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Thursday, June 27, 2013

Five Step Cash Flow Program for Parents - Step Four

Liability Worksheets

Once you have calculated your assets you will know how much you own.

Now you need to calculate how much you owe. 

Subtracting how much you owe from what you own will determine your net worth. The net worth can then be used to determine approximately how much you can afford to contribute to your children’s college education from your assets.

The following Parent Liabilities Worksheet is designed to give you a picture of the your debt position.

Believe it or not, there is good debt and bad debt and most families do not understand that concept.

A home equity loan is considered good debt, because homes appreciate in value and provide the owners with a tax deduction. 

On the other hand, credit card debt is considered bad debt because individuals are paying high interest rate finance charges for the privilege of using the credit card. 

Therefore, if you are carrying a high balance on your credit cards, you are actually paying more than the retail value for the goods you purchased.

The data from the following liability worksheets will allow you to review your current debt situation.


Credit Card Balances                                                                $ __________
Income Tax Payable But Not Yet Paid                                        $ __________
Miscellaneous Accounts Payable
(Including personal loans to other individuals)                               $ __________
Personal Bank Loans                                                                $ __________
Loans Against Life Insurance Policies                                         $ __________
Loans Against 401K Pension Funds                                           $ __________
Automobile Loans                                                                     $ __________
Student Loans (parents only, i.e., Plus Loan, etc.)                       $ __________
Mortgage on Primary Residence                                                 $ __________
Second Mortgage on Primary Residence
Or Equity Line of Credit Debt                                                     $ __________
Mortgage on Second Home or  
Houseboat on Equity Line of Credit                                            $ __________
First Mortgage on Rental Real Estate                                         $ __________
Second Mortgage or Equity Line of Credit         
On Rental Real Estate                                                               $ __________
Bank Loans on Boat and RVs
(Other than houseboat)                                                              $ __________
Broker’s Margin Loans                                                               $ __________
Limited Partnership Debts                                                          $ __________
Loan from Employer                                                                  $ __________
Other Liabilities                                                                         $ __________
                                                                                                $ __________
                                                                                                $ __________
TOTAL LIABILITIES:                                                                $ __________

After you have completed this worksheet, make sure you did not leave anything out.

Monday, June 24, 2013

Five Step Cash Flow Program for Parents - Step Three


Evaluating The Family’s Assets and Liabilities

You now need to look at your assets and liabilities.  The following page will let you list your assets.  Pay close attention to where your assets are invested.  The asset and liability sheets that will follow in Step Four are designed to calculate your NET WORTH

These sheets will demonstrate how much you own and how much your owe.  

There are several reasons why you want to know your family’s net worth. 

You are looking for assets that are not productive, (CD, Money Market Accounts, Cash in Life Insurance, Large Balance In Checking Accounts, etc.).  I will explain how to use these items later.

You will find sample asset and liability sheets that I use on the next few pages.  If you have one that you rather use that is O.K.


Cash in Checking/Brokerage Accounts                           $ __________
Money Market Funds/Accounts                                      $ __________
Fixed Income Investments
Savings                                                                        $ __________
CDs                                                                             $ __________
Government Securities/Funds                                        $ __________
Mortgage-Backed Securities                                          $ __________
Corporate Bond/Bond Funds                                           $ __________
Municipal Bonds/Bond Funds                                         $ __________
Other                                                                            $ __________
Stock Investments
Common Stock                                                              $ __________
Stock Mutual Funds                                                       $ __________
Other                                                                            $ __________
Real Estate Investments
Undeveloped Land                                                          $ __________
Rental Real Estate                                                         $ __________
Real Estate Limited Partnerships                                    $ __________
Real Estate Investment Trusts (REITS)                            $ __________
Ownership Interest in Private Business                            $ __________
Cash Value of Life Insurance                                          $ __________
Retirement-Oriented Assets
IRAs                                                                             $ __________
401K Plans                                                                   $ __________
Keogh Plans                                                                 $ __________
Simplified Employee Pension Plan                                 $ __________
Vested Interest in Corporate Pension
And profit-sharing Plan                                                  $ __________
Employee Thrift and Stock Purchases                            $ __________
Tax Deferred Annuities                                                  $ __________
Deferred Compensation Vested Value                            $ __________
Reverse Split Dollar Life Cash Value                              $ __________
Other                                                                           $ __________
Personal Assets
Residences                                                                   $ __________
Second/Vacation Home                                                 $ __________
Boat                                                                             $ __________
Recreational Vehicle                                                      $ __________
Automobiles                                                                 $ __________
Jewelry                                                                         $ __________
Personal Property
(Normally 40% of home value)                                       $ __________
Other Assets   
Trust Accounts                                                              $ __________
Other                                                                            $ __________

Total Assets:                                                                $ __________

After you have completed these worksheets, make sure you did not leave anything out that has any resale value.

