How to Teach Your Teen to Budget Like a Pro

It amazes us how quickly our girls are growing up. Next month when school starts up again, we’ll have a fourth-grader and a kindergartener.

Even though we have some time before they are ready to move out of the house, we want to spend time now prepare them for the big transition. As a parent, you probably feel the same way too. 

One crucial piece of a financial foundation kids and in particular, teens, need to master is learning to budget (and sticking with it),

While they’re home now, you have a fantastic opportunity to get them comfortable with handling their money.

If you’re not sure where to start, here are some tips from fellow parents and experts in the personal finance space to make teaching this life skill a bit easier less stressful for you and your teen!

Teach Your Teen to Budget for Real Life

Teens or not, whenever most people hear the word budget, they also hear the word ‘no’. To them, budgets feel like a strict diet. Just as fad diets fail, an unrealistic or extreme budget will more than likely discourage your teen and they will quit.

The first step before you even talk about the numbers is to discuss exactly what a successful and sustainable budget should be. When done right, a budget is something that helps you move your money towards your goals. Explain to them that at its root, budget is simply a plan about what they’d like to do.

You want a budget that can cover:

  •     Essential bills
  •     Future goals
  •     Discretionary expenses

When your teen’s budget covers those goals, they’re not only putting their finances in a good spot, but they’re moving closer to their specific long term dreams.

Creating a Doable Budget (They’ll Actually Enjoy!)

Once your teen(s) understands how a budget works, it’s important for them to create a budget that they can use in the real world. You can honestly budget however you want, but an easy budget to get your teen started is the 50/20/30.

Quite simplify, the 50/20/30 budget puts money into those three main buckets:

  •     50%  goes towards essentials
  •     20% towards savings (or investing)
  •     30% for fun and discretionary expenses

I appreciate how easy and flexible this budget can be. You can adjust the percentages for your teen’s needs, but it gives them some ballpark idea of how to portion their finances when they are out on their own.

How do you start them out on this budget?

With teens, you may have expenses like clothing or their cellphone bill count as essentials, or you may want to give your child the experience of being responsible for a small, shared family bill while they are still at home.

For older teens, you could even charge them a nominal ‘rent’ to offset their portion of the bills. In some cases, parents give that money back to their child as a gift to help with moving expenses (like for their security deposit) or use as additional savings. 

However you decide, talk it over so your teen understands why you’re doing it this way.

Share Your Family Budget

Creating a budget isn’t complicated, but it can difficult if your teen has no idea what to expect. Knowledge can be empowering.

While we may take it for granted since have to deal with the numbers, but your teen may not be aware of how much it takes to keep the lights on and roof over their heads. If you haven’t already shared your own budget already, now is the time.

Not knowing also puts them at a disadvantage when they start searching for a place or are comparing prices on expenses. Being armed with the numbers makes your teenager a more informed consumer.

When Your Teen Breaks Their Budget

Will there be times where your teenager will mess up with their budget? Probably so. However, that’s not necessarily a bad thing. As parents, we tend to want to protect our kids, but we also have to prepare them for the real world. As Ron Lieber, author of The Opposite of Spoiled, pointed out we should let our kids make financial mistakes. 

Wouldn’t it be better for your child to break the clothing budget while they’re still at home allowing you to help guide them through rather than having break their monthly budget while they are on their own and have bills to pay?

Mistakes will happen, they’re a part of life so giving your teen time to work those them and adjust their budget is a blessing for their future selves.

Essential Accounts for Your Teen  to Have

Since we’re talking about budgets, we should also mention some essential accounts you’d want your kid to have so they can practice managing their money.

Opening up student checking and savings accounts (usually free low on fees as well as not having minimum balance requirements) are good foundational accounts for your teen. They can deal with real-world situations pending charges, automatic transfers, and direct deposits.

As Family Balance Sheet founder Kristia Ludwick pointed out, teens should have the skill of balancing a checkbook even if they decide to go all-digital with their banking.

If they work, talk it over together and see if they can open up an IRA and start contributing. It doesn’t have to be much. The idea is to get them familiar and comfortable with the basics of investing.

