The Potential Impacts of Student Loans on your Credit Score

Contributed by: Josh Bitel

For those of us lucky enough to have entered the work force in the past few years, student loan repayment can cause a significant impact, either positive or negative, on your credit score.

Getting Started

Beginning to repay these loans after the precious six to nine month grace period has expired can affect your ability to obtain other credit if not handled properly. One way to find out how you’re being affected is to pull a copy of your credit report. There are three major credit reporting agencies (Experian, Equifax, and Trans Union) and you should get a copy of your credit report from each one (click here to read our blog on how to get your free annual credit report. Student loan institutions aren’t required to report information to all three bureaus, although many do, which is important to keep in mind. If you're repaying your student loans on time, these disciplined repayments will actually help your credit score. Conversely, if you are delinquent on payments or worse, default on your loans, your credit report can take a beating, potentially crippling your chances of obtaining other credit.

Credit Score Factors

Many different factors are used to determine your credit score. Some of these factors are more crucial than others. Among these critical factors are:

• Your payment history. Meaning the consistency and punctuality of payments and how long your payment history is.

• Your outstanding debt and amounts you owe on these accounts. How close your account balances are to your defined limits is also taken into consideration.

• How long you've had credit. How long specific accounts have been open, and how long it has been since you've used each account

• New credit and new inquiries. This means outstanding applications for new credit as well as additional inquiries for your credit reports, whether by institutions or yourself, can impact your credit score.

• For a deeper look at your credit score composition, check out our blog from last year.

How Student Loans Can Affect your Credit Score

If you consistently make your student loan payments on time, your credit score should not be negatively affected. A nice tip to ensure consistency is to set up an auto-pay from a bank account. Most loan institutions will allow you to set up an automatic withdraw from your bank account, eliminating the need to remember to pay each month. As an added bonus, some institutions may even offer an interest rate discount for setting this up!

Prospective creditors may look at other factors when analyzing your debt, and student loans can make this tricky. One example of this may be if you are in a lower-paying job, this makes your debt-to-income ratio unfavorable for some creditors. Another example may be your principal balances being largely unchanged in the early stages of repayment, which is common with long term repayment schedules, and some lenders may view this as a lack of paying down debt.

It is important to monitor your credit history from all three bureaus regularly. If you find that your repayment history is not being reported correctly, contact your lender to make this correction.

Suggestions to Help Reduce the Burden

Being overburdened with debt can feel suffocating, here are some suggestions to take some weight off your shoulders:

• Pay off your student loan debt as fast as possible. Doing so will help reduce your debt-to-income ratio, even if your income doesn't increase, which can make your credit score more favorable to lenders.

• If you're struggling to repay your student loans and are considering asking for forbearance, ask your lender about any other options you may have. Interest-only payments are a cheaper alternative, although they may not reduce principal.

• Ask your lender about a graduated repayment option. This means making smaller payments in the early years of the loan, with larger payments coming in the later years.

• If you're really strapped, you can explore longer term options. Much like a home, when a longer repayment term is selected, you will likely be paying more in interest over the life of the loan, but the monthly payment can be significantly reduced.

• If all else fails, don’t ignore your student loans. Generally these loans won’t be discharged even in a bankruptcy situation. Talk to your lender about the options available for you, this can be crucial to maintaining a favorable credit history.

If you have any questions about refinancing your student loans or improving your credit score, please contact your Financial Planner here at The Center, we’re always happy to help!

Josh Bitel is a Client Service Associate at Center for Financial Planning, Inc.®

Money Sense for Young Kids

Contributed by: Matt Trujillo, CFP®

As a dad of two young boys, I read and think a lot on how to teach my sons about how to handle money.

Even before my boys could count, they already knew something about money: it's what they had to give the ice cream man to get a cone, or put in the slot to ride the rocket ship at the grocery store. So, as soon as your children begin to handle money, start teaching them how to handle it wisely.

Making Allowances

Giving children an allowance is a good way to begin teaching them how to save money and budget for the things they want. How much you give them depends in part on what you expect them to buy with it and how much you want them to save.

Some parents expect children to earn their allowance by doing household chores, while others attach no strings to the purse and expect children to pitch in simply because they live in the household. A compromise might be to give children small allowances coupled with opportunities to earn extra money by doing chores that fall outside their normal household responsibilities.

