Posted: February 24th, 2011 | Author: Joe | Filed under: Real Estate, Retirement, spending | Tags: Auto loans, Car loans, childcare, college tuition, Housing, Mortgages, Retirement, spending, Student Loans | No Comments »
I came across this article on Yahoo! finance that details the 5 things that consume 50% of your lifetime earnings and thought I’d share it with my readers.
It’s kind of a catchy headline, right? I know anytime I see something about spending 50% of my income, I tend to take notice. But it’s more or less the big ticket items you’d expect. Here’s the list, and what I think about each. Feel free to add your thoughts in a comment.
1. House.
This makes sense since it’s ultimately what led to the collapse of the subprime housing market and implosion of the all those risky mortgages. Too many people simply bought too much house, and could no longer delay the inevitable with ever cheaper credit.
How much is too much?
Experts recommend no more than a third of your annual income should be spent on your housing payments. It’s important to keep in mind that this includes school and property taxes, which are often taken out of your monthly payment. You should also include homeowner’s insurance and upkeep and maintenance costs. An easy way to get a general idea of how much this should be is to assume 2-3% of the home cost. It also pays to shop around for the best mortgage before you start looking at houses.
photo by asianjournalusa.
2. Car Payments.
The fact that a person’s home is a large chunk of their income makes a lot of sense, but too many people spend just as much on their car. Sometimes, they even spend more! In fact, according to the article, most people can “comfortably afford” to spend 1/3rd of their income on car payments – no wonder some many are so deep in debt!
As with buying a home, a car has many additional costs that people often forget – car insurance, maintenance, gas, parking and other transportation costs. Buying a used car that’s 1-3 years old with low mileage is a much better choice.
photo by A. Belani
3. Children
It will cost $220,000 to raise a child from diapers to age 18.
If this statistic is true, I’m in a lot of trouble! 
I have 3 children, so that’s pretty much my retirement we’re talking about. My feeling on this is that raising a child costs more than it should. For example, there are so many little things I see parents buy for their infants that are simply non-sensical. A baby (who isn’t even walking yet) doesn’t need a pair of $40 designer shoes!
My wife and I get many hand-me-downs and second hand baby items – strollers, clothes, toys, etc..- that keeps the cost down, and the kids don’t know or care. Obvisouly there is a point at which the child becomes aware that they don’t have the latest gizmo, gadget or toy but that’s where we step in as parents and teach them that being materialistic isn’t so good anyway. BEsides, kids today just aren’t tought the value of a dollar anymore.
Also, I see a lot of stories and know a few personally, of parents who mortgage everything – including their house, several times – to make sure that junior never goes without. i understand the desire of a parent to ensure the best possible everything for their kids, but many time this backfires and they simply end up spending more than they should.
photo by seanmcgrath
4. Education
My parents helped out a little with my tuition to community college, but I paid most of my way myself. But parents today seem to think a free ride to college is a right these days. At the same time, the cost of higher education just keeps going higher , even outpacing inflation incomes and seemingly everything but the U.S. deficit.
How much is too much?
The recommendation is that you don’t borrow more than you can pay back in 10 years. For example, if your dream job pays a median income of $50,000, don’t borrow more than $50,000 in student loans. The problem I see with this is that most kids have no idea what they want to do when they graduate, and even the ones who do aren’t likely to have an idea of how much the profession would pay. But this is where the parents come in.
photo by m00by
5. Retirement
I think is is one of those cases of wishful thinking. Most people probably should spend as much, if not more, on their retirement savings as they do on their car and student loan payments but I think for most people, retirement savings isn’t on the top 10 list of expenses, much less the top 5.
photo by quadriman
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Posted: October 18th, 2010 | Author: Joe | Filed under: Debt | Tags: Debt, Education, Guest Post, Saving Money, Student Loans, Tips | 1 Comment »
EDITOR’S NOTE: This is a
guest post from
Maria Rainier.
The last thing you want to be worrying about after receiving your diploma is paying off the mountain of debt you accumulated over four years, so why not minimize or eliminate that debt altogether? It’s not easy, but it doesn’t have to be backbreaking, either, and it most certainly can be done.
- If you’re still in high school, look for college credit resources like taking AP classes and tests, CLEP exams, and others. Some will cost you money (like the CLEP exam, which costs $65), but I can guarantee that these fees will be much cheaper than that of a class at the average college.
- Look for scholarships and financial aid resources. The more you apply for, the more you’ll get back, and there’s no limit to how many you can get. Go to http://www.collegedegrees.com/blog/2008/05/22/100-resources-to-go-to-college-on-the-cheap/ for a huge list of both and more.
- Accelerate your degree. While your workload will be more intensive, you can get out of college a semester or even a year early, saving you literally thousands of dollars.
- Choose a tuition-free school. Sounds ridiculous, I know, but there’s a catch: some schools will require you to work up to 15 hours a week on campus and in jobs related to your major. Still, if you don’t have to worry about tuition. . . . If you’re interested, look up The Cooper Union in New York, N.Y.; Webb Institute in Glen Cove, N.Y.; Berea College in Berea, Ky.; College of the Ozarks in Point Lookout, Mo.; and Alice Lloyd College in Pippa Passes, Ky.
