Will you send your kid to college?

Bankrate has an excellent article about a survey of parents on whether they can afford to send their kids to college. It also looks at why they may or may not be able to.

Most striking is how they intend to pay for their kid's college. Many are willing to forgo their own retirement plans. Almost half of them plan to take out a personal loan, and a quarter of parents want to use a home equity loan. Together, this is a whopping 3/4 of parents who plan to fund their children's college tuition by borrowing money.

Here's a nice college tuition calculator, which shows us that a 4 year in state college will cost around $140k assuming you have a baby now, and he or she will go to college in roughly 20 years.

At a meager 5% with a 20 year term, that loan will cost those parents about $900 a month after their young one graduates. The 40% of parents who plan to take extra jobs will certainly need them to pay that bill.

Now here is the difference between being in debt, and saving and taking control of your money.

That same tuition would be paid in full, with cash, if the parents saved just $250 a month from the time that the kid is born.

Taken as a whole, the results seem to point to an unavoidable trap where parents either secure their children's futures or their own. "The poll illustrates that for many households, paying for college will mean sacrificing their long-term financial security by taking out second mortgages or personal loans," says Draut. "This is particularly true for those parents on the cusp of retirement age, who need to focus on securing their own financial future for retirement."

The real problem is that they didn't plan ahead. They didn't save. They didn't manage their money. Instead of looking at the big picture, they spent all they had and made themselves utterly dependent on the credit industry.

$250 a month vs $900 a month...for 20 years. That's what embracing debt has in store for you. Is that an unavoidable trap? No, this is a trap that you build yourself.

I might need to get divorced

I had a disturbing conversation with my wife the other night. We were talking about the results of this situation with the medical bills and about our progress on paying down our debt. We threw the idea back and forth of paying off my student loan before her car loan. Now interest-wise this makes no sense, but balance-wise it does. I can pay off the student loan in one big lump payment if I focus all our debt repayment on it for one month. That would kind of simplify things since I would have one less debt to worry about, and would be a nice feel-good victory. The extra interest we would end up paying on the car loan to do this would be negligible. She agreed. Then she gave a reason why she agreed:

"Well, the car loan isn't really debt anyway."

I was floored! What? Not debt? I need to tell the bank to stop charging us interest. She stood her ground; a car loan is not really debt. So I ask her why she thinks a car loan isn't debt.

"Because everyone has a car loan."

I stopped to think about this. Does everyone have a car loan? Of course not. Does anyone need a car loan? Of course not. Very few people absolutely need to buy a car that second...they could easily just start saving a payment and buy a car in a few years. Most people buy a new car when theirs starts having problems, or they just get tired of it. That's certainly not a necessity to borrow money. Rarely do people literally run their car into the ground until the engine implodes and it refuses to move another inch (and those that do have probably been saving for a new car anyway).

Yet there is the mentality that everyone has a car loan, that everyone needs a car loan, and that it isn't really "debt". Why is this? Is it because everyone around us is so addicted to debt that one little car loan doesn't seem like a big deal? Has the automotive industry itself so well marketed buying a car on time that it seems like just another standard process in buying any car? Or are we just so entrenched in this culture of instant gratification that saving money for 5 years for a single purchase just seems outrageous and out of this world?

Food Stamps to buy junk?

I was in the store behind a woman in line with 2 kids. What I saw made me search out more information about food stamps, food stamp fraud, and shopping behavior. This family bought a couple gallons of milk with food stamps. It took quite a while, because not only did they have to fill out their little ticket and run it like a check through the machine, they had to run it as a separate transaction. You see, I don't think the government would be happy knowing they gave food stamps to this family if they knew what else they were buying.

When I sought out program requirements, I had to ask myself whether or not this particular family looked like someone who would qualify. Assuming she was married, she must have a household income of less than $1,613. The woman in front of me wearing nice clothes, sipping a Starbucks-whatever, and talking on a brand new Treo/Blackberry-type cellphone certainly didn't look like she was insolvent.

