Free Money Finance

The Bible's Suggestion for How to Become Wealthy

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why.

A reader mentioned one of my favorite Bible verses a few Sundays ago. It's from Proverbs 13:11 -- and here it is in the NIV:

Dishonest money dwindles away, but he who gathers money little by little makes it grow.

I also like the NLT translation, which goes like this:

Wealth from get-rich-quick schemes quickly disappears; wealth from hard work grows over time.

This verse really summarizes the Bible's viewpoint that wealth can be had over time, but if you try to get rich quick, you're destined to failure. I couldn't agree more.

As we've discussed previously, using time is one of the most powerful ways to grow your wealth. Simply spend less than you earn, saving the difference, and invest it year after year after year. From there, you simply need to let the power of compounding do its work. Over a few decades, you'll end up with quite a nice nest egg.

I know, it's not a creative, sexy, fun way to become wealthy, but it's as close to a "sure thing" when it comes to wealth as any other method out there. And it's done well by me. ;-)

Can Social Networking Really Land You a Job?

Kiplinger lists seven ways social networking (primarily Facebook, blogging, Twitter, and LinkedIn) can help you land your next job as follows:

1) Build your professional brand.
2) Keep in touch.
3) Build stronger connections with key people.
4) Collect and showcase endorsements.
5) Advertise your professional intentions.
6) Research prospective employers.
7) Showcase your tech savvy.

I have a few thoughts on this issue:

• I think we all know the value of networking to helping people find jobs (as well as grow in their careers.) Social networking is just a newer way to network. I don't think it replaces in-person meetings, phone calls, emails, etc., but can certainly be a tool used in conjunction with these to help grow and nurture your network.
• I haven't really developed any of these personally, but I do blog, Tweet, and use Facebook for FMF (I use Facebook personally as well, though not much, but I don't do it as a targeted effort to grow myself professionally.) So I'm not sure how well they do in helping people network for business. Anyone have any real-world experience in this area?
• In particular, I think LinkedIn can be a great professional tool. I've been meaning to get an account set up with it.
• How does someone manage both personal and professional "personalities" on something like Facebook? If you're regularly posting about the latest business strategies, Aunt Emily may not want to be your friend. And if you're always blabbering about your 2-year-old's potty training, it's not the best for your "professional brand." How do you balance these?
• Perhaps the answer to my question above is to use Facebook for personal messages (though realize employers can still find you here) and blogging, Twitter, and LinkedIn for professional efforts. You can also use Facebook to do research on companies, of course. How's that strategy sound?
• What about developing a personal website? Is that even needed these days? Perhaps a blog takes the place of a website.

Anything I missed or should consider?

The Dos and Don'ts of Paying for College

The book Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents ends with a couple sections I think are worth sharing as we wrap up my series of posts on this book. The first lists the four main things the book has tried to communicate:

• You shouldn't sacrifice your own financial security to help your child pay for college.
• Your child should take out absolutely no student loans if possible and if he does take out loans, it should be done as a last resort in the last year or two of his education -- and only after all cost-cutting measures have been explored.
• Attending college is far, far more important than attending a certain college. Students who attend a less expensive college will not be at a disadvantage.
• The effort that a student puts into her educational experience is far more important than where she goes to school. A student who's willing to work hard and work smart can do well at any school.

We've covered all of these points over the past few weeks, but I think it's worth it for me to comment a bit on each of these again:

• In particular, don't forego retirement saving to pay for college. And don't use retirement funds for college costs either.
• If you pick a good school with decent costs, go to community college for some of the college time, graduate early, save in advance (and out of your current income too), and have your student work while in college, you should be able to graduate without much, if any, debt.
• The last two points combine one simple thought: a good student will be successful both in and after college no matter where she goes to school.

The book then ends with a list of dos and don'ts of paying for college as follows:

• Do recognize that the amount your kids' friends’ parents will be contributing to their educational expenses is likely far higher than it should be.
• Do not allow the expected family contribution calculated by financial aid formulas to determine how much you contribute. There is a good chance that the EFC will be far higher than you can really afford -- especially if you do not have a large quantity of retirement savings and substantial home equity.
• Do not let someone tell you that student loans are not that big of a deal. We simply don't have a long-term track record of debt loads of the size students are taking out now, and therefore anyone who says it will be okay doesn't know what he's talking about.
• Do not allow your child to take out any student loans in the first year of college. Some students may need, for a combination of reasons, to take out a small loan in their last years of college. If loans are needed in the first year, STOP! You need to consider more affordable college options.
• Do not fall in love with a college based on its name recognition, campus, or a few professors you happen to meet, and do not allow your child to fall in love either. Every college is a combination of great professors and lousy professors, cool students and not so cool students.
• Do not let anyone tell you that one college will provide better earning power than others. There is no evidence of this. What will determine your child's success will be his talent, determination, and work ethic, and the career path that he elects to pursue.
• Do expect your child to be the major contributor to his educational expenses -- starting NOW! If your student can clear an average of $1,000 per month -- less during the school year and more during the summer -- that's enough for him to pay for four years at a state university on his own! If your kid's still in high school, make sure he's working to save money.
• Do allow and even encourage your child to apply to expensive and selective private colleges. There is always the possibility that she will receive a large financial aid package or merit-based scholarship. Most likely, these large merit awards will come from schools where she is in the top 15 percent of the student body.
• Most of all: Do look at college as a rational investment, not a coming-of-age ritual where money is no object. Skip expensive college guides, and don't obsess over reputations, specific programs, and locales. You're picking a college, not a resort.

I've also covered most of these points as we've discussed the main ideas in this book. But let me leave you with a few more thoughts:

• This is a great book! I loved it! If you have a student (or are one) anywhere near the college selection age, get a copy and read it (I'm sure your library has one if you don't want to buy it.) I haven't been able to cover all the great things detailed in the book (and the ones I have discussed are covered more in depth in the book) so there's a ton more to learn.
• I generally agree with this book's philosophy (noted above), but I also believe in saving for college well in advance too -- a little bit per year over the 18 years or so before your child enters college. This will go a long way to giving you flexibility when the college decision comes around.
• If you want to read more on this topic, you can follow author Zac Bissonnette on Twitter.

Star Money Articles and Carnivals for the Week of Oct 25

Let's start off with a reminder: FMF is on Facebook. Every weekday I post a couple pieces that usually aren't on FMF (though this week is light since I'm on vacation). It's a great way to connect and get some extra money advice/news if you're on Facebook quite often.

Here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week and my posts that were included:

• EDITOR'S CHOICE! Carnival of Money Stories (last week) - Boats & Cottages
• EDITOR'S CHOICE! Carnival of Money Stories (this week) - $1 Gold Coin Update
• The Digerati Life shares how to do stock market research.
• The Sun’s Financial Diary tells how to get more for your online buck.
• Lazy Man and Money made a mistake.
• FrugalDad tells how to be financially independent.
• BripBlap asks if you would emigrate.
• My Dollar Plan lists nine free web services.
• Money Smart Life details online savings account security.
• Financial Independence Carnival
• Wealth Builder Carnival

Enjoy!

P.S. Carnival Hosts -- If my post is in your carnival in a given week, please send me the URL to the carnival and I will include it in my weekly roundup.

Seven Rules for an Enjoyable Retirement

The book The Buckets of Money Retirement Solution: The Ultimate Guide to Income for Life ends with a list of the seven rules for an enjoyable retirement. Instead of financially-related tips, these center more on the quality of life during retirement, which I found both interesting and refreshing. Here they are:

1. Invest well in friendship and good times. Doing so will probably be more beneficial for you than investing in pork-belly futures.

2. Always seek value in how you use your time. Put your emphasis on quality priorities such as travel, hobbies, and family.

3. Spend a lot less than you earn. The secret of happiness is not necessarily found in seeking more but in honoring the capacity to enjoy less.

4. Share the wealth of your abilities. When you give of yourself -- and not just your money -- is when you truly give.

5. Accumulate many memories, not things. The joy you receive in retirement won't correlate directly with how much money you have but with how involved you are with other things.

6. Compound your interest in people and the world around you.

7. Bequeath a valuable inheritance by giving your kids enough to do something but not enough to do nothing.

There's very little written about the "quality" side of retirement. Most articles you read (including mine) cover how to save for retirement but lack the "what do you do in retirement to make sure that it's a good experience" angle. That's why I like this list and wanted to share it with you.

I know that there are retirees who read FMF and I'm especially interested in your opinions on this list as well as additional insights you may have for making retirement "successful." Please share them with the rest of us.

My Type of Couple

Here's an interesting story about a couple who recycled 400,000 cans to pay for their wedding. The summary:

Geyer and Parrish have been in the news because they are paying for their wedding solely with the $3,800 in proceeds they earned from recycling 400,000 cans. 

The Spokane couple reached their goal last week when over a ton of aluminum cans was hauled off their porch by a local recycler. They continue to collect cans to raise money for their honeymoon and to donate to Doctors Without Borders and Rim Country Land Institute. 