Thursday, June 20, 2013

Five Step Cash Flow Program for Parents - Step Two



Once you have accumulated all your financial information you need to start putting everything together. 

Most families do not keep track of how they spend their money on a monthly basis, and therefore, their spending controls them.  This is no way of running a household.

Most parents do not realize they have two jobs, (1) the one they work nine to five every day and (2) the one that they go home to every night.  If you were to ask yourself, “Of these two jobs which one would be the most important to you, what would be your answer?”  

Most of you would say job #2.  This is the right answer, but if you were evaluated on the job you have at home (financially) like you are evaluated at the job away from home, most of you would be fired within a few months for mismanagement of company finances. 

Therefore, you must understand how you are spending your money (
job 2) and by knowing what you are spending your money on will benefit your family as a whole and give you an opportunity to make adjustments in managing your cash flow.

I suggest completing the Household Expenditure Sheet.  The reason for this is you want to see how you are spending your money.  You should remember you are the only one that can control your spending. 

Plus, if you do things correctly you cannot depute your own figures.  Once again you are the only one that can control your spending.

The Household Expenditures Worksheet allows you to take control of your  spending by documenting exactly where your money is being spent, just like the company you work for from nine to five.  Most families cringe at the thought of documenting all their household expenditures.

However, once you recognize you bad spending habits, then you can take the necessary steps to adjust your spending in a positive direction.

If you take the time to complete the Household Expenditures Worksheet, you may be astounded to find that a few simple adjustments in your monthly spending habits can dramatically increase your cash flow for college, without changing your present lifestyle. 

How To Use The Cash Flow Sheet

The main purpose of the cash flow expenditure sheet is to see where and how you are spending your money.

Once the sheet is completed you should look at your fix expenses first and then your variable expenses next.

Pay close attention to unnecessary spending such as large TV cable bills, cell phone charges, spending money, lunches, recreation, and allowances.

Once you add up your total monthly spending, compare this amount with your NET INCOME (after tax income) from your income tax returns.  You should see an imbalance in these two figures. 

This imbalance could be negative or positive.  Most of the time it should be positive (have more cash available than you recorded on the cash flow sheet).

Look at your last two-paycheck stubs.  Add up all the deductions that are being withheld from your paychecks (health insurance, 401-k, group life, group DI, cafeteria plans, etc.)  Add these expenses to your total monthly expenses and then subtract the adjusted cash flow from your NET INCOME (after tax income.)

If you are getting an income tax refund, (federal and state) add this additional income to the total available income. 

Now you know your TOTAL AVAILABLE INCOME.  Most of the times you will see an imbalance between what you say you are spending and what you are ACTUALLY spending. 

In 80% to 90% of the cases you may not be able to account for $200 or more in spending that you do not know where it is going.  This is money that can be used to help pay for college, reduce debt, or up grade your life, DI, retirement contributions, etc.

On the next few pages you will find the cash flow sheets that I use.  If you prefer to use your own that is O.K. just make sure you cover all the items that I have listed on the cash flow sheets.

Some of the items you will see (*) a long side the items ▬ below is an explanation

*  Do not include these items if they are deducted directly from the clients paycheck

**  Monthly/annual savings and investments contributions are considered to be long-term if they are held for three years or more.  Money in long-term savings should not be used to pay for vacations, holidays, birthdays, anniversaries, insurance, home, auto repairs, or taxes as these items are already covered separately in the Household Expenditure Worksheet.  


