I was the first person in my family to go to college, and I was attending a reasonably prestigious university far enough away from home that it wasn’t feasible to go back with any regularity. I knew no one at all when I moved into my dorm room.

That first year in particular was full of discoveries. I had read quite a lot about the realities of college life before going, but so many things were unexpected and didn’t quite match what I had discovered from my reading.

Perhaps the biggest surprise of all was the hidden costs. It didn’t take me long to seek out a part-time job because of all of the hidden costs that came along. Here were four that really took me by surprise.

Unexpected Class Expenses
Most professors are sympathetic with the poor college student and will therefore use only one textbook for their class. Others, like a few of my own that shall remain nameless, will have a long list of requirements for the class.

I’ve been in classes with more than ten required books. I’ve been in classes where we had to buy a bunch of lab equipment. I was in one class where a $500 piece of software wasn’t “required,” but if you didn’t have it, you had to spend many, many hours in this one computer lab with limited hours of availability on a remote corner of campus.

The textbooks are expected. Some of the additional expenses are not.

Health Insurance
Health insurance is the last thing most college students are thinking about when they head out the door to school. Eventually, though, you will get sick. Dormitories are breeding grounds for germs and with all of the human interaction going on at colleges, illnesses get passed around.

Many students are lucky enough to be covered by their parents’ health insurance. For those who are not so lucky, there are really two options.

One, you can see if your university provides a health plan. If that’s the case, this is usually the lowest-cost option. Most of the time, if you have a health plan through your school, you gain access to some form of on-campus health service, which will help you with most minor ailments without any charge, and they’ll refer you to other health services as needed. The premiums for this are usually quite low and are often paid directly to the university.

If that doesn’t fit, you can get individual health insurance. Provided you’re in good health, this can also be pretty inexpensive and will usually open up access to off-campus doctors and medical resources. If you go this route, shop around. Most schools will provide you with a list of recommended student health insurance providers.

Make sure your health is covered before you go. The last thing you need during your first finals week is a serious illness that makes you dizzy if you climb out of bed. (I speak from experience here.)

Learning Experiences
If you’re involved at college, you’ll eventually join clubs and organizations that match your passions (and possibly improve your resume). Those clubs might have small membership fees, which aren’t a big deal.

What is a big deal is when those groups lead to learning experiences: trips, activities, and other things that have a big additional cost to the participant.

I found myself in a club that took a trip to South America for volunteer work. Most of the club went. I did not. Another club I was in went on a long road trip over spring break to visit some research stations. I couldn’t afford to go.

Involved students will eventually bump up against the cost of extra learning experiences that go far beyond tuition.

Late Night Food
This was a big unexpected expense for me. Like many college students, I was often up very late doing social activities or finishing up homework. On the weekends, it was not uncommon to stay up until three in the morning and then wake up at ten or eleven in the morning.

Since the food service at my school stopped serving at 6:30 PM, that meant that by midnight or one in the morning, I was getting hungry. I was definitely not alone in this. Many pizza places in the town catered to us.

There were many, many weekend pizzas delivered to various groups on campus. I might go in four ways with someone on a pizza, but that meant $5 was immediately gone. Do that once or twice a weekend over a semester and you’re talking well over $100.

I truly believed food service would cover all of my food needs when I went to school, but it just really didn’t work out that way. There were many times when I was quite hungry and ready to eat when the delivery places had closed up shop.

College is subtly expensive in many different ways. Saving for tuition, room, and board is a good start, but having some additional funds on hand will really help maximize that experience.

The post Four Hidden Costs of College appeared first on The Simple Dollar.

I usually swap an email or two with them, but they don’t usually like my responses.

Here’s the truth, though. If you graduate and your resume says nothing but “B.A.” or “B.S.” in your field of study and doesn’t include a single additional thing relevant to your career path, you’re not getting a job. In a competitive job market, with lots of people coming out of college with a freshly minted degree in your area along with lots of people in your field looking to move around to a new position, just having a degree is not going to cut the mustard.

Your degree alone is not a ticket to a career. Your degree alone is a ticket to stocking shelves at the grocery store during the night shift.

It’s a painful truth, but that’s the reality of it. That was the reality of it when I graduated, too. Ten years ago, I watched a big group of my friends graduate all together at roughly the same time. Some of us found jobs in our career path quickly. Others didn’t.

Our degree basically didn’t matter in this. All of us had degrees, but nowhere near all of us found work. The college degree we held was merely a baseline. It was just considered one required part of a resume, and if you didn’t have other parts to go along with it, you weren’t getting a job, not when there were others with more accomplished resumes out there.

What made the difference, then?

Did we have jobs or internships that related to our desired work? Do we already have some sort of professional workplace experience in the field that we hope to work in? A job at Burger King is useful in demonstrating that you’re willing to work, but it doesn’t mean half as much as someone who actually worked at a job in their field during their college years.

If you want work in your field, start looking around your community. Start with your professors. Do they have research labs that could use an undergraduate assistant? You’ll probably wind up filing scientific papers or washing glassware for a year, but that year is far more valuable in the hiring process than a year at Wal-Mart. Are there businesses or organizations in your community that might employ you?

Do you already know some people in the field? If you can actually describe genuine relationships with people already in your field, you have a big leg up. Those people might be able to help you find work. Even if they can’t, being able to mention those relationships in an interview helps because it shows you’re a person already looking seriously at what you’re doing for a career path.

This overlaps heavily with work in your field. The more you work in your field, the more people you’re going to meet that are professionals in your field, and the more relationships you’re going to have.

Do you have valuable extracurricular activities? Do your extracurriculars line up well with the work you’re hoping to do? At the very least, do those extracurriculars point toward transferable job skills that might be of use to the employer?

Clubs related to your major are a good place to start, as are volunteer groups. Taking leadership positions in those groups really helps as well.

Have you completed noteworthy projects? Can you show an employer the results of a major project that you played a primary role in developing (or developed entirely by yourself)?

Class projects are okay here, but the ones that are really impressive are the ones outside of the classroom, either from your free time or from your time at a job related to your work. Those kinds of projects demonstrate a willingness to take charge of a situation and make something big happen while also balancing the challenges of classroom work.

Students who come out of college with a degree and these kinds of things on their resumes find jobs. Quite often, though, I’ll see resumes from students who list just their degree and a few jobs they had at chain restaurants, and then they wonder why they can’t find work. When you’re competing with people with these things on their resume, you’re going to have a very, very difficult time coming out on top.

The post Your Degree Isn’t a Ticket to a Career appeared first on The Simple Dollar.

Let’s say you’re a relatively skilled high school baseball player. You dream of playing in the major leagues someday. Here’s a stark reality for you: only 0.5% of high school baseball players are ever drafted by a major league team. Of players drafted, only about 10% ever play an inning in the major leagues, and significantly fewer than that have enough of a career to be able to make a living off of the proceeds and prestige of their career. Yes, of course, there are other paths to a professional career in baseball, but if you look at the number of players who train and dream, the actual percentage of players that make it come true is startlingly slim. You can see that same type of trimming in many other career paths, too.

The usual advice given to people in such high-risk career paths is to have a fallback career. In other words, if a person gets a scholarship to play college baseball, they’re usually encouraged to pick a major that will offer them an alternate career path should their baseball career end at the collegiate level.

Many people in many different career paths are given that same advice. Writers. Artists. Entrepreneurs. They’re all told that it’s a good idea to have a “fallback career.”

Here’s the thing, though. When I think back to the times in my life where I felt like I truly succeeded, it was almost always during situations where I didn’t have a “fallback.”

When I find myself in situations where I can just shrug my shoulders and easily take another path if things don’t work out, I don’t perform at my best.

When my back is against the wall and I know that I must pull through here, I tend to perform better than ever.

It might sound like I’m advocating throwing a “fallback career” to the wind and just going for it.

For some people, I am.

I wouldn’t encourage anyone with dependents to do it, especially if the dependents rely solely on you. If you have kids, you have an obligation to have many fallbacks in place to protect those little ones. They’re your responsibility.