Parrish built a website and spread the word amongst friends and through social media. Alcoa donated 150,000 cans to the cause and United Recycling Services contributed another 73,000.  And others are copying their idea to raise money for weddings and other causes.

What a story! Not only did they raise the money for themselves (and in an unusual manner), but they kept the cost of the wedding very low too. How did they do this? Here's what they're spending the $3,800 on:

Venue: $1,000.

Food and beverages: Mostly potluck style.  The groom has a friend who brews beer as a hobby so he's contributing a keg or two. Parrish and Geyer are making the wine in their basement. The bride's mom, who owns a catering and reception center in Idaho, is baking and decorating the cake.

Flowers: Parrish's sister-in-law is growing all the flowers for bouquets and decorations.

Music: A harpist is playing free of charge during the service. Afterwards it's "DJ by iPods," says Parrish. Friends are creating the playlists.

Clothing: The matron of honor's mother-in-law is sewing Parrish's floor-length black, red, and white wedding dress. Total cost: $250 for the fabric, plus another $200 for the custom-made corset she's splurging on.

I love it! I bet they had a blast too (the wedding was this past summer)! All their friends around to celebrate the occasion in a non-formal manner -- what's not to love?

It's just another example that you don't have to spend $30,000 to make your wedding day extra special. Instead, spend a few thousand, invest the rest, and become wealthy. How? Check out these posts for details:

• How to Have Half a Million Dollars at Retirement by Controlling Wedding Costs
• How to Be Wealthy While Young!

Five Reasons to Invest in College-Town Real Estate

The book Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents has one chapter near the end where it suggests buying a house/apartment/condo in a college town for your student to use while he goes to school there. The book lists five reasons doing so may be a good idea:

• Provide a place for your child to live during and maybe even after college.
• Help your kids learn about real estate and investing before most of their peers will have had any experience with either.
• Make an investment that can be an important part of your retirement plan, providing the potential for strong cash flow and long-term capital appreciation.
• Save you money on taxes.
• Lower the cost of college by securing housing less expensive than a dorm and freeing you from eight-dollars-per-meal cafeteria food.

The book doesn't recommend everyone pursue this option -- it simply says that it should be considered. Obviously the results and opportunities can be very different by market/college.

Our neighbors are doing this for their daughter. She's going to graduate school and will be there for four to six years. They purchased an apartment (during the market's drop, so they got a good price) and she'll live there while she goes to school. Afterwards I'm not sure what they plan on doing, but they could either sell it (it's not a stretch to think it will appreciate during that time) or keep renting it out to provide income. Or perhaps their daughter will even become employed by the college and buy it herself. There are lots of options available.

Anyone out there ever done/considered this? What are the pros and cons?

How to Buy and Sell Physical Gold and Silver, Part 3

This is part 3 of my interview with Doug Eberhardt, author of Buy Gold and Silver Safely: The Only Book You Need to Learn How to Buy or Sell Gold and Silver. As with yesterday's post (and the one two days ago), I'll include my questions in bold/red and Doug's answers below each one. And at the end of the post, I'll add in some commentary to add perspective to why I asked the question and/or what I think of the response.

We ended yesterday with Doug starting to talk about pricing when buying physical gold and silver. We start today with a continuation of that topic.

What should I expect to pay (How do I know if I'm getting a "good" price or not)?

The price you pay for gold or silver bullion should be anywhere from 1% to 13% over the ask price. This will come out to about 5% to 13% over spot for gold and a smaller percentage for silver. The best thing to do is check around with the various dealers and ask what the spot price is at that moment and what they are selling the gold and silver you want for based on that spot price. Then you can decipher how much of a mark-up they have. But in comparing dealer to dealer, one has to use the same spot price (apples to apples).

Can you give an example? Say I buy an American Eagle coin (pick a spot price). Can you show what the coin is worth, what I'll pay for it, what additional costs, fees, shipping is added to it, etc.?

What I do, based on the spot price at the time of purchase, is add my 1% fee to my ask price. The price of gold as I type this is $1318.60. The ask price is $1366.69. My fee of 1% ($13.67) would be added to this ask price bringing the total to $1380.36, for a total of less than 5% over spot. I also guarantee my prices as being the lowest as I’m not too worried of someone undercutting me by too much because they would be breaking the law set forth by the U.S. Mint pricing practices. Since I don’t do the advertising on TV and radio like these other companies, I can keep my prices low and am just looking for a win/win experience for my clients.

I still don't get how the ask price is determined. I understand the spot price (basically the value of the gold) and the 1% of the ask price, but where does the ask price come from? Do you simply set it yourself? If so, does this mean all companies set their own ask price?
 
In determining ask price, the amount of spread between the spot price and the ask price consists of the premium charged by the U.S. Mint to the gold dealers and any other mark-up by major gold dealers or 3rd party intermediaries. The ask price will not vary by much from company to company, but the premium charged by gold dealers will. The 1% my company charges ranks as one of the lowest. The main difference with me, as I said, is I don't try and bait and switch investors into gold and silver they don't need to own like rare coins or semi-precious European coins. 

Where should I store my physical gold and why?

This is going to vary from person to person. I don’t recommend bank safe deposit boxes, because well, they’re banks. FDIC takes over a bank and your safety deposit box is frozen till they sort things out. If the economy collapses, and I’m not a Chicken Little who claims such, but I do paint a lousy economic future based on the data, you’ll want access to your gold and silver bullion.

A safe buried in your home would be a good place to start. But also have a secondary safe filled with $1 bills and fake jewelry as a dummy safe to fool the thief’s. Just point them to this safe if ever in trouble. Lastly, don’t tell anyone you bought gold and silver. The old saying of “loose lips sinks ships” applies here. I know it’s difficult not to tell everyone how well you are doing with your investments to show them how smart you are, but someone may just be knocking down your door if the economy did implode. Perhaps an investment in Smith and Wesson hardware would be advised as well.

How do I sell my gold if I want to (it seems like the market is highly illiquid and full of fees/spreads on both the buying and selling side -- so isn't it difficult to make money on gold unless the price goes up dramatically)?

There should be two types of gold you own, depending on your own personal wealth. The first allocation should be under the mindset of never selling it. It is the “insurance” against dollar default.

The second allocation would be the type of gold that can be delivered at a moment’s notice and/or sold at a moment’s notice with just a phone call, depending on the economy.

How do I sell the gold I want to sell at a moment's notice? Who do I call exactly, what sort of price will I get (spot? spot less something? spot plus something?), how do I get the gold to them, and when and how do I get paid (after they receive it via wire transfer?)

There are many places to sell gold, but the primary one would be the place you bought it from. Gold dealers will buy back the metal and cut you a check after they have received it. With gold moving higher right now, dealers are offering $30 over spot for one ounce American Eagle coins.

The gold has to be shipped to the dealer at your cost before any funds are dispersed. You can request to have the funds wired or sent by check.

Other places to sell would be Ebay, although you need to know what you’re doing as I explain in my book, and Craigslist. Ebay is good for selling coins but there are fees involved that if one doesn't understand them, they can end up getting burned. Craigslist is just a dangerous way to sell gold coins so if people use it, I just recommend only doing transactions in a public place with security, like a local bank.

Is there a way I should or shouldn't handle gold or silver? For instance, are the coins sealed and if I open/handle them, do they lose value?

The handling of pure bullion, like the American Buffalo gold one ounce coins or the Canadian Maple leafs have the problem of losing value and they should be handled with care. American Eagle gold coins have one ounce of gold, but actually weigh more than an ounce as they contain other base metals, including even silver, to allow for less wear and tear.

Isn't it true that buying gold and silver isn't tracked by the government like holding stocks, bonds, etc. is? Is this about to change in any way? (I think you may have mentioned this in your book.)

It is true that certain gold and silver coins are not tracked today, unless of course purchased with more than $10,000 in cash. This doesn’t mean that an investor is not required by the IRS to report gains via a 1099 upon selling them. Many gold dealers imply certain coins are not reported by them, but it is still the citizen's responsibility to report the gains.

Yes, as part of the current health care bill, all sales $600 and more will have to be reported by the gold dealer. There are some in congress who are trying to take this out of the bill as it also requires any company selling any product over $600 to send a 1099 off to big brother, erm, the IRS.

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Is it just me or is the pricing system for buying physical gold and silver both complicated and expensive?

BTW, I asked the last question because I've seen people recommend gold because it's "not tracked by the government." It's advocated by those who don't want the government knowing everything they do -- not because they are trying to avoid taxes.

Personally, I really enjoyed interviewing Doug because he cleared up several issues for me. If you want to read more of his stuff, you can find his blog here.

