Posted: February 26th, 2011 | Author: Joe | Filed under: Saving | Tags: America Saves Week, college savings, Emergency funds, Retirement, Saving, Saving Money, spending | 3 Comments »
As America Saves Week draws to a close for 2011, I thought I’d share just one last post of savings advice and commentary. I hope you celebrated by increasing your savings, or at least reconsidering your spending
Retirement
I encountered a problem with my 401(k) and saving for retirement and thought many others probably have experienced this too. I couldn’t find any real solutions on the web, so I wrote about my own solution to Save for Retirement When Your 401(k) Plan Sucks.
RC from Think Your Way To Wealth answers a question that many people ask once they’re out of credit card debt :
I’m Saving Enough To Get the 401k Match From My Employer, Where Do I Invest My Money Next?
College
Anybody with a child of college age knows that college tuition these days is insane. Heck, my oldest kid is in 1st grade I’m terrified to think at how expensive it will be when they head off to college. By that time, kids may be taking out an equivalent of a 30 year mortgage – just for education expenses!
Well, one alternative is to skip college altogether. I’m not saying it’s the best alternative, but it may be beneficial to Save Money and Skip College, at least for a year or two.
But if you or your children are looking at that costly expense, you should probably reconsider majoring in any of these 8 College Degrees with a Poor ROI. Thanks to Financial Highway for the list!
Either way, check out the article at The Amateur Financier about How to Survive 4 Years of College Without Going Broke.
Health savings
Perhaps the biggest expense outpacing incomes aside from college tuition is healthcare. MoneyNing shares a helpful list of 7 Questions to Ask About HSAs and Other Ways to Pay for Medical Expenses that can help get you thinking about how to mitigate these essential costs.
Emergency savings
A basic pillar of personal finance is the emergency savings account. But what is that savings fund for? Well, interestingly it turns out that The Most Common Emergency Expenses are the same regardless of income level. I suppose that’s because some things are unexpected whether you’re a line cook or Bill Gates.
Lastly, Ron at The Wisdom Journal has a poll you can vote in :Which Is Greater – Your Emergency Fund or Your Credit Card Debt?. The results may surprise you…
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Posted: February 21st, 2011 | Author: Joe | Filed under: Debt, spending | Tags: college savings, college tuition, Saving Money, spending | 3 Comments »
Well we’ve finally reached the point where college costs have made many people wonder if it’s even worth the price anymore. Since this is America Saves Week, I figured I’d share some thoughts on the subject from James Altucher – managing partner at the Formula Capital hedge fund.
Altucher’s premise is that too many college kids move on from the high school mill into higher education simply because they feel that it’s what’s expected of them, and in many cases they’re probably right.
No return on investment
Businesses and investors know that one of the major gauges of success is the return on investment. Put simply, are you getting something in return for the expense?
According to many recent reports, parents and students alike are not getting a return on their investment in college. In fact, a recent book on the subject, Academically Adrift: Limited Learning on College Campuses
highlights one depressing statistic:
after two years of college, 45% of students learned little to nothing. After four years, 36% of students learned almost nothing.
So the return on the college investment is shrinking, but at the same time the cost of that investment continues to outpace wages and inflation alike.
Over the past decade the cost has risen 20x faster than the rate of inflation. The average student debt accumulated by college students who graduated in 2008 was a staggering $23,186 .
And in 2010 the total U.S. student loan debt surpassed the total U.S. credit card debt – $850 billion vs. $828 billion.
College costs climb skyward.
But what’s the big deal, an education is priceless right? After all, the college grad will make so much more over his working life than a non-college grad that it still pays, right?
I’m not so convinced of that anymore. Not when the average debt load is $23k! That may be manageable for an engineer or doctor, but what about a liberal arts grad?
But if college is simply too expensive to justify the cost relative to the benefit, what are the alternatives and does it mean that people should skip college altogether?
Altucher’s 8 alternatives to college:
The only real viable long term alternative to a college education is to start your own business. Being a successful entrepreneur doesn’t require a college degree, but being a successful entrepreneur isn’t easy either and most fail trying.
But even that’s ok.
Altucher’s point (and I agree) is that it’s much more beneficial for some high school grads to follow their dreams. Even if they fail, they’ve tried and they’ve very likely learned a few things about themselves and the real world along the way.
