The Millennial Perspective: The Cost of Learning

I’m sure we have all heard of student loans the mountains of debt that come with them. Every generation has or has had student loan debt. Millennials, surprisingly, don’t have the highest average amount of student loan debt though. However, I think that we may have the hardest time balancing the debt with other aspects of being an adult. When people in Gen X, the generation with the highest average amount of student loan debt, were accumulating that debt, many Millennials were still learning to read and the cost of goods across the nation were a lot cheaper than they are now. Housing was cheaper making it easier for the generation before us to invest in a home following graduation. Food and gas were a lot cheaper too. Tuition, on the other hand, was starting to rise.1

According to Business Insider, the cost of tuition has increased 260% between 1980 and 2014. In dollars, this equates to $9,438 for four years including room and board to $23,872. Along side this, inflation has seen an increase of around 120%. Now let’s look at the cost of minimum wage. In 1980 minimum wage was $3.10 and increased every couple of years until it stopped increasing in 2009 when it reached $7.25. While this is a significant increase in terms of percentage, it has not kept up with the cost of consumer goods and it certainly hasn’t kept up with the cost of tuition. This has caused the Millennial generation to fall behind on getting a real start on life.

Like any type of loan, student loans come with an interest rate and different types of loans have different types of rates. Federal student loans issued by the Department of Education range from 3% to 6% interest while private student loans issued through banks, such as Discover or Wells Fargo, start at 8% and go up from there. The process of getting federal student loans can be difficult for some and this struggle can be caused by a number of things. For some, their parents or guardians may make too much money to allow them to qualify for any financial aid until they are 24 years old, married, or have a child. Others may have done poorly in their courses causing them to lose their eligibility. In these cases, the options to pay for school are left up to scholarships, cash, private loans. The repayment options for these different types of loans differ greatly as well. With federal loans, you can often be placed on an income-based repayment system allowing for your monthly payments of the total sum of your loans to match your income. On the other hand, private student loans do not have this option unless they are consolidated. A new private loan is issued per semester and typically has a $50 monthly payment that starts after graduation, meaning that you could be looking at a $400 a month payment after graduation. Regardless of the type of loan or the amount of the monthly payment, it can be difficult to get these loans paid off in a reasonable time frame and get a start on building a life because of the lack of increase in income for new graduates.

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Financial Literacy: The Key to Successful Kids

One of the wisest statements made about planning for the future can be found in an ancient Chinese proverb: “The best time to plant a tree is 20 years ago. The second-best time is now.” This is a philosophy that is applicable to your finances. 

Our schools are bombarded with challenges in teaching students the important lessons to equip them for life – algebra, science, English, literature, etc. I firmly believe this list of important lesson should include financial literacy. Starting to understand and apply financial concepts at an early age will empower the children to initiate better habits that will ultimately give our communities and country a better financial future.

Financial literacy is a term we use for the subject of financial planning concepts and the act of securing one’s future in a comfortable and confident manner. By initiating such subjects as savings, investing, budgeting, taxes, credit, and other vital areas of life at ages as early as 10, you are setting your child up for success in their future. Too often children are in college or after before they realize what they don’t know. This is on us! As parents, not only should we be responsible for the physical, cognitive and emotional well being of our children but we should include their financial understanding as well. 

An area to start a child’s understanding of financial matters is teaching them the value of planning for tomorrow. If a child desires a certain toy or game, ask them how they would pay for the game. Does your child have responsibilities around the house that teaches them that all family members must share in the household duties? If so, perhaps you could negotiate an allowance or “hourly rate” for completing their chores. However, to continue the lesson of financial responsibility, you will save one-half or more of their earnings each week in a savings account. I have often learned with my own children that items purchased with their earnings are cared for much better than those items given them.

Teaching children about the use of banks and proper credit are good starting positions for them understanding these institutions. When I was a very young boy, my parents took me to meet their banker. I was in awe at the marble floors, high ceilings and when he showed me the vault – WOW! I knew at that moment that I wanted to be involved in the finance in some form. But the words of John Gillson, my parent’s banker, still ring clearly in my mind to this day – “Take care of your credit and it will take care of you.” What Mr. Gillson actually meant was that one should only use credit when absolutely necessary and, in the manner, needed to bridge the short-term cash flow needs of the person.

