Archive for College Planning

Drown-proofing your finances

April 9, 2013 College Planning, Divorce Planning, General Financial Planning, Retirement Planning

 

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House on Fire

House on Fire (Photo credit: dvs)

We all know that we should plan for retirement and our kids’ college education. Like many other things in life, it’s simple but not easy and the how-to keeps plenty of financial planners in business. But what about the stuff you never see coming—anything you can do to protect yourself from drowning in the unexpected?

Have an emergency fund. Yes, it’s obvious in theory but apparently most people don’t believe it because few people have an even barely-adequate one. Yes, you have insurance (you do, don’t you? See below!) but there are plenty of things insurance doesn’t cover. A few:

  • veterinary bills;
  • dental work (insurance is rarely worth the cost);
  • deductibles on multiple policies (such as you drive your car accidently through your garage, or the house and the car burn in a fire or float away in a flood);
  • the cost of repairs or care when insurance doesn’t pay the full bill, one person gets really ill and the other person has to take off work to care for them or investigate or arrange care (unbelievably time consuming),
  • a loved one needs psychological care (few health policies pay the whole cost of this);
  • your car develops sudden, expensive repairs or you suddenly need a new one;
  • the new ones I hear about nearly every week.

In fact, many, many disasters could be avoided if an emergency fund were in place.

You say you have credit cards for that? And so did many of the people now facing bankruptcy because disasters multiplied, forcing them to put more and more on a credit card while they often had less and less income.

You’ll just cash in investments? How about in March, 2009 (market bottom,remember)? Tap your retirement fund?  You’ll either get taxed on that or have a loan to repay. And a lot smaller retirement fund.

Continually upgrade your professional abilities. Join and keep active in whatever networking groups are applicable to your profession. Take any opportunities your company or professional association offers for skill upgrades. Take more classes at night or weekend workshops. If you ever get fired, you’ll know people and your resume will be fresh.

Don’t quit the day job. If you want to start a business, write a novel, change careers, do it part time. That way you can test out the viability and find out whether you really like it. Sure it takes time. Sure you’re tired. Sure it’s hard. Sure it takes herculean discipline. All of which are true, but more so, once you do quit the day job.

Also, after talking to oh so many stay at home moms going through divorces, I strongly advise anyone to keep a part-time or consulting foot in the door of their career. It’s far easier to re-activate a career from part-time than from scratch. Sure you’re madly in love, have the perfect marriage, and will never be in that situation. Unless your spouse suddenly becomes disabled. It happens. And, the impact on your future Social Security benefits can be dismal if you take a decade or two off of earning.

Live below your means and especially control your housing costs. Yeah, I know we’ve all heard it. It’s hard to live in a big city. Anyone can cut back on eating out, travel, and electronics purchases but ratcheting back the mortgage is much harder. Instead of living large for the neighbors, smile to yourself when you compare their new car to how much money you have in the bank, er, no-load mutual fund portfolio.

Don’t have all your wealth in your house. In an emergency you can’t spend equity, and it can be very hard to get a home equity loan if you suddenly have no income. People near retirement should be very careful about using significant cash assets to pay off the house if they have no other savings. (Whether to pay off is too complex and individual to discuss thoroughly here).

Understand what’s in your retirement accounts. Some people are very focused on saving, but park the money in investment choices that are absolute crap. Surprise, you’re 58 and your retirement is a disaster. Listen to the presentations, read the brochures, and learn something about investing. It won’t hurt, I promise.

Never, ever sign for your kids’ college loans. They have a lot of time to repay them. You don’t. If your kids don’t have enough initiative to be participants in their college funding, I wouldn’t say the future looks too bright on the employment front for them, either.  Better clean up that basement room now.

Don’t borrow more than you will make the first year after college (or any other education). That way, you can pay it off in 10 years with a reasonable kick to your future income. If you can’t make it with that level of borrowing (combined with work, financial aid, individual scholarships, and whatever parental aid can be cajoled), you can’t afford to attend a traditional, full time, four year college. There are plenty of other ways to get an education and you’re going to need to explore them. It’s a good thing—you’ll have more self-reliance, more marketable skills, and you won’t decide to major in something dopey. Really, it’s not as hard as paying off a quarter of a mil for a degree in communications.