Here’s a list of Altucher’s alternatives:
- Start a business.
- Work for a charity.
- Travel the world.
- Create art.
- Master a sport.
- Master a game.
- Write a book.
- Make people laugh.
Many high school students simply have no clue what they want to do in life. Isn’t it better that they spend a year or two pursuing their dreams and figuring it out before spending thousands of dollars in tuition to do so at college?
See for yourself
Click here to watch a video of Altucher discussing these ideas on the Yahoo! Finance Tech-Ticker. He’s really quite engaging.
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Posted: December 11th, 2009 | Author: Joe | Filed under: Saving | Tags: 529 savings plan, college savings, prepaid college tuition | 1 Comment »
One of the painful lessons of 2008 was that 529 college savings plans can lose money. Sometimes, a lot of money.
529 plans, like 401(k) retirement plans are simple constructs for holding your savings; in the case of 401(k), it’s savings for retirement, while a 529 holds savings for college costs. But if you happen to invest those savings in aggressive stock funds, then you could be in for a bumpy ride. Like it, or hate it that’s part of the reality of these plans.
But now some college 529 prepaid tuition plans are now at risk.
Prepaid 529 plans are supposed to avoid the roller coaster-like ups and downs of a traditional 529 plan because they allow parents to buy tuition credits at a price slightly above the value of the tuition today, and cash them in at “face value” when the child goes to college. Think of it as a savings bond, as opposed to investing in the stock market.
The problem is that the state typically assumes the risk for the prepaid plans, and more and more states are realizing they’ve spent themselves into bankruptcy and never saved for the time when the economic boom would go bust.
Alabama’s Prepaid Affordable College Tuition plan may collapse, and other states are limiting enrollment or drastically increasing the cost of the tuition credits. While no one has yet lost money or benefits in these prepaid plans, there is a risk that many may not have been aware of previously.
According to the College Savings Plans Network:
Thirteen states offer prepaid tuition plans that are open for new enrollment, either currently or seasonally. Another two, Kentucky and West Virginia, have been closed to new enrollment for several years. The Colorado and New Mexico plans have been permanently shut down to any enrollment and will close when the last beneficiary finishes school.
Many who have paid into these accounts and purchased tuition credits believe that the program is guaranteed and that their money will be available at the time their child is enrolled in a school of higher learning. Unfortunately, this is not true.
According to The New York Times:
Of the 18 prepaid plans, 16 are underfunded, meaning they don’t have enough money to pay future tuition obligations. And only a handful of plans are fully guaranteed by the state.
All of this adds up to fiscal irresponsibility and broken promises on the part of state government officials. The lesson here is clear: nothing comes without risk, and parents need to do their due diligence and weigh these risks against those of other college saving methods.
Source
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Posted: December 3rd, 2009 | Author: Joe | Filed under: Saving | Tags: 529 savings plan, college savings, Saving | 1 Comment »
529 plans have been an increasingly popular way to save for college now for a number of years, but recent data suggests that parents are dropping out of 529 plans. Some are opting for other methods of saving, while others simply can’t afford to save for college.
According to this Wallstreet Journal article, the amount contributed to 529 plans in 2006 and 2007 was over $15 billion, while the contribution amount for 2008 was a relatively minuscule $5 billion.
Obviously, much of this is for the same reason many workers have ditched their 401k plans – the market crash of ’08 has convinced them that the stock market is not a safe place to put their money.
They’re right of course, to a point. It all depends on your time horizon. If you’re looking to retire in the next 3 years, you shouldn’t have 70% of your 401k in stocks. Similarly, if your child is going to college in the next 3 years, you shouldn’t have 70% of the child’s 529 account in a stock fund. It’s simply too risky that late in the game.
But this doesn’t mean that 529 plans or the stock market in general is the wrong place to be if the time before you’ll need the money in over a decade. The article profiles some people who are so scared to invest that they now are making some really questionable moves, giving up potential growth in years to come for safety today.
This is all very similar to the outcry to fix or scrap the 401k plan, but just like 401ks, it’s not 529 plans that are the problem, but people’s ignorance and unreal expectations.
The article does have some good alternatives to 529 plans, though each carries its own kind of risk: 529 Savings plans,529 Prepaid plans, Coverdell Education Savings Accounts, Custodial Accounts, Savings Bonds.
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