- If you’re beginning with a particular school in mind, remember that nobody said you had to spend all four (or three) years there; you can transfer. By starting your college career at a community or tech college (which generally have lower tuitions), you can save as well as make a little money by having a part-time job. Moreover, if the school is close to home, you can (gulp) live in your parents’ basement for a year or two. No sweat, it’s only for a year or two, and afterward, you’ll have more money and half a college degree by the time you transfer to your dream college. The diploma from there won’t say a thing about your history as a transfer student. Just make sure before you begin your education that the credits you’ll earn at community college will transfer to your dream school; some don’t, depending on both campuses.
- Don’t bring your car to school. You’ll use it rather than the communal bus that goes through campus and rack up gas money and mileage. Instead, bring your bicycle or skateboard, anything to keep you from spending money on gas.
- Mind your cell phone bill. Call when it’s free, and watch your number of text messages. Use free apps rather than paid ones. You get the picture.
- Get discount textbooks; sell them back at the end of the semester. Check around campus if anyone already has a copy of the book that you can share (I wouldn’t recommend this except for a low-key class) or if they’re looking to give it away or sell it for cheaper than the campus store. Amazon.com often has the cheapest, used, hardcover books. If you’re selling, go online and make yourself some much-needed cash. Your campus bookstore will try to mark the value of your books down, so avoid them like the plague.
- Get your hands on a cheap laptop—from a friend, a neighbor, eBay, Amazon. . . . You can also try a refurbished laptop directly from major manufacturers, or snag a coupons or rebates (just don’t forget to actually use them).
- While we’re tech-talking, don’t dish out your month’s pay on software—there are plenty of freewares online if you know where to look. You can get antivirus, firewall, and spyware removal programs for free from places like www.cnet.com. Linux is a good alternative to over-priced Windows software, and Apple’s Education store offers discounted rates for students. Just make sure to get your stuff from legitimate sources, or you’ll have a nasty virus on your hands.
- Let’s say you’re already at school. Mind your dorm room and make sure you’re getting by on bare necessities. Go to http://www.suite101.com/content/college-dorm-room-necessities-a18169 to get an idea of what you need and don’t need in your room.
- What you do need, however, is most definitely food. Use your cafeteria since you’ll already have paid for it, and even try getting extra food to go for evening snacks. Some places won’t let you do that, so it’s a good idea to invest in staple food products for when you get hungry so you don’t get peer pressured into making a midnight McDonalds run and continually waste pocket cash. Oatmeal, bread, peanut butter and jelly, trail mix, a Brita filter and reusable bottle, cheese, and yogurt are basics that you’ll be glad you have.
- Don’t be ashamed to use coupons. When everyone else is working to pay off their loans, you’ll be working on your savings account.
- Avoid restaurants, especially in large groups. Splitting the bill usually means the salad-eater gets screwed, and restaurant meals are overpriced, anyway. If you’re looking to impress a date, try candles and movie or TV via your laptop in the dorm room—just be sure to tell your roommate to take a few extra hours at the library.
- Sell your talents as a writer, a musician, whatever—be a tutor.
- After you’ve graduated and you still find yourself paying off loans, think about doing what a lot of graduates are doing these days: canceling all or part of their federal-education debt by working in public-service jobs or through a volunteer organization. Check out loan-forgiveness programs and volunteer organizations, even the Peace Corps, which will take out 30% of a Perkins loan and defer student loan payments. Americorps and Volunteers in Service to America members receive educational awards of almost $5,000 for a year of service; you can apply that to existing loans or to financing future education. If you’re a teacher, consider working in low-income elementary or secondary schools, which may cancel up to $5,000 off your federal Stafford loan debt. Similar programs exist for lawyers, physicians, nurse practitioners, dentists, therapists, and more.
If in doubt, there are innumerable resources online that can help you—in big ways and small—further minimize college debt.
Bio: Maria Rainier is a freelance writer and blog junkie. She is currently a resident blogger at First in Education and performs research surrounding online schools. In her spare time, she enjoys square-foot gardening, swimming, and avoiding her laptop.
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Posted: May 17th, 2010 | Author: Joe | Filed under: Debt | Tags: Federal student loans, PLUS loans, Stafford loans, Student Loan Consolidation, Student Loans | 4 Comments »
After July 1st, 2010, the federal government will become the sole lender for all federal student loans. Here’s what this means for current and future students.
The changes to the federal student loan programs (Stafford and PLUS loans) were enacted as part of the 2010 healthcare legislation. Along with the changes to loans outlined below, the bill also allocates more money for Pell grants. The maximum grant per student will rise from it’s 2010 level of $5,550 to $5,975 at a cost to taxpayers of $36-billion over the next decade.
