Your Money, Your Move
The next generation of wage earners learns how to watch the bottom line| From Commonwealth | By Amy Laskowski
Illustration by Michael Klein
Mark Passacantando, a Metropolitan College lecturer in administrative sciences, gives it to his students straight: “The unemployment rate is nearing 8 percent, and experts predict that these numbers will continue to rise.” Then he gives them a twist of hope.
“But,” he says, “there are steps you can take. Financial planning will teach you what you can do to protect yourself financially and can help you achieve your life goals.”
Dressed in a crisp white oxford shirt, Passacantando (GSM’92) paces in front of the class and scribbles strange phrases on the board: “risk insurance,” “ordinance insurance,” “time-value of money.”
The class, Personal Financial Planning, is meant to give the next generation of wage earners some life-changing information about things that many current wage earners wish they had been clued into when they started out: portfolio management, investment strategies, securities, estate planning, and basic budgeting for life in the twenty-first century.
It doesn’t matter that, like most people their age, the thirty-five students have limited personal finances at the moment. The emphasis here is on planning, and there are lessons for everyone.
“Last week we learned about overdraft fees,” says Supraja Thota (SAR’09), who is going on to the School of Medicine next year. “The funny thing is, I had just received an overdraft fee on my bank account, so I quickly picked up on it and was able to have it removed.”
In the first class, Passacantando tries to drive home the importance of creating personal goals. If buying a home within ten years of graduation is a goal, Passacantando wants students to know exactly how much they should set aside each month for closing costs, inspections, and other fees many first-time home buyers never think about. If a home costs $350,000, for instance, a 10 percent down payment would be $35,000. That means the student should plan to set aside about $292 a month for the next ten years – for the down payment alone.
Later in the semester, the class runs through a simulated home-buying process. They break into three groups: buyers, sellers, and judges. The buyers hope to purchase their first home for as little money as possible, the sellers hope to sell a home for as much money as possible, and the judges observe, then suggest ways to make the transaction move along as smoothly as possible. Passacantando tells each group how much money they have to spend and how much they could realistically fluctuate from that amount. “We were then on our own to negotiate,” says Thota. “That was a great lesson that has actually helped me on my apartment search.”
Passacantando also marches all of his students through an exercise that could, if required of all of us, send the economy into an even steeper downward spiral: he requires students to record all expenses for a monthlong period. That means every textbook ($118.59), grande latte ($3.52), and taxi home from Faneuil Hall when the T has stopped running ($18, with tip). After tallying the monthly bill, the students create a personal monthly budget to live by.
Tonight, the class is learning about tax deductions. Passacantando encourages students to look at all legal means of reducing their tax payment. Tuition loan interest – yes. Moving expenses to first job – yes. Contact lenses – yes. Cost of books – no. Tuition payments – it depends.
“I used to just fill out the 1040-EZ form,” says Jasmine Ha (CAS’09). “I never got back as much as I could have. I know now if I take the time to do my taxes, I can get a lot more back.”
In the end, Passacantando reiterates the bottom line: financial knowledge is financial power. “There are real steps that people can take to better their financial situation in this scary financial climate,” he says. “They don’t have to sit back and be powerless.”
You Asked, We Answered
Readers took advantage of our invitation to ask Mark Passacantando, a MET lecturer who teaches personal finance, about their personal finance. Here are some of those questions, along with Passacantando's responses.
QHello Mark, I have a TIAA-Cref set up from when I also worked at B.U. along with attending MET. Assets are TIAA Trad. 15K, Cref stock 18K and Cref Inflation-Linked bonds 5K. Should I keep these where they are or switch over to another financial portfolio. We draw down from this about $115 a month for our retirement along with other investments. Needless to say, all of our investments have suffered and have been on a downward spiral. — Carol Curley (MET’96)
ACarol, while I cannot give financial advice, I can tell you that the many academic and professional managers are looking for a rebound in the market this year. We have seen some traction in the right direction. TIAA-Cref has an excellent reputation. I would not change simply to find a better sponsor. I’d suggest you get clarity on exactly how much you’ll need in retirement and what asset mix, given your risk tolerance, should be pursued. The other observation I have is that a high percentage is with one company stock (based on your question). That presents you will undue risk. You may wish to consult an advisor with the idea to possibly diversify into other holdings (i.e. a smaller percentage in TIAA stock).
QGiven the great deals that are available on cars right now, I'm debating whether it is worth buying a car in the next six monts. My current car is a bit old, but probably has 3 years of life left. I have not saved up much to dedicate to the purchase, but it appears I could get 0% financing this year. Or, is it better to get a few more years out of my current car, save some money, and take my chances on buying in a couple years? — Ron Moss (LAW’98)
AExcellent question! The conventional wisdom is to keep your existing car. Autos are a depreciating asset, so it is often not wise to invest hard earned money into a depreciating asset. However, one must look at the residual value of an existing car, upcoming expenses such as timing belts and tires and brakes (that could mean a large cash outlay to keep an older car) and incentives offered on newer cars. Right now, there are tremendous incentives on newer cars from the dealer and factory. Also, the federal government is giving us a one time incentive that if we purchase a new car, we can deduct the sales tax through year end purchases. All in all, it is a tough call given conventional wisdom vs. these incentives. Bottom line: if you would really enjoy a new car and you can purchase before year end and before major expenses on the current car, maybe it is time to go shopping!
QFirst of all, I wanted to say that I took your class last spring and have found it to be one of the most useful courses after graduating. I find myself constantly referring to what I learned as I try to manage my own budget and plan for my financial future. Now on to the question. I recently landed my first "real" job and have many choices for 401k plan investments.My retirement is over 40 years down the road. What should my investment choice decision be made on? The Motley Fool suggest equity or index funds. Is this a good rule to follow? What advice could you give about all the different 410k investment options? — Tiffany (CAS’08)
ACongratulations on securing a full time job. The issue of 401k investing can be complex. First, I’d like to say that it is absolutely the right thing to participate in a retirement plan such as a 401k. Attempt to place at least money into a plan that results in a company matching contribution. Using index funds or using actively managed funds is a good approach. I’d say a combination of the two is appropriate depending on what segment of the market one is interested in. As always, do the necessary research, either on-line or through the fund companies or Morningstar. A good goal is to obtain diversification across stocks, bonds and cash. Don’t forget to consider some international exposure for the overall 401(k) portfolio.