The Test

In the foreword to the book The Buckets of Money Retirement Solution: The Ultimate Guide to Income for Life, Ben Stein paints an interesting picture of the financial "test" we all go through in life. His words:

Try this on for size. You are having a test for the first 40 or so years of your work life. The test is on the subject of financial planning and getting your retirement right. If you pass the test, you get to live in a lovely home on a golf course or overlooking the lake, and you get to spend your days looking for your ball in the rough. At night you get to eat anywhere you want and have a comfortable, secure, and restful sleep. You get to give money to your kids and grandkids and give them a leg up in life. You have the best medical care money can provide. You cheerily and effortlessly pay your bills as they arrive. And you get to have the feeling you did something smart with your life. That's door one.

If you fail the test, you get to live in modest, cramped, noisy quarters. You get to worry about whether your wife is safe walking home from the Safeway. You get to feel sick when the monthly utility bill comes in the mailbox. You get to have to avoid creditors and juggle debts. You cannot sleep from fear and worry. And there is someone you cannot look in the eye when you get up in the morning and brush your teeth: yourself, because you know you screwed it up bigtime, this one and only life of yours. That's door two.

Which outcome would you like?

Ok, so it's not a perfect illustration, but you get the idea: your financial performance in life is largely up to you. Your decisions will shape whether you are more like the person described in paragraph #1 or more like the one in #2. And I'm guessing most of you would prefer to be more like the first person. ;-)

The good news is that there are CliffsNotes notes for this test. And they are simple, easy to understand and implement, and fairly basic. Apply them and you WILL become wealthy. Don't apply them and welcome to door #2.

It's your choice.

The Five Community College Myths

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and today I want to cover what it calls the five community college myths.

We'll start by talking about the role community college can play in making a college education more affordable. Because these schools are generally much less expensive than four-year colleges, you can save significant costs by attending a community college the first two years of college, then transferring to a four-year (higher cost) school for the final two years. You get your diploma from the second school, which is where you want it from (more credibility for employers.) The key of course is to make sure all your community college credits transfer, but this can be done rather easily with good advanced planning.

But some people are not in favor of this method because they see community college as lacking in one way or another. And thus we have the five community college myths, as follows, along with my summary of what the author says about each myth:

Myth #1: I just won't get a high-quality education attending a community college.

The author says that most of the first two years of college are spent taking general education required classes that aren't that great at many universities anyway. And he says there are no facts or studies saying community colleges are worse at these sorts of classes than any other school. So why not get the basics out of the way at a fraction of the cost?

Myth #2: Financial aid is harder to get at community colleges.

The author says this is completely false and notes that the FAFSA for calculates the expected family contribution the same way no matter what college you attend. As such, your qualification for financial aid (such as Pell Grants) is the same.

Myth #3: Transferring to a four-year college is very difficult to do after attending a community college.

He says this is completely false as well and cites several facts to back up his assertion. I would add to this that I think the community college to four-year college plan will become more commonplace in the future as parents look to lower education costs (and get better at doing so.) So if you have a student that will be in college in a decade or so, I think you'll likely have no problems at all. The key: be sure you know your credits will transfer UP FRONT (before you enter community college.)

Myth #4: Even if I am able to transfer to a four-year college, I'll be unprepared for the rigors of tougher classes.

The author says: "Studies have shown that community college graduates who transfer to four-year colleges tend to earn better grades than students who have been there the whole time."

Myth #5: If my child attends a community college, he is more likely to drop out.

The author spends several pages going over the facts: if a student is more likely to drop out of college (certain factors like low grades in high school and low SAT scores can help predict this), it doesn't matter whether he goes to a community college or a four-year one, he's still as likely to drop out. And would you rather have your student drop out after paying for two years of community college or two years of a four-year college?

If you're still not convinced, the author offers what he calls the community college compromise: attend a four-year college but take community college classes in the summer. This will help a student graduate early as well as lower the per credit costs of college and thus save more than simply attending a four-year college exclusively for four years.

How to Buy and Sell Physical Gold and Silver, Part 2

This is part 2 of my interview with Doug Eberhardt, author of Buy Gold and Silver Safely: The Only Book You Need to Learn How to Buy or Sell Gold and Silver. As with yesterday's post, I'll include my questions in bold/red and Doug's answers below each one. And at the end of the post, I'll add in some commentary to add perspective to why I asked the question and/or what I think of the response.

We ended yesterday with Doug telling us the types of items he recommends people buy when they purchase physical gold and silver. Today, we get into detail on these, especially where to buy and a bit about how pricing works (more on this in the next post).

Assuming I decide I want to buy one (or more) of the above, how do I locate a reputable place to buy them? And can you give me some examples of the "best" places to buy them in your opinion? 
 
My company, “Buy Gold and Silver Safely” sells the gold and silver I recommend in my book at a 1% flat fee. Other companies I recommend are APMEX, and Tuvling. There might be more, but the one issue that I hear people complain to me the most is the push by some of these low cost companies into the rare coins, or other coins where the dealer makes more profit. That’s why my book is clear in “asking the right questions” of dealers to begin with.

What does "1% flat fee" mean? Does that mean that if gold is at $1000 per ounce then a coin with one ounce of silver in it would cost $1,010 if purchased from you? (Editor's note: we'll cover the topic of pricing in greater detail tomorrow.)

The 1% flat fee is the fee that is added to the ask price. So technically you have the spot price, plus the fee that goes to the U.S. Mint, and any dealer fees are added to what the base price is. A gold dealer legally cannot sell bullion gold for less than what they get from the U.S. Mint for. 
 
Is 1% good? What do others charge? Can't I buy American Eagle coins cheaper directly from the government?

1% is the lowest in the industry. Others will charge anywhere from 1% to 13% or even more if they can get away with it. On IRAs for example, I know of a broker at one gold dealer who told me they have leeway to charge up to 30% for bullion.

One cannot buy American Eagle gold one ounce gold coins from the U.S. Mint at a lower price. You can see from their pricing sheet, they are overpriced.

Where do people buy on your site?

I don’t sell gold online, nor do I have plans to do so at present, although, I may incorporate that in the future. I do have a minimum of $20,000, that’s why I give other places to buy in my book. If people want to buy from me they can contact me at:
 
5945 Pacific Center Blvd.
STE 510
San Diego, CA 92121
888-604-6534

What makes you reputable? (Who recommends you, who certifies you, etc.) Not to question your integrity, but people will want to know.

Almost all the gold dealers associate themselves with the rare coin places like ICTA. Since I don’t sell rare coins, I am not associated with anyone (a rare breed).  So I am stuck with getting a BBB rating, which really doesn’t mean much since Goldline, who is under investigation by the city attorney in Santa Monica as well as the FTC has the highest rating by the BBB. I’m presently working on getting that set up. Not much else I can do except write good articles and rely on word of mouth at this point.

My book of course will lead to more possibilities. I have people who have volunteered to be called if necessary. I have to let my reputation develop over time, but the fact I offer gold and silver bullion at the lowest prices and the fact my book and blog articles are all about keeping people from getting ripped off by other gold dealers should add to my credibility as a broker/dealer. They just don’t let anyone become a broker/dealer and sell gold. The places I acquire my gold and silver for my customers also do their due diligence.

Lastly, if people don’t want to do business with my company, they are more than welcome to buy from someone else. There’s plenty of business to go around. I bring value by what I write continually on my blog and I’ve even told people to buy gold in Euro’s (sold for a 30% gain) and am presently recommending buying gold in Yen for trades (dollar cost averaging in). This of course is not investment advice, but just suggestions.

What's the buying process entail (details on ordering, paying, shipping, delivery, etc.)?

What typically has to happen is the money has to be “in-house” before a trade can be conducted. This is typically done by a wire transfer. Once the money is in-house, the trade can occur when the individual decides to pull the trigger and purchase the coins/bars.

The trade is confirmed at the current spot price and the metal is set aside for delivery or storage. Delivery is typically done via either Fed Ex or USPS, both of which insure the metal and have been reliable.

Where can people see/find the "current spot price" (so they can check on the cost/value of their purchase)? Is there an "official" source for the information? Is it as of the exact moment the item is bought or from the value at the end of the preceding day (or something else)?

People can go to various sites and find the price of gold. I eventually will have this on my home page, but don’t want to put another company's widget on there, so am developing my own. www.kitco.com, http://www.bullionvalues.com/, as well as CNBC are good for checking prices.

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The whole physical gold and silver buying process seems fraught with fees and costs that make the cost of investing quite high IMO. And they seem highly illiquid as well (more on that tomorrow.) Then again, if you're buying only to hold and use in case of a total meltdown, there's no need to consider selling.

Click here for the final post in this series.

Another Key to Selling a Home

Yahoo lists a key to selling your home as follows:

Attention desperate home sellers. Don't want to lower the price on your house? Consider better photos. Real-estate listings that use photographs taken by the higher-end SLR cameras favored by photographers and photography enthusiasts, tend to do better than those that use photos from cheaper point-and-shoot cameras, according to a new analysis done by Redfin Corp., a Seattle-based brokerage.