Don’t do everything for your kids and don’t pay for everything. You set their expectations too high while destroying their own initiative. The kid that has a job in high school (as opposed to 7 extracurricular, paid-for activities) is, IMHO, much more likely to have a job after college! Would your kid be willing to earn part of the money to pay for all those extras? If not, maybe you ought to save yourself the cost of those music lessons, language camps, etc.

Pay attention to insurance. Make sure you have it. Then make sure you re-evaluate it every 2 years or so for coverage and cost. Get some quotes. Be sure the values are current.

Take advantage of any government program for which you are (or your loved ones) are eligible. Veterans benefits, Social Security disability, whatever—don’t be too proud. These programs are designed to provide a safety net and sometimes we all need that net. You paid taxes for it. I paid taxes for it, so use it already. You won’t be the first person going through a divorce who ever applied for food stamps.

Face up to age. Get your estate documents in order. Sacrifice for long-term care insurance. Talk to your parents about their finances, and let your kids in on your “secrets”, too. (Who do you think will be making the decisions?) Don’t stay in your house until you’re too feeble to walk out on your own. Make some plans while you have choices.

Clean up the place. Junk, clutter and deferred maintenance reduce the value of your assets, damage your possessions, and can cost a ton of money to your heirs and anyone responsible for your care should you suddenly become disabled or need to sell in a hurry. Any realtor can tell you about the beautiful home gone to wrack and ruin by terrible housekeeping and neglected maintenance. Anyone willing to buy and repair a wreck is going to expect a discount far exceeding the cost of repairs. After all, they have to factor in THEIR labor cleaning up and fixing YOUR crap.

Pick any one of the above pointers, do the opposite, and you’re living on the edge. Save yourself now! And be careful out there.

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College expenses you haven’t planned for

January 15, 2013 College Planning

 

Corrugated shipping container, one type of &qu...

Corrugated shipping container, one type of “cardboard box” (Photo credit: Wikipedia)

Soon (if not already) you’ll know if your child is one of the anointed ones. Early decisions from college applications have pretty much rolled in by now, and while the regular decisions are still sweating it out (or hoping for better), parents are busy filling out those college aid applications. It’s really crazy that you have to file aid applications without knowing whether your child is in or not, but I suppose the colleges could argue that you need an aid offer to know whether you’re going to accept their admissions offer. I’ve discussed aid qualifying in other posts on this site, but this time I’m going to mention a couple of surprise costs not usually included in most colleges’ costs of attendance statements, but you have to pay them anyway.

  1. Transportation. Dear daughter has had so many breaks that sometimes I wonder why I’m paying for room and board at all. Look carefully at the college calendar. Many schools have a 5 year calendar available, so you’ll be able to know the exact day little Jennifer will don that cap and gown, provided she makes it in 4 or 5 years. But if your child is going to a school far enough away that you can’t easily drive to pick her up, count how many times you’re going to need to fly her back and forth (or estimate the cost of gas and hotel for a long road trip). Also, be aware that you’re not going to get any deal from the airlines on these trips. They’ve figured out that every college student is flying out the moment classes recess, and the airfare that’s $286 every other day of the week suddenly morphs into $486 on the day your child wants to travel. Also, the school may or may not provide a shuttle to the airport—bingo, another $60 in charges each time. If your child makes the round trip 5 times (school beginning/end, fall break, Thanksgiving break, Christmas break, spring break) it can easily add $2,000 to your needed funds. Frequent flyer seats? Ha. Ha.
  2. Supplies. Sure, the school has told you to budget $500 for books. Maybe. But if your darling is taking a foreign language or science labs, those textbooks can be $150 or more, alone. The trend is to include online access and supplemental cds with those courses (which the kids never use, of course) making used textbooks or reselling the new ones not practicable. If the teacher decides to include supplemental books, like a French novel or two, cross your fingers that it’s available on Project Gutenberg. Many schools discourage students from purchasing individual printers by offering a certain amount of free printing from the college center or library. It’s easy to exceed this. If you do buy a cheap printer, don’t forget to add in ink and paper costs, which can easily amount to several hundred dollars per year.
  3. Room decoration. Not only are they dinky, but most rooms can be extremely bare. And the mattresses are often extra long, making a purchase of a complete suite of bedding necessary. Then there’s the closets and storage containers, lamps, sometimes a rug, etc. We budgeted $200, but spent $500. And we didn’t bring a refrigerator, air conditioner, coffee maker, or any of the other stuff I saw some kids haul in.
  4. Shipping. The closets are so small that we decided to ship winter clothes later. Then there were the books she couldn’t live without, the stuffed animals, the stuff she forgot on the first round, a supply of dark chocolate…Of course, you can’t just leave this stuff in the dorm room over the summer, because any college with an eye on raising money is renting out that dorm room to some summer program or camp. So you need to either ship it all back, or pay for storage, containers, and transportation to the storage facility over the summer. Believe it or not, this all can easily add up to $500-$1,000.
  5. “Special” opportunities. Students will be pitched extra “opportunities” for break time: field schools, intensive workshops, discounted “educational” tours and spring break drinkathons. I’ve nixed those but the tab can be solidly in the four figures. I guess enough people sign on that it’s worthwhile offering these. I hope you can withstand the pleading.