I wouldn’t encourage anyone with health issues to do it. If you’ve got ongoing health concerns that could easily go awry without medical care, I wouldn’t take a leap into a void where you have to forego that care.

I wouldn’t encourage anyone not willing to live in poverty to do it. When you take on something really challenging, you might very well fall flat on your face. That might mean an extended period without income and it might really challenge your resourcefulness. If you’re not willing to make do with some very lean times, then you shouldn’t take a leap.

I wouldn’t encourage anyone without a dream and without a work ethic to do it. Have you spent many days doing nothing but completing an urgent project? Do you have something inside of you that you want very badly? Some people have these things. Some people don’t. It’s not wrong to not have them… it’s just a matter of personal wiring.

When I think about this question, I think about my own children.

A lot of parents talk big about wanting their children to chase their dreams, but when it comes down to it, they usually push their kids toward “safe” careers.

That’s the last thing on earth I want to do. I want them to take that leap when they have their youth, their energy, their lack of dependents, and their passion. I want them to stand up there and try to make whatever it is in their heart into a reality.

If it doesn’t work… well, that’s a bridge they can cross a little while later in their lives. They’ll still be relatively young, and they’ll have the experience of knowing a lot more about how the world works.

Even more importantly, they’re going to have a set of rather unique skills and some very interesting resume elements for whatever might come next in their life.

For the icing on the cake, they won’t lie awake at night wondering “what if…” They’ll know that they gave it their all.

If it does work… then they’ve launched themselves into the life of their dreams.

If they want that dream to really take off, though, they need to be devoting every ounce of their energy to that success for a while, and that means not building a “fallback career.” They’ll need to throw everything they have at it and then face forward knowing that they didn’t leave anything on the table.

If they fall… then they can look at another path. However, if they spend a lot of their energy preparing a “fallback career,” they’ll never put themselves in position to actually make that leap at all.

The obvious question people will ask here is about a “side business.” What about people who get the ball rolling on a successful career, then dabble in their dream endeavors on the side?

To me, it’s a good compromise. I don’t feel as though it will lead to success quite as often, since your main career is your fallback career, but it provides a way for people who are in situations where they need stability in their lives (dependents, health issues, and so on) to chase that dream. It’s how I got started with writing, after all.

Still, my biggest regret in life is that I never gave my dreams a wide open chance when I had the opportunity, before other aspects of my life began to require stability. I spent too much time in those days building my “fallback” career and, frankly, wasting time and money because I was lulled by the safety of that “fallback” career.

While I’m certainly not going to demand that my children leap into some risky unknown, I’m certainly not going to stop them from making that leap.

The post The Fallback Question appeared first on The Simple Dollar.

When something unexpected happens, insurance is the one precaution that really makes a difference. You can’t be casual about such a responsibility

And while you can understand exactly what you’re protected against, actually managing your premiums can be a whole other story. As anyone in charge of the bills can tell you, juggling multiple premiums every month gets pricy fast. Things will only get worse if you don’t know how to compare plans and deductibles, to identify loopholes, or even how to dispute a claim.

When something unexpected happens, insurance is the one precaution that really makes a difference. You can’t be casual about such a responsibility.

While I would never claim to be an insurance expert, my wife and I insist on regularly reviewing our coverage and monthly premiums. If you don’t know what your policy actually protects you against (and why you want that protection), you need to make a point of getting the facts straight. When you blindly pay for extensive coverage and add-ons the insurer tells you are “necessary” or “highly recommended,” you are wasting money.

In my case, as family circumstances changed over the years, we’ve made sure coverage stays in step with our lifestyle and our property. And looking back on these experiences, I know I have more I’d like to share. You can go back to my September entry on buying term life or my recent list of life insurance lessons to get an idea of what I mean.

When you blindly pay for extensive coverage and add-ons the insurer tells you are “necessary” or “highly recommended,” you are wasting money.

Along with my own take, I’ve recruited insurance insiders to contribute to a new, separate section of the site. They’ve each put together a sort of “Insurance 101” guide for four areas of insurance: home, health, car, and life. Each writer is objective and highly qualified. People who actually have something worthwhile to contribute. Each guide goes into great detail on the basic terms, the right questions to ask when insurance shopping, and tips on how to avoid needless expenses and cons.

Look for a post from me that explores the new pages, including an introduction to the insiders and their guides, as well as my own takeaways on managing the trickier aspects of insurance.

The post The Simple Dollar’s Education in Insurance appeared first on The Simple Dollar.

One person went to college to study chemical engineering and became a high school teacher.

Another person went to study agriculture and became a database administrator.

Yet another person went to law school and is now an English professor.

I started off majoring in the sciences and now I’m a writer.

Life rarely hands you the path that you expect. If you had told my college-age self that I would spend five years of my life in my late twenties and early thirties as a stay-at-home writer and dad, I would have assumed you were lying. At this point, I’d probably believe just about anything when it comes to where my path will lead in ten or fifteen years.

The question really becomes this: if my path in life led directly away from what I studied in college (and I’m far from alone in this), what value did college have in the first place?

I actually had lunch with a friend just a few days ago where we discussed some long-reaching solutions to this, including moving much of what college now delivers and many of its students to a trade school format.

However, I’m not as interested today in looking at such wide-ranging solutions. My question looks directly at my children. What advice can I give them to make sure they actually get lasting value from college beyond their first career shift?

In thinking about this, I not only looked back on my own experience, but I sought some advice from people in varied careeer paths and in academic environments whose opinions I trusted. The same few themes kept popping up.

Self-motivation is king
If you don’t have the motivation to get to class and do the other things suggested below, then you’re going to have a difficult time post-college. Self-motivation is king. You have to be a self-starter.

This can be built up over time. Focus on accomplishing things each and every day. Make it to every class and focus on paying attention in those classes. Make forward progress on the workload in every class. Dig into new areas and take on challenges in those areas.

Sitting in your apartment hung over and talking yourself out of going to class today? That’s just about the worst thing you can be doing.

Transferable skills are absolutely vital
In order to succeed in life along a twisty career path, a person needs transferable skills. Time management. Communication skills. Basic computer skills. Information management skills. Knowledge absorption skills. Task prioritizing skills.

These are skills that help out in virtually every workplace. They’re also skills that an awful lot of people don’t have. I’ve seen many, many technically proficient people not succeed because they didn’t have those fundamental transferable skills. On the other hand, I have witnessed many people succeed in fields in which they were not trained because they had these skills

College is a perfect time to build those skills. Academically challenging courses can help in some ways, but they should be balanced with classes that teach communication, how to process information, and how to think.

Relationships are vital, too
Even though my life path has drastically changed, I’m still regularly drawing on the friendships and professional relationships I built when I was in college. Those relationships are still helping me out (and I believe I’m helping many of them as well).

Build lasting relationships with people. This doesn’t mean just adding them as a friend on Facebook, hiding their posts, and not talking to them for years. Communicate one-on-one with as many people as you can. If there are ways where you can help someone, do it. Recommend person A to fill a need that person B has. Introduce person C to person D.

If you’ve got a value-based relationship with a lot of people, you will have lots of different avenues to tap no matter where your life goes. Remember, very few people follow a straight and narrow path in their career these days. The paths of the people you build relationships with will go in all sorts of surprising directions, and yours will likely intersect some of them in ways you never expected.

Make your resume diverse
A resume with a person who got a 3.75 GPA is good, but if it’s devoid of anything else, it’s not going to be outstanding.

I would far rather hire someone with a 3.25 GPA coming out of college with a diverse resume – internships, interesting jobs, organized activities, and other achievements – than a person with just a 3.75 GPA and nothing else.

Go to class in college, but don’t just go to class so you can hurry home and party or play computer games all night. Take advantage of the many, many opportunities a college campus has for you. Join and get involved with some interesting organizations. Try to score a summer internship or a job on campus connected to your major or to something else you’re interested in. Start a big, audacious project.