Not surprisingly, listings with better photos command higher asking prices: If you believe your home is worth the investment of good photography, you'll probably ask more money for it. The surprising part is that the tactic works. At the closing table, listings with nicer photos gain anywhere between $934 and $116,076 — as measured by the difference between asking and final price-over listings using photos from point-and-click cameras.

One exception: The low end of the market. Listings priced below $300,000 were less likely to sell with nicer photos, possibly reflecting unrealistic expectations on the sellers behalf. At the low-end, price cuts would seem to be more important than photography.

Ha! I guess I own a home at "the low end of the market" (my home is probably worth $180k at most.) Then again, I live in a community where $180k gets you four bedrooms, 3 1/2 baths, and 2,800 square feet in a nice neighborhood. (FYI, here's an interesting list of what $300k buys across the country.) I guess location really does matter, huh? ;-)

Then again, having a home that's worth $300,000 or below puts anyone in pretty good company.

Ok, but let's stick with the topic -- if you have a "nicer" home (aka above $300k), you may want to invest in good photos of it. If the photos cost you a few hundred and you make a few thousand more on your home, it's well worth it, right? But I don't think you can ignore other aspects of selling your house simply because you have photos of it. For instance, you'll still need to price it correctly, be sure it has good curb appeal, is well decorated, is well maintained, etc.

Tacky or Thrifty?

Here's an interesting money-related issue for everyone to weigh in on from Coupon Sherpa:

Is it considered tacky or thrifty to use a coupon on a first date?

So far, "tacky" is a bit ahead, but it's pretty close.

My thoughts:

• I'm married, so this is all hypothetical for me. But if I was dating my wife for the first time at this stage in our lives, if I didn't have a coupon, I know she would. ;-)
• Personally, I think it's a bit tacky and I wouldn't do it on the FIRST date. Maybe on later dates, though.
• If I was asked on a date and someone paid for me using a coupon, I wouldn't mind. In fact, I would see that as a positive sign. After all, both spouses need to be frugal for the couple to be successful financially -- so I'd see this as indicating a potential spouse had the "right stuff" (in at least one key area).

That's my take on the issue. What's yours?

How to Buy and Sell Physical Gold and Silver, Part 1

A few weeks ago I read a copy of Buy Gold and Silver Safely: The Only Book You Need to Learn How to Buy or Sell Gold and Silver by Doug Eberhardt. I LOVED it! It was the only book I have read on gold and silver investing that gave specifics on the how tos (most gold books cover the why tos) in a way that even I could understand. I contacted Doug and asked if he wanted to do an email interview on the subject and he agreed.

I'll be running the interview over three days in three separate posts. I'll include my questions in bold/red and Doug's answers below each one. And at the end of each post, I'll add in some commentary to add perspective to why I asked the question and/or what I think of the response.

Here we go...

Let's start by having you tell us all a bit about your qualifications and experience.
 
I am originally from Illinois and a graduate of Roosevelt University. After college I moved to California where I was a financial advisor for just over 20 years and subsequently worked for one of the largest gold dealers in the United States. I took some time off to do research from an economic perspective and expose from an investment perspective what I believe to be flaws in our financial services industry, primarily dealing with the Prudent Man Rule and the adherence to Modern Portfolio Theory and the "risk free" asset; U.S. Treasuries and the U.S. dollar. This research has led to my writing a blog which I have been posting articles for 2 1/2 years and subsequently my book; "Buy Gold and Silver Safely," published September 2, 2010 and available on Amazon.com. It has also led me to start my own company as a broker/dealer selling strictly gold and silver bullion at the lowest prices available.
 
I have been a guest on blogtalkradio's "The Optimistic Bear" a couple times, have been covered in the Chicago Tribune, and I was interviewed for an upcoming NY Times article.
 
The media attention seems to be taking off for me, which I am happy about. Of course the media that won't allow me a platform is the kind of media that rakes in the profit from the gold dealers I expose.

Your point of view is that physical gold and silver should be held as a safety net/insurance policy in case the economy/government collapses, correct? And you recommend 10% of a person's net worth allocated this way, correct? Do you advocate buying gold/silver for any other reason and if so, why? (simply to earn a good return?)

While no one has a crystal ball and can predict the future, we do know it doesn’t matter who is in congress as to whether or not they will curtail their spending. If you really sit down and crunch the numbers as to how unsustainable big government has become, including the city implosions that will surface more and more, as well as states, the question you have to ask yourself, is how can the Federal Reserve, U.S. Treasury and our government possibly reverse course? The answer is, all they can do is delay things a bit with their quantitative easing, which like Japan’s lost decade plus, is only a temporary fix.

As such, this is going to play out longer than people expect. One shouldn’t go overboard with their investments into silver and gold thinking the sky is falling just yet. There will always be pullbacks, just as there was in 2008 when the junior mining stocks fell 80%. But physical gold and silver actually was higher that year. Holders of physical gold and silver care not that it falls 20% on its way to 100% or more in gains. That’s why I prefer the physical to the paper trades; less volatility.

A 10% allocation to physical gold and silver is good. Another 10% to trade the ups and downs is fine whether physical or through the various paper vehicles like ETFs or mutual funds. Even leveraged accounts can be used for the aggressive traders, although I don’t think this is wise advice after nice runs in the metal like we have just had. Anything more than that, is at your own risk. But I can change this allocation recommendation at any time based on what I see happening. There’s always the threat of war, a country like Ireland for example losing its grip, or even the U.S. changing the rules as they did in 1971 when Nixon took us off the gold standard. Expect the unexpected and there’s nothing wrong with being in cash waiting for the right opportunity, as long as you are hedged with some gold and silver.

I am conservative with my recommendations. I choose the tortoise approach over the hare. Greed is something that can get in the way of common sense. Can someone put more than 20% into these paper and physical vehicle’s? Sure. But they have to realize what risks go along with that.

When buying physical gold or silver, what are the main options you suggest investors consider (coins, bars, etc.) and why? What are options I should NOT consider?

There are different answers for this question, depending on whether you are buying gold or silver and whether you are using money from an IRA or money outside of an IRA.

Gold: The only gold I recommend are 1-oz American Eagle Gold coins. The reasoning stems from first the fact they are easily recognizable and have a low premium above the spot price of gold. With bars there is the possibility of having to assay them when it comes time for use (barter economy). If one is wealthy enough though, the larger bars of gold can be held in storage and liquidated at a moment’s notice or taken in delivery if we get to the point of a barter situation. But of course there is the issue of converting the bars to a form of gold that can be used for barter. I don’t recommend any rare coins, including St. Gaudens or the European coins like the Swiss francs. The premiums are too high in most cases and good luck getting what you paid for the St. Gaudens in a barter economy or using foreign coins here in America for purchasing goods and services.

Silver: For an IRA, I recommend the 1,000 ounce bars and for physical possession, the 90% silver bags. The 1,000 ounce bars offer the lowest cost to spot price and the 90% bags of silver also give a good price over spot, but at the same time I believe these coins will be the major bartering coin should our economy devolve to such a state. The American Eagle silver bullion coins have too high a premium over spot to be considered.

Obviously there are many different products out there with varying levels of gold content/value. What's the difference between them, how do I value one over the other, and how do I know I'm buying one versus the other?

I like sticking with the lowest premium to spot American coins as they are recognizable and the silver coins were once money in the U.S. Bars have to be assayed and one other issue is the place where you bought the bars may not even buy them back from you. If that is the case, then where will you sell them? How will you prove they are real gold or silver? It may have a stamp on them from a reputable company, but I like keeping things as simple as possible.

-----------------------------------------------------------------------------------------------

We'll stop here today because I'm about to get into a new line of questioning and I want to include it all in one (the next) post.

Not much for me to comment on so far other than to say that the 90% bags of silver he refers to are what his book calls "90% junk bags of silver." These are 90% silver US coins (aka circulated silver coins) minted before 1965. According to the book:

"A 'bag' ($1,000 face value) contains approximately 715 ounces of silver and generally tracks the spot price of silver. These are circulated dimes and quarters that were used by citizens until the government found the silver content to be worth more than the price on the coins."

Click here for part 2 of this interview.

Best of Money Carnival

The Best of Money Carnival is now up. Congrats to all participants and especially the winning post, Getting Dirty to Destroy Your Debt – One Toilet at a Time!

Enjoy!!

Working While in College

The book Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents is strongly in favor of having students work while in college.

But many others have objections to working while in college. Their main argument is that if students work, they won't have time to adequately study and thus their grades will suffer. The book disagrees with this assertion and says that the average college student wastes an enormous amount of time -- time that could be used to work. A few facts it uses to back up its claim:

• According to Nielsen, college students watch an average of 24.3 hours of television per week.
• A 1993 report shows that students who worked eleven to twenty hours per week reported a higher GPA than students who didn't work at all.
• Another study showed how many hours per week (on average) students spent on various activities. Results: 10.2 hours drinking alcohol, 8.4 hours studying, 5 hours exercising, 4.1 hours online social networking and video games, and 2.5 hours working for pay.

