Editor’s Note: From time to time we like to invite local experts from the community to answer questions about parenting and raising kids in Huntsville and North Alabama. Today we asked Mark Saunders, SVP Financial Advisor with Progress Financial Services, to address questions about family financial planning.
Q:) I’d love to know the best way to save for a child’s college education.
A.)The best way to save for a child’s education is the 529 Plan. Residents of Alabama should use the College Counts 529 Plan. This will be State and Federally tax free if used for higher education and you can receive a state tax deduction for contributions up to $10,000 put in.
Q:) Is it better to pay off your mortgage or to invest, assuming that your potential % gains are higher than your interest rate?
A.) First things first, have an emergency fund set aside, but assuming that you have a low interest rate mortgage that is reflective of the rate environment over the past five years, I have found that after the tax deductions when you itemize, you can earn more in investments over the long term, but there is more to this question to consider. If you are planning on retiring earlier than the term left on your mortgage then I would find a balance between investing and paying off your mortgage. Here is an idea that can help you start to pay down and allow for investing: One extra house payment per year will reduce a 30 year mortgage by about 7 years. The best way to do this is to take the amount of one payment, divide by 12 and apply that amount extra to each monthly payment. Any money after all expenses and discretionary spending can be invested. As you get closer to retirement or when the balance is reduced to mostly principal, then consider using your invested money to pay off the mortgage then. Good Luck!
Q.) How would a family go about fully funding IRAs and life insurance? How should a family invest with very limited incomes and almost no expendable income?
A.) For “limited income with almost no expendable income.” First make sure that you are building an emergency fund (3-6 months worth of income or expenses). Add a little each month to this until fully funded. You never know when an unexpected expense will come. While you are building that up, ask your employer if they provide life insurance through work. They sometimes provide 1x or 2x salary death benefit for free or at a very low cost. If they don’t, then shop term insurance. Permanent insurance is too expensive. Match the term to cover things that you would need to provide for if you died prematurely. Examples: Income replacement (determine how much your beneficiary would need before they earn their own income), pay off debts (match term to # of years left on mortgage), future college costs if you have minor children, final expenses. After you build up your emergency fund, then use any future monthly amount that you were setting aside to start funding an IRA. Be disciplined and you will Get Rich Slowly. Let Time Be Your Friend!!!
Q.) When I was growing up, my mother gave me a credit card under her account. For the following 2 years, I paid my bill on time, but when I went to buy a car at 18, I had what’s known as worse credit than bad credit – I had NO credit. Has this changed for this generation? Where do young adults start out, credit score wise, now and how can we help them to get a good start on their credit, without getting stuck with a 28% interest rate? The discipline of paying the bill under my moms account was good, but it didn’t help me get a score.
Q.) There is really no way to establish good credit below age 18 because you can’t enter into a contract with a credit card company. First, I would suggest that when your child starts working, create a savings system that will allow for them to put down enough on a car and that can help reduce the rate on the remaining balance. I am also a firm believer of buying a used car for children. Cars today are built to last longer and have higher quality safety standards. The savings from buying used vs. new is significant. It also makes sense to cosign with a child on a debit card that is linked to a checking account to promote discipline and training them to balance their money in the account. Good Luck!
Do you have a question about family financial planning or planning for college? We’ll include it in our next round of Ask the Expert – just leave them in the comments below.
ABOUT THE EXPERT: Mark Saunders is the SVP Financial Advisor with Progress Financial Services. With over 22 years of experience in investments and insurance, Mark is licensed in multiple states throughout the southeast. Born and raised in Huntsville, he graduated from Grissom High School and the University of Alabama. He is happily married with 2 daughters in college and one in 7th grade. He enjoys playing tennis and golf, cheers for Alabama football and is an active member of Cove United Methodist Church. Drawing from his years of experience, he can provide professional guidance for your families’ investment needs for education, retirement and more.
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