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Thursday, April 27, 2017

Why Your Net Worth Is Bogus

I follow a few other personal finance blogs, and some of them have made reporting their net worth a monthly tradition.  They report the market value of their assets and their cash holdings, and add these together (minus liabilities) to get a net worth number.  If their net worth has increased, well...they're happy to write about it.  If it has gone down, they explain the culprits.  Some of their readers have taken to following the model, and compute their own net worth.
Image result for net worth

Have you ever tried to figure out your net worth?  At Thesimpledollar.com you can see that the general advice is to list all of your assets, for example,

retirement savings
cash
value of stocks and bond
real estate (market value)
cars (market value)

and then subtract all of your debts such as what you still owe on your auto, home, education, personal, and credit card loans.

Image result for net worth

Whatever net worth number these bloggers have shared with their readers, and whatever net worth number you have figured out on your own, I'm here to tell you that it is bogus.  Why?

What happens when you sell your assets for any gains?  You are taxed!  I once liquidated an equity investment within my very taxable brokerage account with gains of $18K.  Prior to doing this, my net worth included this line item amount of +$18K.  But once I sold, my Enrolled Agent sent me a nice little letter saying I owed $2500 to the feds and $500 to the state in taxes.  So in truth, my net worth just for this line item was $3000 less!

Let's face it, your personal assets will only ever be sold for only a fraction of the value that is listed on your personal balance sheet in the event of a capital gain.  Uncle Sam will take his share, thank-you very much.  You won't be taxed on the sale of your stuff, like a slightly used titanium driver, but you sure as hell won't get back all of what you paid for it.  Over-estimating the value of cars, Armani suits, televisions, stereos, and even art, is one sure way of being completely off on your net worth calculation.

Do you know where you won't be off?  Cash.  The value of cash is what it is for any moment in time.  If you happen to have cash in a Roth IRA and keep it there until you're eligible to withdraw without any penalty, you won't incur any taxes on it.  Now, of course you'll end up losing valuable purchasing power over the years to inflation.  But at least your net worth calculation will be on point.  What about all those tax deferred saving and investing vehicles?  Traditional IRAs, 401Ks, 403bs, e.g.?  Sure it's nice to get those reports telling you the value of your investments within these vehicles.  But don't think these are true numbers for your net worth calculation.  As soon as you retire and start withdrawing...the tax man is a coming!  So, you're net worth again is really less than you think.

Be mindful of the fact that your net worth is a number that is naturally inflated and should have taxes on appreciating assets factored into.  To qualify for loans, leave as is, i.e., do not adjust it.  Banks like to see bigger numbers.  But for the purpose of figuring how well you could pay off all of your liabilities in the event of an emergency, better to shave off some from the top.  Alright friends, thanks for reading!  Until next time.  If you liked this post and want to receive more like them, please subscribe below:


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Saturday, April 22, 2017

6 Business Lessons from 4 Generations of Car Dealers

Starting a business is actually pretty easy.  It only takes an idea for a product (or products) or a service, and with some start-up capital in hand, a new business is born.  Given the Internet, starting a business is further facilitated since entrepreneurs no longer need to worry about having a brick and mortar spot to get underway.  Unfortunately, although the act of starting a business is as exciting as a new romantic relationship, things can quickly turn stressful like a divorce with kids in the picture.


The boys looking at a new Civic LX

According to Smallbiztrends.com, today you have slightly less than a 50-50 chance of still being in business after four years.  Incompetence (46%) is the leading cause of business failure.  Things these days are vastly different then they were back in 1928, when Theodore W. Hoehn founded Hoehn Chevrolet.  If you recall your U.S. History, a thing called, The Great Depression, began in 1929 and lasted until 1939.  Did Mr. Hoehn have perfect timing or what?  He must have been one determined man because his business survived through the Great Depression and then some.

In fact, the Hoehn family is still in the car business.  Their fourth generation of extended family work the business in Carlsbad, CA and represent eleven brands: Acura, Audi, Buick, Cadillac, GMC, Jaguar, Land Rover, Porsche, Sprinter, Mercedes-Benz and Honda.  Now I had the pleasure of taking my entrepreneurship and financial literacy elective class to the Hoehn Honda dealership as a field trip.  One that my (7th-8th) students raised transportation funds for, selling their small business products to their peers at school.  Hoehn's Corporate Chaplain happens to be a member of our school's Site Council and he, along with Hoehn's volunteer program manager (not her official title), arranged and planned a great tour.


Susanah Hoehn talking to the boys about the Service department

We toured the entire premises from the floor down to the service department, 9 stops in all.  These are the business lessons my students came away with that I felt needed to be shared here for all aspiring business owners or current owners who want to keep their business alive for four generations or more.

1.  Hire people who understand the importance of communication.  This is the mantra out on the sales floor.  Listen to the customer, know everything about your product (in this case, cars), and answer all questions with the goal of providing solutions, not being pushy.  The techniques of showing off the car will only get you so far.  You make the sale when the customer trusts he or she is making the right decision.