Those things stand out, and managing them builds you into the kind of person that can tackle anything life throws at them.

The post The Value of College appeared first on The Simple Dollar.

On Facebook, Edita asks a simple question: “Among diffrent 529 plans.. which one to choose?”

First of all, let’s talk about what a 529 plan is. A 529 plan is “a tax-advantaged investment vehicle in the United States designed to encourage saving for the future higher education expenses of a designated beneficiary.” (source) In other words, it’s an account that you put after-tax money into (meaning ordinary money out of your checking account). That account has a stated beneficiary (often your child, but it might be you if you’re saving for your own future graduate education or something to that effect). When money is withdrawn from that account for educational purposes, you do not have to pay taxes on the returns that money earned while sitting in the account.

There are two distinct types of 529 plans: prepaid plans and savings plans. Prepaid plans are less common (only 11 states have them), but they usually mean that you’re directly “pre-paying” for tuition at public universities within that state by buying tuition credits at that school. These credits are based on current tuition rates and thus are a bargain if your child is going to go to that school. Savings plan 529s are much more common. They function much like a savings account, where you deposit money, it grows within that account, and then you can withdraw it to spend on educational purposes.

Finding the right 529 plan is tricky because so many different states offer them and individual states have differing tax rules when it comes to 529 plans. For example, some states have rules where you have to pay taxes if you withdraw money from another state’s 529 plan.

The first step I would take is identifying the “must-have” features. This depends a lot on your situation and each situation is different. For me, there are four “must-have” features.

It must be a “savings”-style 529. I do not want to lock my children into a specific university or small set of universities.

Other family members must be able to make contributions. I want grandparents to be able to easily contribute to their grandchildren’s 529 accounts.

I must be able to transfer account ownership at any time. This ensures that the account will be there for my children no matter what happens in my personal life between now and when they need the account.

I must be able to meet the minimum contribution level. This can certainly be a big concern for some families who have to really stretch to make payments into the 529 account.

There are actually quite a few plans that meet these criteria. So, the first step I would take is to look at my own state’s 529 plan. Using your own state’s 529 plan minimizes the chances that you’ll be docked by having to pay income taxes on the plans in other states (of course, this is a non-issue if you live in a state without state income tax).

For me, the search ended here. I’m a big fan of College Savings Iowa, as it met all of my needs quite well while also offering strong investment choices (they’re backed by Vanguard). Which brings me to my second factor…

If you’re not completely sure about your own state’s 529 plan, start comparing them. This is particularly true if you live in a state without income tax and plan to live there for a while.

The biggest issues you’ll need to look at are the quality of the investments offered in the plan. I would not base this comparison on past performance. Past performance is not an indication of future results – it’s one factor among many. Not only that, many 529 plans have a relatively short history, meaning the past performance data is limited and not particularly valid for comparison.

Other factors that are more important (from my perspective) include the diversity of investments offered within that state’s plan (the more the better), the availability of “targeted” funds that mature when your child graduates from high school, and low fees (such as investment fees, program fees, and other expenses).

Other key factors I would look for in a 529 include easy online access to accounts (most states have this, thankfully; it’s almost a make-or-break feature for me), a good customer service reputation (Google for reports from users), and the ease with which they make rollovers into other 529 plans possible (in case I move or some other change occurs).

There are a lot of tools online that will help you compare the features of 529 plans (like this one), but the big factors in choosing a plan aren’t strictly investment based. They have more to do with you and your child’s future than anything else.

The post Choosing a 529 Plan appeared first on The Simple Dollar.

In other words, I had about two weeks of vacation coming to me. I wasn’t really sure what to do with that time, though. I didn’t have children. My wife didn’t have any vacation time coming. So I asked him what I should do with the time. He looked at me thoughtfully and simply said, “Why don’t you just take a sabbatical?”

A sabbatical means a period in which you choose not to work in order to achieve something else that will improve your life. If you take a week off of work in order to re-pave your driveway, that’s a sabbatical. If you take two weeks off in order to take a class, that’s a sabbatical.

So what did I do during that week? I drafted a novel. It was the second novel-length work of fiction that I’ve completed in my life (and, like the first one, I now think it’s pretty awful). It was also a great learning experience for me. It taught me how to organize the threads of a complex story. It showed me that I had the capacity to write such a lengthy thing. It gave me the experience that I can build on with better stories later on.

Since that first experience in 2004, I’ve tried to take a sabbatical once a year or so. I’ll take a week off of work in order to work on some project or increase some personal skill of mine. One year, I used the sabbatical to take a Photoshop course. Another year, I spent the sabbatical working on my finances and, eventually, laying the foundations for The Simple Dollar. I plan to use a sabbatical in the fall of this year to “woodshed” on the piano, focusing squarely on mastering a couple of piano pieces.

What can you do on your sabbatical? Complete a personal project that needs a lot of focused time. Teach yourself a new skill that you know will be valuable in the future. Take a compressed course to pick up a skill.

The specifics depend entirely on you and what things you wish to accomplish and learn in your own life. Building a skill that you can use professionally is almost always a strong idea, as is a class that leads directly to a professionally useful skill. Completing a large personal project is also quite valuable, as is setting up the infrastructure for a side business or a larger personal project.

I could write a very long list of such ideas. Learn how to use a particular computer program like Photoshop. Learn a computer programming language like Scheme. Start an online business. Write a novel. Clean out every closet and nook and cranny in your home. Re-shingle your roof. Give a number of speeches and presentations to improve your public speaking skills. Take a compressed course on a topic valuable to your career at the local college. The list goes on and on.

The key is to make sure that you’re either doing something to improve your skill set or doing something that improves the value of the things in your life, particularly something that you can’t quite accomplish while working.

Why not just take a vacation? For starters, sabbaticals are easier to propose to supervisors. My experience – and the shared experience of others – is that it’s much easier to sell a supervisor on using vacation time for a skill-building exercise than it is for an actual vacation. Why? When you take normal vacation time, you’re not really increasing your value to the company during that time spent. If you’re building skills during that time, then you typically do increase your value. Even if you don’t build a skill that’s of value to the workplace, knowing that you’re local in case of an emergency can again make vacation time easier to sell to a tough supervisor.

For another, after a sabbatical, you have a genuine accomplishment. You learned a new skill or you took care of something significant that needed finishing. That sense of accomplishment is incredibly valuable, as it fills you with confidence as well as the rewards of whatever it is that you’ve accomplished.

After a sabbatical, you’re in a better place. That in itself is a tremendous reward and a strong source of good feeling which you can use to fuel your return to work. Good luck.

The post Got Unused Vacation Time? Put It to Use with a Personal Sabbatical appeared first on The Simple Dollar.

This isn’t an experience that’s unique to me. On The Simple Dollar’s Facebook page (feel free to become a fan), I recently asked “Did you take a personal finance or consumer ed class in school? Was it useful to you? Did it keep you from making financial mistakes later on?”

Quite a few people publicly stated the uselessness of their personal finance education, while still others emailed me or sent me direct messages about it. A sampling of the comments:

Ryan B.: “i had to take consumers ed with drivers ed and [...] no….i had to learn from mistakes…”
Kelly K.: “My consumer ed class in high school was a waste of time.”
Charlie R.: “Yes, I did, and no, it didn’t.”
Baley W.: “Senior year in high school we took FPU. I remembered the principles, but I still got into debt. I don’t think it helped one bit, even though I’d like to think so.”
Shiela F.: “In high school & college along with accounting classes and no, it did not help. ”
Annie J.: “We had a small personal finance chapter in Home Ec./Family Relations class and no, it wasn’t helpful.”

Even some who got value from their classes saw that it didn’t impact their peers. Amanda H. stated: “I took a college personal finance course at the behest of my father. It wasn’t perfect, but it gave me a whole new awareness on things like investing and how interest works. And how important it is to get started young. Which I think was rare and put me miles ahead of my college-age peers.”

Many others didn’t recall any sort of education, which either means there literally wasn’t a class or the class had so little impact on them that they did not recall it at a later date.

