by Derek Sisterhen on August 26, 2011
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Past Due: Radio 170 – Should I Pay Down Student Loans Or Save For Tuition?
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Amanda is a rising college junior and is trying to make the best use of $500 a month in cash flow: “Do I pay it toward my $16,000 in outstanding student loans, or save it to – hopefully – pay for my senior year tuition in cash?”
First off, I can’t remember anyone in college who had an extra $50 a month to spare, let alone $500. Way to go, Amanda!
On today’s show we discussed:
1) The rule-of-thumb I’ve helped many people use to stay ahead of upcoming, expected expenses when also trying to eliminate their debt.
2) The importance of Amanda entering the real world as a college graduate with a sense of financial accomplishment (and how that confidence will set the stage for her making future goals a reality).
3) Whether borrowing for higher education can actually be called and “investment”, and how to reduce the risk while maintaining the reward of investing in yourself.
If you have a specific question, I’d be happy to answer it and further cultivate the wisdom of the Past Due Radio masses. The experiences of our listener base provide plenty of insight we all can learn from; don’t hesitate to ask – I’m happy to help!
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by Jaime Thompson on September 24, 2010
We teach our children to share, to find the joy in giving, and that the world doesn’t revolve around them. Just as we try to model the social behaviors we want our children to take into adulthood, financial ideas and habits start developing at a young age. Whether we are conscientiously teaching them or they are merely observing our dealings with money, they are learning. However, I’m about to tell you to be selfish and teach your kids to do the same.
As parents we want the best for our children, but do we want to leave them with the financial burden of caring for us in our later years? We cannot sacrifice our retirement savings to “benefit” our children. I watch people put off their own retirement savings to put money in a college fund, pay for an extravagant vacation, or buy a new car, but who is going to pay your bills when you retire? Unless you plan on retiring in the next few years, the only thing you can be certain of is that the future of social security is uncertain. And with an enormous and continuously mounting national deficit we cannot expect the government to cover our expenses in retirement. So assuming you are debt free and have a comfortable emergency fund, what should you do with the extra money you have each month? First and foremost you should be putting money in a retirement fund. Yes, this means before you contribute to a college savings fund. If you work for a company that matches some of your 401k contributions, start there until you receive the full match (it’s free money!) and then put any other money you can into a Roth IRA*. Once you maximize your retirement investments, then you can start putting money away for college. Remember, your children can always get loans and scholarships to help pay for college, but nobody is going to give you a loan to pay your monthly bills in your retirement years.
*assuming you are eligible to contribute
(photo by scottwills)
by Jaime Thompson on September 18, 2010
Did you have a hard time picking a name for your baby? Maybe you already have names picked out for your unborn children. What about your savings account? College fund? Vacation fund? Behavioral finance experts have found that earmarking your savings for a specific goal can have a big impact on your savings rate. In a 2009 study done by Amar Cheema and Dilip Soman, they found that labeling a college fund with a childs name nearly doubled how much was saved compared to those without a name attached. Cheema recommends opening multiple accounts and giving them labels to help motivate you to reach your goals. So, what will you be naming your savings account?
(photo by Vanderlin)
by Derek Sisterhen on July 27, 2010
This is a post from the newest member of the Lukas Coaching/Past Due Radio team, Jaime Thompson. Jaime is a Financial Coach with great insight on answering the question, “What next?” so that our money isn’t wasted.
I recently had a conversation with a friend who mentioned what a great investment his house had been after he sold it. Then I asked him how much money he paid in interest, real estate taxes, insurance, repairs, and maintenance over the past ten years. And more recently what his realtor fees, closing costs, and moving costs were.
As those numbers mounted up, he realized he didn’t make nearly as much profit as he thought. In fact he didn’t make a cash profit at all. He rolled the money he received from the sale into a new mortgage. Yes, his net worth has increased, but as long as that money is in the house he lives in, I wouldn’t consider it a great investment. After all, he hasn’t put a dime in his pocket.
Don’t get me wrong I’m not against home ownership. I am a homeowner myself. But do we have a realistic view of what home ownership is and has to offer? What’s the difference between buying a mutual fund versus buying a house? If you need immediate cash, could you sell your home quickly? Where would you live? How diversified is the neighborhood, town, and local economy you live in? Do you have $10,000 or more to pay your real estate transaction costs (i.e. realtor fees and closing costs)?
That’s not to say real estate can’t be profitable, but if you’re looking at it as your retirement nest egg, a way to finance college, or to pay for some other expensive life goal, you might need to take a step back and reevaluate. The current economy has taught us just how volatile the real estate market is. Remember your home is where you seek shelter, create memories, and enjoy life. Make your house your home and if you end up ahead when you sell, lucky you.
