life skills, money, parenting, teaching financial responsibility

Dear Child O’ Mine…This Is Your Legacy

Every parent has a legacy for their children.  The legacy can be a strong family value system and financial security that they leave behind.   On the other end of the spectrum, the legacy can be a long history of family dysfunction and poor money management skills.  For some, the legacy is something more tangible, as in cash, stocks or property.  Since this is a financial page, we’re going to talk about that one. There are certain responsibilities that come with this legacy, and we as parents don’t always take the time to articulate our unspoken expectations.   I can’t speak for them all, but I believe that I speak for many.

Please do not blow through your inheritance like an impulsive lottery winner.

Your inheritance may be the size of a lucky scratch off lotto ticket or it could be like winning the Mega Millions, but I’m guessing it will be somewhere in between.   If it’s on the lower end, please, make sure your needs are met, do something nice for yourself, pay off debt and use it as a springboard to start building a legacy of your own.  If you get something larger, like larger than you have ever imagined having before, this is for you.  Remember that this gift can be the seed you plant to create generational wealth.  Or you can take it all and buy a big, expensive vehicle.  If you decide to spend it all on a larger new home, will you be able to afford the taxes and increased maintenance?  Will you be able to sustain yourself in retirement?  Or will you find yourself in more financial stress than ever?  If you can project forward and imagine the older and presumably more “mature” version of you, which one of these choices do you think would provide greater peace of mind?

Don’t spend in a short time what took me a lifetime to create.

Please be responsible.  It is not a windfall.  It is the result of years of hard work, patience, forward thinking and good decisions. Keep that in mind as you decide what you will do with it. The greater the gift, the greater the responsibility.   Receiving a large financial legacy is an opportunity to get your money to work for you. If you can amass a respectable sized nest egg, you can feather your retirement nest with the dividends created by the nest egg.  Even after you’ve used some of the principal for your own enjoyment, you will still have some to leave to the next generation.

Always Have a Plan B

You might be expecting an inheritance when your parents are gone, but have they set up a legal plan to transfer their assets according to their wishes?  Or are they living an inflated lifestyle which leads you to believe they have greater wealth than they actually do?  If that is the case, any equity they have may be used to pay off debt and not transferred to heirs.  Of course, even the most financially prudent parents could see their wealth eroded due to catastrophic illness.

I wish for you to have the warmth of a loving parent for as long as possible.  Take this opportunity to gently ask them some questions about this topic while you are able to do so.  Find out if there are any unspoken expectations that come with your legacy.  Learn to look at life through a long-term lens, which will usually lead to better choices.

Financial literacy, Insurance, life skills, money, parenting, parenting young adults

How to Decide Between PPO or HMO Medical Insurance Plans

Learning about health insurance is like learning a foreign language.   Not knowing the language can cause huge financial mistakes. This article has been requested of me by some of my favorite people.  Here are their stories:

Caitlin had just graduated from college, just had her first child, and had just accepted her first “real” full-time job with benefits.   She found it very confusing to have to read through and select her health care plan.  In the end, she realized it would be smarter to stay on her parents’ plan as long as she was legally allowed to do so.

Kelsey had the benefit of Preferred Provider Organization (PPO) medical plan.  She made an appointment with an in-network doctor.   After the insurance claim was filed, she found out that certain services are excluded from her policy when she was presented with a $400 bill.

Shannon also had insurance through a PPO plan.  She found a doctor near her new home and made an appointment for the purpose of meeting and selecting a primary care physician (PCP).  After the claim was filed, she also received a $400 invoice because it was coded as a preventive exam which is not allowed by her policy.