Given these, the book says:

So by eliminating video games and Facebook and cutting drinking time in half, I just found 9.2 hours of newly available free time that can be used for working for pay. Cut the amount of television watching in half and you have another 12.15 hours per week, and pretty soon you have a student working twenty-one hours each week.

Ha! I gotta laugh at this!!

Seriously, I agree that students should work while in college. I think that most have the time to do so and that there are several positives to working including:

• Students get an income to help pay for college (and thus they leave college with less debt)
• Students get work experience (even if it's not in their field, they will at least have some work experience, something many graduates lack.)
• Students appreciate their education more and perhaps take it more seriously (because they are footing the bill for part of it.)

The book names a couple other advantages to working while in school:

• The need and opportunity to work a part-time job to help pay for college can cut down on the amount of time that students waste, and help them to develop strong time management skills that will serve them well throughout their lives.
• Dave Ramsey says: "As an employer if you come into my office out of college and you want to be hired and you tell me you worked three part-time jobs to get yourself through college, that is as impressive as the fact that you have the college degree, because I know that you are not only smart, but you know how to work."

I worked every year I was in college (and every summer in between except one -- when my former employer didn't have a spot for me.) I started working 8 hours per week in the library as a freshman, then 10 to 15 hours per week as a staff assistant (in the alumni relations office) for the next three years. As a grad student I worked 10 to 15 hours a week running the movie theater in the student union (every Friday and Saturday night by the way -- talk about a social life killer -- but it paid for all my tuition plus a stipend, so it was well worth it.)

It's true that I had to sacrifice and learn to manage my time. It's also true that I had something to talk about when employers asked about work experience. My grades were good -- among the best in my class. And, of course, I graduated with very little debt. Wins all the way around!

Anyone else out there work during college? Please share your experiences!

Are Your Acquaintances Helping or Hurting Your Finances?

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why.

Here's an interesting verse from Proverbs 13:20:

He who walks with the wise grows wise, but a companion of fools suffers harm.

Let me put a personal finance spin on this:

He who associates with and listens to those who are doing well financially becomes wealthy. But someone who follows the advice of those who can't handle their money is destined for the poor house.

Ok, so I'm not a wordsmith (but you already knew that, didn't you?), but you get the idea. If you hang around people who follow the solid financial principles that can make you wealthy, then it's likely those principles will rub off on you and you'll do well too. But if you associate with people who continually make bad money mistakes, you'll probably do the same -- and thus kill your finances.

I'm not talking about having only friends who have it all together financially. But I am saying that it's wise to have friends, on average, who are doing fairly well or at least making good financial choices. And I'm not saying the friends have to be experts on everything. But I learn something from almost all of my friends -- how to save money from one, how to manage retirement from another, how to network for another, and so on.

If I spent most of my time with people who shopped for enjoyment, I'd probably want to do the same. If my friends spent every penny they had on "stuff" to fill up their houses, I'd probably follow suit. And if my friends all had boats and cottages, it probably wouldn't be long before I needed one (or both) too.
Let's face it, you're influenced by who you hang out with. So who do you want influencing you?

I once heard a speaker say that the person you'll be in five years will be determined by the people you know and the books you read. So choose your friends (and your books) wisely!!!

Getting the Most from Your 401(k) or 403(b)

The following is a guest post from Marotta Wealth Management.

For many workers, their retirement account is their largest asset. Having so much of your nest egg in one place means you should watch carefully how it is invested and monitor it regularly. Unfortunately, the average family spends more time planning their annual vacation.

The secret of making it financially used to be joining the right company, earning big bonuses and promotions and letting the firm provide for you in retirement through its defined benefit program. Your benefit in retirement was typically defined by your earnings over the course of your career. But as we all know, those days are over.

Today's average worker will have a dozen employers and work at each job for less than four years. Your career is now your responsibility, and so is your retirement plan.

Instead of a defined benefit program, most companies have defined contribution programs such as a 401(k) or a 403(b). In these you reap what you sow and the growth is subject to the weather of the markets. Nothing is defined.

A 401(k) and a 403(b) are virtually indistinguishable, named after the sections of the IRS tax code that define them. Businesses use a 401(k); schools and nonprofits use a 403(b). Most of the principles for evaluating and managing them are identical.

Some 403(b) plans and many 401(k) plans offer an employer match. Formulas vary, but the most common is to match the first 3% of your salary that you contribute at 100% and the next 2% of your salary at 50%. So if you put 5% of your salary into the company's plan, your employer will give you an additional 4% of your salary.

This is easily the fastest 80% return on your money. No one should pass up an employer match. If you are in the 25% tax bracket, each dollar you contribute will only cost you 75 cents. If you earn $50,000 and contribute $3,000, it will reduce your paycheck by only $2,250, and you may receive an employer match of $2,500. In other words, for $2,250 less in your paycheck, you can get $5,500 more in your retirement account.

Everyone should take advantage of matching plans and contribute at least the minimum amount required to receive a full match into the company plan. Unfortunately, many workers don't. In our example, between age 20 and age 72 at 6.5% return above inflation, the match would grow to more than a million dollars. Your first priority in saving should be to get the entire match.

The next step would be to fund your Roth account, make sure you are growing your taxable savings, and then return to contribute more to your company's retirement account. As we will see, there are good reasons not to contribute everything to your company plan.

The advantage of contributing to a Roth account is that your income (and therefore your tax rate) is probably increasing over the course of your working life. I've written extensively on the benefits of a Roth conversion this year, and that same reasoning makes funding a Roth IRA a good idea.

Many employers allow contributions to a 401(k) or 403(b) Roth. The more common pre-tax contributions are called a "traditional" 401(k) or 403(b) to distinguish them from Roth contributions. You should consider designating the portion you contribute toward a Roth. The portion your employer contributes, either matching or profit sharing, is always put into a traditional account.

If your income is significant, consider maximizing your contribution. The limit for 2010 is $16,500 a year. If you are older than 50, the limit rises to $22,000 to help you catch up on your retirement savings. In addition to your contributions and your employer match, companies sometimes pay bonuses or offer profit sharing as an additional pre-tax contribution. The total allowable contribution for 2010 is $49,000.

Given the amounts of money in retirement funds, it is important to invest them wisely. Every additional 0.01% return lets you retire nearly a month earlier. Thus fees matter, especially the expense ratio of your plan's fund choices. Most plans have funds laden with fees. Some share this revenue with plan sponsors, enticing them to pick more expensive funds to subsidize the costs of the plan or even make a profit.

But after you retire or leave that company's employment, you should almost always roll your 401(k) into an IRA for better investment choices and lower fees. Few plans have choices in every asset class and subsector.

When trying to craft an allocation when the choices are anemic, start by looking at your top-level asset allocation before selecting specific funds. For example, imagine you have decided on an asset allocation of 8% U.S. bonds, 7% foreign bonds, 34% U.S. stocks, 38% foreign stocks and 13% hard asset stocks. The next step is to look at the choices your plan offers.

You may find three U.S. bond funds and no foreign bond funds. One might be inflation protected, one might be intermediate-term treasuries and the other might be high-yield with a higher than normal expense ratio. You might combine the allocation to U.S. and foreign bonds and then split that amount between the first two bond funds, avoiding the third altogether.

There might be a dozen U.S. stock funds and only two foreign funds. The bulk of your asset allocation may fall in one or both of the foreign funds. And you may have to split the allocation to hard asset stocks between the U.S. and foreign choices. Your financial advisor can help you integrate your 401(k) selections with the rest of your portfolio. And as always, you want to evaluate each choice, looking closely at fees and expenses.

Students and Parents Becoming Wiser Concerning College Costs

Here's a piece from MSNBC that says students and parents are starting to consider the cost of colleges and make adjustments:

College-bound students clearly are factoring cost more heavily into their school choices, sometimes after having tough conversations with their parents. They are shifting from private to public colleges, taking "gap years" after high school to save money or attending school part-time while working, based on enrollment figures and anecdotal evidence from admissions counselors and other experts.

I don't see this as a bad trend. In fact, I think it's a good thing. In all other areas of life we compare costs versus value, so why not in selecting a strategy for getting a college degree?

There's really nothing new for me to say about how I think people should approach the college planning decision. If you want to read my opinion, check out How to Make the Most of a College Degree.

Many of you may be wondering why I've been spending so much time lately posting on college-related issues. There are several reasons:

• I find the subject fascinating -- especially as people start to really evaluate it and compare costs versus benefits.
• I simply love the Debt-Free U book and have found it to be full of great things to post on.
• My kids are close to getting into high school -- the time our family needs to start thinking about setting them up for college success.
• Many parents are in the middle of making college choices for kids (or at least considering colleges) at this time of year.