It is critical that our children understand the importance of finance in their lives. The best future you could help them achieve begins with a basic understanding of the impact finance has on their lives and how to appropriately utilize financial concepts to help them live life to its fullest. For additional resources about teaching children about financial concepts, view our Compass Capital Management Videos. Until next time, I’ll see you on the golf course!

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Why Saving For The Future Matters?

Forty-one percent of Americans believe they would be able to cover a $1,000 emergency with savings, according to a survey conducted by BankRate in January, 2020. The chickens certainly came home to roost with the COVID-19 pandemic! The more disturbing findings of the survey were that 37% of the respondents would use their credit card to resolve the emergency. The lack of savings in the United States has reached critical stages for most families. To prepare your family for inevitable times of critical cash flow emergencies, I am providing you a proven strategy that will provide you with the confidence to weather emergencies in the future.

Some of the most common “emergencies” to strike families are automobile mechanical damages, large appliance failures, emergency medical care and loss of employment. Just one of these instances could spell disaster for your family without adequate savings to mitigate the disruption. During the pandemic, too many people have felt the anxious feeling of unemployment and wondering how their family will survive. Luckily, for many, the state and federal unemployment programs have been far richer in benefits than otherwise could have been. With the temporary additional federal unemployment benefit of $600, some individuals have “earned” more cash flow while being unemployed than experienced from their actual job. 

First, review your expenditures currently experienced by your family and choose one item of lesser importance to you from the list. This is the item that will no longer be purchased and the funds previously spent for this item will be automatically drafted each month from your checking account to your savings account. What this process does is take away the resistance of human nature to change by asking your financial institution to do the hard work for you. How this is accomplished is by visiting (or calling) your bank and asking them to perform an ACH (automated clearing house) transaction for you in a specific amount on the same date each month. Once you have adjusted your mindset to the alleviation of this item, choose the next least desired item on your list and continue this process until your family’s budget reflects only those expenditures that truly provide your family enjoyment. The ultimate goal of the process of saving for your future is to maintain 90 to 120 days of living expenses in a liquid account in case (and they always do) an emergency strikes your family. 

Second, if you are capable, consider seeking a part-time job or side gig. During the summer months you may have an opportunity to work in the evenings or weekends performing odd jobs or lawn work to increase your cash savings. This seasonal employment activity is an excellent method of increasing your cash reserves but may also tempt you to increase your lifestyle. This is where discipline must be exerted. Let’s say you earned an additional $200 in a week on your evening job. If you deposit these funds in your bank account, ask your bank to transfer them to your savings account instead of leaving them in your checking account. By performing this transfer your account will appear as though you have the same amount as always but your savings account will be increasing for your family’s safety. Any incremental increase in income, such as a bonus from your employer, should be treated in a similar manner.

Lastly, you may have accumulated assets which you no longer use such as additional lawn equipment, stored furniture, etc. Why not sell these items and place the proceeds in your family’s emergency fund? You may be surprised what someone will pay for a used piece of equipment!

The key to providing confidence and security for your family is the consistent monitoring of expenditures coupled with a mindset toward saving. Your bank most likely has an app for your phone that you can access with a couple of clicks. The challenge is to forgo looking at the increasing savings account everyday thinking it is available to you for a family vacation or new TV. No, this money is for the next emergency to strike your family. You will be glad you were disciplined and can face the next catastrophe with greater security.

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The Millennial Perspective: My House, My Rules

Picture it: a nice starter home with a yard for children and pets to run and play. A place for you to gather with family and friends. A place to call your own. Many millennials dream of buying and owning a home, but how many actually do? According to Urban Wire, the most recent study on this was conducted in 2015 when the youngest millennials were 18 years old and the oldest were 34. At that time, only 37% of millennials were home owners. Now, five years later in the year 2020 I am sure this number has grown considering most millennials are past college age and heading towards their 30s and 40s. However, I decided to conduct a study of my own and ask my fellow millennials about their home buying experience, if any. 