Today’s article should be useful for those individuals who get to choose between employee sponsored, managed care plans.   Many employers provide their employees with medical benefits.  They usually pay for part of the premium.   The premium is a fixed payment which is usually deducted from each paycheck regardless of whether the employee receives any medical care or not.   Here’s an example to show what that means:

Austin works for a company which offers medical insurance with a premium of $500 per month which is the group rate negotiated by his employer for each employee who chooses to participate in the medical plan.  Austin’s company is very generous, so they subsidize, or cover the cost of, his premium by 80%.  That means Austin pays only $100 per month (20%X$500) for his medical insurance plan which would be worth $500 if he didn’t work for such a great company.  His share of the premium would be deducted directly from his paycheck with pre-tax dollars.  In other words, the premium would be deducted from his gross wages, and then, taxes would be calculated on the balance (gross wages minus insurance premium) X tax multiplier).  Austin was confused when he saw his first paycheck because his deduction was not $100 as he expected it to be.  When he called his payroll department, they explained that his premiums would be pro-rated, or divided up equally between all his paychecks.  Austin’s medical premium for the year would be $1,200, so if he was paid only once per month, then his paycheck would have showed a $100 deduction for his medical premium.  But lucky Austin was paid every other Friday, so he had a biweekly pay schedule.  52 weeks in a year divided into 2-week periods assured Austin of 26 pay checks in a year.  His premium of $1,200 pro-rated equally between 26 paychecks created a deduction of $46.15 on each paycheck.  Congratulations to Austin.  He now has medical insurance, so if he gets sick, will all his medical care be free?  Far from it!  If he never gets sick or goes to the doctor, he must still pay the premiums.

Now that you’re familiar with how a premium works, we’re going to backtrack and talk about the two most common types of managed care plans, specifically PPO (preferred provider organization) and HMO (health maintenance organization).

PPO’s offer more choices, but the premiums are higher. Most services are subject to a deductible and a coinsurance must be paid by the person who receives service.  You can choose between a service provider who is in the network or one who is outside the network.  The difference is that the plan will pay a higher percentage of expenses if you choose an in-network provider. You are not required to choose a (PCP) primary care physician and you can usually go directly to any specialist (eg. dermatologist) that you choose without having to see your primary care doctor first to get permission to do so.

HMO’s offer fewer choices but lower premiums. You must choose a PCP to coordinate your medical care. For example, if you want to go to a dermatologist, you first need an appointment with your PCP to ask for a referral.  If your referral is given, you will need to select a dermatologist from a limited network.  HMO’s have a tidy, predictable co-pay(ment) schedule and lower premiums, but is offset by fewer choices.

If you look at the table and see blah, blah, blah insurance, just skip to the example after the table…

Coverage Comments PPO In Network PPO Out of Network HMO
Preventive Care 100%, no deductible Services paid at 70% after deductible $0 co-pay
Deductible First $400 of medical care each year is paid by Austin before the insurance will reimburse any expenses. $400 single, $800 family $400 single, $800 family None
Co-Insurance/Co-pay Co-Pay (HMO only) is a fixed predetermined amount for service 85%* of eligible charges**after deductible*** 70% of eligible charges after deductible Co-Pay based on service
Out of Pocket Max $2,800 Single, $8,100 family $3,100 single,

$9,000 family

$1,800 single, $3,600 family
Primary Care Visit

 

85% of eligible charge after deductible 70% of eligible charge after deductible $25 Co-Pay
Specialist Care Visit 85% of eligible charge after deductible 70% of eligible charge after deductible $40 Co-Pay
Hospital Care/Surgery 85% of eligible charge after deductible 70% of eligible charge after deductible $200 day/max $1,000 year
Outpatient Surgery

 

85% of eligible charge after deductible 70% of eligible charge after deductible $150 Co-Pay
Emergency Room (ER) 85% of eligible charge after deductible 70% of eligible charge after deductible $150 Co-Pay
Diagnostic Tests 85% of eligible charge after deductible 70% of eligible charge after deductible $0.  Co-Pay

*Percentage figure in the entire chart shows the percentage of the eligible charges which will be covered after deductible.