I hope you are enjoying learning more about the college education process. I know I am!!!! ;-)

Umbrella Insurance Is Always the Right Answer

The following is a guest post from Marotta Wealth Management.

If you have a personal umbrella insurance policy, congratulations. If you don't, you must not have a lot to lose. This important insurance can extend your liability coverage beyond your home and auto insurance by millions of dollars.

We live in a litigious society. Anyone can sue you for any reason. Those with money are targets simply because suing someone without assets is pointless.

Car and home insurance are required, but even $300,000 liability coverage won't protect you in the event of a catastrophe. Your teenage driver is at fault and young people in both cars are seriously injured. Your dog bites a child. You chaperon a class trip and are judged negligent when one of the students tragically dies. You cause an accident on the freeway and a truck filled with expensive cargo is involved. A neighbor slips on your steps and sues you. You write something reckless and unwarranted on the Internet about a certain financial columnist, and he sues you for slander and libel.

The good news is that these events are relatively unlikely. The bad news is that any one of them could result in a judgment well in excess of your liability limits. Your insurance company will just pay their $300,000 share and leave you to defend yourself in court for the remainder. If the judgment doesn't ruin your finances, the legal fees will.

If you receive a judgment for more than your net worth, you could lose everything. Your taxable investments and savings may be subject to the claim. The equity in your house may be at risk. A large judgment can also garnish 2.5% of your wages for the next 10 years and/or any current or future inheritance you receive. Any inheritance left in a generation-skipping trust offers protection against creditors and failed marriages, but many families leave an inheritance outright instead.

You don't want a single accident to wipe out your life savings. Umbrella insurance helps protect you against that possibility.

Personal umbrella insurance sits on top of your auto and homeowners insurance. To get umbrella coverage you must first increase your home and auto insurance liability coverage to where the umbrella policy begins, usually $300,000. Only then can you get additional coverage of $1 million or more. If you get sued for $1.3 million, you would first pay your $1,000 deductible. Your home or auto insurance would pay $299,000 to reach the $300,000 liability on the policy. The umbrella insurance would pay the final $1 million. You would pay nothing more than the initial $1,000.

Being sued for more than $300,000 is not a remote possibility. For example, with today's more effective air bags, surviving an auto accident even with serious injuries is much more likely. As a result, the cost of life insurance policies is decreasing while medical expenses continue to accelerate. We've made cars safer and more people survive the accident. They survive, and then they sue for damages.

Anyone with assets they don't want to lose will benefit from umbrella insurance. Many accidents are the fault of someone with no assets to lose. Unfortunately they can simply not pay or at worst declare bankruptcy and lose nothing. If you are saving and investing, you have something to lose. It isn't clear at what level of assets you should get protective umbrella coverage, but financial pundit Dave Ramsey recommends it for families who have more than $200,000. It certainly isn't just for the ultra rich.

Consider buying more than $1 million in coverage. Getting the same amount of coverage as you have assets won't protect the assets you have. For example, if you have $1 million in assets and you purchase $1 million of coverage, you will lose all of your savings in a $2 million judgment. Thus you need to have enough coverage to satisfy the worst judgment you might receive. Coverage of $2 to $4 million will suffice for most of today's lawsuits.

I am usually not an advocate of insurance products. Umbrella insurance is the exception. It is designed to cover very unlikely but very costly events, exactly what insurance is supposed to do, at a reasonable price. In review courses for the certified financial planner (CFP) exam, prospective advisors are told, "Umbrella insurance is always the right answer."

About 12% of homeowners purchase umbrella insurance. For the wealthy, that number grows to about 50%. The tragedy is that half of wealthy homeowners are betting their entire net worth against the odds of a freak accident, which unfortunately do happen.

Insurance companies will only write an umbrella policy if they also provide your home and auto insurance. They want to know if the underlying coverage gets cancelled for any reason, and they don't trust another insurance company to defend their interests.

Another excellent feature of an umbrella policy is that the insurance company is obligated to provide your legal defense, and the legal costs are paid in addition to your coverage.

The first million dollars of coverage usually costs the most. A typical annual premium might be $150. Subsequent costs are about 65% of the first million for each subsequent million. So $2 million of coverage would cost about $248, and $4 million would cost $443.

Premium costs vary and are subject to a host of issues. When you apply for an umbrella policy, your answers to a number of questions may raise your rates or even disqualify you. Own a Rottweiler or a have been recently convicted of reckless driving and you may not be able to get umbrella coverage. If you serve on a board, you may not be able to get coverage for more than the board's coverage. And if you have a driver younger than age 25 or have a very poor driving record, coverage may cost a $100 more per million. Even if you don't plan on getting umbrella insurance, you might want to apply just so you know what behaviors may limit your likelihood of being sued.

Remember, personal umbrella liability insurance covers only nonbusiness activities. Umbrella policies are also available for businesses and well worth the money. Any umbrella insurance won't cover intentional acts or punitive damages.

For the cost of a splurge on a not particularly memorable restaurant meal, you can enjoy the protection of a $1 million umbrella policy. Insurance agents don't make much commission on an umbrella policy. So you have to call them. Just do it.

Earn More Money by Being the Proper Weight

This post is sure to ruffle some feathers. ;-)

FMF has covered all sorts of unusual ways of making more money in our jobs. The list so far:

• Wearing skirts and makeup (for women, of course)
• Being taller (heels, anyone?)
• Being attractive
• Having just a "touch" of gray hair (for men)

Well now we can add "weight" to this list. I say "weight" in generic terms because this issue impacts men and women differently. We'll start with the situation for women according to MSNBC:

Separate studies of 11,253 Germans and 12,686 U.S. residents found that very thin women (who weigh 25 pounds less than the group's norm) earned an average $15,572 a year more than women of "normal" weight, according to the study published in the Journal of Applied Psychology the findings of which are reported in The Wall Street Journal.

Sorry, ladies. ;-)

Now for the men:

For overweight men, however, the trend is reversed. Overweight guys tend to earn more than their skinnier colleagues, the study found. Thin guys earned $8,437 less than men of average weight, and they were consistently rewarded for getting heavier. The highest pay point, on average, was reached for guys who weighed a strapping 207 pounds, the Journal said.

Pass the chips, pizza, and cookies, guys!!!!!!! ;-)

So let's put some hard numbers to this. If skinny women really do make $15,572 more per year than even average-weight women, this means that over a 40-year career they earn over $620k more. And if they took that extra money each year and invested it at 8%, they would actually have $4 million more. Yikes!!! Even if this is true only in part (say it's not $15,572 per year but $5,000 per year), the financial implications are still massive.

For guys, the extra $8,437 means $337k more over a working lifetime -- or $2.2 million if invested at 8%. Another pretty good sized financial impact.

A few thoughts from me:

• While I really, really doubt that the difference between an average-weight woman and one who weighs 25 pounds less has that much impact, I think weight does play a role in compensation (and thus finances). Like it or not, attractiveness does factor into how people are paid. And in our culture, "thin" women are deemed to be more attractive on average. It's unfortunate, but I've seen study after study say the same thing, so I think it is true.
• This leads to a basic conclusion: if you're a woman it's especially important to eat well and exercise to watch your weight. Doing so has a big impact on your finances.
• For men AND women, the facts seem to point to us needing to make ourselves as attractive as possible (proper hygiene, dressing well, etc.)
• Is it just me or does "25 pounds less than the group's norm" seem massively low? 25 pounds is not a huge amount for most men, but for women we're talking rail-thin people if they are 25 pounds less than average (unless "average" is 150 pounds for a 5' 4" lady.)
• For men, 207 can mean an overweight slob or a fit guy depending on how tall you are (I'm 200 pounds and 6' 4" and most people would say I'm "thin" -- FYI, I think I'm "average".) So I wonder if much of the impact is felt because taller men get paid more and taller men happen to weigh more.

Anyway, some interesting conclusions. Once again, women seem to get the shaft. Seems like that happens a lot in our culture...

It's the Student, Stupid (And How to Pick a College Major)

(For those of you wondering at the title, please refer to Bill Clinton's often-quoted campaign slogan.)

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I've been sharing a bit of it over the past several days. Today I'll share a bit more. ;-)

We've already talked about the fact that the college student's abilities (drive, intelligence, etc.) is the main factor that makes him successful post-graduation, not whether he goes to Harvard or State University. Today we make the same conclusion (it's the student that is the key), but this time we'll do it within the context of choosing a major (education? business? engineering? or something else?) Here's what the book says:

At the University of Texas, Austin, Dr. Daniel Hamermes looked at the earning patterns of his university's graduates and found that "perceptions of the variations in economic success among graduates in different majors are exaggerated. Our results imply that given a student's ability, achievements and effort, his or her earnings do not vary all that greatly with the choice of undergraduate major."

In other words:

• Sally is a go-getter. She's going to be at the top of her profession (and earnings) whether she majors in business, social science, math, or English.
• Howard is not a go-getter. He's going to have a sub-par career (and earnings) whether he majors in business, social science, math, or English.  

