Learn More about Your Financial Health!

HEALTH INSURANCE - Medical Insurance and Dental Insurance. Vision Insurance is sometimes included with medical insurance, but many times it's separate. Some plans might offer Discount Plans, which will give you discounts on glasses or frames. And there are also Voluntary Vision Plans. Disability insurance will help you pay the bills if you become temporarily or permanently disabled. Life insurance will help cover the cost for your funeral and provide monthly payments to your loved ones. The costs of health care include premiums, deductibles, and co-pays. Premiums are monthly payments, which may be covered in full by your employer or you may have to pay a portion of it. Deductibles vary depending on the plan; some plans offer high deductibles, such as high deductible plans. Co-pays are specified payments you make when going to the doctor or getting prescription medicine. Coverage for health insurance varies depending on the company and the plan, but it typically covers 90-100% of in-network services (which include the clinics or hospitals specified in the plan).

RETIREMENT PLAN - This include, but are not limited to, pension plans, 401k, and roth 401k. Pension plans are Defined Benefit Plans that are usually the employer's contribution at no cost to you. When the employee retires, they are paid a set amount on a monthly basis; this amount depends on the number of years they have worked for the employer. If the employee leaves the company before the required number of years to be "vested," they will either lose their pension or only receive a certain percentage of it. This is commonly referred to as the golden handcuffs, which keep employees from leaving the company (another example of this is employee stock options). A 401k is a Defined Contribution Plan where the employee contributes a set percentage of their salary into the plan. It is a retirement plan that both the employer and the employee can contribute to. The common employer match is $0.25-1.00 per dollar up to 6% of the employee's salary - this is essentially free money, so you should take advantage of it! Because the money that you put in this plan is invested, the value of the 401k depends on the success of the investment. In a 401k the income is allocated before tax, and then it is taxed when withdrawn after the age of 59.5. There is also the option of a roth 401k, where income is allocated after-tax and not taxed upon withdrawal.

PAID-TIME OFF - Commonly referred to as PTO, paid-time off is just what it sounds like; paid time away from work for vacations, holidays, or illness. The great thing about PTO is that it gives you the flexibility to manage your time off in a way that makes sense to you! Similar to the other benefits, PTO varies from employer to employer. And typically, the longer you work at a company, the more PTO you get.

FLEXIBLE SPENDING ACCOUNT - This is also known as a Section 125 Plan. It allows you to put money into savings for dependent day care, transportation, and health care before your income is taxed. Some healthcare savings plans will be offered with your health insurance plan. For example, high deductible plans may have an HSA (Health Savings Account). Another benefit of the Section 125 Plan is that it allows you to reduce your yearly income tax.

TUITION AND CERTIFICATION ASSISTANCE/REIMBURSEMENT - This is not offered by all employers, but a lot of large corporations provide this. Some companies might pay for your tuition right away; however, others may have specific requirements before reimbursing you, such as maintaining a certain GPA. For certification, some companies will pay for your study materials as well as exam fees.

SALARY - This will obviously vary A LOT depending on your career, location, education, experience, etc. One helpful tool to calculate your market salary is the NACE Salary Calculator (http://www.jobsearchintelligence.com/NACE/jobseekers/salary-calculator.php). Knowing your market salary will be very helpful when negotiating. Additionally, there is also a lot of very helpful information about salaries, preparation for interviews, and employer reviews at http://www.glassdoor.com/index.htm.

There are several things to keep in mind when accepting job offers. First, you can ask for the company to offer extensions, but be reasonable. Also, after you accept a job offer, you MUST stop your job search and decline the rest of your offers. Next, starting salaries for entry level positions are usually nonnegotiable, but it doesn't hurt to try. If want to negotiate benefits, you should do it before accepting an offer because that is when you have the most leverage with the company. Any communications about offers or negotiations should be done over the phone or in person; this includes accepting and declining job offers.

A credit report has information about a person's credit history (including loans, bankruptcies, bank accounts, etc.). And a person's credit score is comprised of their payment history, amount owed, length of credit history, new credit, and types of credit used. There are a lot of different factors that affect credit including student loans, late payments on medical bills, credit cards, and phone bills.

When trying to decide which type of credit card to get, it is important to compare the credit card offerings. This includes annual fees, interest rates, grace periods, and minimum payment amounts. There are many credit card companies that offer no annual fees, so this is definitely an unnecessary fee you should try to avoid! When comparing interest rates, lower is better. You will be charged interest on whatever monthly balance you don't pay off; the amount paid in interest could really add up. A grace period is a time during which you can pay your bill without having to pay interest. And minimum payment amounts are the minimum amount you must pay each month.

It is important to develop a positive credit history because lenders will often analyze a borrower's credit report to determine their creditworthiness. Financial institutions will offer different interest rates, terms, and amounts approved depending on your credit score. Typically the higher your credit score, the lower the interest rate and higher amount approved. Today, more and more employers are checking employee's credit reports. They do this to see if a person is responsible. Also, in a cash handling position, a person with a very poor credit report may be more inclined to steal the money. Landlords, insurance companies, and utilities companies also check a person's credit report when deciding whether or not to extend their services to them.