2.  Allow new hires to shadow the best worker in the department that you have.  We learned from the General Manager, Susanah Hoehn, the great-granddaughter of Theodore, that their top salesman (I should say, salesperson) is a woman who broke the dealership record with over 30 cars sold in one month.  She wasn't around at the time for us to talk to her.  But I did get insight from another employee as to her secret for selling so many cars: take copious notes on your customer, their needs, reservations, etc. and then follow-up numerous times.  The average sales employee gives up after three follow-ups, btw.

3.  Let people make as much money as they want.  When there is a culture that rewards hard work and initiative (wash a car without being told to, e.g.) with upward mobility, pay increases, and bonuses, businesses thrive.  Susanah Hoehn proudly shared the stories of several employees who have been with the company for many years and have remained committed to putting their best out there for customers and each other.  Starting as a cashier and working your way through the years to running an entire department isn't far fetched at Hoehn.  (Even with zero college i.e. fresh out of high school).


A technician shows the boys under the hood.

4.  Nepotism is bad for business.  Although Susanah and her sister, General Manager at another Hoehn dealership, could've been given their positions by their father, they had to earn it like any other employee.  I was told by a Hoehn employee that Susanah has worked in every department and learned how the business operates.  This has given her the experience she needs to make the right calls for the Hoehn Honda dealership.  This has also given her the respect of the workers.  They can't say she doesn't know what she's talking about, right?

5.  Be a servant as much as a leader.  While we were having lunch, I struck up a conversation with another Hoehn Honda employee.  She told me her story.  When she first arrived at Hoehn Honda, she felt out of place.  The company had a barbecue (as many often do) and she was made to feel like part of the Hoehn family by others there.  She was struck by the service the employees received, having their burgers cooked and served by none other than the Hoehn family.  For leaders out there, this is called showing your people you're there to serve as much as they are.

6.  Hire a spiritual leader.  The Hoehn dealerships have a corporate Chaplain whose job is to help all employees get through hardships, e.g., the loss of a loved one.  I'd never heard of such a thing until I met the Chaplain myself back at my school.  It's just another way the Hoehn family shows their employees they care about them and their families.        



It was clear from my vantage point that the Hoehn dealerships are in great hands and will continue to offer great service (and products) to consumers for years to come.  We were treated incredibly well despite my boys being a tough audience from time to time.  This blog post is one way I can return the favor for all of the learning and hospitality that took place on that day.

Until next time.  If you enjoyed this post and want to get more like them in your inbox, please subscribe to this blog below.  Thanks!
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Monday, April 17, 2017

The Importance of Knowing Your Health Care Costs In Retirement

So I was reading this article on Yahoo finance and thought it a dang shame that people don't know how much they'll be on the hook for in terms of health care when they retire.  The Employee Benefit Research Institute polled 1,082 workers (age 25 and older) and 589 retirees in January and only 1 in 5 have calculated what their health cares costs will be once they hang it up.  I asked myself...Well, why?

Image result for future health care costs

I mean these were (full-time) workers who probably have some sort of health care being provided by their employer as part of their benefits package, and get their check stub every month showing how much is being taken out for insurance.  They should also know how much they're spending each month on medicine, co-pays, etc.  Are they being lazy?  Do they care enough?  Is it too hard to factor in future inflation?

Out of all of the reasons mentioned above, I think the latter probably has the most to do with why 8 out of 10 workers don't have a clue how much they'll need to pay for health care in retirement.  Inflation is tricky.  (What rate will you use?)  On a side note, please don't assume Medicare will take care of your health care costs.  Premiums for all Medicare plans are going up constantly and so will your out of pocket costs.  Plus no doubt the government is going to place more accountability on you for your health expenses in the future.

Image result for future health care costs with inflation    

Why should you have an idea of how much you'll need in retirement savings to pay for health care?  For starters, so you can get a better estimate of your total retirement number.  Mine is $4.45 million by the way.  How I came up with this number will be revealed in a later post.

The data in this 2016 retirement report  is excellent:

A 65-year-old couple retiring this year will pay around $89,012 from now until they die at age 87 (male) and 89 (female) in out-of-pocket expenses with Medicare Parts B and D.  If they live longer, they'll need more obviously.  But this is good to know.

A 55-year-old couple who will be retiring in 2026 will need around $97,433 to pay for their out-of-pocket expenses until 87 & 89 years of age.

I'm 40-years-old, so knowing that a 45-year-old couple retiring in 2036 will need around $108,172 to pay for their out-of-pocket dues into their late 80s means I'll need more!

If you're interested in budgeting future monthly health care expenses, this same report breaks it down by month for the couple retiring this year.

If you want to calculate your health care costs for your particular circumstances, go to HealthView Services Health Care Cost Projector.  Don't fill in the data unless you are willing to give them your info, email, name, etc. as that is a requirement to get your individual report.  I also tried AARP's Health Care Cost calculator.  They pumped out $275K that my wife and I would need to pay for health care costs until age 89 each, retiring at age 65.  This seems pretty ridiculous, but at least I didn't need to submit my info at the site to get a number.

Image result for future health care costs with inflation

Look, even if your circumstances are bleak, meaning, you have existing conditions, low-pay, and job insecurity, you still need to make an effort to know around how much you'll need to pay for health care in your retirement years.  It's a monthly budget factor you can't ignore.  So take the time to go through the readings I've mentioned.  Try the cost calculators out.  Even if your calculations are off, it still is better than knowing nothing.