First Mortgage (primary residence) $ __________

Second Mortgage (primary residence) $ __________

Equity Line of Credit on Primary Residence $ __________

First Mortgage (second home) $ __________

Second Mortgage (second home) $ __________

Equity Line of Credit on Second Home $ __________

Total Property Taxes $ __________

Rent $ __________

Homeowner’s/Renter’s Insurance $ __________

Utilities $ __________

Telephone $ __________

Trash $ __________

Water $ __________

Sewer $ __________

Home Repair $ __________

Personal Loans and PLUS Loans for Student $ __________

Cable TV $ __________

Auto, Boat, RV Payments $ __________

Gas, Oil, Tire, ETC $ __________

Auto, Boat, RV Maintenance $ __________

Auto, Boat, RV Insurance $ __________

Auto, Boat, RV License(s) $ __________

Sundries $ __________

Groceries $ __________

Clothing $ __________

Dry Cleaning $ __________

School Related Expenses 

(Books, supplies, clothing) $ __________

**Long Term Investments $ __________

School Tuition, Fees, Room & Board $ __________

Medical/Dental Deductibles & Co-Pays $ __________

Tax Preparation Fees/CPA etc. $ __________

Drugs/Medical Supplies $ __________

*Health Insurance $ __________

*Disability Insurance $ __________

*Life Insurance $ __________

Church Donations $ __________

Charitable Donations $ __________

Vacations $ __________

Holidays $ __________

Birthdays $ __________

Anniversaries $ __________

Association Dues $ __________

Clubs & Organizations $ __________

*Professional Dues $ __________

Magazine/Book Subscriptions $ __________

Newspapers $ __________

Entertainment $ __________

Rental Movies $ __________

Children’s Allowances $ __________

Sports/Hobbies $ __________

Credit Card Payments $ __________

Annuity Investments (non-qualified) $ __________

*Pension Contribution $ __________

*Local/State/Federal Taxes $ __________

*Social Security Taxes $ __________

**Long Term Savings $ __________

Other/Short Term Savings $ __________

Cash Spending Money $ __________


Monday, June 17, 2013

Five Step Cash Flow Program for Parents - Step One

Why Use Cash Flow Planning


If you are the average American citizen, last year somewhere close to half of your income went to taxes.  Another way of looking at this is that every penny that you earned from January 1 until somewhere around the middle of April went to pay taxes in one form or another. This didn't just happen last year either. Almost five to six months out of each year you work for the benefit of various taxing authority coffers.

Parents Don’t Understand How Their Income Tax Returns Affects Their Family’s Financial Aid Eligibility

The financial aid formula runs off the parents’ and student’s income tax returns.  Income is the largest factor when it comes to qualifying for financial aid, NOT ASSETS.  Most middle and high income taxpayers will NOT qualify for NEED-BASED financial aid at most state supported colleges and universities.  Therefore, proper tax and cash flow planning is a MUST.  How you complete your income tax returns could create what we call TAX SCHOLARSHIPS, which could be more valuable than financial aid.

Before doing anything you need to develop a “Strategic Cash Flow Plan”  for your family.  

Over the next few days I will be posting the five steps that will give you a firsthand look at how to incorporate a cash flow plan.  Most families do not like going through this process because it is not fun and will consume a little effort and time.  However, If you do not want to use this system you could pay more for college than what is necessary.  This is the first most important step in paying for the cost of a college education without depending on financial aid.


The first step in the cash flow planning process is to get an overall view of your family’s household financial picture. 

Regardless of whether you have a student that is 15 years away from college, or presently in college, if you’re not exactly sure where you stand financially today, how can you expect to reach your future financial goals?

You as the parents, must develop a financial game plan to reach your goal of saving and paying for college.  You should calculate your income, assets, liabilities, and your tax status; as well as understand where you are spending your money.

Some of this financial data will also be used by the federal and state governments, the colleges, and other financial aid sources, to evaluate your family’s financial aid need.  This data is required information on the standard federal financial aid form, known as the Free Application for Student Aid, or FAFSA. It can also be used for the CSS Profile, a financial aid form used by some elite colleges to distribute their own pool of money for financial aid.  This financial data gathering is a very important first step in lowering educational expenses.

The financial data that you need to organize to develop a cash flow plan is as follows:

  • The previous year’s federal, state, and local income tax returns
  • Last two paycheck stubs
  • The previous year’s W-2 forms and miscellaneous income records
  • Records of untaxed income
  • Current mortgage information
  • ALL life, DI, property liability insurance policies (home, car, boat, etc.)
  • Copy of employee benefit books (husband and wife)
  • Business and farm assets and liabilities
  • List of ALL personal assets and liabilities
·         A list of all household (spending) expenditures (income statement)

Once you have all the above information you have in front of you EVERYTHING your are spending your money on.  You have the bible of your financial affairs.


The difference between budgeting and cash flow planning is that a budget is a regimented spending plan, or a spending allowance that can change your lifestyle. Cash flow planning adjusts your current spending habits in order to continue your present financial lifestyle.

Example of cash flow planning:

Look at your last year’s income tax returns.  You may find out that you over paid your taxes by $1,500.  This is equal to $125 a month more taxes than you actually owed.  Then look at other items, like what you normally spend on groceries. 

Let’s say you spend $800 on groceries a month.  Look and see what you normally purchase, such as, meat, milk, sundries, cookies, household cleaners, and other items.  What would happen if
one month you only spent $750 for groceries?

Would the family eat any less? 

You may not even notice.  Then the following month you can spend $800 for groceries, but make other adjustments to come up with the $50 such as: instead of eating out every weekend, eat out only two weekends of the month.  During the two weekends you give up, rent a movie and stay at home.  Then the next month you can go back to eating out each weekend and cut back other areas for that month.

Are you starting to get the picture?  A hard-core budget could have a detrimental affect on individuals when they start to completely eliminate the things they enjoy in life.

The End of the Ivy League As We Know It?

Informative article about College Planning by Simone Baribeau.

Click here to go to the article.