Posted by: Kimberly Howard, CFP, CRPC | August 21, 2014

Starting College – Check Out These Tips

college 2Every parent hopes for a better life for his or her kids and for many it starts with helping to furthering their education after high school. Along with newfound independence come new experiences and unknown responsibilities. One of the most important talks that should be had before young adults venture out on their own is how to manage money and especially how to handle credit. An in-depth conversation will prepare them for the eventual struggles that we all experience and help them set the stage for a secure financial future.

Many of the tips you should share may seem obvious but don’t make the mistake of leaving them unsaid because you think it’s simply common sense. Common sense is defined as a basic ability to perceive, understand and judge things, much of which is acquired through the experiences of others. Share mistakes you’ve made and explain how easy it can be to get into trouble but encourage them that there are corrective measures, if they’re committed to turning a bad decision around to protect their financial future.

Teach your young people that cash should be the main source of funding, if at all possible. Living within their means will prevent the accumulation of debt that will be difficult to pay off on a fixed income and a burden when they move into the real world after graduation. If a credit account becomes a necessity, limits must be put in place to only use it to finance absolute necessities when sufficient cash is unavailable or cannot be secured in any other way.

When Credit is a Necessity
The fact that borrowing on credit can be costly is a fact that everyone needs to understand but especially young people who may be more impulsive in their spending. How monthly interest is calculated should be demonstrated using simple math equations and how interest compounds should be explained. The importance of having a lengthy credit history and a high credit score should be stressed.

Lesson #1: How you handle a credit card will affect your future in ways that may not be obvious now. Over time everyone establishes a credit history that reflects how well they handle money. This information is collected into credit reports that are used to calculate your credit scores.

Lesson #2: Handled with care a credit card can have a positive effect on your credit scores.
Lenders use your credit scores to decide whether to approve an application for a mortgage, automobile loans, personal or other types of loans. Mismanage a credit card by maxing out your credit limit and making late payments, and the often, repeated advice to young people to avoid using credit will prove true. If, however, you’re responsible and conscientious in paying the balance in full each month and on time, the benefits to your credit scores and the ability to get credit in the future will be vastly improved.

Lesson #3: The financial success of life on your own lies in taking a genuine interest in the details. Whether you’re choosing a bank, investment firm, employer, credit card or anything other situation that deals with money, what are vital to understand are the details in the fine print. With credit cards, the terms and conditions of each agreement vary and can mean the difference between reasonable and outlandish charges incurred for the privilege of borrowing. Fees and rates can add up quickly.

Factors that should be examined to make a wise decision when choosing a credit card:

  • Annual Percentage Rate (APR): Look for a low rate; a high one will cost more.
  • Annual Fees: Rates range from $25 to $300. Look for a no or low fee card.
  • Penalty Fees: Pay late and you’ll be charged a maximum $25 fee. Go over your credit limit and pay another fee. A penalty rate increase can be imposed for late payments of more than 60 days and remain in effect for six months. Make three late payments and you’re stuck with the penalty rate.

Lesson #4: Using a credit card responsibly takes discipline and commitment. Limit yourself to one card for purchases you can pay off when the bill comes due. Never use a credit card for an impulsive purchase; if you can’t afford to pay with cash, you simply can’t afford it. Frivolous spending will result in an out-of-control balance that may be hard to pay down. Carefully examine every billing statement for errors before making the each payment on time.

Anyone under the age of 21 is required to have a co-signer or proof of sufficient income to make the payments before being approved for a credit card in their name. Sit down together and compare a number of student card offers and teach them how interest is calculated and the debt trouble that can ensue if care isn’t taken.

The Last Word
If your child pays attention to even half of the advice you offer, they’ll be ahead of their peers trying to navigate without any guidance. The right information and your willingness to oversee their efforts in learning to manage their own finances will help them avoid the hardship of learning the hard lessons on their own.

Posted by: Kimberly Howard, CFP, CRPC | July 22, 2014

Couples Merging Finances

MarraigeWhen a couple weds, they often feel pressured to marry their finances together, as well. That’s not always such a good idea.

Although some of us want to go into a marriage sharing everything, smart financial planning actually dictates that you don’t have to and in many cases shouldn’t put all of your money into a single account. You can have both cooperation and autonomy in your financial marriage.

Money is one of the biggest stressors in a relationship. A survey by the American Institute of Certified Public Accountants found that money is the biggest cause of arguments between men and women. Financial matters caused 27% of spats. Children only caused 16%. Some couples feel that a joint bank account signifies trust and discourages regretful impulse spending by either party.

Maintaining separate accounts isn’t a sign of distrust. In fact, the opposite is true. Allowing your partner to maintain financial independence says that you trust that person to not keep secrets about finances and to contribute responsibly to your financial life together. Autonomy also fosters self-confidence. That feeling of control over your own money is critical.

Many couples use what I call the “three pots” system, where each spouse contributes money to one account for household expenses, and has a separate account for individual expenses. Especially with the proliferation of Internet-based banking, it’s very easy to set up separate individual and joint accounts. Neither partner gives up independence or autonomy completely, but some finances mingle. Here is how you can make it work:

Keep a joint bank account for joint expenses. This can really simplify bookkeeping for the household budget. You don’t have to contribute equal amounts (and shouldn’t if one earns significantly more than the other), but the total each month should cover everything you agree to pay together, such as the mortgage, utilities, groceries and insurance premiums.

Create a detailed budget together. You need to know exactly where your money goes and how much you need each month to cover all of your expenses. Once you start spending someone else’s money, it’s important to account for it. The household budget must include only the things you both agree to pay for together. Forge this agreement before you actually wed.

Keep separate accounts for separate expenses. Costs related to one spouse’s hobby need to be in separate budgets. Maybe one enjoys concerts and the other collects books. Make these optional purchases with money each person sets aside in a personal account. If you have just one account, one partner’s spending might cause friction.

Use the same rules for credit cards. Consumer debt should not be shared. Consider opening a joint account for charging things such as family vacations that you plan to pay off together. Successfully managing credit cards in marriage requires total honesty. Don’t hide purchases, especially debt. Your separate credit card debt doesn’t affect your spouse’s credit score, but it does affect your ability to move forward as a team with large, important purchases like a home.

Save together and don’t keep secrets. This is the most important key to financial success as a couple. Part of your financial life together must be saving. Make a plan for building an emergency fund and retirement accounts for each spouse. If you have children, discuss whether and how you plan to help them pay for college.

One might be willing to borrow money later on while the other prefers to start saving early. Touch base about financial details at least several times each year. It helps if you both visit your financial advisor together so each partner is up-to-date on the family’s finances and participates equally.

Follow Kim on Twitter at @kimhowardcfp

Kimberly J. Howard, CFP, CRPC, ADPA is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Needham, Mass. (781-413-4879). Please visit us at or email Kim at

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