet choice
Rising costs, in fact, led me to make one of my biggest personal finance mistakes: choosing the wrong health care plan. Two years ago, my employer revamped its insurance benefits to reduce its own escalating costs. I opted for the "middle-of-the-road" plan, one with medium-sized paycheck deductions but with higher deductibles and potential out-of-pocket costs. To sweeten the deal, my employer made a $1,000 contribution to a savings account that could help defray any costs we might have to pay on our own.

I'd considered the plan with the highest paycheck deduction and the most coverage, but no $1,000 contribution. I decided against it because we're a pretty healthy family, M and I are through having babies, and our kids aren't in day care and thus prone to bringing home the "virus of the week." I figured the middle plan's $1,000 contribution could get us through half of the year at least.

Best laid plans go awry
Then in February--just a few weeks into having the new plan--my stepdaughter had to make an emergency room visit in the middle of the night. A slew of tests and doctors confirmed that she was, thankfully, okay (and, ironically, that her symptoms weren't an emergency at all, but could have waited for a visit to the doctor in the morning). But that $1,000 which was supposed to help us pay for out-of-pocket costs for several months? Effectively wiped out in one fell swoop.

This year, I bit the bullet and chose the plan with the highest coverage. Naturally, we've had no trips to the emergency room and relatively few visits to the doctor. If that remains true through December, we'll have effectively overpaid for insurance coverage this year after underpaying last year.

Needless to say, that's frustrating. A colleague of mine with several kids who also chose the middle-of-the-road plan last year and the highest coverage plan this year has had a similar experience. We both shared a laugh at life's little ironies.

High coverage a better choice
But I still think the high coverage plan is the right one for us, and what we'll choose again for 2010. Our insurance covers two adults, plus four children ages 2 to 21. Based on that information, the chances that we'll have some significant health care costs throughout the year are probably fairly high. I may end up paying more out of my paycheck compared with a lower coverage plan, but I'll be more certain that no matter what, I'll pay a minimal amount out-of-pocket (and can redirect money I would have saved to pay for deductibles to other goals).

My mistake was trying to be cheap and pay the least amount out-of-pocket possible, and picking a plan based on a prediction of our typical health care costs (which turned out to be wrong, both times). Insurance is about replacing the uncertainty of risk with the certainty of fixed costs. The high coverage plan may mean a little less in my paycheck each month, but it also means a lot more peace of mind.

Back in the saddle...yet again

Wow...has it been three months since my last post? That's a little shocking. I may have to turn in my blogger license.

Today a former boss mentioned in a large meeting at work that I have a blog, which sparked a lot of questions from co-workers. "What's your blog about?" "Where can I find it?" "YOU have a blog?" (I particularly like the disbelief in that last question.)

Not that I've been hiding it--in fact, I can't hide it; being in the financial services industry, I had to get my employer's approval to start it (don't worry, I have complete control over content). I just haven't done a lot of self-promotion, particularly because I'm now in a department full of financial planners. Not exactly a target market for basic articles on personal finance.

Still, I'm a little ashamed that I've been tagged as a "blogger" yet haven't blogged anything in quite some time. Three months is like three centuries on the Internet.

But I'm now also motivated. Today's meeting re-energized me to start posting again. I hope it can last.

Sick

Trying to sort out health insurance coverage is a daunting task. It is, however, a required task. If you’re lucky and have health insurance through your employer, s/he pays for 60-80% of the cost of insurance. If you’re not so lucky and you do not have insurance through work, you need to buy it independently. The extremely high costs of a catastrophic illness can wipe out the best laid financial plans and, guess what; we’re all exposed to the risk of a catastrophic illness.

First, accept the fact that if you want both choice and flexibility, as well as to pay less when you use medical services, you will pay more for your health insurance coverage. If you want to pay less for your insurance coverage, you’ll pay more when you use the services. You pay the premium, the amount you’re charged for insurance coverage, and you pay a portion of the expenses should you use medical services. The portions are the deductible, the first dollars you are responsible for paying before the insurance company pays anything, and the co-payment, the portion of expenses above the deductible that you are also required to pay. You pay both, until you reach the stop-loss; your total out-of-pocket charge for an episode of illness.

