Disclaimer: This post is ALL about my opinion. As always, based on personal experiences.
So much flurry about the increase in student loan interest rates. Dave Ramsey would say pay cash for college and you don’t have to worry about interest rates. I hope to be able to provide that for my kids. Fact of the matter is, if it not for student loans, I probably would not have been able to go to college. I mean, of course I could have, but it was not in my periphery to do things that would have allowed me to.
You see, I was a REALLY great student leading up to the college years. I graduated with a 4.14 GPA, did multiple sports each year, was the President of the National Honor Society, and heck… Class President for 3 years to boot. I did not get scholarships to get into college. I applied for hundreds, probably not thousands, but hundreds of them. I think I had average ACT scores. In hindsight, I probably should have done more Test Prep and gone back to take the ACT or SATs again. Maybe I would have gotten more scholarships.
Maybe I didn’t get more scholarships because my application essays sucked. I don’t remember any of them, but now that I’m quickly approaching 40 years old, I can safely say that I had no clue why I was going to college. It wasn’t necessarily engrained in me that it was the thing to do, but I had no plans. I distinctly remember getting all of those college marketing materials in the mail, and opening them up to see the list of degree programs and just picking one. I chose Deaf Education. Why? Because I’m deaf in one ear, have been since childhood. I thought it would be cool to learn sign language.
That right there is the depth of reasoning behind my college choice, and career choice. In 1993, I chose to pay borrow the money for out of state tuition stacking up at $13,000 per year. Now – that might not seem like a lot, but in 1993 it was. And guess what, it still is, because I’m still finishing the payoff of those college loans. I’m nearing the end now, but I left that school after 1.5 years. Then I went to a few community colleges and the University of NE at Omaha. After about 3 years, I quit going to school and moved to Colorado. After screwing up my finances and not making enough money to pay all my bills, let alone these student loans coming due, I signed up with a credit counseling agency to clear up my debt. Through that process, I realized I really learned a lot about money. I wanted to learn more. I wanted to teach others about what I had learned. Maybe I could influence others to avoid the same dumb financial mistakes I did. What did I do next? I went back to school and got a Business degree with an emphasis in Finance. Insert more student loans here.
How much do you think we learned about personal finance in college? Zilch. Zero. None at all.
I finally graduated in 2002. It’s been 10 years, and I’m still not done paying off all of the cumulative loans that I got since 1993. It was somewhere in the ballpark of $65,000 in student loans. Again – may not sound like a huge deal, but when I did finally start working a job where I could teach people how to handle their finances, it was for a non-profit organization, not a lucrative salary.
I don’t care particularly what happens with student loan interest rates. I don’t feel that I have a RIGHT to borrow at low interest to further my education. I haven’t proven anything to the world yet. Earn what you think you deserve. Don’t feel entitled. I hate politics, so I won’t engage in the politics of world economics or how we’re falling behind or anything else. I would probably engage in conversation about why the rate of college tuition increases are disproportionately higher than the rate of inflation.
Here’s my final point. I didn’t have anyone stop me from my dumb financial decisions. I wish someone would have. I challenge you to have a conversation with yourself or your kids entering college. Talk about what they want to be, what will it pay? Are they investing $120,000 for an education that might hopefully land them a job making $25,000 a year? If so, you might want to have a conversation about community college for basic classes! Invest in what you know will have a good payoff. If the payoff is not good – consider how much you pay (or borrow) for your education.
Do you know that feeling you get when you open the mailbox and find your car registration renewal? Does back-to-school time send you into a financial frenzy?
You’re not alone, many of us get caught off guard when these less-typical expenses “pop-up”.
Here’s a plan for how to build a cash cushion, or “pop-up” savings account. Unlike other savings accounts, this account is specifically allocated to cover all of these expenses that pop-up periodically.
Here’s how you begin:
Here is a periodic expense chart that you can download and customize for yourself.
Once you add up a year’s worth of expenses – it’s a big chunk of change! Divide that number by 12 and this is the amount you need to enter into your budget to cover pop-up expenses.
Note: You’ll notice that some months might require more cash to cover your periodic expenses before your savings has built up to that amount. If your pop-up expenses are heavy in the beginning of the year before you’ve built up the cushion, you might have to re-arrange the timing of some of your expenses, or you’ll have to contribute extra money to your pop-up savings in the beginning to cover everything.
I was listening to a well known talk radio show the other day. The caller had called in seeking advice on whether or not she should buy a pool. Now, the interesting thing about this call, was that the woman had enough money in savings (on top of an emergency fund and retirement savings) to pay cash for the pool. However, she was asking about taking out a home equity loan to buy the pool.
The radio host pointed out to her that she had enough cash to buy the pool, and after analyzing her situation, it was deemed NOT to be a frivolous purchase. (As in, she could afford it, she wasn’t jeopardizing any other financial decisions, and it made sense in her neighborhood as in… it would not overvalue the property).
The woman did not want to use her cash to buy the pool though. She said I’m scared to use up my savings for it. He pointed out to her that by borrowing, she wasn’t feeling the same sting emotionally, as she would if she just paid cash for it. She agreed, and pointed out that she was enticed by a very low interest rate.