The first major change comes about when the federal government assumes control of federal student loans in July. A total of 4 different agencies will begin servicing the loans, and their impact depends on when the loan was originated:
- Loans after July 1st, 2010 will be serviced by the federal government.
- Loans originated prior to July 1st, 2010 will be taken over by the feds if they are currently federal loans.
- Student loans that are not funded by the federal government will remain unchanged for now.
- Students are encouraged to contact their financial aid office if they’re unsure if they have a private of federally backed loan.
Changes to federal student loan program.
One-time consolidation exception. Current students for the 2010-11 academic year can consolidate their loans prior to graduation. NOTE: Students who take this opportunity to consolidate early will lose their 6 month repayment grace period after they graduate.
More forgiving repayment terms. The current income-based repayment program is expanded under the new law. Students with high debt-to-income (student loan debt only) will have to pay no more than 10% of their discretionary income, and the remainder of the debt will be forgiven after 20 years. This is a change from the 15% cap on payments and forgiveness after 25 years. These changes apply to loans after July 1st, 2014.
More aid for some colleges. Community colleges will receive $2 billion in additional aid over the next 4 years, and “minority-serving institutions” will receive $2.55 billion in aid.
Source.
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Posted: March 24th, 2010 | Author: Joe | Filed under: Debt, Tips | Tags: Auto loans, Credit Cards, Credit score, Debt, Mortgages, Student Loan Consolidation, Student Loans | No Comments »
It’s a sad fact of modern life that unless we are diligent we are bound to end up with a multitude of debts, so it’s no wonder that people often feel overwhelmed when considering which debt they should pay off first.
This topic is usually centered around credit card debt and often pits philosophies and formulae against one another. For example, many people espouse the Dave Ramsey snow-ball method, while others decry it as too simplistic.
What this post isn’t about.
This post is not about the snow-ball or any other method of repayment. This isn’t about the nitty gritty of how to weigh various balance amounts and interest rates against each other to arrive at the optimum payoff order of your credit card balances. In fact, this isn’t even about any specific type of debt.
What this post is about is how you should go about classifying your debt and which category of debt should be paid first and why.
Naturally the best course of action is to keep your debt to a minimum, if you can’t avoid it all together. But to help you get there sooner, consider this list of importance when paying off your debt.
#1. IRS debt.
IRS debt is the most important to pay off, hands down. You simply don’t mess with Uncle Sam. If you fail to pay your taxes, the government can garnish your wages and seize your home and property. If you find yourself owing the IRS back taxes, you can go the tax relief route to help clean up your mess but it’s best to avoid the situation altogether.
#2. Credit card debt & personal loans.
Credit cards and personal loans carry the worst interest rates and fees. The longer you carry debt of this type, the longer you will be working for things you bought in the past and the longer you will wait until you have the freedom of your paycheck back. It’s that simple.
#3. Car loans.
Auto loans get us to what is known in the industry as secured debt, sometimes called “good debt.” The reason is that there are often tax deductions associated with it, and the terms are more favorable because there is something that could be repossessed if you fail to pay. While you don’t get to deduction the interest on your car loan, you will typically see a lower rate than on credit cards.
#4. Student loans.
Student loans are typically the lowest interest rate you can get, and if they’re not you can usually use a student loan consolidation company to lower your interest rates significantly. Besides, most graduates end up paying their student loans until they retire anyway.
Mortgage debt is about the best debt you can have. Don’t confuse that with a mortgage being a good thing. Most people would like to own their home “free and clear” if given the option, just for peace of mind. But there are arguments that say a mortgage is a good thing to have. I’m not personally so interested in that thought because I don’t know very many people who simply do not have the luxury of paying off their mortgage in less than a decade, and that’s with serious stick-to-it-ivness. Most homeowners will have a mortgage and while it may not be the best thing in the world, it’s far from the worst. You get to deduct the interest payments on your taxes, and it allows you to buy a much nicer house than you would likely be able to afford without one. The trick is finding the happy medium and what works for you.
The importance of order.
That’s assuming you are paying off each of those debt obligations. Interestingly, if you are looking at a situation in which you cannot afford to pay all of your creditors and you might end up defaulting on the obligation, the order is a bit different.
In the case where you have to pick and choose which category of debt gets paid and which does not, the order of importance looks more like this:
- #1. IRS Debt.
The IRS can garnish your wages and seize your property. You could even do jail time if your situation is serious enough.
- #2. Mortgage.
Don’t pay your mortgage, and you lose your home and all the money you spent on it over the time you owned it. That’s a serious hardship and setback. It also does very bad things to your credit score.
- #3. Student loans.
The interest rate is usually more favorable than other forms of debt, but failure to pay your student loans at all will lead to having your wages garnished and being hit with serious fees.
- #4. Car loans.
Failure to pay your auto loan will result in your car being repossessed. This is bad for your credit score as well as your freedom of mobility.
- #5. Credit card debt & personal loans.
Failure to pay your credit card and personal loans can lead to a lot of lost money in interest charges and fees, as well as ruining your credit score but there’s no loss of property and a small chance of having your wages garnished.
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