I suspect I had witnessed Food Stamp fraud.

Here's a little excerpt from a food stamp program:

Food stamp benefits...can be used in supermarket checkout lines only for the purchase of food.

What I witnessed instead was the food stamps, instead of buying food for hungry people, simply subsidized their other frivolous purchases. This family's cart (run up separately) also contained: a DVD player, several new DVDs, a case of Cola Cola, a case of beer, a few kid's toys, a cordless home telephone, and a bunch of other miscellaneous items that I didn't see.

Food stamps make it possible for such working poor families to stretch their income.

Yes it does. It is giving them free milk so they can buy $200 worth of frivolous junk. Our tax dollars hard at work.

Can you become too obsessed with your debt?

Probably.

So my wife and I were sitting down last night discussing a few of our current money problems. Namely, a couple a medical bill forced us to dip into our emergency fund and we have a follow-up that is going to cost us again. We still haven't replenished our emergency fund, mainly because I haven't taken our debt repayments to reimburse it. Instead, I've been nickel and diming the fund to slowly bring it back up - using any spare income we have.

Needless to say, our fund is not back up to $2,500 yet. Actually, it is $1,900 now because of that bill. This new bill will set us back another $600. Ouch. Not a good month for the emergency fund.

Of course this discussion lead to how we are going to repay our emergency fund and pay our upcoming medical bill. We have very different approaches.

1) Her plan. She wants to take our debt repayment amount (about $1,200) for this month and pay these medical bills with it. That will of course cover the whole thing and bring our emergency fund back to where it should be, but it leaves us with little extra to put into the debt (not including the regular payments - our debt is a closed term loan and a student loan) for the month of September.

2) My plan. I want to pay the bill out of the emergency fund and slowly build it back up out of our discretionary income without reducing our debt repayment amount.

This lead her to the following conclusions about me:

1) I am too obsessed about repaying our debt.
2) I am wrong.

I don't like the idea of using our debt repayment to pay these medical bills because I feel that's what our emergency fund is for. I don't see the debt repayment as optional. In reality, this would only set our goal of being debt free back a month. Not the end of the world.

This also lead me to once again showing her a simulation of our debt payoff plan, how much we are sinking into this debt, and how wonderful it will be without debt. None of this affected her conclusion that I am wrong.

So, we compromised. We will wait it out until the end of the month and put as much as we can into the emergency fund to bring it back to snuff and save extra for the upcoming bill. If we're short, we'll use a portion of the debt repayment.

Couples - how do you divide chores?

How do couples split up the household chores? Does she cook and clean while you drink beer? Do you handle all the finances while she just complains about not having any money?

Although we really didn't have a defined chore list when we got married, we had been living together for 2 years prior so we had settled in to assigned chores based on our skill sets and - well - tolerance.

Me: Cooking, household maintenance, vehicle maintenance, finances.

Her: Cleaning dishes, organizing our social schedule, laundry, litterbox.

This is the big category. We have many things that we just like doing together.

Us: Cleaning the house (vacuuming/disinfecting/dusting/etc), lawn/gardening, basically everything else.

How did you come up with your chore arrangement? Are you happy how things are, or do you feel you do more/less than your fair share?

Do you hide your spending?

In a completely unscientific survey by Parenting Magazine, editors asked

"What's the largest amount of money you've ever spent without talking it over with your partner?"

Although called "Parenting" this magazine is geared almost entirely towards women, so we can assume most of the respondents to the survey were female.

6% said $25, 8% said $75, 11% said $150, 22% said $250 and a staggering 53% responded with "It's my little secret".

Do you hide your spending from your spouse? Have you made a major purchase decisions without consulting them? Do you think that's okay?

Not living paycheck to paycheck

When my wife and I married 2 years ago, we were literally living paycheck to paycheck. A paycheck would come in and we would pay the bills we had received, the minimums on the cards and loans, buy the essentials like food, splurge a little, and then try to save whatever was left over.

After we were married we decided to tackle our finances. We wanted to manage our personal finances, not just sit along for the ride.