Even if they put in $25 a paycheck, having them practice setting aside money in their budget for both long and short term goals is an invaluable lesson. You can also encourage them to contribute by offering a match for what they put in.

How Teens Can Easily Stay on Top of Their Money

With several accounts to keep tabs on, your teen is going to need an easy system to track their budget and goals.

With Mint, they can link up their accounts in one secure spot. They can also add their budget along with any savings goals they want to hit and make sure they stick with them.

Hopefully, these ideas and tips will make it easier to help your teen transition into a self-sufficient adult.

The post How to Teach Your Teen to Budget Like a Pro appeared first on MintLife Blog.

Source: mint.intuit.com

How to Choose a 401(k) Beneficiary: Rules & Options

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Choosing a 401(k) beneficiary ensures that any unused funds in your account are dispersed according to your wishes after you pass away. Whether you’re married, single, or in a domestic partnership, naming a beneficiary simplifies the estate process and makes it easier for your heirs to receive the money.

There’s room on 401(k) beneficiary forms for both a primary and contingent beneficiary. Before making any decisions on a beneficiary and a backup, it can help to familiarize yourself with 401(k) beneficiary rules and options.

Why It’s Important to Name 401(k) Beneficiaries

If you die without a beneficiary listed on your 401(k) account, the distribution of the account may have to go through the probate process. While some plans with unnamed beneficiaries automatically default to a surviving spouse, others do not. If that’s the case—or if there is no surviving spouse—the 401(k) account becomes part of the estate that goes through probate as part of the will review.

401(k) may house a substantial amount of your retirement savings. How you approach choosing a 401(k) beneficiary depends on your personal situation. For married individuals, it’s common to choose a spouse. Some people choose to name a domestic partner or your children as beneficiaries.

Another option is to choose multiple beneficiaries, like multiple children or siblings. In this scenario, you can either elect for all beneficiaries to receive equal portions of your remaining 401(k) account, or assign each individual different percentages.

For example, you could allocate 25% to each of four children, or you could choose to leave 50% to one child, 25% to another, and 12.5% to the other two.

In addition to choosing a primary beneficiary, you must also choose a contingent beneficiary. This individual only receives your 401(k) funds if the primary beneficiary passes away. If the primary beneficiary is still alive, the contingent beneficiary doesn’t receive any funds.

401(k) Beneficiary Rules and Restrictions

Really, an individual can choose anyone they want to be a 401(k) beneficiary, with a few limitations. There are only a few restrictions and requirements on who may be named a beneficiary.

•  Minor children cannot be direct beneficiaries. They must have a named guardian oversee the inherited funds on their behalf, which will be chosen by a court if not specifically named. Choosing a reliable guardian helps to ensure the children’s inheritance is managed well until they reach adulthood.

•  A waiver may be required if someone other than a spouse is designated. Accounts that are ruled by the Employee Retirement Income Security Act (ERISA) have 401(k) spouse beneficiary rules. A spousal waiver is required if you designate less than 50% of your account to your spouse. Your plan administrator can tell you whether or not this rule applies to your specific 401(k).

How to Name Multiple 401(k) Beneficiaries

You are allowed to have multiple 401(k) beneficiaries, both for a single account and across multiple accounts. You must name them for each account, which gives you flexibility in how you want to pass on those funds.

When naming multiple beneficiaries, it’s common practice to divide the account by percentage, since the dollar amounts may vary based on what you use during your lifetime and investment performance.

However, also consider how the funds will be taxed for each individual . Spouse and non-spouse beneficiaries have different rules for an inherited 401(k). Spouses usually have more options available, but they differ depending on the spouse’s age and your age at the time of passing. In many cases, the spouse may roll over the funds into a specific spousal or inherited IRA.

Non-spouse beneficiaries may face higher tax consequences, but may be able to extend or stretch any required distributions over their life span to reduce their taxable income. They can also take out the money as a lump sum, which will be subject to income tax, but not the 10% early withdrawal penalty.

What to Do After Naming Beneficiaries

Once you’ve selected one or more beneficiaries, take the following steps to notify your heirs and to continually review and update your decisions as you move through various life stages.