Interesting, huh?

The author goes on to suggest how to pick a college major:

• Please do not pick a major only or even mainly because you think it will lead to a lucrative job. If you have a real passion for something, major in it.
• Pick something you'll do well in. 70 percent of hiring managers report screening applicants based on their GPA, and the largest group say they use a 3.0 as their cutoff. Labor market studies show that students with lower GPAs have more difficulty in finding jobs out of college and also tend to earn less money.
• Pick a major with a high average GPA. All other things being equal, choosing an easy major is better than choosing a hard one.
• Pick something that gives you flexibility. Specialization is great for many aspects of the resume-building process, but for majors, I think it's best to stick with something reasonably traditional and broad.
• Do a double major. This is a really good idea for students who have one very practical interest and one that interests them greatly, but who are worried that their interest is not practical as a career.
• Develop strong verbal skills. It's possible to do this regardless of your major. A study found that college students who are highly literate earn 67 percent more than college graduates who are less literate.

A few thoughts from me:

• Point #1 above gets back to the "do what you love and the money will follow" line of thinking. I don't buy that 100%. I think you should balance desires and practicality and do what you "like".
• I have a friend whose daughter is looking at majoring in both jazz and business -- a love and a practical major. Sounds like a good plan to me.
• If you have a high school student, I'd recommend getting them started on developing good communication skills now. Encourage them to read, write, and speak. I was involved in drama, speech competitions, and debate in high school and it was some of the best career training I've had. These efforts helped me become comfortable speaking and presenting in front of people (something that brings many people to their knees) and has served me well throughout my career.
• Lots of contrarian thoughts from this book. I don't agree with 100% of what the author is saying, but I think he's more right than wrong in his conclusions/suggestions.

Any comments from you?

The ID Theft Risk of Photocopiers

Here's a piece from Yahoo that focuses on what your office photocopier may know about you. The short version is that many copiers store copies of documents in their memories and these documents can be accessed by a whole host of people (office personnel, repairmen, subsequent owners of the machine, thieves looking for such information when the copier is thrown away, etc.). The highlights:

Did you know that most office photocopiers are built to save digital images of documents? It's true.

When CBS News recently purchased some used photocopiers that were destined for new customers, their computer technician was able to easily retrieve thousands of pages of sensitive documents from their hard drives: perfect images of personal medical records, pay stubs, and tax forms -- even the blueprint of a building near Ground Zero and reports of sex and drug crimes from the Buffalo, N.Y., police department. There were home addresses, social security numbers, and medical histories aplenty.

The data isn't particularly easy to view and sort, but a thief who knows what he's looking for can download free software from the Internet that can be used to mine this treasure trove of personal data.

The article goes on to highlight:

• Many copier makers either provide or are working on providing encryption for stored documents. But even so, the copier administrator needs to know how to turn the encryption feature on.
• Fax machines also store information and can pose a similar problem.

So, what can you do?

The article suggests asking the copier administrator how the machine is set up before you use it. Yeah, like he's standing right there waiting for questions about copier security. Ha!

Personally, we use a combination printer/copier at home to make sensitive copies. Yes, the documents are probably stored on it as well, but at least we have some control over them.

We NEVER have sensitive documents copied at Kinkos, Staples, etc. because you never know where that information is going. One main problem I see over and over: people copying their tax returns at public places like these every year. Yikes!!!!

Let's face it, there's really nothing we can do to make our information completely safe in the technology age we live in. But by being a bit prudent, we can certainly do all we can to protect our vital personal information from identity thieves.

Make Money Buying and Reselling Things You Know About!

The following is a guest post from FMF reader Nate Bredeweg.

I wanted to share some powerful insights with you today about how you can make serious money buying and reselling almost anything for an exceptional profit!  How in the world is that possible you ask?  It’s actually quite a simple transaction that takes a good bit of patience and practice to master.  Once you have learned how to do it, you can make some extra money to pay down debt, save, give or buy something else you really want!

What does it take?

I have been buying and reselling products for a profit nearly my whole life starting with candy bars in my neighborhood.  I learned that I could buy 5 Nestle Butterfingers® for a $1 at my local grocery store on sale and flip each for $.75 apiece to my neighbors who were more than willing to help a young entrepreneur out ;-)  One of the most important attributes you must possess in order to buy and resell a product for a great profit is a strong knowledge of what the product is worth (its market value).  Why does that matter so much? Because when you know what the product is worth, you know when it is being sold for less than it is worth.  Then you can buy it – and sell it for more (and in many cases MUCH MORE) than you paid for it.

Now I know some of you are thinking to yourself, “DUH Nate! I mean come on dude – everyone knows when something is being sold for less than it is worth”…  On the contrary my friend; in my experience, most people have no idea what 90% of what they buy is actually worth.  I mean they might know approximately what it is worth -- “it’s worth like $20, bro”.  So is it really worth $20?  Or is it worth $10 -- $15 or maybe even $30?  Let me give you an example to drive the point home:

You see the gorgeous compilation of high quality leather and classic design below?

 

I believe this might be called a purse or something to that affect (forgive my man mind)…

I can tell you with absolute certainty that if I came across this purse at a steep discount from its true value, it wouldn’t matter. I would have NO idea what it was worth.  Not a clue.  I know it is pretty, and most every female in my family would love to own it. If I had to make a guess – I would say it is worth $150 or something like that.  I actually just checked and this puppy sells for $6950. It is highly unlikely that I could ever buy this or any purse for that matter and resell it for a profit, because I don’t possess a strong knowledge of what it is worth.

I can hear even the purse fanatic saying, “Oh my gosh Nate – that is a horrible example.  Most people are not going to know what a purse like that is worth.  I don’t even know anyone that could afford that”. SHAME ON YOU!  Why don’t you know what it is worth?  I mean if I were you, I would make sure I knew what a purse like this is worth, so that when I came across one being sold by and ignorant man at an estate sale I could buy it for like $100 and make a profit equal to what you made working your entire first year in college…

So why don’t I become a price expert for high end purses, so when I come across a bargain I can make some good money?  I will tell you it is because I don’t have a passion for fashion!  You see, I don’t have the time or the interest to have a very intimate knowledge of what high end purses are worth.  Maybe you do? It is my (strongly held) opinion that many people have, or could readily develop, the knowledge and passion for a certain product that they could monetize (make money) through buying and reselling.

Show Me How It Works

I love fast cars.  My freshman year of college, I purchased a brand new Ford Mustang.  I paid WAY too much for it (cars do in fact go DOWN in value over time). However, after realizing how much I overpaid for the Mustang, I began learning how to determine what cars were worth so I wouldn’t get burned again in the future. I set out to learn the market value of various years, makes and models cars.  I spent significant time researching car values via the internet, books, magazines, and talking to mechanics and other car enthusiasts. 

At some point I realized that I had a very strong knowledge of what a given car was worth.  I could walk into parking lot and look at a given car and predict its market value with serious accuracy (which I would verify by running the KBB on it among other car valuation tools).  Note: I can’t fix a car (although I surround myself with qualified people who can).  I simply know how much they are worth.

I was reading the classifieds in the paper one day and saw a SUPER FAST 1989 Ford Mustang for sale.
 
I knew that if the car was in good shape it would be worth close to $1600 in my area of the country.  So I drove out and met the guy selling the car.  I negotiated the price, and bought the car for $900. My brother-in-law and I made a few small repairs ($200.00) and cleaned it up.  I had a blast driving it around town for a couple months and then I sold it for $1600 even.

I made a $500 profit simply because I was acutely aware that the car I came across was being sold for less than it was worth.

Sometime after that I bought an old model JMC Jimmy for $600 that was sitting in a neighbor’s yard with a for sale sign on it.

I knew that it was likely worth a couple hundred dollars more than the asking price.  Stephanie and I used it to haul trash to the dump and our gear to play tennis down the road from our house.  I sold it a couple months later within 24 hours, in exactly the same condition I found it, for $900.

Again – I made a $300 profit simply because I knew the product I was looking at was undervalued.

I also have a strong knowledge of how to price many consumer electronics.  I once bought a computer ($5) and LCD monitor ($25) at separate garage sales and resold them together for $300.

I found a fabulous Lexus LS400 (my current daily driver) for several THOUSAND dollars below market value from a car auction. I purchased this car with cash; much of which was from my profits buying and reselling undervalued cars, electronics, stereo equipment etc.

Maybe you have no interest in what a car is worth (well you should at least get a good deal on the one you plan on driving every day!).  However, you could become a price expert for ANY product that you have an interest or passion for.   I talked to a woman the other day that makes $15,000 a year (net) buying and reselling baby clothes online. 

On the extreme scale, I have a coworker who buys (cash) real estate and sells it for a profit after reconditioning and holding and the property for 1-2 years.   He only has a strong knowledge of the value of property within his city limits.  He doesn’t try to buy property in markets he doesn’t know or understand. 