I asked my friends a series of questions:

  1. Do they own a home or have they ever owned a home?
  2. If so, what was their buying process like?
  3. If not, what is holding them back?

Several people that responded do, indeed, currently own a home and a few of the older millennials are even in their second home. Some of them qualified for special loans which allowed them to make the purchase without a down payment. Others saved just about all they could manage to make their dream come true even if it took several years and some had help from their families. Those that do not and have never owned a home gave a good list of reasons that seem to be a general consensus for a lot of millennials. From that list, several stated that they haven’t purchased a home yet because houses are too expensive. They would rather save until they find a home that they love at a price point that works for them than buy a house at what they could afford, but want to upgrade it or even buy a newer home within a few years. Some also stated that they don’t know where they want to end up, they aren’t married and don’t have kids yet and want to make sure that when and where they buy is just right.

Being a millennial comes with a lot of uncertainties. A lot of us are in the turning point of our lives where we transition from college age to being a “real adult.” We want to make plans and live a life that we deserve, but at the end of the day, life gets more and more expensive and the job market and average income can’t compete. Now we have lived through and will certainly feel the repercussions of two financial crises for many years to come. However, all this being said, the current trends for the housing market predict that another housing market crash may be imminent, but it could open up the opportunity for many people in my generation to finally be able to say those famous words that our parents shared with us many times, “my house, my rules,” so long as the job market and income allows. 

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Planning for the Future

“There is nothing certain in life but death and taxes.” This is my paraphrase of Benjamin Franklin’s famous quote to Jean-Baptiste Leroy in 1789. Imagine the tax rates imposed by the King of England in the days of the colonies and those assessed by our nation, The United States of America, to fund its services today. Our government budget continues to swell with the costs of programs administered by the U.S. Government to serve our citizens and their needs caused by an international pandemic.

A review of the President’s Budget for Fiscal Year 2021 is typically analyzed by those of us in the financial planning profession to determine where priorities will lie for the administration and Congress. Our government is bigger than any corporation I can think of in sheer number of employees or economic impact on the world. Now, this article is not judging the government’s function or disfunction. The purpose of this article is to provide you an understanding of the enormity of our government and comparison of the type of budgeting to that of a typical family.

One of the primary areas addressed by this budget is the outlook or vision of the administration. Like our government, we individuals should have a written plan for the future. Unlike our government, we are not allowed to print money to fund our own operations. (Well, we can’t print money legally.) You and I must work within the means we generate through our efforts or investments to provide for our housing, food, healthcare and other necessities of life. What has happened to many Americans is a microcosm of what is happening in our government services – borrowing to continue operations in the manner we wish versus that we can afford.

As of September, 2019, the average family in America owed credit card debt in the amount of $6,849 (according to a December 2, 2019 article by Erin El Issa published in Nerdwallet). The cause of most credit card debt is a lack of budgeting and controlled spending. Too often we seek immediate gratification instead of saving for a particular object. By disciplining yourself to only seek debt for the necessities in life such as a home or automobile, you may avoid a tremendous amount of hardship for your family’s cash flow burden. 

The U.S. Government currently owes a debt balance, and it changes by the second, of more than $24,000,000,000,000. How do we pay for a debt this large? First, we must think about revenues. Currently, the U.S. Marginal Income Tax Rates for individuals consists of rates ranging from 10% to 37%. Our system of taxation is known as a progressive tax system – the more you earn in taxable income the higher your marginal tax rate. Sounds simple, right?

Based on a recent report, in 2018 the U.S. Government relied on individual income taxes as the primary source of tax revenue. Our citizens contributed 40.72% of the total revenue needed to support services! Let’s take a quiz. If the costs of government functions and services are rising, what is the most obvious form of taxation that will eventually need to rise to pay for the services in a balanced budget? You guessed correctly if you said “personal income taxes”.

The goal of each family should be to plan for their future, care for the members of the family and serve their fellow man. Our country is the greatest on the planet. We could help sustain our greatness for all mankind by exercising a few simple disciplines in our spending and plan for the future. Another of my favorite quotes attributed to Benjamin Franklin will guide us to a better future – “A penny saved is a penny earned.”