Simply put, personal finance education as it currently exists is not reaching people when they need it. Quite often, they learn about it later on through their own difficult experiences.

In fact, I think “experience” is the key word here.

Consumer education and personal finance education is often lumped in with many other classes at the high school level. They’re taught in a classroom environment with minimal examples that actually impact the lives of students in any way. Sometimes it’s a class all its own, but other times it’s just a small piece of another class and at yet other times it’s not dealt with at all.

Just like any other ordinary class, one or two will “click,” a handful of others will approach it like any other academic subject and succeed on the surface without deeply understanding it, and many others will let the info go in one ear and out the other, retaining as little as possible.

Simply put, treating personal finance as just another thing that students need to be “educated” in doesn’t really work.

How can we possibly make personal finance education relevant (beyond the simple step of making sure that it’s at least presented)? Over the past few years, I’ve been collecting ideas from the mountains of personal finance books I’ve read, and I’ve got some suggestions for how to turn personal finance education into something much more valuable than the experiences described above.

First, homework (and classwork) should focus on discussion and actually doing things. Make homework (most of the time) very simple for this class. Go home and ask your parents a basic question about their finances and report on what you learned. Why do they buy a certain product type? What was their best experience at work? How do they do their taxes? The goal isn’t to get students to tell about their families, but to get them talking at home about personal finances.

At other times, focus on actually doing things. Make everyone in the class get a savings account or a checking account in their name. Have them go to the store and find the best bargains they can on enough laundry detergent and dryer sheets to do 100 loads of clothes. Hand out copies of credit card offers and have them figure out what happens if they charge $500 on the card and don’t pay it.

Second, put a big emphasis on personal stories. If you go around and ask people what the one thing that got them on the right financial track and helped keep them there was, it’s almost always someone else’s story and how they translated that into success. Dave Ramsey’s story. My own story. The stories in books like Your Money or Your Life. People see some element of themselves in that story and they want what that person has achieved, so it makes the steps to get there seem much more real and relevant.

If you’re teaching, use your own story, but don’t be afraid to get speakers in very regularly who are open to talking about their own stories.

Third, recognize that you’re trying to plant key concepts that may not “click” for years. Don’t spend a day talking about the difference between 401(k)s, 403(b)s, and Roth IRAs. It’s not relevant to them and it’s too much detail. Instead, make absolutely sure they understand the key things that they’re going to face.

One key technique for this is to cycle back regularly to old topics that you’ve already covered. Just like exercise, you can’t keep a muscle strong if you vigorously exercise it once and then never touch it again. Scatter specific topics and speakers throughout the year that call back to the key topics already learned.

Finally, focus on goals and how to approach them. One of the few examples of personal finance that I remember from school was when a teacher in elementary school kept a jar on her desk. She told us that if she just put a quarter in that jar every single school day, there’d be enough money in that jar for a pizza party for the class at the end of the year, and every little bit students tossed in would make that party better.

Every day, she’d add a coin to it at a time when she knew everyone was watching. Sure enough, that jar slowly filled up. Sure enough, at the end of the year, the money in that jar paid for a big pizza party.

It stuck with me for a lot of reasons. Repetition, of course, was one of them. The big pizza party at the end was the other one.

Even now, though, the idea that there was a goal set at the beginning of the year, that a plan was put in place for that goal, and that a little bit of effort each day brought the class to that goal has an impact on me.

Don’t be afraid to do this exact thing. Even more so, don’t be afraid to share your own goals right in front of the students. “I’m saving $20 per school day for a car,” you might say, then actually buy a car with that cash at the end of the year. Save $10 a day during the first semester, then buy a laptop (or some other item they might care about) before Christmas.

The simple truth is that a typical classroom experience isn’t going to reach most students – and even trying new things won’t reach every student. Instead, focus on doing everything you can to hammer home a few key ideas – debt is bad, saving money is good, planning ahead is great – and try to relate that to their life.

I think Sarah D. put it best: “Honestly, I don’t think you really learn anything that you are not invested and interested in. The very best lessons I learned about money were from actual experience.” Experience, not classroom learning, gives people the personal finance lessons they need. This goes not just for teachers, but for parents, too.

In fact, I’ll leave this article with a note to parents. Personal finance is a life skill, just like changing your underwear. Be involved in teaching your kids how to manage money, just like you were in teaching them to change their underwear.

The post Is Formal Personal Finance Education a Failure? Some Thoughts on Improving It appeared first on The Simple Dollar.

This idea often pops up in the questions I get from readers. A reader will ask me if they should go back to school, not because they want to learn, but because they believe this piece of paper will directly increase their earnings.

I’ll state it right now: the piece of paper you receive at the end of your college career will do nothing to directly increase your earnings. Nothing. A college degree will simply help you to get your foot in a few more doors. It will not get you a job simply because you have that degree.

What will get you that job is what you bring to the table after you get your foot in the door. Yes, you have that B. A. or B. S. on your resume, but what else do you have that will impress? What other skills do you have that will make money for your employer or for the business you hope to start?

In the end, it’s about the skills and attributes you bring to the table, not about the piece of paper you hold.

So, what does that mean for a college education? Does that mean I hold it as being valueless?

On the contrary, I think a college education is incredibly valuable.

However, it’s not valuable for the piece of paper you get at the end; it’s valuable for the experiences you have, the skills and knowledge you actually learn, and the accomplishments you achieve while there.

If you want to come out of college and get a great job, don’t spend your time doing nothing but hitting the books, working a generic service job, and partying. That’s the recipe that a lot of college students take – and it’s a recipe that ensures that it will be more difficult than it needs to be to find a job when you graduate.

Instead, try these approaches.

Build relationships with your professors. Stay after class to ask questions. Participate in class. Hit office hours. Attend on-campus events, like lectures, that professors might attend. Ask them for more general advice, like what they did as a student to put themselves in a good position. Later, don’t be afraid to ask for employment help and reference letters.

Get a job that relates to your major in some way. The best way to start with this is to do the above – start talking to your professors. Ask them for suggestions for employment that will match your major and help you learn some basic skills. Work study jobs are often perfect for this. Yes, you’ll often find yourself doing repetitive tasks that are boring, but if you keep in mind that mastering these skills will not only impress your boss but give you a great springboard for later on in life and earn you some money and create some very impressive resume fodder and stories to tell during interviews, it’s a lot easier to focus.

Use electives to build transferable skills. When you have slots for classes that you’re unsure how to fill, look for courses that help you build transferable skills – the things you will be able to use at any job. Public speaking. Leadership. Technical writing. Time management. Communication. Information management. Basic IT skills. Take these classes and focus on the skills you’ll build.

Participate in student activities. Seek out an activity or two that’s connected to what you’re studying. Get involved, build relationships with others who are involved, and seek out leadership positions within those groups. This will not only accentuate your knowledge, but it will build relationships with future professional peers and give you some great resume fodder.

Participate in activities that build transferable skills. Beyond activities related to your studies, seek out activities that will help you build skills that you can use after school. Public speaking is always good, as are organizations that focus on leadership and debate. As always, leadership positions are always a positive.

Take any projects you have to heart. When you have a class project, don’t just look at it as a path to a good grade. Look at it as a way to build the skills you’re going to use when you’re in the workplace. Look at the product of that project as something you might be able to hold onto for a portfolio, or to build into something big. Look at it as something you’ll want to show to people in a professional environment. Not only will the grade be easy to achieve, you’ll build some skills and potentially have some great material for a portfolio.

Do something awesome. Spend a semester or two abroad. Take a year off to do a major volunteer project. Anything you can do that will help you stand out from the pack in a positive way and contribute a deep personal value to your life is something you really should consider doing.

These steps not only will build your character, your knowledge, and your relationships, but it will build a resume that will stand out from the pack when you start seeking work.

It isn’t the paper that’s valuable in college. It’s the actual skills gained and experiences enjoyed.

The post Is a College Degree a Piece of Paper … or Something More? appeared first on The Simple Dollar.