**Eligible charges exclude certain procedures or services which should be called out in your policy document.

***Deductible example-Austin breaks his arm and ends up in the emergency room (ER) at the hospital which is in his PPO network.   His eligible medical expenses total $2,500.  A claim is filed by the hospital with his insurance company so they can pay the hospital directly for Austin’s medical care.  We’re going to assume here that Austin had chosen the PPO plan and we can see in the table that an emergency room trip is subject to a deductible.  Because this is the first time this year that Austin has incurred any medical expenses, he hasn’t met his deductible.  Once the insurance company reviewed the claim and determined that all the expenses were eligible, they paid the hospital $1,785.   The hospital then sent a bill to Austin for the additional $715.  He reviewed his Explanation of Benefits (EOB) to see the claim details from the insurance company to make sure that he was being billed the right amount.  This is how the insurance claim was calculated:

  • $2,500 for hospital services less his $400 deductible (Austin was single) left $2,100 of eligible expenses
  • $1,785 ($2,100 X 85%) is the amount the insurance company paid to the hospital
  • $715 is the total of the deductible ($400) plus Austin’s 15% coinsurance (2,100 X 15%=$315)
  • $200 is charged by his orthopedic surgeon for a follow up visit
    • The EOB shows that the insurance paid $170 (85%) and Austin owes $30 (15%) since the deductible has already been met for the year

The emergency room bill is just one component of the medical treatment.  Austin could be billed separately by the physician who treated him in the ER as well as for any diagnostic tests, such as x-rays, that needed to be done.

Austin pays the hospital for his share of the ER visit.  If he didn’t have insurance, he would have owed the entire $2,500.  Austin sits at home with a broken arm, wishing he had chosen an HMO since his ER trip would have cost him only $150!  Since he doesn’t get to go back to work for a while, he has plenty of time to read about his insurance plan.  He learns that dental insurance and vision insurance are covered in separate policies and he did not select them. He is relieved to discover that his company has Open Enrollment once per year, so he will have the option of switching to an HMO for next year and adding both dental and vision insurances.

How does each story end? Caitlin takes the money she saves on premiums and starts an emergency fund for unexpected expenses.  Both Kelsey and Shannon have worked with their doctors to ask if there is another appropriate medical code that can be used to resubmit the claim to the insurance company.  If the insurance company will still not pay the medical claim, they’ve learned that they may be able to negotiate a fee reduction for charges not covered by insurance.  And Austin?  Well, he takes his good arm and pats himself on the back for choosing to purchase the insurance even though he didn’t really think he needed to!

financial responsiblity-teens and young adults, life skills, money, parenting, Parenting teens and young adults, stay at home mom, teaching financial responsibility, Uncategorized, wants and needs

Wants vs. Needs-Cutting the Food Budget

 

Wants Vs Needs Food budgetHello Fellow Parents,

I don’t know about you, but I’m here trying to make the best of my incarceration bonus time at home.  During the day, I change into my day pajamas and make the lengthy commute to my day computer.  When I am thoroughly sick of my work location, I retrace my steps.  I end the day in my reclining office chair with my night pajamas and my tablet.  The days are starting to run together.  I fear that I will work on a Saturday because I think it is still Friday.  Can anyone relate?

I’ve been trying to think of topics that would be helpful to discuss with your kids while so many people are spending extra time at home.  The topic today is very basic, but I think it might be time to bring it up again no matter whether your children are in grade school, middle school, high school or young adults.

Wants versus needs is a relevant discussion at any age.  It is especially relevant now with the current state of our economy.  Parents may need to make choices which will affect their dependent children and young adults.  I am writing to help get the conversation started which is the first step in making necessary budget cuts.