One of the best feelings I got was when I realized we no longer lived paycheck to paycheck. We started saving off the front end of our paychecks instead of the back end, saving money for bills that did not arrive regularly (like insurance), saving for retirement, delegating a huge chunk of our savings rate to paying off debt after having established an emergency fund, stopped carrying balances on the credit cards, and only splurging after all those things (and food and bills) had been paid.

Now that we have money sitting in a bank in emergency fund and our bill savings, we have funds sitting there that we use to pay the bills. This is our "bill pay account", formerly what I called our "readjustment account" - still trying to come up with a good name for it. Now when we get a bill, we just pay it. When a big bill like insurance comes it, we just pay it. No sweat.

It's a great feeling, because we really feel like we're making progress.

Broke making $150k a year

Here's a depressing story from CNN about a couple with 4 kids who are now neck deep in debt and broke. They had 1 kid, planned on having a second and instead had triplets (another reason not to use fertility drugs!).

The real tragedy of this story though is that they had $175k in savings and an income of $90k a year entirely from one spouse. After their triplets came, their savings vanished and they went into debt. I wondered how 3 healthy babies could drain $175k in such a short time when you have $90k a year in income and a stay at home mom!

Now 4 kids is a lot. But many families have more and make it just fine. Yet this couple was spending $2k a month on 3 part time caregivers! Then they had real estate investments, which began to become unprofitable (or even break even). In 2 years they went from $90k a year and $175k in the bank to over $155k in DEBT plus a loss of the $175. 3 extra kids had cost this couple $165,000 a year! That's $55,000 PER CHILD.

It gets worse. They sold some giant farm mansion they were building, cashed out some unpaid leave, yet they were still $127k in debt. They worry about paying preschool tuition (are you kidding?) and saving for college. At the same time, the husbands income has increased a large amount and yet they still can't get by!

They should sell all their real estate (ticking time bombs), stop sending the kids to preschool, get rid of all the nannies, stop contributing to the kids college funds, rent a small house, live off of $50k a year and pay off the debt within one year and slowly begin increasing their lifestyle while socking away most of their income. In 5 years they could be better off than when they started.

This couple has about $150k in income and a 12% employer-provided retirement savings, yet they are wallowing in $120k of debt.

Why is this couple in so much trouble? In my opinion, its because they can't admit they're totally broke.

Dennis says he agrees with the advisers that the couple should pay down their debt and create a cash reserve. But he's reluctant to diversify as much as they suggest and wants to keep enough free cash on hand to cut real estate deals. "I'd like to have $75,000 in my foxhole waiting for the next thing to jump up and buy," he says.

There are so many families that have more kids than these folks and live off of a fraction of what they do. This is a perfect example of how money does not create wealth.

Should a spouse stay home with the kids?

Here's an article, "When parenthood pulls on the purse strings", which goes to extreme lengths to convince you that one parent should stay at home. Personally, I'm all for a stay at home parent in the first few years of life, but I'm not going to go out of my way to convince myself of the benefits that MSN would have you believe. Some of these are stretching it!

Child Care: $600 to over $1,000 per month for adequate day care or in-home child care takes a big chunk out of second paychecks.

True, but spouses can also work part time to cut this down. As well, if the spouse isn't making plenty more than $1,000 a month, he/she probably isn't in a great career or has much education anyway.

Wardrobe: Even in a "business/casual dress" office, you need work clothing and possible dry cleaning.

I have to ask: What did you wear to work before you had a baby? Did all your work clothes magically disappear? Clothes, properly cared for, last many, many years. Unless you were sitting at home doing nothing in before having the baby, this just isn't a factor.

Commuting: One spouse at home frees the other to take public transportation or use ride sharing, possibly requiring only one car between the two.

How, exactly? Couldn't both take public transportation to work, or ride share? If it's an option for one, why not the other? And what does "replacing a sporty car with a family car" have to do with a spouse staying home?