When it comes to giving children allowances:

• Set parameters. Discuss with your children what they may use the money for and how much should be saved.

• Make allowance day a routine, like payday. Give the same amount on the same day each week.

• Consider "raises" for children who manage money well.

Take it to the Bank

Piggy banks are a great way to start teaching children to save money, but opening a savings account in a "real" bank introduces them to the concepts of earning interest and the power of compounding.

While children might want to spend all their allowance now, encourage them (especially older children) to divide it up, allowing them to spend some immediately, while insisting they save some towards larger ticket items they really want but can't afford right away. Writing down each goal and the amount that must be saved each week toward it will help children learn the difference between short-term and long-term goals. As an incentive, you might want to offer to match whatever children save toward their long-term goals.

Shopping Sense

Television commercials and peer pressure constantly tempt children to spend money. Therefore, children need guidance when it comes to making good buying decisions. Teach children how to compare items by price and quality. When you're at the grocery store, for example, explain why you might buy a generic cereal instead of a name brand.

When it comes to shopping with children who want you to buy them every little thing they see, take a moment to explain your “yes” and “no” decisions. By explaining that you won't buy them something every time you go to a store, you can lead children into thinking carefully about the purchases they do want to make. Then, consider setting aside one day a month when you will take children shopping for them. This encourages them to save for something they really want rather than buying on impulse. For those big-ticket items, suggest that they might put those items on a birthday or holiday list.

Finally, don't be afraid to let children make mistakes. If a toy breaks soon after it's purchased or doesn't turn out to be as much fun as seen on TV, eventually children will learn to make good choices even when you're not there to give them advice. For more tips on how to raise Money Smart Kids, check out our webinar on the topic!

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc.® Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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The views expressed herein are those of Matthew Trujillo and are not necessarily those of Raymond James.

Saving for Education for a Future Grandchild: Roth IRA vs. 529 Plan

Contributed by: Matthew E. Chope, CFP®

Congrats – you have a new grand-baby on the way! During all the excitement, the reality of the future may set in: future education expenses. “Where is one of the best places to save for our unborn grand-baby?” This very question was asked by a couple in their mid-50s a few weeks back. They have modest income, earn about $100,000 a year, and are currently funding retirement based plans at work. Furthermore, they take advantage of the full match by their employers and benefit from a deduction at the 25% bracket. The folks that asked the question will most likely not be in the 25% bracket during their non-working years of retirement. So, they likely are correctly benefiting from the personal tax arbitrage within their income brackets now vs the expected future. These folks are working towards being on track for retirement by 68 which is a little longer than most trying to achieve such a goal. But they are doing OK with that timeframe and are working as long as they need to. They also have some limited discretionary income remaining ($200-$300 a month) to save for this new goal of potential education for future grandchildren.

Why a Roth IRA might be better than a 529 Plan in this situation:

• In this case, while both vehicles provide tax-free growth, the Roth IRA can help provide added flexibility.

• There is no impact on the FAFSA (Free Application for Federal Student Aid) calculation with the Roth IRA (there is generally no impact with a 529 if a grandparent is the owner of the account, but if the owner is changed to a parent, that could have a negative impact just about the time you don’t want it to!).

• There is generally more investment flexibility with the Roth. There are more investment options offered and 529s are limited on the number of trades allowed on an annual basis.

• Probably one of the largest benefits for the Roth IRA is that you don’t have any tax or tax penalties if the grandchild decides not to go to school, or if the money is needed for an emergency or for your retirement safety net instead.

College saving is never one size fits all. Please contact us with assistance in helping to determine the most suitable college savings strategy to help implement for your family. We are always happy to help!

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc.® Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions.

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Mathew Chope and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state. Investments mentioned may not be suitable for all investors. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

529 Plans: Saving for your Child’s Education

Contributed by: Nick Defenthaler, CFP®

Doesn’t it always seem like you blink and summer is over? For some reason, this glorious season seems to go by especially fast when you live in the state of Michigan! Hopefully you all took advantage of the hot and sunny weather and had a chance to explore all of the great things our state has to offer with your family. 

