Category Archives: finance tips

Invest in Retirement or Pay for College? How About Both?

7cd5aed6674a46eab97e53c3da70960fOne problem that every parent faces is whether to invest for their retirement or pay for their children’s college.

On the one hand, the cost of college is reaching unprecedented levels. Outstanding student debt recently exceeded $1 trillion so helping out your children with college tuition helps prevent them from going into crippling debt.

On the other hand, your children have their entire lives to pay back student loans while you have a more limited timeline to invest for retirement.

Today we’ll review the advantages of each option and propose a third approach to retirement and college savings.

Advantages of Helping Pay for your Children’s College

There was once a time where a student could work his way through college. Today that is becoming less and less realistic for the 20+ million college students in the United States, even for students who work full-time while going to school.

Students who graduate with large amounts of debt typically end up being forced to hold off on life events like getting married, moving out of their parents’ house, or buying a home. It can lead to additional stress and poor credit scores.

The biggest advantage of helping pay for your children’s college education is that upon graduation they will have a low-level or non-existent student loan debt. This will give them more freedom and flexibility, not to mention stability, in their post-grad life. They will be more likely to take calculated risks such as starting a business, and will likely have a lower level of stress because they don’t have massive student loan debt in the back of their mind.

The advantages of helping pay for your children’s college education is extremely visible and will likely result in gratitude from your children – and who doesn’t need more of that?

Advantages of Investing for Retirement

The advantages of investing for retirement are not as visible in the short-term. Saving and investing for retirement does have an advantage over saving for a child’s college education, though: unlike college, retirement can’t be funded on loans.

Choosing to forgo retirement savings could result in not having enough for those long years of your life. Many people help their children with college with the belief that they will be able to “catch up” later on, but the problem with this logic is that a dollar invested today is worth more than a dollar invested 20 years from now. Compound interest makes money invested today more valuable, making it important – and easier – to save for retirement now instead of playing the catch-up game later on.

Is it Possible to both Pay for College and Invest for Retirement?

You don’t have to think of these two important options as an either-or, but before you start a college fund of any kind, you should make sure you are on track for eventual retirement.

Use a retirement calculator, learn retirement annuity basics, and find out how money manager fees differ. This will ensure that you are knowledgeable about the retirement process and prepared for what’s ahead. Only then should you consider saving for your children’s college educations.

If you do have additional income that can be diverted to save for your children’s college accounts, consider looking into a tax-advantaged 529 plan. Because these accounts are treated favorably from a tax perspective, you will be able to save more than if you simply put money into a savings or individual investment account. Plus, there are hundreds of unique ways your child can save money in college including:

  • Community colleges
  • Keeping a Steady job
  • Applying to small, local scholarships
  • FAFSA
  • Purchasing Used Textbooks
  • Strict Budgeting

Regardless of how much you decide to contribute towards your children’s college tuition, retirement planning is a necessity that can’t be overlooked.

My Holiday Spending Tracker

DSC05351First, I can barely believe that it’s already the 10th of December…the season is simply flying by…

This year I’ve been keeping extra close tabs on my holiday spending, so I’ve created a little “Spending Tracker” akin to the Santa Tracker to guide me on my way. With each expense, you’ll be able to track my spending throughout the holidays via my real time Google Doc. 😉

Plus, I’ll check in with posts about the various expenses/savings, hopefully I’ll finally get a comment or two to encourage me on my way.

I recently found a post I wrote four years ago to recap our actual Cost of Christmas. Looking back it’s interesting to see that it’s not that far off from my trimmed down budget for this year. I had been thinking that we spent a lot more on our party, but that year we only spent $230. So, cutting costs by $30 won’t feel like much of a challenge. It feels more manageable, since I know we had a fantastic season that year. It’s crazy how quickly a grand adds up though, so I’m glad to have my tracker.

How closely do you track your holiday expenses?

Darcy

Bad Money Habits That Lead to Big Trouble

If your relatives or close friends constantly complain about their personal finances or always experience money problems, you might vow with every ounce of your strength to never be in their situation. However, a secret to making sure your finances remain on the right track is learning how to recognize small money habits that can trigger serious money problems.

The truth of the matter is, the majority of us don’t have a manual for managing our personal finances. A lot of what we know about money is through trial and error. As young adults, we make a bunch of costly mistakes. And then we spend the next few years recouping from these mistakes. But you don’t have to learn smart money management the hard way.

Here’s a rundown of seemingly small bad money habits that can cause long-term financial problems.

1. Not budgeting your money

You may feel that budgeting money is optional, and rather than balance your checkbook and create a spending plan at the beginning of each month, you might go with the flow and hope for the best. This approach might work for now, but it can gradually cause problems with your personal finances.

If you don’t have a budget or spending plan, there’s no way to know for sure where your money goes. The risk of overspending is higher if you don’t budget. But understandably, budget might be an ugly word as it implies restrictions. However, if you take a look at your income, and compare this with your expenses, you’ll know with certainty how much you have available for extra spending each month, such as recreation, transportation and miscellaneous shopping. As a result, you’re less likely to overspend on non-essentials.

2. Keeping up with the Joneses

You may be independent and have a mind of your own, but when it comes to personal finances, you might fall for a common trap: keeping up with the Joneses — or more specifically, your relatives, your coworkers, your friends or your neighbors.