Food: Most couples can reduce dining out and, with good planning, cut take-out food bills as well. Furthermore, careful, coupon-laden grocery shopping might yield huge savings. Don't forget that one spouse will no longer eat out for lunch at work – nor grab premium coffees on the way. That change alone can up the savings by $5 to $25 a day.

Eating out for lunch everyday is just silly. Ever heard of a thermos and brown lunch bag? You know what I would save in food and coffee if I stopped working? $0. Eating out all the time and drinking $5 cups of coffee is a luxury, not a necessity that comes with a job. Did we forget that at some point?

Taxes: Second incomes usually push part of the joint incomes into a higher tax bracket."

Quite possible!

My wife and I both work and our house is always spotless. We clean up after ourselves and do heavy cleanings on the weekends. Having someone home all day makes more of a mess than working and having a kid at day care. The key is good organization and to always be cleaning. While you cook, the dishes get rinsed and put in the dishwasher, right after you cook, the counters get a quick wipe-down. Clothes go in the basket, things you take out get put away when you're done. I can imagine people who make a huge mess find weekend house cleaning to be a monumental task. There is a better way.

Home-Based Income: Through a combination of spousal help, part-time child care or nursery school, and older kids starting public school, many stay-at-home spouses start home-based jobs

Whoever wrote this doesn't have kids! Its nearly impossible to get a full days work done while tending to a kid at the same time.

Simple-Life Savings: If you use your family transition as an opportunity to overhaul your entire lifestyle, you might save a lot more through simple living, dollar-stretching and other philosophies that emphasize second-hand shopping, spending less on personal wants and choosing functional, energy-efficient housing over size, amenities and over-priced neighborhoods.

Uh, you should be doing this already.

This sums it all up:

Budget-Resistant Budgets: If you're already thrifty, your main savings items when dropping one income will be limited to child care and taxes.

Newlywed Budgeting

Most of the financial problems I hear or read about in marriages have to do with miscommunication or just lack of cooperation between a couple. Typically one spouse handles all the finances and/or wants to relieve themselves of debt, build a budget, etc and the other just isn't interested. I heard a Dave Ramsey caller the other night who complained that despite being neck deep in debt, her husband refused to even talk about it. He just sat on the couch and watched TV because he had been working all day. Ouch.

In that spirit, here's a nice little article from MSNBC "How newlyweds can find financial bliss". Between my wife and I, our families certainly had different ways of handling finances. For one, my parents were fairly open to me about their finances, while my wife was kept in the dark on just about everything. Sadly I have learned more from their mistakes than their successes!

But one thing that was important to me was that we communicated regularly about our money. Isn't money the #1 cause of divorce?

Develop A Payment System That Works For You...Instead some couples find letting the more ‘enthusiastic’ partner handle the routine financial chores while keeping the other informed, is more efficient.

I think appointing one person in charge of just about all the finances is the way to go. Splitting it up can get confusing real fast. At the same time, I try to keep my wife informed about everything, even the little details. We've come up with some pretty good strategies for keeping each other in the loop, and many times I've had to draw out flow charts to show her where our money is going. Printing a monthly report that she and I can read together has also proved invaluable.

Epperson is a proponent of diverting a household’s cash flow into streams of yours, mine and ours. She suggests designating roughly 90 percent of the total household income as ‘ours,’ allocating 60 percent of that to household expenses and 10 percent each to retirement plans...“But there are times when you want your own money,” she adds. By allocating the remaining portion of the household budget — five percent each — to fund ‘yours’ and ‘mine’ accounts

We fall short on this one. We have a joint spending account, but nothing separate. With some debt repayments going, relatively low savings, and our income still in its infancy, we haven't had much to spend beyond the regular bills/savings/etc.

Epperson suggests...exchanges of credit information

Before my wife and I got married we didn't check each others reports. We did right after we married, and now we check them every single year from annualcreditreport.com, but I agree completely with doing it pre-wedding. I read on another blog about one man's wife finding out about his heaping piles of debt the night of their wedding! What a way to start a marriage!