Monday is a holiday when we recognize those who served our country – our servicemen and servicewomen of the armed forces. Those celebrated this Memorial Day made the ultimate sacrifice for our freedoms and liberties we now enjoy in the United States of America. To these celebrated heroes I simply, reverently and respectfully, say, “Thank you”. 

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IRA Law Changes That Affect You Now!

If you are receiving required minimum distributions from an IRA, you may have an opportunity to lower your tax burden for 2020! The Coronavirus Aid, Relief and Economic Security (CARES) Act includes a waiver for required minimum distributions for 2020. This provides immediate relief to taxpayers who were being forced to pay tax on the distribution but had no economic need. Another reasoning for this provision of the Act was to allow investors to retain their investments within their IRAs during a time our economy was contracting. Further, the required minimum distribution is based on the balance of the account at December 31, 2019. The markets were much higher than they are currently. The waiver applies to traditional and Roth inherited IRAs, too.

To provide immediate tax reduction, individuals under the age of 59½, who need funds to continue their lifestyle, may receive up to $100,000 of IRA premature distributions in 2020 and the 10% penalty for early distribution will be waived. However, the distribution is taxable. Good news for these individuals is that the tax due on the distributions may be evenly spread over three (3) tax years to be repaid.

If you are in the process of preparing and filing your 2019 individual income tax returns, you may contribute to your 2019 IRA up to July 15, 2020. This contribution would normally be allowed only to the date of April 15. By providing taxpayers the opportunity to build additional cash flow for their households, the extension of time to fund an IRA may allow investors to open or fund an IRA that otherwise would not be feasible.

Limits for IRA contributions for 2019 remain at $6,000 for Roth and Traditional IRAs. For those age 50 or older, an additional “catch-up” contribution of $1,000 is allowed. If you or your spouse, as married filing joint tax filers, wish to contribute to an IRA for 2019, your modified adjusted gross income must be $103,000 or less. If you are a single filer, your modified adjusted gross income must be $63,000 or less to contribute the full amount allowed in a Traditional or Roth IRA. The limit for IRA contributions for the 2020 tax year are the same as those in 2019.

Earnings limits for contributions to an IRA, while participating in an employer plan, are increased to $65,000 for single filers and $104,000 for married filing joint filers. The preceding amounts of modified adjusted gross income allow the taxpayer(s) to fully deduct their IRA contributions.

Lastly, one of the better changes to the IRA rules, for 2020, is the allowance of contributions to an IRA by individuals older than 70½. There is no age limit to make contributions to a Traditional or Roth IRA in 2020. This is a big bonus for many individuals who are savers. A tax deduction that you get to keep in your own account!?!? Welcome to the crazy world of taxation in the United States. See you on the golf course! 

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Strategies for Using Your Stimulus Check

Have we secretly transported to another universe? We can’t sit in a restaurant and eat dinner. We can’t attend a movie theatre. We can’t even visit our friends. All of these changes in life because of one thing – a virus. Have we experienced a paradigm shift in our lifestyle in the United States? I say NO WAY!

The United States Treasury has begun the process of issuing stimulus payments to qualified American citizens. Checks and direct deposit payments started crediting the checking and savings accounts of my fellow countrymen earlier this week. Most of us will receive a benefit of $1,200, some will receive a lesser amount and others will receive nothing. What do you do with this sudden inflow of money?

One of the most basic strategies of using your stimulus benefit is to establish a plan that addresses your most critical needs. For example, if you are in need of shelter, food or medicine, you should utilize the funds for these purposes. What if your mortgage is a federally-backed loan (such as FHA loans)? You may be granted payment relief for 6 – 12 months! If you are renting, perhaps your landlord will allow you to defer a month or two so that you can focus on the more important matter of your health. Any medicines you may require to maintain your health would be the focus for using your stimulus check.

If your basic living needs are met, you should consider saving the stimulus funds to enhance your emergency funds. It is vital that you maintain a minimum of 60 – 90 days of living expenses in a readily available account for emergencies. Guess what? The current pandemic we are living through is one of the emergencies for which this fund would be utilized! By maintaining access to funds that will allow you to live your life as you desire, at least for a period of time despite the ever-changing world around you, is both comforting and empowering. To know that your lifestyle can continue through times of struggle gives you the mental confidence to meet other challenges that may arise in life.