This might not seem like a big deal, but it really depends on how far you’re willing to go to give the impression that you have more than you actually do. Maybe you live in a region where a lot of the residents are high earners, such as New York City or certain parts of California. If your friends or coworkers have disposable income to shop on a regular basis, eat out several times a week or take nice vacations, you might feel pressured to keep up with their lifestyle. This is a costly bad habit that can lead to serious debt, and if unable to reign in spending, a bankruptcy attorney might be the only hope for getting your finances back on track.

3. Cosigning a loan

If you have excellent credit, friends or relatives may hope to benefit from your high rating — but don’t let them. It might be difficult to say no if someone you care about asks you to cosign a loan for them. But at the end of the day, you have to protect yourself. Therefore, you need to be realistic about the situation. Cosigning a loan or credit card is a huge deal, and as cosigner you’re equally responsible for any debt or balance the other person incurs. This person might agree to make every monthly payment, but there are no guarantees. And if this person defaults, guess who’s responsible for the payment — you.

4. Shopping to feel better

If you had a bad day at work, got into a fight with your best friend or broke up with your boyfriend or girlfriend, a little retail therapy might boost your spirits. But if you get into a habit of shopping whenever you’re feeling down, this can lead to serious problems with your personal finances. You might slowly increase your credit card debt, or you might spend money designated for bills.

Treating yourself to something special might provide immediate happiness, but it doesn’t last. So, look for other ways to lift your spirits when you’re feeling sad — cheaper ways. Go for a walk, explore your creative side or call up a friend.

Maintaining control of your money can protect your finances. But to do this, you have to recognize habits that can complicate your personal finances and make it harder to reach goals.

Reward Yourself

With consumer debt at recent lows and savings up, Americans are more interested in what rewards their cards will give them.

As savvy sisters, we are always interested in seeing what are the best cards out there.

Darcy has been a fan of the easy Costco AmEx card, that rewards you for shopping in bulk.

I have used Chase cards for years, either with United Miles or with their Sapphire card.

As I will be getting a car soon, for the first time in over a decade, I am interested in checking out some gas cards.

Gas rewards cards are a great way for you to save money on one of the items that you need to buy. Being able to earn money back or save money on such a necessary item is extremely helpful for your budget.  

However, figuring out which gas rewards card is the right fit for your household can be difficult and time consuming.  That is why Sunoco has created the credit card comparison chart which allows you to easily narrow down which card is right for you.  With this tool you can easily compare the discounts and benefits of several different companies.  

What cards do you use, and why?

Cheers,

Miel

Getting Back on Financial Track

It’s been about ten days since I made my confessional about overspending. I’ve been diligently tracking my daily expenses in a little paper notebook, and I can honestly say that it’s made me much more aware of my spending. I went online to double check, but overall I kept a pretty good tab. It feels really good to be getting back on financial track.


I also managed to leave my credit card at home. I cringed a bit when I paid for gas with my debit card, knowing that I wasn’t earning miles. Yet, it felt great when I just went online to check our account, and realized that I didn’t need to log on to two other credit cards in order to get an accurate view of our current finances.

Aside from my overspending, we had also realized that one of our cash flow problems was that I had fallen behind on getting reimbursed for pre-K tuition. When I was earning a salary, our reimbursements went into our vacation fund. So it didn’t matter that we weren’t caught up on submitting claims (unless we had a trip coming up!) But now that the flexible spending is taken out of Hubby’s paycheck for the $535 monthly tuition, it matters that we get paid back. It turned out that I hadn’t submitted a reimbursement since the new year, so we had $1500 ready to be paid out. It’s almost like an extra pay check!

So here’s my list of expenses for the past eleven days. It’s obviously not a perfectly balanced ledger, and doesn’t include regular household bills. But it is a glimpse at my spending habits/priorities.

$9.35 – Post office – ship to Miel and Kelly

$10.00 – Rotary (breakfast, brag, cookie from exchange student)
$2.00 – Coffee for two hour work session
+ $32 – Exchanged Hubby’s broken watch for a cheaper one
$0.00 – New glasses bought entirely with my REI rebate (normally $49.95)

+$100.00 – Sold Hubby’s unused beer making kit
$47.00 – Shandong family dinner out
$47.00 – Ace – Lock box, key copies

$175 – Ace – Chair patio set and Welcome mat (Staging photos for AirBnB/Kid & Coe)
$6 – Washman car wash
$38.11 – Costco (Pizza, salad and snacks for beach trip)
$66.66 – Gas to drive to the beach cabins

$13.50 – Swirl frozen yogurt

+553.00 – AirBnB weekend reservation
$49.95 – IKEA high chair & blanket
$10.98 – IKEA meatballs

$5 – Rotary meeting
$10.35 – SCRAP (A crafty reuse non-profit for mosaic supplies)

$58.03 New Seasons (Pdx local grocery store)
$3.79 New Seasons – coffee & muffin

$29 – Oregon Children’s Theater, Fancy Nancy Tickets

While in my mind, I was very thoughtful about my spending, it’s obviously not a strict cut back (Hubby would prefer that I leave my wallet at home entirely…but that’s not going to happen!). I had several things I had already decided to buy, and felt were still priorities. Like tickets to see Fancy Nancy with Girly for earning 100 chore points or a cheap high chair for the patio. And I bought a chair set for the patio and extra blanket for hosting through AirBnB/Kid & Coe (more on this very soon!). Like I’ve said before, I’m VERY good at justifying my expenses. 

So, the next step is to continue to make sure we have the income to pay for all of the wants in life.

How do you prioritize your spending? 
How do you balance your “wants” with your income?

Darcy

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Sustainable Family Finances 
The story of a family creating an abundant and sustainable life.