Thanks for reading!  Until next time.  If you liked this post, please subscribe by entering your email below and get more like them in your inbox.       
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Wednesday, April 12, 2017

8 of My Worst Financial Decisions During My 20s and 30s

What's up everyone!  In my last post I shared 10 of my best financial decisions during my 20s and 30s, and of course I had to next share 10 of my worsts.  First of all, I still can't believe how freakin' quickly my 20s and 30s went by.  One day you're turning 21 and your best friends are attempting to kill you with massive quantities of alcohol, and on another you're turning 38 and one beer knocks you into comatose sleep on your favorite couch.  Yes, time is the undisputed champion and we're all merely sparring partners.  But when it comes to amassing wealth, time can be our friend.

Image result for turning 21 drinking alcohol

With this post I want to specify all of the mistakes I made with my money during two pivotal decades if we consider compound interest and the importance of getting an early start.  It's my goal to have you consider your own future decision making and avoid my financial errors.  We learn better from making our own mistakes, but costly ones need not be made at all.  If we can avoid being stupid with our money by reading the stupidity of others...heck, that's even better!  So here they are in no particular order.

1)  Taking out more student loans than I needed.  While at UC Santa Barbara, circa 1996-2001, I was getting about three-quarters ($9K) of all of my expenses paid for by grants and other financial aid.  I needed about $3K in subsidized federal loans to come out even each year.  But what did I do?  I took out $5K loans instead.  With that extra $2,000, I ate like a king (shopping at Trader Joes), paid for my car insurance, gas, and who knows what.  I can't even remember it all.  End result: $40K in student loans after my undergrad and grad school.  I should've had $20K!

2)  Becoming the incredible Hulk during my undergrad years.  I went from a scrawny 160 pounds to a buffed out 182 pounds.  UC Santa Barbara was like a country club where everyone had to look like a fitness model.  (Probably still is).  Of course, being an ectomorph, I had to consume like 2000 calories a day, meaning paying for the expensive meal plan my first two years and then loading the grocery cart at Trader Joes and Albertsons my last three years.  I also spent thousands of dollars in my 20s buying whey protein all in the name of vanity.



Me with the blue lei at Goleta beach with my roommates, 1999.  The person on the left was an exchange student from Germany we dubbed, "The Guy!" 

3)  Buying a slightly used Plymouth Neon during my first year working as a public school teacher.  The car was purple!  I don't know what I was thinking back then.  While I had it, it needed engine repair, and leaked oil.  I would eventually donate it to charity.  But boy did I spend money on that car.

4)  Buying a McMansion as a personal residence.  In my last post you learned how I have made money from my home.  This doesn't negate the fact that my ex-wife and I bought way too much house.  The mistake I made was leaving a hot real estate market like Silicon Valley after selling our townhouse in 2005, and thinking all markets in California were similar.  So when we saw a 3200 sq. ft. home only five miles from the beach in Oceanside being sold for only $745K, we assumed it was a deal.  In San Jose, a similar home would have been sold for a million.  This was during the housing market bubble.  In a post about refinancing your home, I mentioned how little money we get back come tax time from mortgage interest.  So I've paid thousands of dollars in interest already.  Property taxes are $6K a year!  And furnishing it was no joke.

5)   Buying a classic car.  So for my 30th birthday, I thought it deserving to buy myself a 1965 Corvair Monza.  Price tag: $6500 on Ebay, btw.  At the time, I knew nothing about how classic cars were valued or even how or why they'd increase or decrease in value.  I was going through some weird pseudo-mid life crisis and thought $6 g's was a small price to pay for my very own So Cal cruising machine.  I spent another $1K on a sound system.  When it was time to propose to Jessica, I needed cash for a diamond ring so I put up the car for sale.  Long story short, I only got $3500 for it.  Jessica got one carat instead of two because of it, LOL!


Image result for 1965 corvair monza with spoiler
Mine looked like this but it had BMW chrome wheels on it.

6)  Getting a divorce.  This one was for the best and in the end everything worked out but at the time my ex-wife and I were pulling in nearly $11K a month as school administrators.  We jointly owned the McMansion from #4 above and a time share we had gotten suckered into in Charleston, SC.  Our split was amicable and she agreed to let me keep the house in return for about $2500 cash (half the appraised value of the furnishings, electronics, etc).  Why?  The housing market had crashed and the McMansion was (still is) upside down.  Plus she was moving out of the area.  It became my new bachelor pad and I rented out three rooms for a stretch of three years.  However, this is something I needed to do to stay afloat.  I couldn't afford the mortgage, taxes, insurance, and maintenance on my own salary.  Glad we didn't have kids or the divorce would've been worse!  Oh and she kept the time share which was fine by me.

7)  Spending about $20K on a wedding.  My ex-wife wanted the full wedding experience in 2003.  We lived in San Jose at the time.  We got a florist, photographer, and wedding planner from San Francisco.  And of course it was all for naught.  See #6 divorce at top.  I'm so glad Jessica agreed to a courthouse wedding in San Marcos, CA.  We saved so much money!