Inform Your Beneficiaries

Naming your beneficiaries on your 401(k) plan makes sure your wishes are legally upheld, but you’ll make the inheritance process easier by telling your beneficiaries about your accounts. They’ll need to know where and how to access the account funds, especially since 401(k) accounts can be distributed outside of probate, making the process much faster than other elements of your estate plan.

For all of your accounts, including a 401(k), it’s a good idea to keep a list of financial institutions and account numbers. This makes it easier for your beneficiaries to access the funds quickly after your death. Plus, there may be rules on the pace at which the funds must be dispersed after your death—in some cases, your beneficiary may need to spread out withdrawals of the entire account over the 10 years following your death.

Revise After Major Life Changes

Managing your 401(k) beneficiaries isn’t necessarily a one-time task. It’s important to regularly review and update your decisions, especially as major life events occur. The most common events include marriage, divorce, birth, and death.

Common Life Stages

Before you get married, you may decide to list a parent or sibling as your beneficiary. But you’ll likely want to update that to your spouse or domestic partner, should you have one. At a certain point, you may also wish to add your children, especially once they reach adulthood and can be named as direct beneficiaries.

Divorce

It’s particularly important to update your named beneficiaries if you go through a divorce. If you don’t revise your 401(k) account, your ex-spouse could end up receiving those benefits—even if your will has been changed.

Death of a Beneficiary

Should your primary beneficiary die before you do, your contingent beneficiary will receive your 401(k) funds if you pass away. Any time a major death happens in your family, take the time to see how that impacts your own estate planning wishes. If your spouse passes away, for instance, you may wish to name your children as beneficiaries.

Second Marriages and Blended Families

Also note that the spouse rules apply for second marriages as well, whether following divorce or death of your first spouse. Your 401(k) automatically goes to your spouse if no other beneficiary is named. And if you assign them less than 50%, you’ll need that spousal waiver. Financial planning for blended families takes thought and communication, especially if you remarry later in life and want some or all of your assets to go to your children.

Manage Your Account Well

borrow from your 401(k), this can cause issues if you pass away with an outstanding balance. The loan principal will likely be deducted from your estate, which can limit how much your heirs actually receive.

Also try to streamline multiple 401(k) accounts as you change jobs and open new employer-sponsored plans. There are several ways to rollover your 401(k), which makes it easier for you to track and update your beneficiaries. It also simplifies things for your heirs after you pass away, because they don’t have to track down multiple accounts.

How to Update 401(k) Beneficiaries

Check with your 401(k) plan administrator to find out how to update your beneficiary information. Usually you’ll need to just fill out a form or log into your online retirement account.

Typically, you need the following information for each beneficiary:

•  Type of beneficiary
•  Full name
•  Birth date
•  Potentially their Social Security number

Although your named beneficiaries on the account supersede anything written in your will, it’s still smart to update that document as well. This can help circumvent legal challenges for your heirs after you pass away.

The Takeaway

A financial plan at any age should include how to distribute your assets should you pass away. The best way to manage your 401(k) is to formally name one or more beneficiaries on the account. This helps speed up the process by avoiding probate.

A named beneficiary trumps anything stated in your will. That’s why it’s so important to regularly review these designations to make sure the right people are identified to inherit your 401(k) assets.

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Financial Lessons Learned During the Pandemic

2020 has shaped all of us in some way or another financially. Whether it is being reminded of the importance of living within our means or saving for a rainy day, these positive financial habits and lessons are timeless and ones we can take into the new year. 

While everyone is on a very unique financial journey, we can still learn from each other. As we wrap up this year, it’s important to reflect on some of these positive financial habits and lessons and take the ones we need into 2021. Here are some of the top financial lessons:

Living Within Your Means

It’s been said for years, centuries even, that one should live within one’s means. Well, I think a lot of people were reminded of this financial principle given the year we’ve had. Living within your means is another way of saying don’t spend more than you earn. I would take it one step further to say, set up your financial budget so you pay yourself first. Then only spend what is leftover on all the fun or variable items.

