What to do with your PFD
by joey |
Each qualifying Alaskan earned an impressive $1,884 Permanent Fund dividend last Thursday. But what to do with such a sum? While most people eagerly await their fall Costco raid or snowmachine upgrade, a few folks in finance have some recommendations for making the most of your annual gross. Two UAA alumni fielded a few questions to share how current and former Seawolves can maximize their PFD.
![Laura Zamborsky, M.B.A. '12, answers financial questions for all you $avvy $eawolves.](/news/archive/2014/10/_images/093014LauraZamborsky03-copy-300x200.jpg)
Laura Zamborsky, M.B.A. '12, answers financial questions for all you $avvy $eawolves. (Photo by Philip Hall/University of Alaska Anchorage)
Laura Zamborsky, M.B.A. '12, has been advising UAA students on smart finances for nearly six years. As UAA's financial literacy outreach specialist, she provides campus workshops, group discussions and one-on-one counseling. Students can attend one of her $avvy $eawolf talks for free snacks and sage advice throughout the semester.
I don't need to start repaying my student loans until I'm out of school, why would I want to use my PFD now to go toward my student loans? And wouldn't that force me to continue making payments once I start?
Paying down the principal of your student loans while you're still in school can save you thousands of dollars in interest charges later. Every little bit helps, and paying even part of your PFD toward your debt will make a huge difference. Why not put aside some of your money and use it to make an interest payment each month? Keep in mind, if you're in deferment now (meaning you don't have to be paying anything on your loans) and you make a payment, it doesn't mean you have to keep making payments. So use your PFD to make a payment, then sit back and wait until your tax return comes in to make another one if you want-you have no obligation to keep making payments until you're no longer in school at least half time. You could pay $1,884 this month, $0 next month, $50 the next month...it's really your decision. But again, remember that every little bit helps, and will save you big time in the long run.
![Laura hosts $avvy $eawolf programs throughout the semester to assist students with their financial questions.](/news/archive/2014/10/_images/SavvySeawolf_Money_Large-161x200.jpg)
Laura hosts $avvy $eawolf programs throughout the semester to assist students with their financial questions.
How can I effectively add in the PFD to my yearly budget if the value changes every year?
We suggest creating a budget for the whole year rather than just a month or a semester. That way, you can add in things like tax returns, birthday money, car insurance payments or PFDs. You might not have these income sources or costs every month, so planning out your year is most helpful. It's also helpful for deciding how much, if any, you'll need to borrow in student loans. You don't have to borrow the entire amount offered to you, so a budget is really important to know how much you'll need. For things like the PFD that changes every year, estimate low. You can make an educated guess based on past years. Then, if there's extra, plan to make a loan payment, a credit card payment or invest into savings. If it wasn't something you planned to have in the first place, why not put it toward something useful.
I really want the new iPhone 6. But I also want to upgrade to a PlayStation 4. Do you know any good sales?
One of the most important parts of creating a budget and surviving life in college is coming up with your needs versus your wants. Needs are things you absolutely cannot survive without, such as food, rent, utilities, clothes, transportation. Wants might be things like lattés, dinner out, new clothes or a new car. Sure, a new iPhone sounds great, but do you really need it? Chances are, it's more in the wants category. While you're in college, you should be living like a college student! This means making some sacrifices now so you can succeed in school, graduate, get a great job and then be able to afford that next new iPhone. Think about living below your means, especially while in school. This means you have more coming in than going out as far as money goes. That way, you'll always have enough to pay for your needs, and maybe even some extra in case an emergency comes up. Using the PFD money you're thinking about spending on that phone could go toward something you need, like healthy food to keep you awake in class, or paying off some bills.
Hear more from Laura at an upcoming $avvy $eawolf workshop on campus and click here to learn more about financial literacy at UAA.
![Daniel Crumpacker, B.A. '04, is a financial advisor in Anchorage.](/news/archive/2014/10/_images/100614DanielCrumpacker01-300x200.jpg)
Daniel Crumpacker, B.A. '04, is a financial advisor in Anchorage. (Photo by Philip Hall/University of Alaska Anchorage)
Daniel Crumpacker, B.A. '04, has been advising Anchorage residents on loans and liens and points in between since earning his degree in economics from UAA. He's a financial advisor with VALIC, a nationwide company specializing in retirement planning. Here, he answers a few questions for the alumni crowd on how to make the most of this year's PFD.
I want to build a cabin in the next few years. Where should I be saving my money until I can afford everything I'll need?
It depends on how long a "few years" is. If it's one to three years, than a bank account may be a good place to save monies. If it's longer than three years, then conservative stock and bond mutual funds may be a good place to save, as they'll accrue more returns in the long run than a savings account. Regardless of your timeline, it's important to have a budget so you can meet your goals. It's also important to build an emergency fund, pay off existing debt-credit cards, student loans, car loans-and live within your means, whether or not a cabin is in your future plans.
I've been chipping away at student loans for a long time, but I also want to have some investments for retirement. Should I start an IRA now, or not worry about retirement until I've paid off these loans?
First, take care of some priorities that can help you out today, like an emergency fund-just in case. Once that's established, then focus on paying off those loans. I do recommend you set up a retirement account-like a Roth IRA-and invest a small amount of monies periodically. However, the best thing to focus on is being debt-free. When you're in a place to invest for retirement, a Roth IRA can be a great savings vehicle for younger folks. All the interest and growth earned is tax-free, provided withdrawals are taken within the IRS guidelines.
My grandkids live out of state, but I want to invest my PFD in their college fund. What's a smart investment so they can access the money in 10 years when they're finished with high school?
A college savings account may be a smart investment. If your grandkids already have a college savings account established, you can contribute your PFD into the existing college savings account. If they don't, then look into a 529 account-it's a tax-advantaged investment specifically for tuition, books and all those supplies your grandkids will need in college. 529 accounts are established by each state, so tax benefits will vary depending on where your family lives. The benefit with college savings accounts is the interest/growth earned is tax-free, provided that the monies are used for qualified college expenses.
Daniel returns to campus throughout the year to advise UAA faculty and staff on their financial goals. You can contact Daniel for personal consultations at VALIC by calling 907-279-8310.
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