8) Spending over $10K to remodel my master bedroom and bathroom (DIY status).  It was really cool to do most of the work, and our master bedroom and bath look awesome, but in all honesty, I still consider it a financial mistake.  I could've put that money to work and be closer to buying another rental property.  Your personal residence is a liability no matter what you do to it.  Sure it may appreciate in value, but over the course of 30 years, your outflow of cash far exceeds what you will most likely profit from it.

Alright, so there you have the 8 worst financial mistakes of my 20s and 30s.  I also had two kids in my late 30s and they would be considered big financial mistakes in some circles.  But thankfully, life isn't all about money.  I mean, look at these two cuties:




Priceless!  Alright my peeps, I am out.  Until the next one.

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Thursday, April 6, 2017

10 Of My Best Financial Decisions During My 20s and 30s

I turned 40 last September and it felt pretty darn good.  Don't take me wrong, getting old sucks, but fortunately I reached this milestone in excellent health and with solid financial footing.  The health thing is important.  Look, do you want to live a long life with quality?  You better stay in shape, and lift weights.  I'm telling you as a person who has exercised consistently since grade school, you look and feel the way you have treated your body over time.  With health care costs high and in limbo right now, staying healthy will save you thousands of dollars in mid or late life.

Image result for So this is 40

But this post is about the financial decisions I made during my twenties and thirties.  Those that have given me an above average standard of life, retirement savings, and wealth.  I'd like to share these decisions with you and reveal an underlying theme toward the end.  It's my intention for you to get ideas, and perhaps take similar action so that you can improve your own finances and wealth accumulation circumstances.  And with that...we're off.  Here they are in chronological order.


1) Got the highest paying job I could land in my industry.  I started my professional teaching career out of grad school in 2001.  By 2005, I was an assistant principal at a high school in So. Cal making over $100K.  Had I stayed a teacher, I would've been making in the mid $50K.  The extra income allowed my debt to income ratio to look better on mortgage applications.

2) I used my credit accordingly and appropriately.  From college (age 18-24, including grad school), I safeguarded my credit, using my one credit card only to make small purchases I could pay off within one to three months time.  If I couldn't pay it off in three maximum installments, I didn't use my card!  The strategy worked well so that by the time I applied for my first personal residence mortgage, my credit score was in the 700s.  When I applied for the home I'm living in today in So. Cal, my credit score was in the low 800s, and my income had doubled!

Image result for credit card college

3)  I taught at an urban school and had $15K of my student loans assumed over the course of four years by the now defunct APLE program.  Thanks CA!  I finished my undergrad and grad school with only $40K of student loans, and I only had to pay $25K of it.  I did this with haste and made my last student loan payments in 2010.

4) I committed time to learning all about stocks and the stock market.  I spent a few hundred dollars on books.  I did also make good use of my library card.  Since 2011, I've made a net profit of $19K (a 12% return on my money) and $12K of this money is going to be tax free since it was earned in one of my Roth IRA accounts.  Not too shabby for a self-taught equities investor who picks his own stocks.  As a college student, I knew nothing about trading stocks.  I became a student of the market in my early thirties, seeing some of my teacher colleagues involved.

Image result for Stock Market

5) I got my first Roth IRA, and built it up enough with savings to take advantage of the current bull market in stocks.  I took money from this Roth IRA and used it to fund a second Roth IRA which I used to purchase shares in RichUncles.com.  That initial $10K investment in 2014 is worth $13K today.  Get a Roth IRA!  Invest within it!

Image result for 403b

6) I started contributing to a 403b annuity in my 5th year as an educator.  The mistake I made was keeping it at a fixed 3% interest rate for multiple years.  I was concerned about being over-exposed to the market since I was already trading heavily in my Brokerage and Roth Accounts.  Of course I missed many of the years of the current bull market.  Regaining my senses, I changed the annuity to variable interest, and spread my contribution 80% Stocks (Vanguard's Total Stock Market fund with the lowest expense ratio) and 20% Bonds (Total Bond Market fund with lowest expense ratio).  I did this 3 years ago and have had some nice gains.  People with 401ks, if you have choice in the matter, don't over complicate your portfolio, choosing a myriad of funds simply because your employer allows it.  Find a low cost Target Date fund or do what I did, get yourself a low-cost index stock and bond fund.  That's it!

7) I took profits from the stock market and savings from my hustles and job and bought three rental properties out of state at the bottom of the real estate market, between 2011 and 2013.  I'm happy to report that the three properties, all cash-flowing, have appreciated in value!  When I retire, I'll have a nice income stream from my real estate holdings.

8)  I didn't and haven't made my personal residence a money pit.  With the exception of a master bath and bedroom remodel and a solar installation, I've limited dropping serious money on my personal residence.  In fact, since 2005, I've rented rooms to Marines and collected income off my residence.  I currently have one room in my home rented to a Gunny; he's actually lived with me so long we consider him part of the family.  I never tried keeping up with the Joneses.

9) I bought a slightly used 2007 Honda Civic Ex in late 2007.  I still have the car.  It was paid off in 2013 and only has 123K miles on it.  The only thing I've needed to pay for are brakes, tires, oil changes, and one single tune-up.  I'm going to use it and be car note free for at least another three years.