You don’t have to know what you want to do right now. You’ve probably heard countless people asking what you’re majoring in and so on and you’ve likely built the decision up into something monumental in your head. It isn’t. For starters, most of the time when a person asks a college student what their major is, they’re mostly just looking for some sort of information about who you are. They’re not trying to judge you, they’re trying to understand you.

As for the vitality of that major, I majored in life sciences and computer science in college and today I’m a writer on personal finance topics.

In short, you end up finding your own path in life and it’s not a path dictated by your college major. If you’re lucky, you’ll have a major that actually lines up with what you’re passionate about. If you’re not lucky, your college degree will mostly wind up being proof that you went to college for some number of years and were able to complete a degree.

Instead, the biggest value you’ll earn in college is the relationships with other people. The friendships I built over the course of my college career form many of my friendships now. I have friends sprinkled throughout tons of businesses and organizations and walks of life now. A relationship I built with my academic advisor got me my first real college job. A relationship I built with an awesome staff member got me a research job related to my area of study. A relationship built with a professor helped me to get my first post-college job – and, indirectly, my second one. I fell in love with my wife-to-be in college. At my wedding, my best man and one of my groomspeople were my two closest college friends.

The people made the impact. Focus on building friendships with good people – students, staff members, professors, deans, everyone. Look for people who are focused at what they’re doing, have some interest overlap with you, and are also seeming like they’re having fun doing it, because those are the people that are going to be great to spend time with and are also going to be doing something great with their life. They’re the kind of people that will make your path better.

The biggest value you can get from your classes is transferable skills. Knowing the ins and outs of organic chemistry might help you if you happen to wind up in one of those rare jobs that utilizes it. The skills you’ve built in the process of actually getting through organic chemistry – those are ones you’ll utilize time and time again.

The value isn’t so much in the actual subject you learn in your classes. The value comes from the ability to absorb lots of information, to process that information, and to think about that information. The value of college is in the ability to manage your time effectively enough so you can do all of that, get strong grades, hold down a job, build relationships, and grow as a person. The value of college is learning how to communicate with people from vastly different backgrounds than you – in other words, try making a friend that lived on another continent.

Time management skills. Information management skills. Communication skills (speaking, writing, presenting). Critical thinking. Those are the things that college gives you a great opportunity to really, really learn, and those are the things that will help you no matter what your path is.

Almost everyone will get as much or more value out of learning how to learn a particular challenging topic or class than they will get out of that specific topic.

Try things you would have never tried before. The social constructs of a typical high school make it very hard for people to dive into and discover what they’re passionate about. Those constructs are largely gone in college. This is the time in your life to try stuff you would have never tried before.

As Robert Heinlein put it, “A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects.”

College is the best opportunity in your life for trying all of these things, learning how to do them, and stumbling upon that thing or two that really, really lights up your passion.

The only way to fail at college is to sit around your dorm room a lot of evenings watching reruns of Bones or taunting someone on Xbox Live. Do something new, preferably something you would have never done before (and preferably not anything that has a likelihood of killing or seriously harming you).

Keep your eyes wide open for free stuff. The average college campus is teeming with free things to do and food to eat. Look at your school’s event calendar and start hitting as much of that stuff as possible – anything and everything that looks vaguely interesting. It usually is interesting (or at least exposure to something new), it’s almost always free, and there’s almost always free food there.

If the people around you won’t engage in the tons of things going on every evening, it’s a great time to expand your horizons a bit more. Look for the faces you see repeating at these events. It’s a great way to meet interesting people who are actively involved in the world around them.

Plus, most of this stuff is free, which enables you to keep your cash right in your pocket, take out fewer student loans, and get out of college with a smaller debt burden than you otherwise would have.

These are the elements of a life-changing college experience. It’s not about chasing a perfect 4.0 or partying hard all the time. It’s about finding who you are, building the actual skills you’ll need over and over again in life, and finding the people and things that actually matter to you. Good luck.

The post Five Thoughts about Making College Great appeared first on The Simple Dollar.

For full time, year-round workers, here are the findings:

Workers without a high school diploma earn $24,964 a year on average.
Workers with just a high school diploma earn $32,862 a year on average.
Workers with some college and/or an associate’s degree earn $40,769 a year on average.
Workers with a bachelor’s degree earn $56,118 a year on average.
Workers with a higher degree earn $75,140 a year on average.

Note that these numbers include all types of degrees and also include all workers aged 25 and over, which means that the number includes a huge range of career paths and stages on those career paths.

But the numbers themselves are impressive.

Simply completing a high school diploma earns you $8,000 more a year (on average) for the rest of your life.
Getting an associate’s degree or completing trade school gets you $8,000 more a year (on average) for life beyond a high school diploma.
Getting a bachelor’s degree gets you $23,000 a year more (on average) for life beyond a high school diploma.
Getting a higher degree gets you $19,000 a year more (on average) beyond a bachelor’s degree and $42,000 a year more (on average) beyond a high school diploma.

Simply put, education is one of the best investments you can make for yourself. It drastically increases your earnings.

Hand in hand with that, however, is finding the right area of study for you.

Every job field is competitive and the people who have the most skills end up earning the best salary in their fields. The best way to build skills is to work with great passion doing something over and over again because you simply enjoy doing it.

Let’s take a look at a few specific careers for examples of this, using data from Payscale.com.

The average computer programmer earns between $38,764 and $62,916 – a $24,000 spread.
The average accountant earns between $35,574 and $51,518 – a $16,000 spread.
The average physical therapist earns between $57,983 and $76,298 – an $18,000 spread.

Those are just a few examples, but the pattern is clear – there’s a huge gap between the low end and the high end. Some of this is location based, but a great deal of the spread is competition-based – the best candidates get the best jobs. Even more important, it doesn’t include people who prepared for a career and didn’t make it, winding up in another field, often with lower pay.

Education is vital in terms of lifetime earnings. Knowing what to study – a field that matches your interests and talents – is just as vital. You’re far better off getting a degree and excelling in an area you’re passionate about than struggling to get a degree in an area that seems to earn more on paper but doesn’t fill you with passion at all.

The post What Is an Education Really Worth? appeared first on The Simple Dollar.

A few days ago, a college student I know was talking about his upcoming graduation. His plans mostly revolved around getting a good paying job, but he also talked about how he might go back to school some day and study a particular branch of philosophy that he truly loved studying and reading about.

I asked him why he was choosing to put a good paying job over a path that he was deeply personally passioante about that might not necessarily earn a great deal in the near future. He pretty much exploded, offering up a rant about how the world revolves around money and the only way he would ever be able to chase the dreams he has is if he has lots of income.

I couldn’t disagree more. Let me explain why.

First, the need for money in the bank comes down to what you’re responsible for. If you’re fresh out of college with nothing to your name but a car, you really don’t have that much that you’re responsible for. You don’t have a house. You don’t have a partner. You don’t have children. You don’t have an established career to protect.

You just have you, your dreams, your skills, and your potential. Nothing else.

Second, you don’t actually have a lot of day-to-day financial need, either. It’s perfectly normal and acceptable for a new graduate to live in a small apartment or a room in a house. Why? The rent is cheap. You can eat really cheap, too – just stock up on whatever fresh produce is on sale at the grocery store.

The big money that many people often believe they need is for stuff that they actually merely want, and it’s those wants that stand in the way of taking a leap towards a dream.

Thus, your income requirements are very low. You’re responsible for yourself. Just you. All you really need is a place to lay your head at night and food in your belly.

If you can’t find a job doing what you want to do, take on an internship. If you can’t find an internship, ask for one directly from the place you dream of working. If that doesn’t work, just start doing and sharing. Whatever it is you dream of doing, there’s an avenue out there to explore it and throw yourself in with your whole heart.

Since you don’t need much income, get a job sitting behind a counter at a gas station at night. Earn minimum wage and sit there with your notebook open, collecting your ideas and thoughts about whatever it is you want to do. Spend your mental and physical energy building the life you want.