Setting up your budget in the Mint app or updating your budget in Mint to reflect the changes in your income or expenses is a great activity to do before the year ends. Follow the 50/20/30 rule of thumb and ask yourself these questions:

  • Are you spending more than you earn?
  • Are there fixed bills you can reduce so you can save more for your financial goals? 
  • Can you reduce your variable spending and save that money instead?

The idea is to find a balance that allows you to pay for your fixed bills, save automatically every month and then only spend what is left over. If you don’t have the money, then you cannot use debt to buy something. This is a great way to get back in touch with reality and also appreciate your money more. 

Have a Cash Cushion

Having a cash cushion gives you peace of mind since you know that if anything unexpected comes up, which of course always happens in life, you have money that is easy to liquidate to pay for it versus paying it with debt or taking from long-term investments. Having an adequate cash cushion this year offered some people a huge sigh of relief when they lost their job or perhaps had reduced income for a few months. With a cash cushion or rainy day fund, they were still able to cover their bills with their savings.

Many people are making it their 2021 goal to build, replenish, or maintain their cash cushion.  Typically, you want a cash cushion of about 3- 6 months of your core expenses. Your cash cushion is usually held in a high-yield saving account that you can access immediately if needed. However, you want to think of it almost as out of sight out of mind so it’s really there for bigger emergencies or opportunities that come up.

Asset Allocation 

Having the right asset allocation and understanding your risk tolerance and timeframe of your investments is always important. With a lot of uncertainty and volatility in the stock market this year, more and more people are paying attention to their portfolio allocation and learning what that really means when it comes to risk and returns. Learning more about which investments you actually hold within your 401(k) or IRA is always important. I think the lesson this year reminded everybody that it’s your money and it’s up to you to know.

Even if you have an investment manager helping you, you still need to understand how your portfolio is allocated and what that means in terms of risk and what you can expect in portfolio volatility (ups and downs) versus the overall stock market. A lot of people watch the news and hear the stock market is going up or down, but fail to realize that may not be how your portfolio is actually performing. So get clear. Make sure that your portfolio matches your long term goal of retirement and risk tolerance and don’t make any irrational short term decisions with your long-term money based on the stock market volatility or what the news and media are showcasing.

Right Insurance Coverage

We have all been reminded of the importance of health this year. Our own health and the health of our loved ones should be a top priority. It’s also an extremely important part of financial success over time. It is said, insurance is the glue that can hold everything together in your financial life if something catastrophic happens. Insurances such as health, auto, home, disability, life, long-term care, business, etc. are really important but having the right insurance policy and coverage in place for each is the most important part.

Take time and review all the insurance coverage you have and make sure it is up to date and still accurate given your life circumstances and wishes. Sometimes you may have a life insurance policy in place for years but fail to realize there is now a better product in the marketplace with more coverage or better terms. With any insurance, it is wise to never cancel a policy before you a full review and new policy to replace it already in place. The last thing you want is to be uninsured. Make sure you also have an adequate estate plan whether it’s a trust or will that showcases your wishes very clearly. This way, you can communicate that with your trust/will executor’s, beneficiaries, family members, etc. so they are clear on everything as well. 

Financial lessons will always be there. Year after year, life throws us challenges and successes to remind us of what is most important. Take time, reflect, and get a game plan in place for 2021 that takes everything you have learned up until now into account. This will help you set the tone for an abundant and thriving new financial year. 

The post Financial Lessons Learned During the Pandemic appeared first on MintLife Blog.

Source: mint.intuit.com

15 Reasons to Invest After Retirement

Working for a company with no retirement plans doesn't mean you can't create your own.

The time has finally come: you’re ready to retire. For many, this means living off savings or social security, but in reality, now that you’re unemployed it’s time you started making real money. Investing after retirement is a great way to continue making income, cover expenses in lieu of a regular paycheck, and stay plugged into the booming American economy.

  1. Social security is drying up

If you plan on retiring any time after the next 20 years, you shouldn’t count on social security funds. A 2014 report estimates that social security will no longer be able to pay full benefits after 2033. This means that those that retire after this demarcation point should expect to supplement federal aid with individual income — such as investments.