If you have children, your focus has probably shifted from weekend getaways to getting back into a more structured routine now that school is back in session.  Since school is top of mind for many, I felt it was a good time to touch on education planning and saving for college. 

Below is a brief refresher of the 529 plan, a popular type of account you can save into for future college expenses.  Many people refer to the 529 plan as the “education IRA” but there are some caveats:

Advantages:

• State tax deduction on contributions up to certain annual limits

• Tax-deferred growth

• No taxation upon withdrawal if funds are used for qualified educational expenses (such as tuition, books, room and board, computers, etc.)

• Parents have control over the account and can transfer the account to another child

• Not subject to kiddie tax rules, unlike UGMA accounts (Uniform Gift of Minors Act) and UTMA accounts (Uniform Transfer to Minors Act)

Disadvantages:

• No guaranteed rate of return – subject to market risk

• Certain taxes and penalties will apply if funds are withdrawn for non-qualified expenses

Items to be aware of:

• Keep records of how money was spent that was withdrawn from the 529 account in case of an audit

• Review the asset allocation/risk profile of the account on an annual basis – typically, the closer the child is to entering college, the more conservative the account should become 

Just like saving for retirement, the sooner you can start saving for college the better. With that being said, if your children are only a few years out from college and your savings isn’t where you’d like it to be, there is still hope. Chances are you still have options and this is where good financial planning can come into play. There are also nuances with financial aid and completing the FAFSA that you want to be aware of—check out our webinar on the topic! If we could provide guidance in this area, don’t hesitate to reach out, we would be happy to help!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Nick Defenthaler and are not necessarily those of Raymond James. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state. Asset allocation does not ensure a profit or guarantee against loss.

Webinar in Review: Taking Control of your Student Loans

Contributed by: Clare Lilek

If you or a loved one has student loans, then you know it’s easy to feel overwhelmed at times. According to The Institute of College Access & Success, 70% of undergraduates have student loan debt of $35,000 on average upon graduating. Moreover, these numbers and percentages increase with degree level. With increasing numbers of Americans with student loan debt and the fact that managing multiple loans of various types and interest rates can cause confusion, Melissa Parkins, CFP®, and Kali Hassinger, CFP®, hosted a webinar on the subject in order to provide some clarity.

First, it’s important to determine whether you have federal or private loans; there are various sub-categories of loan types for federal loans. The majority of loans you will come in contact with are federal loans and they tend to have fixed-interest rates and the possibility of flexible repayment plans. Private loans tend to have less flexible repayment plans and interest rates are determined by credit scores.

Federal loans tend to be considered the preferred type of loan. They offer flexible repayment plans, varied interest rates, loan consolidation options, and the possibility of loan forgiveness (note on loan forgiveness: if you still owe money at the end of your federal loan period, the government will forgive that loan but the remainder will be taxed as income that year). Private loans, however, tend to be more straight forward since there is a standard repayment plan that is not based on your income.

One big tip Melissa and Kali offered is first getting organized with your loans. Create a list that outlines the type of loan, the lender, interest rates, and the term. (For help with creating this inventory check out Melissa’s latest blog on the subject.) They also offered a helpful flow chart for deciding whether or not you should refinance your federal loans:

Taken from Social Financial, Inc

At the end of the webinar, Melissa and Kali went over an in depth case study looking at specific examples of loans and potential refinancing options to save you money and to pay back your loans at a faster rate. Listening to this case study can provide more clarity on how creating a loan inventory may help you save money in the long run.

If you have questions regarding your own student loans, listen to the webinar and see if any of the information applies to you. As always, feel free to reach out to your financial planner or Melissa and Kali for any remaining follow up questions or to talk about your specific situation.

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

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The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of and Clare Lilek, Melissa Parkins and Kali Hassinger not necessarily those of Raymond James. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Millennials Matter: Student Loans

Contributed by: Melissa Parkins, CFP®

The average 2016 college graduate will have just over $37,000 in student loan debt upon completing their undergraduate degree. If it is a graduate degree they have just earned, the average debt is almost $60,000. When it comes to more specialized degrees such as a master’s degrees, law degrees, or medical degrees, the number dramatically increases (up to $250,000!). These numbers are up 6% from last year. Clearly the questions about student loan debt are not going away. This is a complex topic to understand, and it has big impact on people’s financial situations. Loans are taking longer to pay off and thus more interest is being paid, making them more and more expensive to have. That’s why it is important to understand student loans and know your potential options so you can create an efficient plan for paying them off.

