2007 Roth IRA coming to a close

Technically, you can still contribute to your 2007 Roth up until April of 2008. The limit for young middle-income folks like myself is $4,000. Unless you make 6 figures, you need not worry about whether or not you can contribute (or whether your maximum contribution limit is lower). More details can be found here.

If you're like me, however, your 2007 budget ends on December 31, and savings afterwards falls into the 2008 contribution. With little more than 2 months left in the year, it's a good time to evaluate your progress and see if you have reached your maximum or exceeded it (yikes, more paperwork!). If you have exceeded it, be sure not only to withdraw the excess dollar amount but also the dollar amount of the interest that your excess earned. The tax you pay will be more than your earnings! There is no penalty for withdrawing excess contributions. Of course, hold on to it and just figure it in to your 2008 contribution.

A quick glance to my investment spreadsheet tells me that I am in no danger of exceeding my limit. Hopefully next year I can increase my monthly Roth allowance.

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.

Overcomplicated pricing plans

I was in a CVS pharmacy the other day having some photographs printed. A while back the only thing to do at these one-hour photo places was drop off your film, which was put into a little bag, and then come back to pick it up. You paid per roll of film.

Now however there are 5 different ways of getting your photos to them, as well as other ways of getting them back...not to mention about 6 different pricing plans just to get a stack of regular 4x6 pictures. To drop off your photos you can give them a CD, a memory chip, upload them online to their website, give them a roll of film, or give them a hard-copy of an existing photo. In return you can get real photographs, or you can get a CD. A combination of these various options of course yield different pricing structures.

On the advertising sign outside they advertise one price for photo printing. On their board inside they advertise 4 different prices. There are actually 6 different prices, however, once you get to the fine print (not on the board, but on small cards near the register.

You now pay by each photo printed. If you print using the little kiosk, it will cost you $.29 each. If you hand them your disc/roll/chip, it costs $.19 each. But only if you get more than 50. Under 50, which is the typical size of a traditional "roll", and it costs $.25. If you want them in an hour, it will be $.19 each, but only if you use their "club card". If you want them in a few days, it will be $.15 each - but after you read the fine print, this only applies if you upload them online to their website first. Otherwise, the few days option costs $.19 each.

Of course, you'll be better suited calculating the cost on your own. My cashier priced it wrong, at $.29, even though I had gone the $.19 route. The machine apparently defaults to the highest price, via the UPC on the little box they give you, and then must be adjusted down using a small card with various UPCs on it that apply "discounts" in the register POS. No doubt many people end up being charged full price because they were not paying attention.

It was a real headache just trying to figure out how to get the per-photo price that was displayed in huge numbers on the billboard. Its enough to drive you to just buy your own photo printer.

Envy thy neighbor

Here's a fun article from MSN about how the wealth around you can make you feel poor. We get to hear a couple of stories, sounding very typical, of young people entering the workforce and finding themselves surrounded by rich, successful people. So what do they do? They spend themselves deep into debt to keep up.

When you hang around people who spend lots of money, you're probably going to do the same (or be miserable that you can't). Odds are also good that it will leave you broke.

it is a daily struggle to keep it from skewing her financial perspective. "I find myself looking at something and saying, 'Oh, it's only $200.' Then I look at my accounts, and I have to remind myself, 'You can't afford $200!'"

Personal finance has a lot to do with perspective. Especially for younger generations, sometimes its hard to focus on what the true value of a dollar is. We grew up with parents who spent, spent, spent. New cars, bigger houses, leveraging loans. What we didn't realize was that many of them weren't saving enough for retirement, were eating up all their equity, were deep in debt, or were just not thinking far into the future.

many of us might hesitate to admit, you strive to buy your way into the lifestyle of Mr. and Mrs. Jones, even when you can't afford it

We want to live like our parents. We want to live like our neighbors living like their parents. But sometimes we forget that as Baby Boomers they were having fewer children later in life, so their careers were already well established. By the time we were preteens our parents were in their peak earning years. That'll really distort the perspective on what's "normal" for a 20-something just out of college.

Adam once worked with a woman who had "lived the good life" but was so broke at age 46 that her parents refinanced their home to bail her out.

The lesson is to watch what you spend and happily accept a lifestyle you can afford. While your friends are all out living it up, will they be happy when they're flat broke and can't retire?

Reverse Mortgages

The pros and cons of reverse mortgages. What is a reverse mortgage? It is a loan available to home owners ages 62 and up, that taps into home equity to provide a monthly or lump sum payout. The main difference between a reverse mortgage and a regular home equity loan however is that the payment is deferred until the homeowner dies or otherwise leaves or sells the property. Like any mortgage however, you still pay interest. In other words, you purchase a home with a 30 year mortgage, pay interest for 30 years until it is paid off, then you do a reverse mortgage on it and pay interest again, and then the home goes to the bank.

Added on to the loan is mortgage insurance, because if at the time of sale when the bank is ready to offload the property that you've kindly paid twice the interest for, it may end up eating the difference if the property value is less than the value of the home. That could certainly happen with the housing collapse we are in now.

The biggest problem with these loans? Fees. You end up paying huge up-front costs compared to a traditional mortgage or equity loan in addition to closing costs. After that, you can draw out the equity and it plus interest is added to the principle of the loan. If you decide to leave early, the bank takes the house and sells it and gives you anything left over.

Another major problem is that bank can also take the house if the homeowner leaves for a period of time specified in the loan. With continuing health problems of the senior citizen with the loan, this could mean they could lose their house while in an extended, yet temporary stay at a hospital or nursing facility.

My opinion of this type of loan? Avoid it, and do everything you can before you end up in this situation to avoid it.

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)?