There is no better time in your life to just throw caution to the wind and see where your passion will carry you than when you’re young and free of many responsiblities. If it doesn’t work, you’re not out anything much – maybe a few years, at worst. If it does work, you’ve opened the door to a lifetime of doing what you want to do.

What do you really have to lose? Not much. What do you have to gain? The life you dream of.

The post What Do You Really Have to Lose? appeared first on The Simple Dollar.

The real question that both articles strive to answer, though, is where should I put my money to ensure the best possible outcome for both me and my children? Retirement savings? College savings? Splitting it up?

In my eyes, the issue really comes down to the job every parent is charged with: raising a functional, critically thinking, independent child. If you are truly able to succeed in this regard throughout their childhood, you’re going to raise a child that doesn’t really need your help at all to succeed in the world.

In other words, if you take the time to really focus on parenting your kids in a way that makes them functionally independent and critically thinking adults, you don’t need to save for their education. They’ll be able to make their own way in the world without your financial support. Thus, you can channel almost all of your long-term savings into retirement savings so that you’re not a burden to them in whatever they wind up doing in life.

How do you do that?

Over the last five years, I’ve read a pile of books on the psychological needs of children and young adults, everything from Mindset and Born to Buy to The Read-Aloud Handbook and Raising Financially Fit Kids. I’ve come up with three basic conclusions.

First of all, praise children on their hard work, not their natural gifts. Focus on when they improve their results, not on when they simply succeed because of their talents.

Second, give them room to explore independently. Don’t hover. Don’t be paranoid about kidnapping. Send them out in the yard to explore things on their own, then when they’re done, ask them about it. The more independent exploration they do, the more resourceful they’ll become.

Finally, put them into challenging situations. Don’t protect them from failure. One of the most valuable childhood lessons is learning how to fail. What do you do next? You pick yourself back up and try again. If you go through childhood without knowing how to do this, adulthood becomes much, much harder.

If you are constantly conscious of these three things, you’re going to naturally mold your children to be self-reliant and independent. Those traits will serve them very well in whatever they choose to do in life, and because of that, you don’t need to hand them their education.

They’ll be able to make it themselves.

A final reason to save for retirement: if you do choose to help, retirement savings are usually flexible enough to allow you to help. You can often take out loans to help with education purposes from a 401(k), and you can take back your Roth contributions whenever you’d like to spend as you wish. If you decide that financial help is really needed, you can provide it with retirement savings.

So fund the 401(k) and the Roth IRA and don’t worry as much about the 529. Instead, focus your parental energies on being a parent that raises an independent and curious child.

Good luck.

The post Parental Responsibility and Retirement Savings appeared first on The Simple Dollar.

When I envision my life thirty years from now, one key part of that vision is that my children are financially independent and not relying on me for any of their financial needs. I don’t want to be in a situation where they’re still living at home or they’re relying on regular cash infusions from me when they’re thirty.

One major avenue to this level of success is earning a college degree, which can directly lead to a much higher level of earning than life without a degree. I can help pay for this degree, but it may come at the expense of saving adequately for retirement.

What are the advantages of college savings when you’re young? An adequately funded college savings plan, started when a child is young, can grow into a major resource for paying for significant portions of a child’s college education.

For example, let’s say you start funding a 529 plan with $250 a month when your child is born. The account returns 8% per year. On their eighteenth birthday, you’ll have $116,844 sitting there waiting for their college education. If you don’t worry about it until they’re in junior high, starting at age twelve, they’ll have only $22,888 in savings.

What about your retirement? Many people who make this choice are also making the choice to work later in their lives than the typical “retirement” age. They have no qualms with starting their retirement savings in earnest after the kids are out of the house (say, age forty five or fifty) and planning on a retirement that starts much later (say, seventy or seventy-five).

For some people – especially people who find a great deal of personal value in their work – this makes a great deal of sense. Take myself, for example – I pretty much never want to be idle until I literally am unable to do anything at all. I’m just not wired that way.

What if I change my mind? If you’re using a 529 savings plan to save for college, you can withdraw the money from the account as you wish. You will have to pay taxes on the gains plus a 10% additional penalty for misusing the account.

However, if you wish to use that money for educational purposes for someone else – say, yourself or a child’s sibling – you can change the beneficiary without a penalty as long as the new beneficiary is a close family member.

I don’t want to burden my children in my dotage. If you find yourself needing their assistance in your old age, you will have given them a tremendously strong platform from which to help you if they so choose. The financial advantage you gave to them by ensuring that they were not burdened by student loans puts them in a much stronger financial position in adulthood, one in which they can afford to help you if you need it.

What if I reach my retirement age and don’t have adequate savings because of this choice? You’re finally pushed out the door, but you don’t have enough money to make ends meet. What happens then?

To put it bluntly, you’ll have to find a source of additional income. It’s important to recognize, however, that reaching this point without adequate money isn’t necessarily a disaster. Most people in this situation – having chosen to help their children instead of saving for themselves – do have a myriad of options available to them when they reach old age.

This might come from finding another job. It might come from financial support from your children. It might come from goverment support. It might come from something as simple as being the daycare provider for your grandchildren. If you choose this route, there will be options available to you at this point. It does not have to be devoid of options if you’re willing to step up and take action.

Wait a second! You’re probably wondering what my actual conclusion on this topic is. Is it better for the parents of young children to save for retirement first – or save for education first? As you’ve seen, there is a case to be made for both sides of the coin, but I actually do have an answer… which you’ll read about tomorrow afternoon.

The post The Case for Saving for a Child’s College Education over Saving for Retirement appeared first on The Simple Dollar.

When I envision my life thirty years from now, one key part of that vision is that I’m not financially dependent on my children. I’m able to live the life I want to lead without them worrying about me (at least financially) in the least, particularly in my final years.

The best way to ensure that kind of a future is to focus primarily on shoring up retirement savings, even if it comes at the expense of saving adequately for the college experience of one’s children.

What are the advantages of retirement savings when you’re young? The big advantage of retirement savings when you’re young is that it has a huge number of years to grow and grow and grow. The power of compound interest has plenty of time to work in your favor.

The real numbers tell the story better than anything else. If you invest $10,000 when you’re 45 at an 8% rate of return, you’ll have $46,609 when you’re 65. Invest $10,000 when you’re 35 and you’ll have $100,626 when you’re 65. Invest $10,000 when you’re 25 and you’ll have $217,245 when you’re 65. The earlier you sock away money for retirement, the better the deal is.

What about their education? Self-motivated students can always make college work if they choose to do so. There is a myriad of financial aid options available, plus most schools also accept transfer credits from very low-cost institutions, enabling students to fulfill many of their general education requirements at a very low cost from community colleges.

Beyond that, having a student take a large deal of responsiblity for their education forces them to learn some personal responsibility that they might not otherwise learn. It can also show them, first hand, the cost of their education – and the value of it. Those are lessons that aren’t taught by simply writing a check for them.

What if I change my mind? If you start saving for retirement, then change your mind about your choice, you’re not completely without options. Most common retirement savings plans allow you to use some – if not all – of your retirement savings to help with college education.

Most 401(k) plans allow you to borrow against them to pay for educational expenses. However, if you do this, you lose out on the returns during the years that you’ve got the money out on loan. If you’ve used a Roth IRA, you can withdraw the amount you’ve contributed at any time without penalty, but you can’t put that money back.

I’ll feel guilty about saddling my children with lots of student loans. There’s no reason you can’t help them pay off those loans when you’re very secure in retirement. At Christmas, write a check to their student loan holder, knocking off a chunk of their loans for them. This way, you’ll be making the payments from a position of total security rather than from a position where the future is uncertain.

What if this makes my children fail to get an education? From my perspective, that’s more of a commentary on the initiative of your children than anything else. If this roadblock somehow “prevents” them from going to college, they’re showing a lack of self-motivation that will hinder them in more ways than just not getting a degree. Without that kind of drive, they’ll be hard-pressed to succeed in any high-pressure field.