Once married, it pays to review each partner’s employer benefits plan. Sometimes switching to family coverage under one plan can yield better coverage despite the added premium cost.

So far we haven't run into this situation because my job offers insurance and hers does not. But if it did, we would certainly look at them both. It gets pretty complicated though, with not only premiums to consider but also which offers better benefits. That isn't always as clear.

the "money talk" is not a one-time thing, but a continuing dialogue for couples committed to living happily ever after.

Absolutely! Communication, communication, and of course...compromise.

Boomers put off retiring

Is it any real surprise that boomers can't retire? At 27, I'm worried that I'm not putting enough into my retirement funds. I can't imagine waiting until 35-45 to start really thinking about where my retirement funds are going to come from, but apparently many baby boomers did just that. Worse, they had fewer children to support, more education, and greater access to jobs (a family could double its productive hours after the 1960's thanks to women entering the workforce in droves).

So what happened? Were they too busy buying consumer electronics, driving up the cost of home ownership with the housing pricing wars (increasing their % of wages on houses to buy into "good" neighborhoods with "good" schools) or going on vacations? Did they neglect their company retirement vehicles or embrace only the company match and fail to save other funds on their own?


What makes me go "hmm" is the fact that boomers nearing retirement are also less likely to be married. Is it at all surprising that you are not going to do well financially (or physically and emotionally) when you have decided to do it all on your own?

The big question is whether we, their children, are going to learn from watching their mistakes. Will we save for retirement, stay married (not divorce because we are bored or want a change of pace), and not rely on tax income to fuel our retirement (social security)?

Throw out your TV and save.

I am a firm believer in reducing TV viewing time to evening-only, 2 hour limit (well, 3 if its a long movie), single set houses. There is a very good reason that corporations spend billions of dollars annually on broadcast commercials: people spend more when they are exposed to ads. You can make a dramatic impact in your spending habits, especially if you are prone to impulse buying or spending yourself into debt, simply by controlling your advertisement exposure.

Here are my tips for reducing your TV time, increasing your family time, and saving money while you do it.

• Get rid of your extra TVs: The average household has 2-3 televisions? Some houses have more TVs than people living there. The isolation that watching causes is greatly increased when you are all in different rooms watching different things. Just buy one really nice, high quality television. You will probably end up fighting over what to watch. Great! A family negotiating together (keep it civil!) is far better than one in separate rooms ignoring each other.
  
• Dump cable: Or at least dump the digital 300 channel satellite. Basic cable comes with nearly a hundred channels, and personally I don't have more luck finding something I want to watch when I have 300 as opposed to 30 channels - it just takes me longer to give up and read a book. Its an unnecessary expense, especially nowadays because you can...
  
• Rent or Stream your TV: Your favorite shows are probably on DVD, yes even the new ones. They are also on iTunes for a dollar a piece and some stations like ABC.com stream their shows for free with only 3-4 30 second commercials (as opposed to 15 minutes of them for an hour show). You will have to get creative to plug your computer into your TV, but online retailers like monoprice.com have cheap cables and adapters for just that purpose. You skip all the commercials without expensive equipment like TiVo. While you're at it...
  
• Say No to TiVo: People watch more TV with TiVo because they are more likely to record future shows. Then they have 30 hours of TV recorded and no time to watch it. Sounds like a huge money waster to me.
  
• Put your TV in a dedicated room: In a room without a table, preferably. Simply get that TV out of your living room and definitely out of your dining room. Meal time should be family time, sitting in the living room should be time to talk to each other.
  
• Kill daytime television: Keep your TV watching to the evenings and limit it to 2 hours (or a single movie) maximum per day.
  
• Avoid prime time news: News media exaggerates everything, and they love to create a panic. They also tend to insert fluff pieces or stories on products that are actually disguised ads. Stick to the newspaper or Internet (read the news don't watch it!) and you're more likely to think critically of what you read.
  

That's all I can think of. Reduce TV time, reduce your exposure to advertising, and you'll save money and strengthen your family bonds.