The Real Reason Why You Don't Take Out Loans For College

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Watching my four children on their college adventure has given me time to pause and reflect how proud I am of them. My wife and I have preached and preached how important a college education and the following job is to a successful life. Thankfully they have listened.

Throughout the college journey it has been hard to avoid loans. We have a prepaid college plan for all of them. There have been Pell Grants and scholarships. There has been out of pocket expenses, but nothing that couldn't be cash flowed. We were lucky. But we were prepared and able to have the income to pay for it and avoid loans, for their sake.

Some families don't have the resources or access to scholarships. They don't know about the FASFA application and sources of college money. What they do is take out college loans. Here's where the problems begin. Here is something I believe most people don't even think of.

There is a new study that says that only 22 percent of students enrolled in bachelor's programs at for profit colleges and universities graduate within 6 years, this according to The Education Trust, a Washington, D. C. based group. That compares with 55 percent for public universities and 65 percent for private nonprofit schools.

It is very possible that you will not finish your college plans. Taking out student loans and not finishing is a mistake that will follow you for many years. In the students life many circumstances can come up that will delay the completion of college. There are financial, health, relational and physical problems that could cause the student to never finish. With those outstanding loans your finances will suffer for years to come.

Taking out loans is considered the only way to go to college to most people. But with escalating tuition costs and a new awareness in the culture to be more frugal; students and their parents are finding new ways to better prepare.

If you don't have enough money to pay for college you have two options. Either reduce costs or increase cash. You will have to decide. It will be hard but paying off student loans is much harder.

Do You Have Financial Etiquette?

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Many years ago when I was a young lad my parents would take me and my siblings out to dinner. When the check came I would ask how much the bill was. Dad proceeded to hand me the check and told me to pay. He explained to me how talking about money was not done when it wasn't your business. It was a lesson we were all taught that there was a privacy issue when talking about others finances. It's a facet of American culture that you don't ask what someone earns, their religious views or how they vote. 
 
What happens when someone crosses these cultural boundaries it throws you off and I don't know how to respond - usually I say the wrong thing. What I did was go to the source for expert advice on etiquette. I went to Mary Mitchell. She is an author of many books and president of The Mitchell Organization, she's made a career out of coaching people in relational situations. 
 
You probably can't get out of talking about money with a spouse or a parent who's participating in your finances, you can with a friend or acquaintance who crosses the line and asks you something better left private. Mitchell suggests saying " it's raining outside". This is the same tone of voice you should use when responding to someone who asks an inappropriate financial question. No emotion, no judgement. If someone gets aggressive, you can smile and say,"Why would you ask a question like that?" or "If you will forgive me for not answering that question, I will forgive you for asking it. " 

 
Here's a list of the top ten uncomfortable money situations: 
 
1. Your friends make more money than you, and they treat you like a charity case. 
 
2. Someone asks how much your spouse makes. 
 
3. A friend borrowed money from you and they haven't paid it back or even mentioned it. 
 
4. You go out with a group of people and order a salad and water, everyone else orders wine and lots of appetizers. At the end someone says let's split the check. 
 
5. Someone asks how much an item of clothing costs, like shoes or a purse. 
 
6. A good friend is having hard financial times. How do you approach them and offer to pay for them. 
 
7. You're with an old friend and their credit card gets declined. 
 
8. An acquaintance criticizes your spending habits. 

 
9. A friend or family member always thinks your going to pay for them. 
 
10. Someone asks how much debt you have. 
 
In all these situations it's always best to approach your answer with a calm tone and politeness. When your responding to the comment or situation is the the time when you, or both of you will feel awkward. Remember these people are not trying to be unkind. They are just overstepping in a social situation. Try to respond calmly and then change the subject. Saving embarrassment for both you and your friend. 

Money Does Buy Happiness

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It seems there is a sweet spot in your income that determines your happiness level. That amount is $75,000. The lower your income is from the number, the more unhappy you will feel. But as you rise above that level, no matter how high you rise above it, there is no more increase in happiness. 
 