They might also simply not be interested in what college has to provide for them and are intelligent enough to make that decision on their own. In that situation, a trade school or something similar might actually be the best situation for their temperment, for one example. Students who attend trade schools can often earn a very good salary doing a wide variety of skilled labor.

This makes a strong case for saving for retirement instead of saving for your kid’s education. But what about the flip side of the coin? Tune in later today to see that discussion.

The post The Case for Saving for Retirement Over Saving for a Child’s College Education appeared first on The Simple Dollar.

We are friends with another couple that is around our same age, income level, status, and number and age of children. When I was mentioning to them that we were planning to pay off our car this year (leaving us with our mortgage and a small student loan) and the starting to put $50 to $100 per into 529s for each of our kids (currently aged 1 and 3), she mentioned that they were not starting 529s, but rather had a different philosophy….. They were going to contribute up to the company match in the 401K, max out a roth IRA (every year) and then pay off their house in 15 years, which would be just when their oldest is about to start college. Then they would use any excess from their income (that was now free because they no longer had a mortgage) in order to help with their child’s education. She also mentioned that she did not believe that her children would qualify for much (if any) financial aid. This would be the case for us as well. We are currently putting approximately 10% into our 401K and we plan to put approximately $3,000 per ear into a Roth IRA starting this year. Can you comment on what might be the pros and cons of either financial philosophy? I suppose that I should also mention that I do not forsee us having any issues with having enough $ for retirement and my philosophy is that I would like to contribute to 25-33% of my children’s college costs.

First things first: with all things being equal, you’re better off putting your money into retirement savings than into college savings. There are several reasons for this.

First, your children can make college happen even if you don’t have a dime saved for them. Between student loans, scholarships, and other aid, most students who are accepted to a school will be able to find some way to go there. They may end up with a lot of student loans in the process, but it won’t prevent them from getting an education.

On the other hand, you can’t make up for missed retirement savings. Nothing can undo missing the early years of your retirement plan, because those are the years when compound interest is at its most powerful. The money you put away right now will be much more valuable than any money you put away in your 50s or 60s.

Another factor to consider is that many retirement plans allow you to “borrow” against them for educational expenses. You can withdraw some amount, agree to a repayment schedule, and use that withdrawn money to help pay for your children’s college education.

A final note: if you haven’t saved adequately for college, you may end up being a financial burden for your children late in life. You might not ever ask them for money, but they’ll see that you don’t have much money and will stretch their wallets to help you when they can. I have seen this many, many times.

In short, if you’re unsure, I recommend saving for your retirement over saving for your child’s education.

The next question, then, is why should one ever save for their children’s educational expenses?

We’re saving for that purpose. That’s because we have plenty of money to save at this point – our retirement savings are fully covered, plus we have extra money beyond that to push towards long term goals. One of those long term goals (for us) is to pay for some significant portion of our children’s college education. After doing the math, we decided that saving $100 per month for each child from the day they were born to the day they leave for college is the best bet.

In other words, if you can save for college without short-changing your retirement, go for it.

What about that third factor, though? Where does paying off your house rank?

When it comes to using your home as an asset for college savings, you’re betting on two things. First, you’re betting that the payments you make on your home mortgage are more financially efficient than money socked away in your 529. If your mortgage interest rate is 6%, then your money channeled into that is effectively earning a 6% return. If you put that amount in a 529 instead, you could earn more or less than 6%, depending on your investment choices and the risk you’re willing to take on.

The second (and more challenging) bet comes later, when you want to tap your home equity. You’re betting on the interest rates at that future date, because your loan will charge you some interest rate. Will you need the money at a time like today, where the Federal Reserve is keeping rates low? Or will you need it at a more challenging time, when interest rates are higher?

If saving for college is important to you and your family, I would probably do things in this order: retirement savings, then college savings, then mortgage.

One final note: I would never rely on future earnings to pay for college education. Our lives are far, far too uncertain to bank on your professional income in fifteen years as a source for college savings – or savings of any type. People radically change careers. People are downsized. People are disabled. People stumble into great opportunities. These things happen all the time. To bet on stability there would be the biggest gamble of all.

Good luck.

The post Retirement or Education? appeared first on The Simple Dollar.

Education – $945

Education is another expense that varies widely from family to family. Many families have no education-related expenses at all. Other families have multiple children in college or on the way and are in a much different situation.

Obviously, education spending is an area where I think it’s a strong investment to spend if you need it. Education can have an enormous positive effect on your lifetime earnings beyond the personal growth that education can trigger.

The question here is how you can maximize your education dollars. Here are several suggestions for doing just that.

Keep in mind that college success isn’t a matter of getting into the best school. The Wall Street Journal found that, although attending college is important, what’s more important is drive and ambition: “When comparing students who graduated from elite colleges, as measured by students’ average SAT scores, with those who graduated from less-selective schools, the researchers found no significant income differences between the two sets of students. In fact, being rejected by an elite school where students had higher SAT scores was a better predictor of higher earnings than the competitiveness of the college the student actually attended. The findings suggest a student’s innate ambition, as reflected by his or her willingness to stretch in applying to exclusive schools, is a factor in career success.” In other words, if you want your child to succeed, don’t throw money at test preps or admissions for the right college or pressure to choose the right major.

Help your child find their passions. Hand in hand with the above idea is the idea that students who are driven are the ones who succeed. How can you help your student tap into some sort of internal drive? Help them figure out where their passions lie and then give them the support and room they need to chase those passions. This is a big part of parenting – in my opinion – as your child begins to grow up, through adolescence and puberty. If you can help your child find that passion, that passion can carry them to great heights – and help greatly with the value of the education they’ll get.

Stay on course. The most expensive thing you can do in college is switch majors – it almost always tacks on more semesters to your experience there, and thus a lot more expense, too. Again, this is an example of why it’s incredibly valuable to help your child figure out their passion as early as possible – not only does it fuel their drive, but it also helps them find a major they’ll stick with.

Apply for as many scholarships as you possibly can. Yes, this can be a giant time sink. However, it’s almost always a profitable one, because there are a lot of scholarships out there that don’t even receive enough applicants to pay out all of their money. Ask around your social network. Ask at your place of employment. Ask at your church and any other social organizations you belong to or your child belongs to. In particular, look for scholarships that take advantage of special traits of your child: their ethnicity, their accomplishments, their socioeconomic status, and so forth.

Focus on top public schools, particularly ones in your state. If you’re looking for a school to aim for that maximizes “bang for the buck,” the top public school in your state is almost always a great target. Many top public schools are very competitive with private institutions, but beyond that, they offer much more affordable rates than private schools, particularly if you’re a resident of that state.

Start saving as early as possible with an open-ended 529. A 529 savings account plan enables you to put cash away for your child’s (or your own) future college education. The earnings in such accounts are tax-free if the money in the account is used for educational purposes (and if it never gets used, you merely have to pay taxes on the earnings plus a 10% penalty). If you’re sure that educational spending in some form or another is coming for your child (or for you), you’re better off opening such an account now and starting an automatic investment plan.

Shop around for textbooks. Many students make the mistake of rushing headlong into book buying – and when they do that, they overspend. Find out what books you actually need for your class, then take the time to shop around for them, particularly looking for used ones. Check online book resellers and auction sites. Take a look at the bulletin boards at your school. Spending a bit of time doing this can save you 75% easily on your books over the sticker price.

Take challenging courses in high school, both for the AP credit and the experience. Many high schools offer AP courses and courses that are dual-listed with a local college. Attempt to take as many of these as your student can handle, particularly in areas where their skills are the highest. These classes not only help you earn AP credit or college credit (saving on tuition later on), but also help you gain the skills you need to succeed at the college level.

Take general education classes at a community college over the summer. Many lower-level general education classes can easily be taken at a community college and transferred. Take advantage of this – community college classes are usually incredibly inexpensive and if a few of them over a few years can shave a semester off of your college tuition, jump on it.