And you thought the tuition was high, right?

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Emergencies and emergency funds

October 31, 2012 Cash flow & Spending, College Planning, General Financial Planning

 

Hurricane

Hurricane (Photo credit: Chalky Lives)

Are you flying without a net? So many of us believe nothing will ever happen to us, that we’re too young, too lucky, or too far in debt already to put a chunk of cash into an “investment” that makes nothing. At least nowadays it’s hard to make any money at all on easy-access money. For most people, it’s a hard job to save three or six months living expenses and make nothing on it. I want you to re-frame that thinking.

The recent events thanks to Hurricane Sandy provide lots of good examples as to why you might need access to cash in a hurry.  I know you have your credit cards, but although they are okay for last ditch emergencies, those emergencies are the kinds of things that begin to dig people into a deep ditch that it’s hard to climb out of. Let’s look at some ways this can happen.

The most horrible way, of course, is that a tree falls on you and kills you. Even if you have great life insurance, it’s going to be a while before that pays off. Will your spouse be able to return to work immediately after such a tragic experience? Think your children might need some help coping? It can take some time to sort out the emotions AND the finances, particularly if the loss is completely unexpected. Cash on hand doesn’t solve the problem, but it sure is great to have one less thing to worry about.

What if something happens that doesn’t actually kill you, but leaves you disabled? Great, you’ve got disability insurance for that, right? (At least you do if you listened to me.) But what about the cost of care? The reduced ability of your spouse to work long hours? The loss of your own hard work around the house? The emergency fund can cover it.

Roof blows off or basement floods? Your homeowner’s insurance will cover that. Except for the deductible, that is. And if you’re meeting the deductible on you house, your wrecked car, and your health insurance all at once, well, the emergency fund is there.

If you don’t have it, what happens? All these things go on your credit card (provided you can even find a repairperson that will take credit cards!) How about if your employer folds or is forced to lay off, or just can’t pay for the days closed? You could have a big bill and much less ability to pay, a double whammy that really digs people into debt.

Most of the people I see in financial trouble haven’t wildly spent themselves into debt by staying at the Ritz or driving a Rolls. Rather, they’ve had some unforeseen disaster for which they had no backstop. Don’t go there. Think of your emergency fund as an insurance fund, and the low return as the (fairly cheap) cost of that insurance and you’ll be much more at peace with the low return.

On a college planning note, those of us touring colleges might consider asking about the college’s disaster emergency plan. It’s something you never think about until your freaked-out child calls you from a disaster area. My daughter’s school, Bryn Mawr, did a fantastic job of coping, keeping everyone safe and getting the power back on (thereby avoiding Revolution and preserving the mental health of teenagers who can’t live without wifi,) and getting enough Public Safety officers in the field to personally yell at all the ninnies who kept calling to ask about what was happening (duh). Send your child off to college with a good flashlight and batteries (they never buy them), a blanket thick enough to live in, a small first aid kit, and some cash which is NOT TO BE SPENT except in, well, an emergency. Just like yours.

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