This study was conducted out of Princeton University by Nobel Laureate in economics psychologist Daniel Kahneman and economist Angus Deaton. The study draws on data from more than 450,000 Americans polled by Gallup and Healthways in 2008 and 2009. 
 
The participants were asked how they felt the previous day and how they would rate their life, from being the worst to the best. 
 
It turns out it isn't low income that saddens people; it's that less money makes them feel more ground down by other issues, like health and relationship problems. People that had health issues and a low income reported to be more unhappy about their problems. While people with the same problems but making much more income, only half the people reported to be unhappy. 
 
This effect disappears when the people make $75,000 and up. From there on up, individual temperament and life circumstances like age and education level have much more sway over how a person feels on any given day than money does. But the study doesn't explain why. Deaton concludes that there is a number where people think money is no longer an issue. Also at that income level people have enough money to do, what they want and pay for life's problems. 
 
There seems to be 2 kinds of happiness. Your day to day mood whether your stressed or happy. Then there is the overall happiness of where your life is going; that your on the right path and happy how your life is progressing. 
 
This study confirms to me a lot of my own experiences. You go through your life trying to attain money and things. There is a number of years your income is never enough. But you do reach an income level that is more than enough and that results in satisfaction. 
 
I have observed you reach a point when the car breaks, the A/C blows up and the roof leaks and you don't freak out. The reason being you have the cash to easily pay for the repair. That's what a good income does for you. 
 
They should of asked me before they did this study. I've been telling my kids this for years. My advice to them has been that no matter what problems you go through in life whether it's sickness, divorce, depression and anything that can go wrong does go wrong. If you have a good paying job and money in the bank, you may be in a fix for a period of time, but the money makes everything go a little easier. 

Taxes Going Up As The Bush Tax Cuts Go Down

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There were two major tax cutting bills enacted during President Bush's administration. They were the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. These two pieces of legislation are what we call the "Bush Tax Cuts". The bills included across the board tax relief for American taxpayers. They will expire as of December 31, 2010. 
 
Exactly what will the loss of these tax cuts mean to you and me? 
 
Tax Brackets 

Tax brackets that are currently 10%, 15%, 25%, 28%, 33% and 35% will go up to 15%, 28%, 31%, 36% and 39.6%. This means that if you are in the 10% bracket your taxes will increase by half to 15%. What happened to helping the lower and middle class? 
 
Marriage Penalty 
 
Remember when the marriage penalty was such a hot topic in the news, well the Bush Tax Cuts fixed it. But now it's going back to the way it was, when a couple living together was paying less taxes. Married couples will have to pay more than single couples. 
 
Child Tax Credit 
 
The current child tax credit is $1000. This will fall back to $500 in 2011. Also eligible families will decline. 
 
Dividends and Capital Gains 
 
The tax rate on dividends is currently 15%. It will climb to a range of 15% to 39.6%. Capital gains top rate will climb from 15% to 20%. 
 
Estate Tax 
 
In 2010 there is no estate tax. But in 2011 it returns with a exemption of $1,000,000 and a tax bracket of 55% 
 
The Tax Foundation estimated that the median family of four saved about $2,200 in taxes under the present plan. These cuts will vanish with the next tax year. 
 
I can't reconcile any of these tax cuts as unnecessary. They effect all tax payers of every age. I can't see giving the government more of our money when the budget is out of control. When our money is wasted at every turn it unconscionable to allow them more money. Cut the budget 10% and leave us alone. 
 
Not making these tax cuts permanent will be the final nail in the Obama Administration. The damage done will echo for years to come. 

How to: Get Rid of Credit Card Debt For Good

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When you finally realize your in deep credit card debt is the time you know you need to do something, but what? What has caused you to wake up. Was it the worry and sleepless nights thinking your going to lose it all. 
 
Most American family's are in credit card debt to the tune of between $2000 and $8000. Short of winning the lottery or declaring bankruptcy, there are no short cuts to paying off your debt. But there are some ways to systematically and effectively get rid of your credit card debt. 
 