What are the key questions you should ask yourself?

• Do I have an emergency fund capable of covering a greater deductible and co-payment? (The importance of an emergency fund rises to the top, again!)


• Do you care what doctor you visit, when you need to see a doctor?


• Do you regularly make doctor visits or are you a once a year type of patient? (Commit to a health plan of regular physical exercise, if you’re able.)


• Do you take several prescriptions? This makes prescription coverage more important to you.

Other Considerations:

Flexible Spending Accounts – Do you have access to a medical care flexible spending account that lets you use pre-tax money to pay for your out-of-pocket medical expenses. This reduces your cost for medical care but it comes with a caveat: If you don’t use it in a calendar year, you lose it. You are required to estimate your costs for the next year, in the fall of the current year. While this is somewhat difficult, consider the obvious ones: eye glasses, contact lenses, over-the-counter pain relievers and allergy medicines, flu shots, your deductibles and copayments for office visits and annual physicals. Importantly, “biggies” like orthodontic work or an elective surgery create the opportunity to put the maximum amount in the account. Finally, if the end of the year approaches and you don’t have enough expenses to use your full account, consider a new pair of eyeglasses, stock up on some over-the-counter medicines, or refill your prescriptions.

Health Savings Accounts – In 2009, if you’ve a high deductible and you’re single you could contribute up to $3,000 in pretax money into a health savings account. This can be used to pay for deductibles, co-payments, and other medical expenses. (If you’re married, the maximum deposit is $5,950. These change each year, as well as with the size of your deductible, and are designed to encourage high-deductible, catastrophic insurance coverage.) One of the best things about the health savings account is that the account earns interest, it stays with you if you change jobs, and the balance can grow and become a part of your retirement resources, if you don’t spend it on health coverage.

I realize that this is just a snippet of a tip on health insurance. As the U.S. Government is debating changes in our national health insurance policy, the debate is bound to get louder before it goes away. Remember that this debate is about your health, your insurance, and your country so try to be informed and let your opinions be known by those we’ve elected. Regardless of your age, you have a stake in your health - the most important ingredient in the recipe for financial success.

- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211

CARS

Beginning with new car purchases on July 1, 2009 a new stimulus program began. It is designed to encourage people to purchase a new, more fuel-efficient car. While the rule will not be final until July 24th, consumers may want to consider how, or if, they will benefit from the program. The program ceases on November 1, 2009 or when the program’s money is depleted.

What is it? If you trade-in a less fuel efficient car, as defined by the government, and purchase or lease a qualified, more efficient new car, the program provides a voucher, ranging from $3,500 to $4,500, to use toward the purchase or lease.

Fact Bullets:

• The purchase just occur between July 1, 2009 and November 1, 2009. If you lease, the lease must be for a minimum of five years.


• Your “trade-in” car must be less than 25 years old at the trade-in date.


• The car must be in drivable condition, being continuously owned, registered, and insured by you for a full year prior to the time of new car purchase.


• Generally, the “trade-in” vehicle must get less than 18 miles to the gallon. This is “combined” mileage. For more information on this see https://webmail.um.umsystem.edu/exchweb/bin/redir.asp?URL=http://www.cars.gov .


• The new vehicle must have a purchase price of less than $45,000 and have a combined fuel economy of, at least, 22 miles per gallon. If the new vehicle is only 2 MPG more efficient than your clunker, you are eligible for a $3,500 voucher, while the new vehicle must be 10 MGP more efficient for the full $4,500.


• Vouchers are paid directly to the dealer and, essentially, replace the trade-in value of your car. The dealer must destroy your car, selling it for scrap. (This part of the ruling has car collectors crying.)


• Considering the fact that the car must be destroyed and that the greatest voucher is for $4,500, it is clear that if your car is worth more than the voucher, you would be better off not participating in the program. On the other hand, if you have a 1999 Ford Eddie Bauer Explorer with a V-8 engine, you could benefit. This car has a $2,400 trade-in value and, when I looked up that price on Edmunds.com, there was an adjacent advertisement for the Government’s “Cash for Clunkers” program proudly displayed.