Determine Your Goal

For most, your goal is going to be to minimize the cost of your student loans and pay them off as quickly as possible. However, some may have a goal to maximize federal loan forgiveness if they will qualify. Others may have a goal to free up current cash flow and thus need to find a way to lower monthly payments. Whatever your overall goal is for your student loans, you will need to first get yourself organized, and then create a plan to help get you there.

Make a Student Loan Inventory

Whether you are planning on making changes to your loans or not, it is important to first build an inventory of all of your student loans to keep yourself organized. Your inventory should include information on each individual loan like your current balance, monthly payment, interest rate, remaining term, loan servicer, if it’s private or federal, and if federal, what type of loan and what repayment plan you’ve selected.

• For your federal loans, you can utilize the National Student Loan Data System to get all of the necessary information. You will need to create a login if you don’t already have one. Once you are logged in, you can access information regarding all of your federal loans.

• For private loans, there is not one single resource that you can use to collect information like the NSLDS for federal loans. Instead, you will need to contact each of your private lenders to obtain the details of your loan and/or request a copy of the Promissory NOTE: If you are unsure who all your lenders are or you just want to double check that you have        accounted for all of your loans, you can actually use your credit report to find out. If you didn’t already know, you can download a copy of your credit report from annualcreditreport.com at no cost once a year with each of the 3 credit bureaus. All of your student loans – federal and private – will show up on your credit report. You can then compare the loans from your credit report to the loans on your NSLDS inventory to determine what private loans are currently outstanding.

Know Your Options

You know your goal and you have an inventory of all your student loans with the important details. Now you need to consider what changes to make in order to most efficiently meet your goal.

• Federal loans have many different repayment plans that you can choose from, including a few that are based on your current income level. The repayment plans that you are eligible for depend on what type of federal loan you have and when it was taken out. You can switch between repayment plans whenever you want, but you should thoroughly review your situation before doing so because it is not the most straight-forward process and changing plans can impact your loans in some instances. Depending on your goal, however, switching repayment plans may be in your best interest.

• Consolidating federal loans will give you a single monthly payment and access to additional repayment plans in some instances. The interest rate on a new consolidation loan is a weighted average of the loans that were consolidated (your interest rate is not lowered). At consolidation, you can select a new term or length of the loan, as well as a new repayment plan option. Consolidating helps to simplify your federal loans and your payments, and it is also a way to restructure your federal loans to be more suited for your personal situation.

• Refinancing is something you have probably heard about. It can be a great way to restructure your current loans in a way that is more efficient and better suited to your current financial picture. In many cases, you can get a lower interest rate which can help save significant dollars over the term of your loan. The rate you are approved for is based on your credit score, so the better your credit score, the better interest rate you will qualify for. You can refinance both private and federal loans, but before refinancing federal loans, you need to understand that you are giving up some benefits of federal loans (such as flexible repayment plans, loan forgiveness, and sometimes forbearance protection). Before refinancing, do you research, and look at multiple lenders to compare and find the best deal for your personal situation.

Student loans are very complex.  It makes sense to work with a financial planner to help you sort through your options -- we are here to help!  Contact us anytime if you would like us to take a look at your personal situation. Also, Join Kali Hassinger and me next week, Thursday, for our webinar “Taking Control of Your Student Loans.” We will be providing more in depth information on types of student loans and their certain characteristics, a few resources to help you organize your loans, and some options that could help you handle your loans more efficiently. We will also be walking you through a case study to show what this all looks like in real life and how getting yourself organized and considering different options could help you pay off your loans quicker and more efficiently! 

Melissa Parkins, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.

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This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Melissa Parkins and are not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any outside website or the collection or use of information regarding any website's users and/or members.

5 Tips for Budgeting Post-Graduation

Contributed by: Clare Lilek

Graduation season can be a whirlwind of exams, parties, job interviews, parties, endless nights fueled by caffeine, and more parties. Once the adrenaline and celebration subsides, however, and when reality comes hurtling towards you at full speed, it’s helpful to have your finances in order. Life after graduation can be exhilarating, partly due to the uncertainty, but don’t let uncertain finances take the fun out of adult life.