Getting out of debt on your own is possible, but it will take a little work. Step one is to stop charging more debt. This may be the hardest part of the process if your short of money and unorganized. It's time to take control. 
 
Next you must access where you financially. How much do you owe and to whom do you owe it to. Might as well throw in there all your debts like Doctor bills and personal loans. Make a list with name of debtor, balance, interest rate and minimum payment. 
 
To do this right you must also create a budget of all your income and expenses. It's time to cut back for a while in life style. I'm talking about maybe it's time to find some things to cut out of your life, but only during the time of this war on debt. Things like cable TV, eating out and other things determined by you. Remember the more money you free up, the more there will be, that can go to pay off debt. The equation is that the more income that goes to debt, the sooner you will be done. You could look into taking on more hours at work or getting a part time job so you will have more money to throw at your debts. 

                             Here's Help On  "How to Set Up A Budget"

 
Now that your organized and have the cash ready , let's attack the first debt. Remember that list you made with debts listed on it, let's get it out and determine who we will attack first. Let's find the debt with smallest balance. We are going to pay that debts minimum and as much money we can scrape together and send it to that account. You have reduced spending on other things and we are going to use that money to put on this debt. While we're doing this we keep making the minimum payment on all our other cards, no extra to those cards. We are focusing on the smallest debt only. When we are done with the smallest debt, we then go to the next smallest and attack that one with all the money we can throw at it. 
 
There are two strategy we are using here. First the focusing on the smallest balance first with everything we have. Why do we focus on the smallest balance? What if I have a balance that has a higher interest rate? You ignore it and stay with the smallest balance because you need to have some wins in this process. With some wins you feel like continuing, because you will eventually lose interest in the long process. Some wins keeps you motivated. It's like going on a diet. If you don't lose some weight you'll give up and quit. 
 
The second strategy is after completing the first balance you take all the payment from the first card and throw it on the second card. Then continue this till you pay off all your cards. You must have an intensity when doing this. It's a hard task that takes hard work. You will lose faith during this process so between the budget and focus, you will get it done. 
 
For all this to be worth it you must not use credit cards again. It's to easy to go back into debt and after all your hard work it would be a tragedy. You will continue to budget and live on less than you make. Saving for future bills and creating an emergency account for the rainy day that is sure to come. 

Credit Card Companies Are Looking for Business

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I have noticed lately my mailbox has been a little fuller with advertising for credit cards. My old canceled credit card companies are sending me offers via Email. What's going on? Can someone tell Orchard Bank to leave me alone.
 
The new credit card rules are enforce now. Maybe their profits are going down a little and their looking for new business. Or maybe they really like me or they are looking to get back some old customers. Even my old friend CITI Bank sent me two new cards from my old accounts. They must like me again because last year they canceled all 4 of my cards. Now by magic two of my accounts have come back to life. I have even gotten new replacement cards from other card issuers, even though the card hasn't expired yet. I guess they want me to remember to use them. Somethings up, wonder what it is.

I saw over at NYTimes.com the reason why. A spokesman for Bank of America stated " We see deleveraging
 of the consumer" also adding that they see a more frugal consumer and a decreasing demand for credit. It seems we are losing our taste for the wonderful credit card. 

According to the BOA spokesman they are seeing a decline in loan balances of $37 billion dollars from a year earlier with $34 billion of that from the results of charge-offs. With a net decrease of $3 billion dollars in consumer debt balances. Whats the interest on $3 billion dollars. It's quite a bit of money they are losing because of us. With $34 billion in charge-offs  they are hurting a little bit.

Other credit card companies also are complaining that U.S. consumers are by and large deleveraging and are buying less and electing to use debit cards. The use of debit cards have increased greatly and really shot up at the beginning of the recession and is accelerating. I hope America has learned something from this recession and chooses to get out of debt.

The Recession Is Over, Really?

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It's reported by the National Bureau of Economic Research committee after considering numerous economic data and concluding that several key measures of economic activity, including total output and industrial production, pointed to June 2009 as the trough of the business cycle. 
I can understand that the analysts using their guidelines and mathematical algorithms have mathematically determined the recession is over. I have a problem with that. Economists have it all worked out to a science the measurements and data necessary to call these things.