It’s painful to disappoint our children, teenagers and even young adults, but while we are going through periods of (hopefully temporary) unemployment, some tough decisions will need to be made.  The following list is a good place to start the discussion (only #1 will be discussed in this post):

  Basic Needs Wants
1 Healthy Food & Water Eating (or drinking) out, extravagant grocery purchases
2 Shelter Entertainment
3 Utilities Cell phone with Data Plan
4 Clothing New, designer clothing
5 Personal Care-haircuts, etc. Personal care-professional mani/pedi, color treatments
6 Transportation expenses Car-sometimes (with insurance, gas, repairs)
7 Basic Educational Expenses Private School Tuition
8 Debt Payments-existing Extracurricular and enrichment activities
9 Internet-sometimes Internet-sometimes
10   Subscriptions
11   Vacations
12   Gifts
  Other topics to be discussed in subsequent posts

 The basic needs require no discussion as I think we are all familiar with them.  It’s worth a family discussion to pull together and figure out where costs can be cut, if necessary.  I was a stay at home mom for many years.  I offer you my many years of personal experience in extreme cost cutting while still living an abundant life.  I have trained my whole life for this!

Grocery shopping is a discretionary expense where we can cut a lot of “fat” from the budget, quite literally!  Just for an experiment, take a look at your last couple of grocery receipts, and add up the amount that was spent on beverages.  Include pop, coffee, tea, milk, juice, alcohol, bottled water, sugared powdered drink mixes and anything else I may have forgotten.  If all those items were stricken from the shopping list, you would still have plain old tap water.  Sound exciting?  Not exactly, but right now this discussion is about differentiating between wants and needs!   Next, add up anything that would be eaten as a snack outside of a regular meal.  Include chips, dips, desserts, pastries, snack bars, pudding, sugary yogurts, candy, nuts and anything else you see on your receipt that I didn’t think of.  How much would you save if you cut out all of them?  Next item under scrutiny is meat.  How much was spent on meat?   Can you cut out some meat and replace with beans for protein?  Can you buy less expensive cuts that are just as good after marinating?  How about cereal and other breakfast items?  A big container of oatmeal is a much more economical alternative than sugary cereal. Donuts and pastries are not an actual food group.    How is this a family discussion, you ask?  Well, once you have figured out what areas can be cut out of your food budget, add in a few of your family’s most important luxury items to your next shopping trip.  If you keep a bag of apples on hand, no one will go hungry, but they may decide that they were not actually hungry enough to eat an apple!   Also important is meal planning, leftover management, and where you shop.  You can get a lot more food at Aldi than you can at Whole Foods.  Buying generic, at least sometimes, shopping sales and clipping coupons will go a long way as well. Buying a large sized yogurt and adding your own fruit is more economical than buying individual serving sized containers.  Since most of us have nowhere to go right now, why pay extra for convenience?

Now that you’ve had a chance to evaluate and cut your grocery budget, now you can look at how much is spent eating out.  I recommend downloading your bank statement and credit card statements for the past few months.  If you download everything into an Excel format, it will be easy to see how much was spent on restaurant meals, coffee, bars, etc.  You might be absolutely stunned when you see the numbers in front of you in black and white.  Does your family eat out twice per week, or 8-9 times per month?  How much would save if you ate all your meals at home?  What if, instead, you splurged once or twice per month with moderately priced meals?  Could pizza night out turn into frozen pizza night  at home (feel free to splurge on the electricity to bake it) with a movie in your very own, virus -free living room with your delicious hot, almost free popcorn with real, actual butter?  How much was spent on coffee, craft beer and wine tastings?  How much could be saved if those indulgences turned into occasional treats rather than daily or weekly occurrences?  Open the restaurant discussion with your kids.  What if they could only choose one or two special meals per month?  Where would they choose?  There’s no reason that their carryout choice must be the same as yours.

Take this as an opportunity to talk to your kids about money. They’re resilient.  It’s not like they don’t already know something is amiss.    There is no shame in having to make cuts when necessary.  The biggest mistake would be denying that financial sacrifices need to be made and jeopardizing the long-term welfare of your family.