10) I started freelance writing and this blog as side-hustles.  I've made over $20K in three and a half years.  You gotta work it my friends!

Well, the moral of this lesson is that you have to be willing to act and take risks.  You're not going to get anywhere over thinking things and being risk averse.  The stock market, for example, is one of the most democratic ways people can make money.  It's available to anyone with a computer, some money, and an Internet account.  Yet, many of you are too scared to take part in it.  That's a shame.  Listen, if any of this has struck a cord with you, please share your comments below.  Or email me at info@cosvaldogomez.com.  May your financial decisions bring you prosperity and wisdom.  Peace!

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Sunday, April 2, 2017

4 Ways to Save Money With Your Pantry

The pantry is one of those places in our homes where money is hard to track.  It's nice to have a pantry, for it adds convenience and food security to our lives.  But it also adds disorder.  There are probably some people out there that know exactly what's in their pantry, and even how much money they got in it.  They would be the obsessive compulsive type.  The rest of us have a lot of work to do if saving more money is a goal.

Image result for cluttered pantry

I hate coming back from the store with things that I thought I needed but really didn't because I didn't check the pantry well enough before I left.  Do we really need four jars of spaghetti sauce in our shelves?  No, but you didn't notice the pair of them behind the boxes of pasta.  No doubt you have experienced financial frustration with your pantry as I have.  Hopefully, following these 4 tips will get you the most out of your pantry:

1.  Organize your pantry.  Placing items on your pantry shelves without a system is easy to do.  Set it down and forget it.  But this is exactly what gets us all in trouble.  Here are 5 strategies that will transform your pantry and make it Pinterest worthy.

Image result for organized pantry

2.  Have a Pantry Challenge.  A pantry challenge is basically when you eat down your pantry.  You use what you have in your pantry in as many meals as possible.  By forcing yourself to incorporate items already in the pantry into meals you concoct, you discover what things you'll never buy again.  You'll also rotate your pantry's stock.  It takes preparation to do a pantry challenge.  You'll need to figure out what you'll be cooking based on an inventory of the various foods, spices, and condiments in your pantry.  The effort is worth it.

Image result for pantry challenge

3.  Take several pictures of what's on the pantry shelves and go match at your nearest Dollar store.  You may be surprised what's being sold at the Dollar store that you paid full price for at the grocery store.  If you see that the Dollar store has several of the food items already in your pantry, you can forego getting these at the grocery store and save $5-$15 easily each shopping trip.  Of course you'll have to drive to one additional place, but the savings is again, very worth it.

4.  Donate to a canned food drive.  Getting rid of the clutter will open up your pantry and let you see what you already have in there a whole lot better.  This will prevent your buying duplicates at the store.  (A mistake I've made many times).  Plus giving to the needy also makes you feel good inside.

Alright my friends.  Don't let your pantry swallow your cash.  Follow these tips to make your pantry a lean machine of savings.  Thanks for reading!  If you liked this post and want to read more like them in your inbox, please subscribe below.
   
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Tuesday, March 28, 2017

5 Student Debt Stats Parents Need To Know

Today I have a guest post by a fellow fin blogger.  Enjoy!


As parents we want what is best for our children, especially when it comes to their college education.  But what many of us struggle with is balancing the need for a great education with a manageable level of student loan debt.  The cost of an undergraduate degree is skyrocketing, and with it, the average student loan debt.  Most students attend college directly out of high school, and lack the basic knowledge to truly understand what it means to sign a long-term loan.  That's why it's so important that parents learn as much as they can about student loan debt, so they can guide their children as they make these critical decisions.
Image result for student loan default


National Student Debt Is At An All-Time High

Across the U.S., we have more student loan debt than ever before and the number continues to rise.  The current outstanding national student loan debt is at 1.4 trillion dollars and growing.  Student loan debt is the second highest type of consumer debt behind only mortgages.  This number represents all types of student loan debt, including loans for career and technical colleges, undergrad and grad schools.

The exploding level of student debt is attributed to a number of factors:

1) The ever increasing cost of tuition and fees
2) The number of students going to college
3) Cuts in funding to public education

Average Debt Per Undergraduate Borrower Is Rising

In 2016, the average undergrad walked off the stage with a diploma and over $16K in loan debt.  The average debt per borrower was $28,400.  This is a 6% increase from 2015.  60% of all college grads will have some student loan debt.  Having substantial student loan debt can make it incredibly challenging for your child to start their adult life on firm financial ground.  An entry level job currently pays about $35K per year.  The average monthly student loan payment is $351, making it difficult to save any money for adults making an entry level salary.  This monthly burden also makes it hard for young adults to afford a mortgage,  a car, or a nice wedding.
Image result for Drew Cloud Student Loan Report

The Default Rate

A borrower is said to default on his loans when he has not made a payment between 270 and 360 days.  The default rate for federal student loans is currently 11.3% and 3% for private student loans.  Overall, however, about 40% of student borrowers aren't even making payments which means they either have not started repayment or they already defaulted.  The difference between these two numbers is likely due to the greater protections in place for borrowers with federal student loans, such as income-based repayment plans and forbearance, and deferral programs for borrowers facing hardships.