According this has been the longest recession since 1945. The latest one is the twelfth recession since then. So maybe we can trust the economists. They have been studying this for sometime with plenty of data to back them up.

But out here in the real world we see no evidence of the end of the recession even though it ended more than one year ago. I see everyday people out of work and families suffering. In my business we have real estate inventory to sell but can't.

Mark Zandi, chief economist at Moody's Analytics, claims that because of the stimulus, disaster has been avoided. Most economists claim things are getting better because their numbers tell them so. But out in the world times are still very tough. 

Sorry economists but you are wrong, but who am I do go against educated people who study this stuff everyday. I like to take the advice of the old warriors like Warren Buffet. I can't listen to desk jockeys who don't know squat about business.

In an interview of Warren Buffet He states:

"I think we're in a recession until real per capita GDP gets back to where it was before. That is not the way the National Bureau of Economic Research measures it. But I will tell you that to any - on common sense definition, the average American is below where he was before, or his family, in terms of real income, GDP. We're still in a recession. And we are not going to be out for a while, but we will get out of it."

The Oracle of Omaha is  right of course. Most Americans struggling to pay their bills feel the same way. Survey after survey shows people are worried as ever about their economic future. Members of the National Bureau of Economic Research(NBER), who officially define when recessions start and end, seem to hide in their ivory towers issuing statements that confuse most people who barely remember their Econ 101 classes in college.

Book Review: Morningstar's 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances

Christine Benz, who is the Director of Personal Finance over at Morningstar, has written a new book. Its called "Morningstar's 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances". It is a well written and practical book. The 30 minute part in the title describes how long it would to take to do the tasks she writes about in each chapter. The book is divided into 11 parts, each describing a different part of financial planning for your life. 

I find the book complete in helping a newcomer get on the road to financial organization. The chapters are laid out that you can come back to each at different times to answer question you may have at a later date. The helpful basic knowledge will help the average person to get the basic info on finances. For the average knowledgeable reader of financial books there are no new revelations. 

Even though the book states the tasks are doable in 30 minutes, I don't think they are. Only if you are already very organized. Yet if you were, you wouldn't need this book. 

There is a web site listed in the book that has worksheets and further articles. 

Here is a list of the chapters:

Part 1: Find Your Baseline

Identify where you stand, what your goals are, and how to get there.

Part 2: Get Organized

Create systems for bill paying, filing, and keeping track of it all.

Part 3: Find the Best Use of Your Money

Determine whether to pay down debt or invest, then decide where to put your money.

Part 4: Get Started in Investing

Establish emergency, short, and long-term plans, and select the right investment mix.

Part 5: Invest in Your Company Retirement Plan

Evaluate your retirement plan and choose the right type of 401(k).

Part 6: Invest in an IRA

Choose the best type of investments and conversion strategies for you.

Part 7: Invest for College

Find the right college-savings vehicle, 529 plan, or investments.

Part 8: Invest in Your Taxable Account

Identify the best investments and maximize tax efficiency.

Part 9: Invest During Retirement

Build an in-retirement portfolio and plan withdrawals.

Part 10: Monitor Your Investments

Check up on or rebalance your portfolio.

Part 11: Cover Your Bases on Estate Planning

Start your estate plan, handle beneficiary designations, and create a personal legacy.

As with all financial help books, this one is written to apply to the broad population. Its a very good start for a neophyte in financial literacy. Some readers will find that this info is enough for their money life. But, more complex situations call for professional assistance in a Financial Advisor. I believe with something as important as your money, its imperative to get a professionals advice, at least once.

Is Ditching Your Mortgage An Option?

If you owe more on your mortgage than your house is worth you have an underwater mortgage. What options do you have? Do you give up paying the mortgage and leave the house to foreclosure. 
 
People look at this problem two ways. First, there are those that think it is unethical and shameful to walk away from an obligation. Secondly, those that think walking away is nothing compared to what the banks have done, making a profit on bad loans and those that gambled on mortgages. 
 