Here are 5 simple tips to keep in mind when creating your post-college budget, as you prepare for a *hopeful* increase in monthly income:

1. Whether you’re working at a fast food chain or a Fortune 500 company put 10% of your salary away into what I like to call a “No Touch Savings.” This is a savings fund for emergencies only—in case you lose your job, or your car needs major repairs, or just for when life happens unexpectedly.

2. Divide your bank accounts into sub folders: Emergency, Travel, Bills, Fun Money, etc. Put money away each month into the various buckets and don’t dip into other buckets. Pro Tip: Make sure you’re allocating the appropriate percentage of funds to each bucket—your fun money bucket probably shouldn’t have a higher deposit rate than your bills bucket (well not yet at least).

3. Cut out unnecessary spending. When you’re first starting out on your own and creating a budget, it behooves you to be as frugal as possible. If you’re buying coffee and breakfast every day, cut that out of your spending and try to do your early morning routine at home. See how far your salary actually takes you each month first and then add in luxuries, as long as your savings do not suffer.

4.  Write it out. When drafting up a budget, with your subfolders, savings, and planned spending, write it out on paper. It helps to physically write out your spending and saving goals. For the first few months under your budget, make sure to write out your actual spending and saving as well. See how closely your goals align with your spending reality and make adjustments as necessary. It helps to physically see how much you’re spending to know where you can eventually save.

5. Set spending priorities. Watch out for superfluous spending on items or experiences that aren’t really important to you, but don’t be afraid to splurge on the things that truly matter. Save as much as you can, but remember to find joy in what you choose to spend your money on, or better put, spend money on items and experiences that truly give you joy.

When creating and following your budget, use the method that best suits you and your style of living. Some people prefer paper and pen (including myself), others excel spreadsheets, and more recently, a growing number of people are using applications and websites. If you need a larger system to help you create and stick to a budget, I suggest Mint. It’s a website and an application that helps you track spending by linking to your bank account. Find what works best for you and stick to it! Consistency is key.

Joining the adult world can be an amazing experience but comes with a rather large learning curve. As you, your children, or your grandchildren begin professional careers post-graduation and start to receive an increase in monthly earnings, remember to take it slow and follow some simple guidelines. You never want to end up over your head, fresh out of college.

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Clare Lilek and not necessarily those of Raymond James.

A Webinar in Review: Utilizing FAFSA in your College Financial Planning

Contributed by: Clare Lilek

Thinking about financing a college education may seem more daunting than the actual education itself. If you or a loved one is applying to college, utilizing the full potential of the FAFSA (Free Application for Financial Student Aid) can make a huge difference in how you or your student manages the stress of a financial future after a degree. In a recent webinar hosted by Nick Defenthaler, CFP® with guest presenter Carrie Gilchrist, Ph.D., the Senior Financial Aid Outreach Advisor at Oakland University, participants got some tips for college planning. Carrie went through basic elements of financial aid, outlined the uses of filling out a FAFSA for everyone, and covered some special circumstances. Throughout the webinar Carrie answered some of the following key questions:

What are the different elements of Financial Aid?

Where can financial aid come from?

Financial Aid can come from federal, state, institutional, and private resources.

How is FAFSA calculated? How does contribute to your overall Financial Aid?

FAFSA collects information on your demographic, taxed income, untaxed income, and assets and comes up with the Expected Family Contribution (EFC). Based on what university you or your student attends, each school will have their own Cost of Attendance (COA). Financial Aid is then determined by subtracting your personal EFC from the COA of the university.

When do we file a FAFSA and where?

Start filling out your FAFSA anytime soon after January 1st while the student is still a senior in high school, but before March 1st. This can all be done online and it is encouraged to use the secure federal website, it can save time and hassle.

What if I’m a high income earner?

Still fill out financial aid! It can be used for so much more, including your eligibility for federal loans. You could also qualify for a school grant, which can’t happen without the FAFSA.

These are just a few of the main concerns that Carrie covered throughout the webinar. Take a moment to listen to the whole recording below, there is more in-depth information covered, along with good advice and helpful resources to use when filling out your FAFSA or getting your Financial Aid package in order. At the end of the day, Carrie stressed that making this a collaborative process with your student is key, and Nick stressed that if you have questions, your friendly financial planners here at The Center are always willing and able to help guide you through this process.