Default is a serious concern for anyone with student loans, particularly because this type of debt cannot be discharged in bankruptcy.  Talk to your kids about these stats, and make sure they understand what these numbers mean before signing onto major loans.  

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Graduate Student Debt

While undergraduate degrees can be costly, graduate and professional degrees tend to be even more expensive.  In 2016, the average debt per graduate student was $57,600!  Many graduate degrees are necessary for students to work in a particular field, but these fields aren't necessarily financially lucrative.  Talk to your son or daughter about options for paying for graduate school other than taking out student loans, such as grants, scholarships, or an employer paying for school.  Getting started in their career without significant student loan debt is the main goal.

Federal Versus Private Student Loans

There are two primary options for financing your child's college education: federal and private.  The majority of student loans (90%) that are taken out in the U.S. are held by the federal government.  These loans offer many benefits over private loans, such as fixed interest rates, generous borrower protections, and potential subsidized interest rates if you qualify.  Federal student loans don't require a cosigner, a credit check, or to even be creditworthy.  In contrast, private student loans require your child to be creditworthy or have a cosigner to be approved.  In most cases (90%), your child will require a cosigner to be approved.  If the primary borrower doesn't pay the loan, the cosigner will assume responsibility for the loan.

Whenever possible, steer your son or daughter toward federal student loans.  While private loans may sometimes offer lower interest rates than federal student loans, as a general rule, federal student loans are considered more student friendly.

Taking some time to learn about student loan debt can help you guide your child as he or she makes one of the biggest decisions of their life.  While student loan debt may be unavoidable, understanding these basic statistics can help your child make a better choice when it comes to the type and amount of debt that he or she has.

Drew Cloud is the Founder and main contributor to the Student Loan Report.  After struggling to repay his own student loans, Drew decided to make a site to help keep borrowers up to date on current student loan news.  Drew is also a freelance writer who typically writes about student loans, personal finance, and education.    

Saturday, March 25, 2017

4 Stupid Things We Do With Our Coins

The typical American gets some change back once, maybe twice a week if they use cash to make purchases.  I use my debit card as often as I can but still, I have spare change to deal with at least once a week.  And just how do most Americans deal with their spare change?  That's what I'll be discussing in this post which by the way, was inspired by my visit to the grocery store today.  You see, on the spur of the moment I decided to grab the coin jar I had sitting atop a closet shelf gathering dust, and go dump my coins into a Coinstar machine.

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After feeding a machine exactly like this one above, I got a voucher for $17.44.  I agreed to the 10.9% charge for this service because frankly I didn't want to spend my valuable time putting coins of each denomination into coin sleeves.  Doing some quick math, I must have had around $19.57 in my jar.  That seems just right because any more money sitting idle is money losing purchasing power to inflation.  After cashing in my voucher, I went to the pump and got three-quarters of my gas tank (I drive a 2007 Honda Civic Ex) filled up.  Now that's how you're supposed to use cash you got lying around.

When it comes to coins, we make some serious mistakes.  I'm personally just becoming conscious of some of these.  Here are four that need to be rectified immediately.

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This is dumb!!

1) Keeping coins in your car.  The change in our consoles or cup holders has got to be some of the grimiest possessions we have.  We tell ourselves that one day we'll need spare change when we're driving around so we hoard it in our cars.  Meanwhile, we're spilling juice, protein shake, and soda all over it.  Dirt and dust gathers on it making it gross to even pick up.  Why do we do this?  To hand it to the poor guy asking for money on the corner of the street.  Geesh.  We're better off taking our spare change inside the house, and dropping it in our coin jar...but not to be kept there forever.

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2)  Letting our spare change drop in between couch cushions.  Again, we are so lazy sometimes that we'll plop on the couch and forget we have loose things in our pockets.  We take that sweet nap and our coins go to rest in the kingdom of the underneath.  Then one day we get to cleaning like a fool and lift them cushions, finding all sorts of junk and coins.  Unfortunately, over time, those coins, just like the dollar bill, have lost purchasing power.

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3)  Waiting until our coin jars are full to do something about it.  This is what I've just learned after today: there is a specific volume (or height on the jar) of coins that amounts to about $20.  I've marked it.  So now, I save only until my coins reach this level.  Then on a visit to the grocery store, I empty my jar out and put that cash to work immediately.  Why are you leaving so much change in your jar?  Does it give you a sense of accomplishment to have saved so much spare change over time?  Don't be foolish.  Inflation will eat up the value of your money as you wait to put a lid on it.

4)  Let our kids keep them in their piggy banks all year long.  Just like our own coin jar, as soon as our kids have enough money saved to make a visit to the bank worthwhile, that spare change should be deposited.  You'll need coin sleeves this time, but if your kids are old enough, you can teach them once and they can take care of it in the future.  Transferring that money into a custodial money-market account may not be enough to keep up with inflation (depends on the interest rate you can get), but it's a whole lot better than keeping it in a savings account.

The moral of this story is that you need to take spare change seriously.  Ignoring or forgetting about it does impact your finances.  If you pride yourself on being a great saver, and have many spare change jars around the house filled to the brim, you're hurting your ability to buy things in the future, and being stupid with your money.  Alright, I'm outta here!  If you liked this post and want to receive more like them in your inbox, don't forget to subscribe to this blog by submitting your email below.  Thanks!
  