If we look at it from a strictly economic position. At what point are you so far under that there is no way you will ever be even in the foreseeable future. Not walking away would be the wrong thing to do. If your 50% underwater on a $400,000 home how is not walking away the right thing to do for you financial life. 
 
If you compare your mortgage payment to the rental payment for the same house, is the rental payment lower than the mortgage payment. If your mortgage payment is $2600 and the rental payment is $1600, what do you do? Then it would make sense to walk away because you would be saving $1000 month. Over ten years that would come to $120,000. If you did this the you would have this money and your credit report would have been cleared of the foreclosure years ago. If you did stay and paid your mortgage, you may have some equity or still may be underwater at the end of ten years. 
 
Some good news from Moody's Economy.com , 62% of major metropolitan areas will have their home values return to pre-recession levels by 2016 . But if that is inconceivable to you, some experts say it may take til 2030 or 2040 to return to those levels. 
 
Still the stigma of being foreclosed on is strong in some people. The discarding of an obligation so big is so negative to people they find it hard to chose that decision. Yet you could, after 7 years have a clean credit report by then and the stigma may have passed. You could purchase a house and start over. What ever choice is made, both options are gut wrenching. 

8 Great Money Moves

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In today's economy confusion is the norm. So what's the right thing to do? Here are 10 positive suggestions of things to do with your money. 
 
1. Max out that 401(k) 
This is an easy one. Every dollar that you invest comes off your taxable income. Better yet if your company matches that's a 100% gain. 
 
2. Give up your vacation home. 
I know it's your favorite thing but it also is your most expensive financial burden. They cost big money to buy and we only use them only a few weekends a month. Don't forget the annual upkeep, maintenance, and taxes. 
 
3. Put $5000 into a IRA or Roth 
If you over 50 you can put $6000 and your spouse can do the same. A regular IRA cuts your taxable income and grows tax free, it's only taxable when you take it out. In a Roth, you contribute after-tax dollars, buy then it's tax free forever. 
 
4. Pay off your credit card debt. 
If your carrying a balance your paying high interest on somebody else's investment. Pocket that interest payment and stop helping credit card company's get rich. 
 
5. Fire your Banker. 
Most banks we use today have high fees. Dump them and find a nice local community bank that will look after your money for a lot less. 
 
6. Get your tax refund early. 
Make sure your withholding on your pay is correct so at tax time you don't get a big tax refund. Don't lend Uncle Sam your money interest free. 
 
7. Buy inflation-protected bonds. 
Treasury inflation-protected securities, or TIPS are boring and won't make you rich, but they are guaranteed. The U.S. Government and the coupons and principle is adjusted for rising inflation. Make sure they are in a tax-sheltered account because they are susceptible to taxes. 
 
8. Play tough with your Insurance company. 
Whether it s you car,home or boat call up your agent and ask for a reduction or shop around for better prices. Also raising your deductible can also save you money 
 
Try these money move and start saving money. 

Your Investment Advisor Can Juggle, Too!

Image by jericl cat via FlickrOver at Schwab.com they have a new Investment Adviser survey. It has quite a few details of what your advisor has to go through. The job of your investment advisor is part guide and part handholder. Advising is a person to person business. You must establish trust and build a relationship. We are handing over our money, which is like our children. 
 
One survey reflects the difficulty in achieving a clients goal. The data shows back in July 2007 it was quite easy, only 27% thought it was a problem. It peaked at 84%, January 2009. This shows the good times when everything was fine and money was being made. But when the market tanked, I'm sure your advisor was on the phone all day trying to calm down their clients. 
 
The survey reflects the changing activities of clients. Clients have increased their activities in reducing expenses at home. Also, reducing their spending on discretionary items. Everyone is tightening their belts during these times. 
 
The chart demonstrating the reasons clients leave the advisor, states 62% leave because they have lost trust in the firm. 64% leave because they want more personal service. 33% leave because they have lost money. Which also leads to losing faith in the advisor. When the market pulls back your bottom line is not the only thing that suffers. Your advisor catches alot of the blame. 
 
