“Real World” Personal Strategy Blog

Teaching Your Children Well

“The self is not something ready-made, but something in continuous formation through choice of action.”
- John Dewey

We do love children around here. So much of what we do, in the tax preparation process, influences families, children, and their futures — well, it’s simply a huge part of our clients’ lives, and we take it very seriously.

However … I’ve been around the block, once or twice, with families whose children have gotten themselves in financial hot water, and it’s not always an easy task to get them out.

So, this week, I’m taking some time to offer you some lessons “from the trenches” on helping your children launch into the real financial world with a firm foundation.

But before I get to that, I wanted to remind you:

1) You should have received your W-2’s by now, but in case you haven’t, here is a good resource for you:

http://www.bankrate.com/finance/money-guides/what-to-do-if-you-don-t-get-your-w-28-116632.aspx

So now, to raising your children’s financial future …

Martha Echols’

“Real World” Personal Strategy

How To Raise Financially-Savvy Children

I’ll spare you the stories, but needless to say: I’ve seen so many otherwise-loving and wise parents somehow forget to ready their children for the financial realities of adult life. Instead, they simply hand them credit cards, pack up their cars and head to school.

I’ll go out on a limb here, but I believe that it is this deficiency in financial education which has led, in part, to an adult population that spends beyond its means, engages in unsafe borrowing practices, and accumulates record amounts of  debt.

Still, if we decide to instruct our kids how to responsibly manage their money — much as we teach them how to read, tie their shoes, and ride bikes — then perhaps they might avoid a Great Recession-like event in their own adult lives.

Sure, that all sounds good in theory, but how do you go about instilling proper financial values into your children?

1) Tackle the task as if you are once again teaching your kids to ride bikes. You first need to let them get comfortable on training wheels, and prepaid cards are the training wheels of personal finance. So co-sign for prepaid cards, load a certain amount of money biweekly and allow your children to spend freely. This will force them to learn how to budget and, since most prepaid cards allow online account management, you will be able to review their purchases with them.

By the way, I did some online searching, and these are some good choices for pre-paid cards for teenagers, etc.

Visa UPside: http://www.upsidevisa.com

MasterCard Facecard: http://www.facecard.com

American Express Pass: http://bit.ly/heWJRS (shortened link)

Visa Buxx: http://usa.visa.com/personal/cards/prepaid/visa_buxx.html

2) Once you are confident that your kids have exhibited responsible prepaid card use for at least a year, you can graduate to monthly cash allowances. This progression, which is tantamount to taking one training wheel off their bikes, will provide them with greater financial independence (given that you cannot monitor their spending with cash). It will also more thoroughly test their responsibility because the odds of losing money or exhausting too quickly are heightened with a monthly cash allowance.

3) If your kids demonstrate the requisite discipline after a year of cash allowances, you can take the other training wheel off. Do so by co-signing for and opening checking accounts in their names and depositing slightly higher monthly amounts while requiring them to pay for more of their own expenses.

With checking accounts, children will garner much needed experience writing checks and purchasing with debit cards. They’ll learn how to avoid overdrawing their accounts and bouncing checks –  and if they can’t learn these lessons quickly enough, you can screw that training wheel back on and regress to cash spending. After all, when you took that last training wheel off, you didn’t let go of the bike completely! You still had a grip on the handlebars and were providing assistance as needed.

4) If your kids’ financial balance seems solid after 6-9 months, you can release the handlebars and either co-sign for student credit cards or give them small lines of credit as authorized users on your credit card accounts. Doing so will help teach them the principles of responsible credit use, such as spending within one’s means and paying bills in full each month. Remember though that you are simply taking your hands off to see if your kids can ride. If they wobble, catch them.

This financial education progression will instill within your children various skill sets that will surely serve them well when they leave the nest. It’s important to employ such a practical approach because it lets kids learn and inevitably falter while the stakes are low. Additionally, you can ensure that your children know how to handle their money before becoming independent, providing yourself with the kind of peace of mind that is valuable to any parent.

So before sending your kids out into the world, make sure they are ready for the financial implications of that independence!

To your family’s financial and emotional peace!

Clearing The Fog Of Common Mistakes

Derive happiness in oneself from a good day’s work, from illuminating the fog that surrounds us.

- Henri Matisse

This is the time of year, during which we get to do exactly what Monsieur Matisse, up there, advises.

We clear the fog of the (unnecessarily, in my opinion) burdensome pile of forms and regulations which form our tax process. Yes, some people get paid to create tasty food, others to patrol our streets … and we, well we put out financial and regulatory fires.

And it can be a lot of fun — really! There are stories every year, which circulate around our office, about the grateful client who was utterly hopeless about their financial and tax situation … until they met with us, we crunched their forms and numbers, and not only gave them the nice news of a lower tax bill (or higher refund) than they expected — but that we were able to speak into the overall situation of their finances.

But for some strange reason, many taxpayers STILL choose to “go it alone” when it comes to preparing their returns.

Well, far be it from me to have such hardy souls be left in the dark. While what I’m writing this week may seem “professionally risky”, we are sincere about wanting everyone in the area to pay the least amount in taxes possible.

So, even though it might encourage some people towards the risks of software-powered self-preparation, instead of our cost-effective, quick-but-meticulous services … here is a list of the most common errors I see when I review self-prepared returns.

(Warning: There’s no “app” for experience.)

Martha Echols’

“Real World” Personal Strategy

Most Common Self-Preparation Tax Errors

As all of your information is coming into your mailbox this month to prepare for your taxes (Doctor’s bills, old W-2’s, interest statements for student loans, etc.), it can be tempting (to some folks, at least) to forego the  perceived “expense” of using a professional to help you save on your taxes for the year.

So, if you decide to go down that lonely road, please do at least watch out for these common errors which we routinely correct for those who have us review their previous-year returns:

* Filing the wrong status (dependent or independent, 0 instead of 1, etc.)

* Missing forms

* Forgetting to sign it (this is incredibly common! Make SURE you sign!)

* Not adhering to new laws (a biggie)

* Math errors or mixing up numbers

* Standardized deduction (one lump sum) when itemizing may return more

* Forgetting earned interest

* Not claiming your charitable donations (more common than you’d think!)

* Incorrect social security numbers

* Missing the deadlines

* Not checking last year’s taxes to see if anything carries over (again, very common — and a good reason to have a pro check it out)

* Not taking deductions where they’re pertinent (IRA’s, too much Social Security being taken out)

* Failing to include dependents who don’t live with you

* Claiming someone as a dependent who claimed themselves as independent

* Not filing domestic or self-employment taxes

* Not claiming credits where they’re due (Child Tax Credit, Earned Income Credit)

So what can you do to correct all of these errors?

1) Double check. And triple check. Then check again. The idea here is that when another pair of eyes look at it, they can see stuff you don’t. Your mind will tell you that things that you write or calculate are correct, even if they aren’t.

2) Go to a professional. Self-serving? Why, yes. But as I mentioned in my introduction, we get paid to know what we do, and following the tax code permutations is our J-O-B. We’ve seen so many tax returns, even already this year, that what would take you 12 hours — can be accomplished by me and my practiced team in one.

I’m not suggesting we never make mistakes … but can you really afford to skimp when thousands are on the line?

To your family’s financial and emotional peace!