Take advantage of education-related tax benefits. If you’re attempting to get an education – or one of your dependents is – the IRS gives you tons of tax benefits: the Lifetime Learning Credit, student loan interest deduction, the American Opportunity Credit (?), and so on. These credits and deductions can literally save you thousands of dollars each year when you file taxes. Here’s a great overview of some of the tax advantages for education.

I want your help! In the comments, please let me know which of the tips you find most useful for trimming these costs. I’ll include the top choices in a comprehensive budget trimming guide at the conclusion of the series.

The post Trimming the Average Budget: Education appeared first on The Simple Dollar.

That’s not to say that students who attend a more selective school don’t earn a higher salary – they do. However, it is the selectiveness that causes the higher income, not the exceptional quality of that school’s education.

What does that mean for saving for our children’s education?

First of all, it shows that setting your children up for success comes much earlier than we might think. Challenging them and encouraging them to solve problems on their own during their earlier years and providing opportunities for them to grow and learn when they’re young sets them up to be ahead of their class during their secondary school years – a lead they’re likely to maintain no matter what they do.

Second, it reinforces the notion that it’s more important for a parent to save for their own retirement than for a college education. Remember, a college education can always be covered with scholarships and loans, but there aren’t loans that will pay for your retirement.

Third, it doesn’t deny that getting into a good school is a wortwhile goal. If a student’s goal is to get into an Ivy League school, the work you’ll have to do to get there – pushing yourself hard in school, involving yourself in intense extracurricular activities – will themselves create the foundation for success in a student’s life.

Here’s the key message behind that paper: if you’re making a choice to spend less quality time with your kids so that they can afford to get into a good school, you might be making the wrong choice. The school doesn’t make the kid – the kid makes use of the school. While quality time and effort are never a guarantee of such success, they’re certainly a strong step in the right direction.

It’s not the school, it’s the student.

The post It’s Not the School, It’s the Student appeared first on The Simple Dollar.

I’m a high school senior and I’m going to college next fall. When I go to college, I want to be completely independent, paying my own bills. My parents insist that this is financial suicide and that they should support me through college. What do you think is the right way to go?

Shortly after my eighteenth birthday, I left my parents’ house and went to college. When I left, there was a pretty implicit understanding that I would not be moving back in with them in the future. Sure, while I was a student, I could spend between-semester breaks living there and I could live there in short spurts after college if necessary to facilitate moving on to somewhere else, but my parents’ home was no longer my own. It was up to me to find my own way in the world.

This flies squarely in the face of many parenting trends today in which children often live with their parents throughout college and afterwards, sometimes for many years. The reasons are many, usually revolving around the child’s inability to earn a sufficient income to be financially independent.

Even when children reach a point of “independence,” meaning they don’t live at home, many parents still provide some sort of regular financial support, just to help the children make ends meet.

My belief is that I learned much more valuable lessons by having to make it in the real world than I ever would have back under my parents’ roof. Yes, even if that means a very low standard of living during one’s twenties if necessary.

I’m not saying that parents shouldn’t help if a child completely loses everything. However, there’s a big difference between a helping hand and long term support of a lifestyle.

Short term help in a problematic situation is great – it’s the type of thing that strong relationships are made of. The ability to rely on someone else for a short while when life has knocked your feet out from under you is a tremendous boon and I absolutely do not begrudge parents for helping out in those situations.

The problem comes when that help progresses into expectation and reliance. Any situation in which an individual is unable to be independent and is reliant on someone else is dangerous to both parties. It hurts the parent by taking money away from their future plans, ensuring that they’ll be in the workplace longer and will have fewer assets to rely on late in life. It hurts the child by denying them the skills they need to survive in a world that will eventually not include the parents. Plus, it extends the inevitable ending of support to a later date when it’s quite likely to be much more uncomfortable for both parties.

Yes, financial support of one’s children in adulthood makes life “easier” for them in the short term, but it makes life harder for them in the long term. Such support stunts the budgeting and money management skills that they’ll need to survive when they actually do become independent. It also encourages the establishment of a pattern of spending that exceeds their real income.

The real danger, though, is how it impacts you. The money given to your children when they should be independent is money that’s not going to support your retirement. You’ll have to work longer – and if you’re unable to, you’re much more likely to become a late-life burden to your children than you would be if you invested in your retirement now.

I’ve witnessed this phenomenon with my own eyes. My grandmother gave tons of support to her children, even in their adulthood, and during her final years, she barely had enough money to keep the power on and wound up having to fully support one of her children. If she had completely cut the cord when the children entered adulthood, she would have been able to enjoy a financially comfortable retirement – instead, her final years were fraught with financial and personal worry.

My conclusion, if you haven’t figured it out, is that delaying your children’s independence for longer than necessary is detrimental to both parties and should be avoided. If you’re still relying on your parents – or if you’re a parent still providing support to a child that should otherwise be standing on their own two feet – now’s the time to break that cycle. It’s the only way both of you can thrive and grow freely.

To the young lady who wrote in initially, tell your parents to take that support money and put it towards their retirement by bumping up their 401(k) contributions by 2 or 3% a year. Suggest to them that this retirement savings is actually a benefit to you because it reduces the chances that they’ll be a financial burden to you later in life while also giving you the opportunity now to figure out how the world works.

The post “Eighteen and Out” – Good Parenting or Bad Parenting? appeared first on The Simple Dollar.

What I saw was a lot of clutter. A fridge I rarely used. A robe I think I used once. A big rack of rarely-watched videos. Way more clothes than I ever needed. Lots of little tchotchkes that just took up space.

When I was first planning for college, I had little idea what I was doing. I read lots of “here’s how to get ready for college” articles and vacuumed up the suggestions like a Hoover on overdrive. I spent the entire summer collecting and buying things I’d need for college.

When we finally arrived on campus, I had a pickup truck full of stuff. It filled up my half of a tiny dorm room. A dorm fridge. A microwave. A big television. A computer tower (actually, I didn’t get that one until I was on campus a while) and a monitor. A desk lamp. A giant teapot. A ridiculously huge shower bucket stuffed with stuff. Clothes that overflowed my dresser.

Virtually all of it was a waste of my time and my money. I didn’t use any of that stuff. I had little idea what I would actually use in advance, so I just more or less bought everything that I thought I might need – and it turned out I didn’t need most of it.

If I started college all over again, I could fit everything I’d use in a single backpack. Here’s what I’d take.

A laptop with a webcam and microphone This would take care of all of my research needs, report-writing needs, and, yes, telephone call needs. I suppose I might also take a prepaid phone with me for uses where I didn’t have a wi-fi signal.

A small reading lamp For studying and taking notes in dim lighting. I’d get a very tiny clip one that could go anywhere, powered by LEDs.

Enough clothes for about five days or so, rolled up tight Nothing fancy, just sturdy pants, shirts, and underclothes. I can do laundry once every five days or so.

Some basic toiletries Gotta keep clean.

Notebooks and writing supplies Obviously, for note-taking purposes. I find that taking notes longhand is the way for me to absorb complex ideas, but some people might find that just typing on their laptop might work – it depends on how you learn, which you should already know before college.

I’d also need textbooks, of course, but I could get them when I arrive via Amazon and re-sell them at semester’s end.

Sure, I might find that I needed some more items along the way, but wouldn’t it be better to find out the items that you actually need rather than buying a bunch of stuff you think you might need in advance?

Doing that saves money. It saves a lot of time. It saves space. It saves a lot of mental energy. It gives you a very clean and open space to rest your head and figure out what comes next in your life.

The next time you read a long list of things that people say you “need” for college, ask yourself a simple question: do you need it, or is it just something that seems like it might be useful? If it merely seems like it might be useful – even if you can envision a lot of scenarios where you’ll be using it – hold off. Pick it up later on.

My gameplan when I send my own children off to college is similar. I intend to send them with the minimum amount of stuff they need – basically, the stuff listed above, with variation based on the technology at that time. If they find they actually need more items, they can either use their own savings to get them or make the case to me with regards to it.

They’ll save time. They’ll save money. They’ll save energy. And in a college dorm, what exactly will they lose?

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