WHY would you pay interest to someone else when you have been earning interest on your own money? She concluded that she wanted to keep her money more than she wanted to buy that pool. Reminder, if she likes small monthly payments, she could pay cash for the pool, and make small monthly payments back into her interest earning account and rebuild the savings!
I thought I’d draw up a visual on paying interest versus earning interest. I know that I would not have bought my house had I not been able to get a mortgage. It’s a huge purchase. But I’m 10 years into my mortgage, and I did the math the other day. We’ve paid approximately $138,000 to our mortgage company over the past 10 years. However, my loan balance – because of interest, has only decreased by $36,000. Had I been willing to wait and invest that money, I would have had enough in 10 years to buy a house for cash.
Here is a very smaller comparison. Say you “charge” on credit a $2000 High-def TV. You have no savings and live paycheck to paycheck, which means that you only make minimum payments on that TV. Do you know, I read a study* recently that shows currently interest rates for stellar credit are hovering around 12%. What the heck do you think they are if you have a dent or two on your credit report? My point being, I chose 12% as the credit card interest rate, and 12% as the investment rate of return, too. I have an investment in one mutual fund that had a 3 year return over 16%, so it can be done.
Here is what I found and want to try to show you:
*It will take you 70 months to pay off that $2000 TV making only minimum payments. The actual amount you will have paid is $2786 (principal + interest)
*Investing $40 a month for 70 months at 12% rate of return (compounded monthly) will give you $5,095.48
Translation? You EARN much more when you EARN interest. If you had used the investment instrument to save up the cash for the TV, you would have been able to buy it after only saving for about 3.5 years. (and your actual cash outlay would have only been $1680)
You and I both know the problem. Some people refuse to WAIT for 3.5 years to buy a TV. As long as people are Broke and Impulsive, the credit card companies will keep on winning. Sad.
I do a lot of things in my life that relate to starting with the end in mind.
In 2010 I said I wanted to run a 1/2 marathon. I grew up very athletic, I like to run, I mostly run on a treadmill – not outdoors. I’m a 5k kinda girl, not really into challenging myself to distances, but I thought if I just sign up for a 1/2 Marathon, I’ll train and get in better shape. Well – I did not train. I probably ran 3 miles in the 5 months leading up to the dang race. But you know what – I showed up anyway. I asked my husband not to bring the kids out to support me as it would probably be a hideous mess. It sort of was, but I finished, and I finished with a time of 2:59:59. Yep, I beat 3 hours by one second. I didn’t have a time goal, just a goal to finish. The close I got and realized I might beat 3 hours… I stepped it up.
I’m a financial counselor by day. Many of my clients come to me looking for help with organizing their bills or a strategy to dig out of debt, or help to avoid a foreclosure. One thing is true for all clients with financial goals – what do you want? Do you want to have more money every month? Do you want to pay old debts to stop bill collectors from calling? Do you want to save your house no matter the intense load of paperwork and time it requires?
You have to have that goal in mind so that the work that it takes to get there has meaning or reason. Working out often sucks, but if you’re doing it to fit in some skinny jeans or beat cancer or to show your daughters what a healthy woman looks like – then you have to keep the end in mind to get you through the hard work.
On a lighter note, I thought I’d put together a list of things that I want to accomplish in 2013. Some of them are not very defined – that is they are not finite like I want to lose 5 inches, but rather, I want to be a healthier me in 2013. That’s good enough for me. I struggle with feeling like a failure when I don’t do what I want, but I think I can break out my goals into little accomplishments, like… this week, I drank Green Tea instead of coffee. There – I win! I’ve been healthier – work with me, I have to play mind games with myself.
I stumbled upon Wendolonia.com because of Pinterest mostly – she has Bento Box school lunch stuff on her blog. But I was drawn to an old list that she posted for “things I want to do in 2010″. There were like 74 items on the list, where I tend to have like 5. So… here is my attempt at listing all of the little things that I want to accomplish!
That should be a good start. Baby steps – I don’t think I have more to list at the moment.
I was reading this book that had some tips on how to manage your days better and it started by writing down everything you do hour by hour. This helps you to identify how you might currently waste time. Then, write a list of all the things that you WANT to incorporate into your life, and start scheduling your life – hour by hour.
I sort of thought this through and found myself wondering, why would I want to schedule hour by hour. I have a tendency to feel more like a failure when things are actually written down and then I don’t stick to it. Because inevitably, I don’t stick to plans. However, I have easily identified one thing that is a must do for me as a working mom and we have crazy schedules. I need to plan meals for a week and even prepare as much of the meal in advance as I can.
I decided to take our collection of favorites – which is probably 30 some recipes and wrote each name on a piece of paper and threw it in a box like drawing names from a hat. I let the kids each pick 2 or 3 and there was our meal plan for the week. Oddly – this week ended up with almost all chicken every night of the week.
Here’s our week of food. I always wished I knew what other people had for dinner. I shamefully resort to ridiculous CRAP too often like mac n’ cheese, and not the gourmet version from scratch, either.
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