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Clare Lilek and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Raymond James is not affiliated with and does not endorse the opinions or services of Carrie Gilchrist or Oakland University.

Contributing to your Human Capital AKA Investing in Yourself

Contributed by: Nick Defenthaler, CFP®

Human capital – “the collective skills, knowledge, or other intangible assets of individuals that can be used to create economic value for the individuals, their employers, or their community,” as defined by dictionary.com.  In my mind, however, I have a more simplistic definition – an investment in YOU.  As financial professionals, a major part of our job when working with clients, like you, is aligning your investment portfolio with your individual goals and objectives, which is typically comprised of various mutual funds or ETFs. However, in many cases, the best investment we can ever make is in ourselves – something we can oftentimes overlook or we don’t truly appreciate how big of an impact this investment can have on our lives.

Investing and financial planning both contain many factors or variables that we have either very little or virtually no control over—for example, what the S&P 500 performs for the year, tax policies, how retirement plan contribution limits change, etc. So when working with clients, we prefer to really focus on the things that we can control, like savings vs. spending, portfolio risk, debt load, etc., and maximizing your own human capital falls within this category.

So how do we focus on things we can control? Some examples include:

• Being intentional with the degree you pursue

• Obtaining professional designations after college

• Taking classes to become an expert in an area of interest that can progress your career

• Taking on additional responsibilities in the workplace to earn more than the standard cost of living pay increase

• Moving to a new city with more opportunity for you

• Hiring additional staff or a career coach

The list could go on and on. You may notice that many of the items that go into the investment in one’s self or “human capital” require capital!  I challenge you to not think of these items as “expenses,” but to rather look at them as a necessary component in your ongoing saga of investing in yourself.  This paradigm shift will improve your outlook and more than likely increase the likelihood of your success. 

Making the right choices and committing to investing in yourself typically translates into increasing the value of your future earnings, a major component of your own human capital.  Does this mean you give yourself carte blanche while investing in yourself?  Of course not!  Those who truly maximize their human capital are strategic with their investments and think long-term; very similar to how we approach the investments we recommend to clients.    

As we ring in a new year, it’s a good time to take a step back and think of the ways you want to invest in yourself in 2016 by laying out a plan of what you want to achieve over the next few years. Just as we help clients align goals with the investments we help them make, you should do the same with your own human capital, because chances are, investing in yourself will be one of the best decisions you’ll ever make. 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Keep in mind that individuals cannot invest directly in any index. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Investing involves risk and investors may incur a profit or a loss.

How to use your Year End Bonus

Contributed by: Matt Trujillo, CFP®

It’s that time of year. The weather is getting cooler, family is in for the holidays, and yearend bonuses are about to be paid! For some the bonus might already be spent before it is paid, but for those of you that are still looking for something to do with that money consider the following:

Here are 5 things to consider in allocating your year-end bonus:

1. Review your financial plan. Are there any changes since you last updated your financial goals? 

2. Have you accumulated any additional revolving debt throughout the year? If so consider paying off some or all of it with your bonus.

3. Are your emergency cash reserves at the appropriate level to provide for your comfort?  If not consider beefing them back up.

4. Are your insurance coverages where they need to be to cover anything unexpected?  If not, consider re-evaluating these plans.

5. Review your tax situation for the year.  Make an additional deposit to the IRS if you have income that has not yet been taxed so you don’t have to make that payment and potential penalties next April.   

If you can go through the list and don’t need to put your bonus to any of those purposes, here are some other ideas:

• If you’re lucky enough to save your bonus consider maximizing your retirement plan at work ($18,000 for 2015), including the catch-up provision if you’re over 50 ($6,000 for 2015). 

• Also, consider maximizing a ROTH IRA ($5,500 for 2015) if eligible or investing in a stock purchase program at work if one is offered. 

• Another idea is a creating/or adding to an existing 529 plan, which is a good vehicle for savings for educational goals. 

• If all of these are maximized, then consider saving in your after tax (non-retirement accounts) with diversified investments.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Matt Trujillo and not necessarily those of Raymond James.