A new feature that credit card companies are required to put on their monthly statements is the pay-off period if you only paid the minimum. For example, if you owe $7000 and only pay the minimum 2% of balance monthly, it will take 45 YEARS to pay that off. There are many resources available online that provide you your credit report and your credit score. www.annualcreditreport.com allows you to pull your credit report, and you can check your credit score for FREE at www.creditkarma.com. Additionally, you can pull one credit report annually from each credit bureau: TransUnion, Experian & Equifax. A recent study discovered that almost 80% of credit reports have some type of error in them, so it is crucial that you check your credit report at least once a year.

When discussing recommendations of how to secure a strong financial future, we utilize the pyramid of financial needs. The first part we focus on is the foundation of the pyramid, which is made up of emergency reserves, debt management, and risk management.

EMERGENCY RESERVES:
An emergency fund is a key element to building a strong financial foundation. The rule of thumb is to have at least 3-6 months worth of expenses. This money should be kept in a highly liquid and accessible savings account. However, we also recommend carrying any imminent expenses (0-5 years) in cash. For example, if you know that you'd like a new car or want to take a trip in the next 5 years, you should consider increasing your emergency reserves to include those expenditures. We advise this because it's worth the tradeoff of losing out on a possibility of greater return for knowing without a doubt that your money will be available when you need it.

DEBT MANAGEMENT:
When discussing debt, you can imagine a bucket filled with water. The water represents your net worth, while the debt is represented by drilling holes in the bottom of the bucket and forcing "water" or your net worth to decrease.

Once your emergency reserves are sufficient, we help you decide which debt to pay off first based on interest rates. Debt is broken down into 3 categories that are listed below:
Category 1: Interest rate of 8% or higher = "bad" debt
Category 2: Interest rate of 5-8% = "emotional debt"
Category 3: Interest rate of 5% or lower = "good" debt

We recommend paying off the "bad" debt as quickly as possible, at the expense of nearly everything aside from getting free money. This means for your student loans and credit cards, you should pay off debt with an interest rate higher than 8%, focusing on the highest rate first and working your way down. For example, say you have 2 student loans. The first loan is at 8.5% and the other is at 4%. You should pay off the 8.5% loan aggressively and then continue to pay the minimum on the 4% loan because your money can most likely earn a better return so this will help you accumulate more wealth in the long run.

For your payment periods, we suggest stretching your loans out as long as possible. Doing this gives you smaller payments and more options of what to do with your cash inflow. This doesn't mean that you can't pay off your debt sooner than 25 or 30 years, it simply means that you aren't painting yourself into a corner by forcing high monthly payments. One of our goals is to help provide people with the most options because we believe that for financial planning to be successful, it should be adaptable and flexible.

RISK MANAGEMENT:
When thinking about insurance there are 3 questions you should ask to see if the coverage is necessary and realistic for your personal situation.
1) Is the risk I face economically devastating?
2) Can I buy coverage to protect against that risk?
3) Is the cost of the insurance economically devastating?
If your answers are yes, yes, and no; then it makes sense to obtain insurance protection. With this in mind, we will discuss the different insurance options available.

DISABILITY INSURANCE: This insurance is used to replace your income in the event that you become disabled. Most employers offer group disability coverage and while it's a good idea to take the free insurance protection, it's also important to recognize its limitations. Group disability through an employer will provide you with 60% of your salary, however this benefit would be taxable to you since your employer is paying for it. It also has the definition of "any occupation" so say that you're a neurosurgeon. If you aren't able to do surgery anymore but can teach at medical school than your employer doesn't have to pay your benefit because you're earning an income.

Private disability insurance is also used to replace your income; however it's meant to supplement what your employer already gives you for free. This private coverage is paid by you so the benefit is not taxed when you receive it. It is also portable so if you were to leave for a different job, this coverage is yours to keep. The biggest difference is for most carriers, private disability uses the definition of "own occupation." Let's take the same example of the neurosurgeon. If you become disabled and aren't able to perform surgery but can still teach at medical school, this coverage will continue to pay your benefit since you aren't able to perform the duties of the specific occupation that you were trained and educated to do.

LIFE INSURANCE: This product is meant to be a tool that is used as a solution to a problem. This may not be a top priority right now however we've seen many cases where a young individual chose to wait on implementing their insurance and then were diagnosed with a serious illness and are now not insurable. So it's a good idea to look into your options since life insurance is priced based on your age and health.

There are 2 ideas of how to utilize life insurance. The first is to add up all of your expenses that you would want to take care of in the event that you passed away and whatever that lump sum is, is the amount of coverage you need. The second use is for income replacement. As a rule of thumb, if you want to replace your income in the event that something tragic happens, for every $50,000 of income you generate, you need $1 million of coverage. This would help your loved ones to maintain the same quality of life.

This is an overview of how to successfully build a strong financial foundation. Once this is established, we begin to look at midterm wealth accumulation and retirement strategies.