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Sunday, March 19, 2017

Do These 3 Things When The Fed Raises Interest Rates

This past Wednesday, the Federal Reserve raised its target for federal funds by a quarter percentage point, from 0.75% to 1%.  This means banks will be charged a tad bit more for borrowing money from Federal Reserve banks.  Most people don't understand what any of this means.  The Federal Reserve is actually a network of 12 banks and 24 branches across the country.  Part of their job is to loan inventory (cash) to other banks at the going "Fed Funds" rate.

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The Federal Reserve has kept the funds rate very low the past several years, to spur the economy via cheap money for banks that they can turn around and lend to companies and people at higher (but still low) rates.  With inflation creeping up, however, the Fed has begun hiking the Fed funds rate to keep the money supply from being too high which would cause even more inflation.  The days of cheap money for borrowers are ending.  Good or bad?

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In this post we'll explore what you should be doing with your money right now to adjust to the new Fed policy.  (By the way, the Fed has signaled two more rate hikes in 2017).  Not doing these things will seriously cost you some bills in the near future.

1. Be aggressive paying off your credit card debt.  In my last post, I mentioned that 157 million have outstanding credit card debt.  Credit card interest rates are variable.  (They're actually tied to the "prime rate," an index a few percentage points above the federal funds rate).  So your equity line of credit and credit card debt will be facing higher charges.  The change is immediate too.  Your interest rates are on the move up now!  Do not play around with your balances, meaning paying just the minimum or a few bucks above the minimum.  Be aggressive with that debt and pay it down as much as possible.  Divert money you may be saving for other things to paying down your credit debt.

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2.  Borrow cheap money before it gets more expensive to borrow.  If you're a business owner or are looking to start a business, now is the time to go get a loan.  You're going to want to borrow before the next two hikes, or you'll pay more for it.  The same goes for people that want to buy a house.  Although interest rates on home loans are not tied to the federal funds rate, they'll be creeping up nonetheless because banks are being charged more for borrowing, meaning they'll pass on these extra costs to the consumer.  If you have been waiting to refinance, now is the time to get on it for similar reasons.

3.  Transfer money from your regular savings account into a Money Market Account.  MMA's are not FDIC insured as is your regular savings account, but they are relatively safe.  The Fed raising rates is a move that benefits savers.  Remember, the Fed kept rates at 0% for many years to get people to invest.  This punished many savers who couldn't get squat for putting their money in long term CD's.  Now the reverse is happening.  Little by little, you'll see interest rates being offered for CDs start to increase.  This means that if CDs are your thing, start laddering as you don't want to tie your money up when rates are rising.  Again, keeping money in a savings account when rates are rising is plain stupid.  The most risk averse people should move some of their savings into a MMA to capture more upside.

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One last tip, mind the rate of inflation.  If the Fed is raising rates, it means inflation could be a real threat to your purchasing power.  Inflation has been so out of the news for so long that people have been lulled to sleep.  If you're not making money on your money (by investing) at a rate above inflation, you're essentially losing money as you'll not be able to buy as much.  The economy is improving.  This isn't just an expression for you to repeat over the water cooler at work.  Take action!  Until next time.  If you liked this post, please consider subscribing to get more like them in your inbox.      
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Sunday, March 12, 2017

6 Ways To Resist The Use of Your Credit Card

Credit cards.  They're everything to some people.  According to the Nilson Report, credit card receivables topped $1 trillion in 2016.  Out of this total, 65% of it or $650 billion, was subject to a finance charge.  Yikes!  How many people in America would have to have debt outstanding on one or more credit cards to tally $650 billion?  Around 157 million.  Meaning, if you're reading this, you probably have a credit card balance.

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When saving (and not making more) money is the only way most Americans have any chance at building wealth, why would they so readily shoot themselves in the foot, so to speak, using credit cards irresponsibly?  What doesn't pop into most people's minds when going for that credit card in the wallet is what ultimately kills any chance at living a life financially secure.  To call you naive would be correct, but insulting.  To call you out on your ignorance would be harsh, but perhaps what you need to hear.  You see, the use of a credit card is an emotional thing, and I just pushed your buttons so you'd start to really think about your obsession with plastic.

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With that, let me say that I'm here to give you some tips on how to reduce your use of credit.  You shouldn't stop using your credit card altogether.  There are times when using a credit card makes more sense.

1) Stop shopping so much!  Does shopping make you excited?  Do you feel depressed when you're not at the store, mall, or online at an e-commerce site, and a rush when you are?  See a psychologist!

2) Screw convenience!  Many people pay with credit card because it's more "convenient" to do this versus carry and count cash at the register.  Not seeing the money leave your hand, however, is exactly why you're in your debt predicament.  When you use plastic, you're seeing past the cost of the item(s) and only acknowledging the benefits.  Use cash more often and you'll spend less often, guaranteed.