Let me know whether you did this exercise and how much money you found in your budget that could be used on fixed budget items such as rent or mortgage.  In addition to freeing up resources in the budget, this activity should also contribute to the health and wellness of your family.  Happy hunting!

 

 

Adulting, military, money, mother love, parenting, Parenting teens and young adults, parenting young adults, Veterans Day

Lessons From A Veteran-You Can Never Go Home Again (Or Can You?)

waimea bay

Just 32 short years ago, I was finishing up my 6-year enlistment.  I couldn’t WAIT to get out!   I was ready to break out of my shackles and take on all the vast opportunities that this big world had to offer.  I thought I would never set foot on a military base again but it’s funny how life works.   As the mom of two young adult daughters, I have long had a dream of taking them back to the place where it all ended for me.  I wanted them to see the place ”that will live in infamy”…a place that became grander in my mind with each passing year that I didn’t return.  The very gates that I begrudgingly crossed each day for years had become inaccessible to me.  Finally, with the help of a friend and no less than a half dozen phone calls to coordinate, I was finally able to infiltrate the secure fortress where I had once roamed freely.  It was both magical and disappointing at the same time.   Magical because I got to relive a piece of my youth and disappointing because I had to face the fact that nothing stays the same.    Back then, I was a member of a team but now I was an outsider just trying to relive a part of her past.    On my stroll down memory lane, below is what I learned and hope to impart to my daughters:

Continue reading “Lessons From A Veteran-You Can Never Go Home Again (Or Can You?)”

Adulting, college, Financial literacy, financial responsiblity-teens and young adults, life skills, money, parenting, Parenting teens and young adults, parenting young adults, teaching financial responsibility

Bill of Rights For Parents of Young Adults

Bill of rights

The unwritten parental constitution has changed immensely over the last 50 years.  In earlier times, parents had a lot more expectations for their kids.  Maybe it was just the way it was in that era or maybe it was out of sheer necessity.  More recently, parents in general can’t seem to do enough for their kids, even when they are pressed for both time and money.  If we don’t accommodate all of their desires, then we have tremendous guilt.    I get it.  I’ve had plenty of guilt, but not because I didn’t love and care for my kids.  It’s because I said no to many of the things other kids took for granted.  Like smart phones.  Before you judge me too harshly, just know that mine had a flip phone which they got for 8th grade graduation.   I wanted to teach delayed gratification and that trying to “keep up with the Joneses” was neither wise nor sustainable.

Continue reading “Bill of Rights For Parents of Young Adults”

Adulting, Financial literacy, financial responsiblity-teens and young adults, life skills, parenting, Parenting teens and young adults, parenting young adults, teaching financial responsibility

Teach a Kid to Fish and She’ll Eat For a Lifetime

Launch lady tax check

As an avid reader of Napoleon Hill’s philosophy, I have read that one of man’s greatest fears is the threat of poverty.  Though I have never personally experienced abject poverty, I know well some who have.  I do know what it is like to have to make tough choices. I know what it is like to have $5 left until payday with no savings account or safety net. This was part of what drove my decision to enlist in the US Navy when I was still a teenager.  In retrospect, it was one of the best things I could have done, though it didn’t feel like it at the time.  I was given the chance to be wholly accountable for my outcomes.  It was an excellent training ground to learn countless life lessons.  I am far from being a financial expert, but I continue to learn.  My drive to learn is so I can teach others what I wish I had known at a much younger age.  My own daughters have always had a safety net and sometimes find it hard to comprehend (or tolerate) what I am trying to teach them.  What I offer is perspective by asking the following question: “When our children no longer have parents to consult with (or get subsidies from) how will they manage to get along financially?”  I am a fervent believer in “If you give a man a fish, he’ll eat for a day; if you teach him to fish, he’ll eat for a lifetime.”   Here are just a few things I’ve tried to teach my kids that you might find helpful as you try to teach life skills to yours: Continue reading “Teach a Kid to Fish and She’ll Eat For a Lifetime”