When ask to pull out their crystal ball and asked for a prediction on which sectors would rise, they said the top 3 sectors to rise are Information Technology, Energy and Health Care. Also 20% of the adviser's revealed they had no view of the future. They are the smartest of the bunch. 
 
I have a healthy respect for financial adviser's, there consul and advice have helped me succeed in investing. It's always good to pay an independent advisor to get a recommendation and learn a little about your investments. It's like your yearly Doctor's visit. Do you take as good care of your money as your body? 

How To: Create A Budget

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As we go through life if we don't have a plan we make mistakes. Just like taking a road trip, if we don't have a 

map we could get lost. That's what a budget is, a financial map for our money.

Ben Franklin said,

"Buy failing to prepare, you are preparing to fail."

 Because we have a natural tendency to spend all we have, we all need a budget. It doesn't matter what age, stage of life, or if we're rich or poor. The most important part of the budget is it helps us coordinate our spending with our priorities. Here are three budgeting forms: Online Budget Form , Printable Budget Form and Spreadsheet Budget Forms.
 
Step 1 Start the budget by entering your income at the top. This will should include all income. Whether it's salary, pension, social security, investment income, or other. 
 
Step 2 
Now we go to the expense section. Here we list the fixed expenses first like the mortgage/rent, car loans, and home equity loans. Also your student loans and credit card payments. 
 
Step 3 
List the amounts that you are saving for. They could be college, emergency, vacation funds. Don't forget to enter your monthly amount for investing. 
 
Step 4 
Then comes the variable expenses. These would be your electricity, gas, telephone, water, household repairs, childcare, clothing, food and dining out. Also personal care(haircuts), medical/dental, and charities. 
 
As you adjust the numbers you will see how the changes affect your ability to save more or less. The chart will also have a section where you can add the actual numbers so you can compare and adjust for next month. Don't forget that this is not your first and last budget. This has to be done every month for it to help you organize and stay organized. 
 

John Maxwell says,

" a budget is telling your money where to go instead of wondering where it went" 

 
The goals of budgeting are you will see where your money is going. If you see where it's going your more able to adjust spending and plan better. 
 
Don't worry if your doing it all right at the beginning. It takes time to get it right. But with time you will get better and better. For the items that occur that are unforeseen, that you can't budget for, that's what the emergency fund is for. 

Young Investors Shunning Stocks

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A story over at CNNMoney.com caught my interest. It told of a young man of 18 years, deciding to pull his $25,000 investment in an aggressive mutual fund, out. When he was tired of seeing his money dwindle down during the decline in 2008, he moved it to a certificate of deposit. 
 
While all investors have become more cautious, the biggest change has come from those in the under 35 crowd. The youths have witnessed the decline in the value of their parents portfolios and seen how their parents have decided to delay retirement or even go back to work. The younger investors consider themselves more conservative today than they were a year ago. 
 
If your in your 20s you have seen the market drop 55%, climb 88% and then drop again in a short span of time. During the last decade you seen the stock market return 0%. 
 
This younger generation will probably live to 100 and beyond, because of all the medical breakthroughs now and the ones they will see when they retire. The only way they can afford retirement is through the investing in equities or they will be working way past the time they want to retire for lack of assets. 
 
Like us all, the under 35 crowd is leery about investing in the volatile stock market. History reveals that equities have earned 7% each year after inflation over the last 200 years. It most likely will continue. Has this been the worst market decline? In modern times, yes. But don't forget the early 90's and 1987 decline. If you really want to check out declines, check out the Dow Chart from 1900-2010 at this link. 
 
There have been corrections of 50% or more, over and over again throughout the the stock markets history and there will be again. Why does it shock people, like this has never happened before. If you keep investing in good times and bad you will come out at the end. The fear people feel when their investments go down is unnerving. A great decline like we just went through, makes people afraid and sometimes scares people away from investing. It still is the best way to go if you are in for the long haul.