Let’s assume that you accumulated ample savings in your emergency fund. You may wish to review your debts and pay down, or even better pay off, certain high interest debts such as credit cards. I am not a big fan of credit cards due to the ease of abuse of such unsecured credit that allows individuals to live beyond their means. The phrase my father often tells me come to mind pertaining to credit cards – “give a man enough rope and he will hang himself”. During times of economic distress, many credit card companies will lower your interest rate for a period of time, if you contact them, and have been making your payments consistently and on time. Once the card is paid in full, place it in a zip-lock bag, then place the bag in a plastic container of water. Next, place the container in your freezer. This will require some effort on your part to free the card from the ice causing you to expend energy and time thinking about the use of the card.

Should you have none of the above needs, consider yourself a lucky person! The use of your stimulus benefit could be a very positive act such as contributing to an Individual Retirement Account (IRA) for a tax deduction. By saving for your future with an IRA, you will be preparing for the future in a bold way. Your needs are met today, for the next 90 days and for your future!

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The Millennial Perspective: Starting Late, Retiring Fearless

According to Pew Research Center, Millennials are individuals born between 1981 and 1996. We grew up in a time before the internet was a part of everyday life and playing outside or playing video games were the best options to keep us occupied. We grew up in the rapidly changing age of technology and social media. We also, unfortunately, grew up and are still facing the ramifications of the Great Recession of 2008. This has brought on a number of financial concerns among Millennials and has caused delay for many milestone events, such as buying a home and starting a family. The average Millennial makes $35,592 a year and has a net worth of less than $8,000 according to Business Insider. The average Millennial also has a student loan balance of roughly $30,000 for four years of college. The lower income and high cost of student loan debt on top of the cost of living makes it hard to start a life and save for the future.

As any Millennial would do, I took to social media to gather the opinions of my fellow Millennials about what concerns they faced regarding their financial future. Much to my surprise, several people joined in the conversation. Some said that their biggest concern was paying off student loans, others said buying a home, saving for their children’s futures, or starting a family in general. We will touch more on those subjects later, but one of the most popular answers I received was saving for retirement. Many of us are told to start saving for retirement as early as possible and many of us fear about the future of Social Security. However, when it comes time to set up our 401(k), 403(b), or whatever kind of retirement plans are available, if any, from our employers we find that the suggested amount to invest in the plan is far more than we can afford and still have a comfortable lifestyle. I remember when it came time to sign up for the retirement plan at one of my jobs which I thought paid fairly well for someone my age. The suggested investment each month was a third of my total gross pay, or in other words, the pay before any taxes or deductions. This would have left me with just enough money to pay my rent, my car note, and utilities each month. I, unfortunately, opted out of saving for retirement at that time. 

So, how do we start to save for our futures when we can hardly afford the present? Balance. It is important to find a good balance between what you need to live, what you can save for the future, and still have some funds left over to pay yourself, even if that means setting aside more savings. How do you find this balance? Planning. Sit down and look at how much you are making and how much you are spending, and create a budget that works for you and stick to that plan. Even if you are not investing in a retirement plan with your employer, you can start to save for your future. It doesn’t have to be much to start, but we have to start somewhere. Talk to a Certified Financial Planner™, get a second opinion if you have to, do whatever you need to do to feel comfortable when making these kinds of decisions and ensure that you are making the right choices to plan for your future. Retirement doesn’t have to be a lost cause or a fantasy for Millennials. As Jonas Salk said, “Hope lies in dreams, in imagination, and in the courage of those who dare to make dreams into reality.”

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Should I Change My Investment Approach In Retirement?

While accumulating assets for retirement, many people utilize an employer retirement plan that allows consistent contributions while investing in a growth model. Their approach is to maximize the matching contribution from their employer and, perhaps, assume more risk than they would otherwise assume because of continued contributions. Let’s review the process of investing during retirement and the differences one will encounter throughout the distribution phase of the portfolio.