  1. Life expectancy is increasing

Clean living, improved healthcare resources, increased social awareness, and many other factors have all contributed to a steady increase in life expectancy over the years. Today, being young at heart means more than ever — retirees can expect to live an additional 15 – 20 years into their twilight years. The average life expectancy today is 80, which is almost a decade older than the to 71 year life expectancy of 1960.

  1. Investing is fun

Many retirees will take up new hobbies to fill the time previously occupied by professional obligations. Why not make your daytime hobby making money? Day trading stocks is the perfect retiree activity because it’s just as complicated as you want it to be. You can trade casually, and pick up some minor gains here or there. Or, go in full bore and make it your new job. After all, investments provide extra money, so have some fun with it.

  1. Delaying social security payments boosts your benefits

Let’s say your investments are performing exceptionally well, and maybe you don’t necessarily need social security yet. Your social security payout increases by 8 percent for every year you delay payments. So if you’ve held off on social security, and it has come time to cash out investments, your federal retirement benefits will be worth far more than usual.

  1. Moving

Want to spend the next chapter of your life in Myrtle Beach? Naples, Florida? Now that you’re retired, you’re free to live anywhere you want — unfettered by professional constraints, the world is your oyster. But there’s one problem: how will you afford it? Your savings account should be preserved for medical expenses, and you already checked the couch cushions for loose change. Well, investments with high yield interest rates or dividend payments are a good way to boost your income and gain a little extra cash.

  1. You earned it

What has decades of penny pinching amounted to if you can’t spend your savings during retirement? Part of the reason you budgeted so carefully in your professional years is to ensure security as you grow old. Well, here you are, and it’s time to tap that sacred savings account. As you assess your finances in old age, consider how much savings you’re willing to gamble on the market — what do you have to lose?

  1. There’s no better time to invest than now

This is not to say that the market is particularly ripe for new investors right now — although 2017 saw record high economic numbers — but more so that anytime is a good time to invest. You can guarantee the market will fluctuate in your 15+ years of retirement, but that’s not the point. As long as you build a portfolio that can bear a bear market, you will be in good shape to weather market slumps. As they say, “don’t play with scared money.”

  1. Grandchildren

Your kids are all grown up, but that doesn’t mean you’re off the hook. As a retired grandparent, you’re in charge of vacations, dinners out, movie nights, and other fun activities with the grandkids. And, you guessed it, one of the best ways to bankroll fun money is through thriving investments. In fact, while it might not be the most exciting prospect for the kid, a safe, slow-maturing investment is a great grandkid birthday gift.

  1. Jumpstart a startup

Are you passionate about the future of tech? Small philanthropies? Artisan dog treats? Whatever your calling may be, there is likely a startup that you can help get off the ground. One study found that 100 million startups try to get off the ground every year, and they need your help. Invest in a cause you care about, and in the process make someone’s entrepreneurial dreams come true.

  1. Broaden your horizons

Now that you’re retired it’s time to read those books you never got around to, learn a new skill, travel the world, and, most importantly, diversify your portfolio. Financial experts suggest that retirees pursue many different types of assets to help offsite potential market volatility.

  1. Travel

For most, vacation tops the list of most anticipated retirement activities. It’s easy to get swept up in fantasies of cold beer and catching rays on the beach, but you you need a way to pay for it. Investments are a good way to compound your savings, and make a little extra vacation money.

  1. Health

Studies show that retirees require upwards of $260,000 to cover medical expenses as they age. Maybe, thanks to years of frugality, you have this kind of money in savings, but it never hurts to stash away a little extra cash. The population nearing retirement needs to be able to expect the unexpected, so use the stock market as an opportunity to compound your emergency fund in case of expensive medical bills.

  1. Taxes

Just because you’re retired doesn’t mean you can avoid the taxman — after all, according to Benjamin Franklin, alongside death, taxes are one of the two certainties in life. While you no longer have to pay payroll taxes, you will still pay taxes on social security benefits. Plus, you are required to pay taxes on IRA withdrawals. Tax season can feel extra overwhelming if you are without a reliable source of income, so avoid the April financial crunch and tap investment gains to pay taxes during retirement.