You should make your car buying decision on many more factors than a new government program. Yet, when one exists, that can potentially help you in your trek toward financial success, you should consider the opportunity. Frankly, that 1999 For Explorer is my youngest son’s “hand-me-down” car and, if I were in the mood to spoil him, the program clearly provides an incentive. On the other hand, I’m a big fan of purchasing slightly used cars, as opposed to a new car and I would want to add that to my decision matrix.

For more information see the National Highway Traffic Safety Administration’s website: Car Allowance Rebate System (CARS) .

Personal Note: I will be on a 12 day trek with my youngest son at Philmont Scout ranch, over the next two Fridays. I plan to write a couple of “Tips” to be sent to you on “delayed delivery”, however, if my email box gets to cluttered in my absence, the delayed mailing ceases to work. So, if you don’t hear from me, think about how much fun I’ll be having carrying a 50 pound backpack up and down the New Mexican mountains with bad knees and arthritic feet. Actually, I wouldn’t miss the chance to do this with my boy for all the financial success in the world.

- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211

Fathers Know Best

This weekend we celebrate the birth of our great nation. Given that, I thought a good financial tip would be for us to read a few quotes, focused on money, from our founding fathers. While these are more than 200 years old, some will cause you to pause and ponder about the implications their opinions have to today’s world. While many are “out-of-date”, I am resisting the temptation to provide my own interpretation, for we are celebrating Independence Day. You are free to interpret them as you wish to aid you in helping our country maintain her financial success. - rw

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance." --Thomas Jefferson, at the Constitutional Convention (1787)

"All the perplexities, confusion and distress in America arise not from defects in the Constitution or Confederation, not from a want of honor or virtue so much as from downright ignorance of the nature of coin, credit and circulation." --John Adams, at the Constitutional Convention (1787)

"The Central Bank is an institution of the most deadly hostility existing against the principles and form of our Constitution. I am an enemy to all banks, discounting bills or notes for anything but coin. If the American people allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered." --Thomas Jefferson

"We are in danger of being overwhelmed with irredeemable paper, mere paper, representing not gold nor silver; no sir, representing nothing but broken promises, bad faith, bankrupt corporations, cheated creditors and a ruined people." --Daniel Webster

“A penny saved is a penny earned.” – Benjamin Franklin

“Savings is a virtue, especially in ancestors.” – Benjamin Franklin

“The use of money is all the advantage there is in having it.” – Benjamin Franklin

“A house is not a home unless it contains food and fire for the mind as well as the body.” – Benjamin Franklin

“Beware of little expenses. A small leak will sink a great ship.” – Benjamin Franklin

“Buy what thou has no need of and thou shall sell thy necessities.” – Benjamin Franklin

“Gain may be temporary and uncertain; but ever while you live, expense is constant and certain: and it is easier to build two chimneys than to keep one in fuel.” – Benjamin Franklin

"A disordered currency is one of the greatest political evils. It undermines the virtues necessary for the support of the social system, and encourages propensities destructive to its happiness, wars against industry, frugality and economy, and it fosters evil spirits of extravagance and speculation. Of all the contrivances for cheating the laboring classes of mankind, none has been more effectual than that which deludes them with paper money." --Daniel Webster, Congressional Record March 4, 1846

"We have no government armed with power capable of contending with human passions unbridled by morality and religion. Avarice, ambition, revenge, or gallantry, would break the strongest cords of our Constitution as a whale goes through a net. Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other." John Adams; The Works of John Adams, 1851

"If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; and may posterity forget that ye were our countrymen." - Samuel Adams

"I will not go into an argument to prove that Congress has no power to appropriate this money as an act of charity. Every member on this floor knows it. We have the right, as individuals, to give away as much of our own money as we please in charity; but as members of Congress we have no right to appropriate a dollar of the public money." -- Colonel David Crockett

- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211