The most prevalent concern of any retiree is running out of money. To confront this fear, most retirees make the most critical mistakes with their investments. First, to seek safety in the portfolio, the retiree will change from a balanced portfolio of equities and bonds to a bond-dominant portfolio. Thinking the cash balance approach secures their cash during the contraction of the markets, the larger peril to the portfolio is the lack of participation in the expansion phase of the market cycle. In layman’s terms, the rate of return on most bonds will not be sufficient to maintain the retiree’s purchasing power during retirement. Rising costs of living expenses such as medical care, housing, food and other basic needs will preclude the portfolio from providing excess cash flow to the retiree unless the total portfolio is significant.

To resolve the concern of running out of money, we work with our clients to develop a sound investment approach that addresses inflationary pressure, periodic cash distribution requirements and market risk. One of the most effective tools to combat risk is to diversify. At the time of retirement, many of our clients will participate in an economics lesson. Albeit a short lesson, we simply ask, “how would you feel to be out of money and healthy?” This question is one that causes their face to wrinkle and the eyebrows to furrow. Typically, the answer given us is “I would not feel comfortable at all!” 

Obviously, we knew their answer but the exercise is one that makes them confront what risk truly is in their lives. So many people believe risk to be simply the loss of principal in their account. However, the greatest risk is outliving your means of support to where your longevity is not rewarded with peace and tranquility but rather anxiety. Our independent research has proven that most retirees sleep better at night knowing they will not be subjected to the need for family or state support. Independence is the reward for investing properly.

Seek out the advice of an independent financial advisor that specializes in retirement planning. You deserve a specialist for this phase of life just like your cardiovascular surgeon if you have health issues with your heart. If you have questions regarding your financial future, why not gain assurance that you are making the right decisions for your family? A visit with a Certified Financial Planner™ practitioner may give you the confidence you need to live your life in a manner you desire instead of simply existing. 

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Post-Retirement Considerations

Nursing home costs in the United States can easily top $70,000 per year! Assisted living centers may cost as much as $4,000 per month for a one-bedroom private-pay facility. We discuss these lifestyle changes as part of our planning process for retirees. It is not always a popular subject to broach with newly-retiring people because they think of it as a negative. However, as specialists in retirement planning, we believe in educating our clients about all facets of the future that they might control.

Let’s think about the options and find a few methods of mitigating these possible future costs. For one, by maintaining an active lifestyle and sensible diet, one may escape these options or, at least, delay them. Many of our clients have seen the impact on their families’ and friends’ budgets from admissions to a nursing home. These facilities are of great assistance when transitioning our loved ones that experience a period of life in which continual support is warranted. 

Another option to utilizing these types of facilities is to accumulate sufficient funds that will allow you to remain in your own home with assistance provided by nurses’ aides and other medical providers. This option appeals to most of our clients that may simply have mobility issues and cannot provide for all aspects of their daily lives. We evaluate each client’s capabilities to accomplish their activities of daily living (ADL) and assist them in analyzing the impact of potential nursing care in their future financial planning budgets.

The six routine activities of daily living are: eating, bathing, getting dressed, toileting, transferring and continence. Each of us participate in these activities daily. To lose your capability to perform one of these activities may not be the deciding factor to start searching for an alternative to remaining in your home. However, when you lose the ability to conduct three or more of these activities, it is critical that the family consider nursing providers in the home of the individual or seek a nursing home.

To determine the appropriate level of support for a loved one, it is critical that the level of care replaces the daily activities that are not being performed by the individual. It may mean that you simply require an aide in your home for twelve hours per day. As the person’s abilities become more impaired, additional support and possible relocation may be needed.

One of the greatest ramifications of assigning a loved one to a nursing home is the emotional effect on the person. Too often this process is decided without input from the impaired person and the children simply need some relief from the care being required of them. Those of us deciding the fate of any person must consider the infirmed person’s wishes and desires. These decisions are some of the most difficult to make. By keeping the person informed of each step and soliciting their acceptance with the process, you may experience a better transition.

These types of decisions can have a significant impact on your retirement plans. Seek out a Certified Financial Planner™ practitioner who understands all aspects of retirement. It is too important of a decision to simply guess.

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