  1. Support a company you care about

If you’re on the verge of retirement you probably had a long, prosperous career. Maybe you jumped around to different positions, or maybe you logged a couple decades at one company. Either way, chances are there is a company you want to be involved with that you never got a chance to work at. Investing in a company is a good way to gain a sense of belonging, and do your part to support a company dear to your heart — even if you never actually worked there.

  1. Stay sharp on market trends

All of the financial benefits of investments aside, investing in the market gives you a reason to care. One of the scariest prospects of retirement is the threat of complacency, so fend off apathy by giving yourself a reason to stay up-to-date. You are far more likely to take a keen interest in economic trends when you have a little skin in the game.
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Dear Penny: How Do I Save for Retirement on a Teacher’s Salary?

Dear Penny,

I’m 51 years old and don’t have a large nest egg. I’m a single parent with three kids. I’m a second career middle school teacher, so there is not a lot of money left over each month. 

How much money should I be saving to be able to retire in my 70s? Where should I invest that money?

-B.

Dear B.,

You still have 20 years to build your nest egg if all goes as planned. Sure, you’ve missed out on the extra years of compounding you’d have gotten had you accumulated substantial savings in your 20s and 30s. But that’s not uncommon. I’ve gotten plenty of letters from people in their 50s or 60s with nothing saved who are asking how they can retire next year.

I like that you’re already planning to work longer to make up for a late start. But here’s my nagging concern: What if you can’t work into your 70s?

The unfortunate reality is that a lot of workers are forced to retire early for a host of reasons. They lose their jobs, or they have to stop for health reasons or to care for a family member. So it’s essential to have a Plan B should you need to leave the workforce earlier than you’d hoped.

Retirement planning naturally comes with a ton of uncertainty. But since I don’t know what you earn, whether you have debt or how much you have saved, I’m going to have to respond to your question about how much to save with the vague and unsatisfying answer of: “As much as you can.”

Perhaps I can be more helpful if we work backward here. Instead of talking about how much you need to save, let’s talk about how much you need to retire. You can set savings goals from there.

The standard advice is that you need to replace about 70% to 80% of your pre-retirement income. Of course, if you can retire without a mortgage or any other debt, you could err on the lower side — perhaps even less.

For the average worker, Social Security benefits will replace about 40% of income. If you’re able to work for another two decades and get your maximum benefit at age 70, you can probably count on your benefit replacing substantially more. Your benefit will be up to 76% higher if you can delay until you’re 70 instead of claiming as early as possible at 62. That can make an enormous difference when you’re lacking in savings.

But since a Plan B is essential here, let’s only assume that your Social Security benefits will provide 40%. So you need at least enough savings to cover 30%.

If you have a retirement plan through your job with an employer match, getting that full contribution is your No. 1 goal. Once you’ve done that, try to max out your Roth IRA contribution. Since you’re over 50, you can contribute $7,000 in 2021, but for people younger than 50, the limit is $6,000.

If you maxed out your contributions under the current limits by investing $583 a month and earn 7% returns, you’d have $185,000 after 15 years. Do that for 20 years and you’d have a little more than $300,000. The benefit to saving in a Roth IRA is that the money will be tax-free when you retire.

The traditional rule of thumb is that you want to limit your retirement withdrawals to 4% each year to avoid outliving your savings. But that rule assumes you’ll be retired for 30 years. Of course, the longer you work and avoid tapping into your savings, the more you can withdraw later on.

Choosing what to invest in doesn’t need to be complicated. If you open an IRA through a major brokerage, they can use algorithms to automatically invest your money based on your age and when you want to retire.

By now you’re probably asking: How am I supposed to do all that as a single mom with a teacher’s salary? It pains me to say this, but yours may be a situation where even the most extreme budgeting isn’t enough to make your paycheck stretch as far as it needs to go. You may need to look at ways to earn additional income. Could you use the summertime or at least one weekend day each week to make extra money? Some teachers earn extra money by doing online tutoring or teaching English as a second language virtually, for example.

I hate even suggesting that. Anyone who teaches middle school truly deserves their time off. But unfortunately, I can’t change the fact that we underpay teachers. I want a solution for you that doesn’t involve working forever. That may mean you have to work more now.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com