Financial lessons for anyone, from college financial aid


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I’m really in the trenches this year. After being a know-it-all for some time about the college financial aid process, I’ve finally had to do it close to home. While the process itself included all the forms I expected, I did learn a few tricks which are relevant to your money management even if you don’t have a college-age child.

  1.  It doesn’t get any better if you avoid it. If something has a deadline (for example, choosing your 401K investment mix, assembling records for taxes, or choosing the right options for your flex-spending account) your ability to think this through and get adequate information decreases as the deadline gets closer.
  2.  With any important financial move, follow up. It’s hard to believe, but two of the schools my daughter applied to lost significant parts of her application, which had to be re-sent.
  3.  The more complicated the transaction, the more follow up needed. Financial systems are set up to have lots of checks and fail-safes. Why? Because, guess what, they fail. If you are making a transfer of accounts, for example, you or your financial advisor needs to be watching it like a dieter looking at pizza.
  4.  Don’t ignore your accounts for long periods. I once had a major brokerage transfer someone else’s $250,000 account into one I was managing. The actual owner never noticed, and you can bet his broker never told him.
  5. Get names or follow-up is hopeless. Dear daughter has been trying to send some supplementary materials (recent awards, extra recommendations) and, at one school, has been given five different names on who is actually reviewing her admissions. Turns out two students with her name are applying this year to the same school. Belongs in Ripley’s Believe It or Not. I wouldn’t believe it but it’s happened before—two people with the exact same name had a checking account at the same local bank and one of them became, temporarily, $10,000 richer. This was only discovered after the rightful owner’s checks began bouncing all over town. Straightening out these snafus required quite a bit of contact with one person who could keep the details straight and be accountable for fixing the problems.
  6. Things you dread turn out to be easy, and things that are hard you never see coming. Everybody worries about filling out the FAFSA, but this year’s version takes about 10 minutes if you have your tax return. On the other hand, the CSS/Profile (for private schools), took hours, lots of extra explanations and several calls to the organization about what I still believe are errors in this year’s form.
  7. Good records are important. Having to reconstruct or unearth financial records in a time of stress makes everything worse. Really, it’s worth spending an hour on the weekend entering spending and investments in Quicken or, filing those papers or creating a decent file system on your computer, and reading an article or two on something financial. You’ll be so grateful when you fill out those college apps, try to do taxes, or retire; you’ll have a better idea of whether you can retire and how much money you really need; you’ll have some check on runaway spending; and your heirs will thank you. Put in that spade work. It’s all good.
  8. You can go broke saving. It’s important to analyze whether an action really puts you ahead. Sometimes people get so focused on getting financial aid that they make poor investments (often, annuities) that reduce their assets for aid, but are also high cost and hard to get out of. People justify bigger houses for the mortgage interest tax deduction, not realizing that they are spending much more to save just a little. Is it worth your time? Is it worth the cost?
  9. Most authorities are already hip to your little tricks. College financial aid officers and the IRS generally clue in to the most “creative” strategies pretty quickly. In the case of the IRS, just how much money and time do you want to spend in an audit? (see #8 above!)
  10. On the other hand, you are entitled to what’s due. There’s no reason not to apply for financial aid if you’re on the borderline. In the larger scheme of things, spending a day filling out forms could have a pretty big payday. If you really do work out of your home, you’re entitled to home office deductions just the same as any business deducts its expenses.

In college applications as in life, the more complex the system gets, the more “controls” are introduced, the more money at stake, the more that can go wrong. Good luck, and keep on top of it!



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What we can learn from Mitt Romney’s taxes


Tax Preparation

No wonder he didn’t want to release his taxes. Yes, it’s true, Mitt Romney is different from you and me—he’s way, way richer. Than most everyone on the planet. I’m no fan of his and he deserves every bit of the outrage people are expressing. It’s not that he’s done anything illegal, it’s the smarminess of it all. But maybe there’s just a tiny, envious part in all of us that whispers, “I wish I could do it, too.” I don’t think that will carry him into office (at least, I hope not), but there are a few useful lessons to be learned from scrutinizing his strategies.

  1.    Starting or being a partner in a successful business is the way to wealth. Okay, having a really successful parent doesn’t hurt, either, but if you don’t already have one, you probably can’t get one. Your own business offers some significant tax opportunities, both in deductions and in ways you can pay out money to yourself.
  2.   Park your accounts where you’ll pay the least taxes. For most of us, this probably isn’t the Cayman Islands. But any of us can do some smart asset allocation, choosing to plunk the appropriate investments in either taxable or tax-deferred/nontaxable  accounts, e.g., generally bonds in non-tax, capital gainers in taxable (at least for now) Of course, it’s a little more complicated than that. Maybe you should see a financial planner.
  3. Keep updated and scrutinize those returns—you can bet he has a phalanx of estate planners and tax attorneys who are on top of this. Things do change, and small changes in tax law can cost plenty.  More than one set of eyes on a problem can come up with more solutions.
  4. Have an estate plan in place. Romney’s kids aren’t going to be wards of the state. I guarantee he’s got a complex and thoroughly thought-out estate plan. If you don’t have a will and all the appropriate powers of attorney, pick up the phone NOW and call your attorney. If you don’t know one, pick up the phone NOW and call me, I’ll give you some names.
  5. Buy and hold. Do you think Mitt checks his portfolio every day? He’s looking for long-term capital gains, which cost less in both taxes and trading costs.
  6. Don’t miss the itemized deductions. One of the most common mistakes I see is people who have a little side business and don’t take deductions for their costs. When I ask, I’m usually told, oh, I don’t want to depreciate my house. You don’t have to! It’s a different item! So deduct those 5,000 ink cartridges you buy, and the amount of phone service attributable to your business, etc., etc.
  7. Give to charity. I probably wouldn’t select the same charity he did, but at least he gave something. Actually, quite a lot. Do it. It’s only right.
  8. Don’t forget the State you live in. Each state has its own quirks and you, or your accountant and financial planner should review your individual picture to make sure you’re taking it all in (and complying with local law).

That should get you started. The Wall Street Journal had a pretty good article on this same topic (although they perpetuated the same misinformation about home offices.) Here’s a link—if you can’t get the full text, email me and I’ll send it to you through my subscription.

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