3) Don't fall for the gimmicks.  Spending for points and prizes makes you a sucker.  There are people who use their credit cards as part of rewards program, turning shopping into a game.  I recently read an article on CheatSheet.com with headline: How I made over $2,000 from only using credit cards.  Articles like this are very misleading, and only feed into people's competitive nature.  The perks are intentionally juicy people!  Don't fall for it.

4) Use your ATM-Debit card.  This is what I do.  My Wells Fargo ATM debit card handles about 99.9% of all my monthly purchases.  This card is linked to my checking account so it's essentially like using cash.  I don't believe in kicking the can down the road.  I can track exactly how much I spend, and pay the full amount with no worries of ever having a potential finance charge.  Plus it's just as convenient as a credit card.

5) Don't conform.  You don't have to be like everyone else, you know.  If everyone else is using their credit cards to make themselves feel wealthier than they actually are, you don't have to follow suit.  If you associate with people wealthier than you, trying to keep up with them will be the end of you.  Don't be part of the herd!

6) Accept life's negatives.  Pushing aside life's negatives to live in a make believe world will only make the negatives pile up.  It's best to confront your financial situation, and take it head on, sacrificing if necessary.  The credit card is not your magic wand that you can flick whenever you want a fairytale experience.  If you do use it splurge on yourself, your fairytale will have a bad ending.

Don't justify the overuse of your credit card to build credit or win rewards.  Having a track record of making credit card payments on time and paying over the minimum monthly payment is nothing to brag about.  In fact, paying any credit card interest is foolish.  Avoid doing this like you'd avoid a sick co-worker.  Thanks for reading!  If you liked this post and want to receive more like them in your inbox, please subscribe.
   
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Wednesday, March 8, 2017

Get Your Kids Saving for College or Retirement Now!

Do you like going to work each day, exchanging your time on earth for money?  Hmm...I think the majority of you would say, heck no!  Well, our kids (I have two) will also hate having to join the rat race and be financially insecure, especially when it comes to retirement.  I don't think we have enough adult conversations with our children about money.  Many of you would rather keep children oblivious to the hardships of making ends meet in America.

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I say that's wrong.  We don't give our kids enough credit.  They are capable of taking on more responsibility for their own future than most of us imagine.  There are two major expenses that will overwhelm them just like they overwhelmed us, college and retirement.  Many adults see paying for their kid's college as their responsibility.  But let's face it, unless you're a high roller, you'll be making some serious sacrifice, most notably toward your own retirement savings, by paying for your kid's college education.

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Financial lesson number one all kids should learn: saving.  They will be given money as early as three years old.  Either you or a relative will gift them a little cash.  Having them build a habit of saving any money they come into, will be the best thing you can do for them.  Once they're four or five, depending on maturity, you can start talking to them about college.  That's what any great parent would do.  But don't just stress the importance of going to college.  Also talk to them about the costs.  Then invite them to save some of their allowance or birthday money for this expense.  Write on their piggy bank, "College Fund: Do Not Spend Ever," even if they have yet to learn to read.  You can tell them what it says.

When they're in elementary, and have learned some basic math, you can have them do a simple math project.  How much money would you have at the end of 12th grade if you saved $1 a day?  If they're in 2nd grade and start saving that year, they'll have 11 years to put their money into a savings account (one that you'll set up for them...preferably a Money Market Account in your name, or a Roth IRA where you'll be the custodian).  Have them calculate how much money they'd have after a year.  That's 365 times 1 or $365.  After two years, $365 plus $365 or $730.  Don't talk to them about interest until they'rein 4th or 5th grade.  Make a simple chart for them.  See below:

Year      Grade        Money Saved
1               2                 $365
2               3                 $730
3               4                 $1,095

Seeing the money add up would motivate most kids to take on the challenge.  The next part of the project is for them to brainstorm where they'll get this $1 from.  Ideas?  Well, there's allowance, doing chores for money, and even selling things (like cool stickers) to other kids.  Get these in bulk from Amazon and sell individually.  By the way, school is where many candy and toy transactions take place unbeknownst to the administration.  Yes, many entrepreneurs began their journeys as young hustlers on a school campus.




By middle school, many teens know if they love to learn, study, and read.  These are prerequisites for being successful in high school and college.  If your child has kept up his/her savings program for college, encourage them to ramp it up.  Instead of a $1, have them save double, or $2.  The key is dangling the balance in front of their face.  You should be showing them how much money they have in the account periodically.  This will keep them money primed.

The beauty of getting kids focused on saving money for college or retirement (more on the latter in a bit), is that kids will understand the nature of the game so to speak.  Freedom costs money.  If you don't put in the work early (saving), you'll be put to work for many years.  If it turns out that your child decides to forego on college, then in effect, their college savings account has become a retirement account.  If they've not touched any of the money thus far, which would be a great feat since young people have a hard time with delayed gratification, they can lock it up even more by transferring the money into a Roth IRA of their own.

Kids should now why saving is important and the words that should spring forth from their mouths whenever asked is, "college and retirement."  Make these two words so well known in your household so that there is never any doubt why you go to work (to save for retirement as much as to pay for your expenses) every week.  Let your kids be kids but don't set them up for enslavement to debt either.  They should know!

Until next time.  Thanks for reading.  If you liked this post and want more like them, please subscribe.    
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