A few final notes:

Once you have learned the market value of a product you wish to buy and resell, be patient and wait for the right opportunity.  You assuredly aren’t going to have deals jumping in your lap every day, but with a keen eye constantly on the lookout, an opportunity will come your way!

Have you ever bought or sold something for a profit?  Tell us the story!!!

Student Loans and Earnings

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Today I want to share some of the book's thoughts on student loans and earnings. Let's start with this one:

College costs have been rising at more than two times the rate of inflation, and that cost increase is being financed by student loans. Wages are essentially flat after inflation, and experts believe that the robust economic growth that the United States achieved over the past century is a thing of the past.

These two factors (college costs increasing but incomes remaining flat) are the reasons we're even asking whether or not a college degree is worth the time and cost these days. A couple decades ago it was a "no brainer" -- a college degree was almost always the better choice (over no degree.) But these days the answer is often "it depends". And what does it depend on? Basically it boils down to the costs of what it takes to get the degree and what you can expect to earn with it. The more you can lower the former and increase the latter, the more likely it is that getting a degree is a "good deal."

The book goes on to give some interesting insights into the impact school loans have on students/graduates. Here's the first:

A 2008 Yale study found that for every $10,000 in student loans students graduate with, they accept jobs that pay $2,000 more in annual salary. [It also found that] every $10,000 in student loan debt results in a 5 percent reduction in the chances that a student will become a teacher, work at a nonprofit, or take a similarly low-paying, high-karma job.

I've been saying this a long time, but these numbers bear out that it's happening: if a student takes on a lot of debt, he needs to be sure he is going to get a job that males taking on the debt worth it. (BTW, I've also been saying that if you want to go into a low-paying field you need to make sure your college debt is low to non-existent.) This is where most people that have college debt problems get into trouble -- they take on a huge amount of debt while getting a degree that doesn't allow them to earn much. It's a financial double whammy!

Here's the next finding:

A 2008 Experience Inc. survey found that 40 percent of recent graduates took a job that offered higher pay, but less career satisfaction, in order to help pay off their student loans.

Well, money is a factor in where you want/need to work -- especially if you rack up tons of debt. As such, your best bet is to keep your college costs as low as possible to give yourself (or your student) as many choices as possible.

The book lists several other findings but they boil down to one main thought: debt (in this case from student loans) limits your life in many different ways. As such, you want to limit debt as much as possible. We've known this to be true in other areas of life (think consumer debt) for quite some time, but it appears that people may be starting to get the clue that the same principle applies when it comes to student loan debt as well.

A New Rule-of-Thumb for Renting versus Buying?

Here's a piece from Dr. Thomas Stanley that cites a NY Times article with a new (at least new to me) rule-of-thumb for helping to determine whether it's better to rent or buy a home. The specifics:

The New York Times recently published the results of an analysis it did on a decision criterium it refers to as the "rent ratio."  This ratio is described as: "the purchase price of a house divided by the annual cost of renting a similar one.  The number 20 provides a useful rule of thumb.  When you do the math, you discover that a ratio above 20 means you should at least consider renting, especially if you may move again in the next five years or so.  When the ratio is well below 20, the case for buying becomes a lot stronger."

Interestingly, I have received several e-mails from people asking how they should go about purchasing a home in high priced areas such as Los Angeles and San Francisco.  Given their salary, and their respective rent ratios, they should seriously consider renting instead of buying.  For example, in 2009, the rent ratio for San Francisco was 28.4 albeit down from 40.4 in 2005.

For those who are truly interested in building lasting wealth no matter where they live, they may have to consider renting instead of owning, especially in this current economic climate. In such cases, one's ego enhancement will come from taking affirmative action, i.e renting not owning, with the goal of becoming financially independent as a result. As I said in Stop Acting Rich, "Happy people tend to live in homes that they can easily afford."  And, for some, renting provides a much more affordable option.

A few thoughts from me:

• Anyone else heard of the "rent ratio"? Maybe I'm the last one to discover it. That said, it sounds useful. Does anyone have experience applying it? (remember the renting cost needs to be "a similar" house -- I'm sure renting would almost always win out if you compare buying a three-bedroom, 2,500 square-foot home versus renting a one-bedroom, 1,100 square foot apartment).
• I did my numbers using the formula above (guessing at the rent cost) and ended up with 9, so I guess it's good I bought a home. ;-)
• Note, yet again, how living in an expensive market can change things pretty significantly. I know that if we lived in a home like ours anywhere near San Francisco, New York, Boston, etc. than we'd certainly be getting a much higher number than 9. The reason San Francisco is down is likely due to the drop in housing values -- and it's still 28!
• If you recall, we discussed the relationship between the wealthy and the homes they buy not too long ago. For a refresher, see The Greatest Detriment to Building Wealth and Why Many Homeowners are Having a Tough Time.  

Of course the rent versus own question is timeless and we've discussed it here several times. If you missed those conversations, check out Should You Rent or Buy? and The Eternal Question: Rent or Buy?

The Student Makes the Difference, Not the College

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I've been sharing a bit of it over the past several days. Today I'll share a bit more. ;-)

In particular, I want to cover the book's line of thinking that says the following: it's not the college that the student attends that determines his ultimate career success, but the student himself (his skills, abilities, work ethic, etc.). What follows from this is:

• The "go to the best college you can get into" adage isn't really a good suggestion.
• A student can go to a less selective/prestigious college, save a boatload of money, and still be as successful as he would have been otherwise.

But I'm getting ahead of myself. Let's get into what the book says specifically and how it comes to this conclusion.

The book cites a study conducted by Princeton economics professor Alan Krueger. He surveyed 519 students who were accepted at both prestigious and less prestigious schools -- some of whom attended the most elite schools in the nation and others who didn't -- and looked at their career performance 20 years after graduation. The summary of his findings:

The results were startling: students who were accepted at schools like Yale and Rutgers but chose to attend Rutgers over Yale (most likely a financial decision) earned, on average, just as much as Yale graduates twenty years into their careers."

BTW, Krueger's article about this study is titled: "Children Smart Enough to Get into Elite Schools May Not Need to Bother." ;-)

The book goes on with a key paragraph the sums up its line of thinking:

Krueger offered this advice to prospective college students: "Don't believe that the only school worth attending is one that would not admit you. That you go to college is more important than where you go. Find a school whose academic strengths match your interests and which devotes resources to instruction in those fields. Recognize that your own motivation, ambition and talents will determine your success more than the college name on your diploma." 

Wow. I'm sure this will set someone off in the comments below. ;-)

Here are some thoughts from me:

• I believe that this information is true in general. Yes, there are exceptions. But I think that highly motivated and talented people will succeed no matter where they go to school (within reason, of course -- I think they still need to pick a "good" school, just not an "elite" one.) And unmotivated and skilled people won't be as successful, even if they attend Harvard, Yale, and so on.
• IMO, the key is getting your first job -- that's the primary impact a college has. After that, where you went to school has less and less of an impact on how your career goes (and experience/accomplishments have more and more.) The main difference is that graduates from elite schools may have a bit of a pay advantage to start but my experience shows that talent/skill closes the gap after five years or so.
• So if your college gets you the starting job you want, which would you rather take it with -- $50,000 in student loan debt or $10,000? That can easily be the difference between an elite school and a good school after graduation.
• If you get into an elite school and scholarships pay for you to go free or close to it, go for it if you like. Costs being the same, going to Harvard can't be worse than going to State School, can it? Well, maybe. There is some evidence that going to the latter, you'll probably have higher grades. And higher grades often translate into more interviews, job offers, etc. Something to consider. Again, if the student is motivated and skilled, he'll do well wherever he goes.
• I went to a "good" school (I couldn't get into an elite one) for graduate school (I went to an almost no-name undergraduate school, but I had stellar grades and extracurricular accomplishments) and ended it being a great financial move for me. My career certainly hasn't suffered. ;-)
• When I was hired into my first job, I came in with a "class" of new hires (all of us recent graduates of grad schools and undergrad business schools). In my division were people who went to Harvard, Wharton, Stanford, and the like. A few of us went to State Universities. After a few months, no one cared who went to what school -- we knew who the "winners" were based on their performance. And us State guys were performing just as well as the Ivy guys. The two differences: 1) they earned maybe $5,000 more than us per year to start (the gap was closed over a few years) and 2) they had (usually) $30,000 to $50,000 more in debt that we had. So, which was the better deal? ;-)

As I said, these comments should be taken in light that they generally are true (IMO at least) and there are many exceptions. But if we're looking at which is the best way to go for the most people, I think the thinking above is spot on.

What do you think?

Help a Reader: What to Do with a Townhouse

Here's an email I recently received from a reader:

Back in 2006, I purchased a townhouse in central Florida at the peak price point (after encouragement from my parents). I was recently married in May and live in SC with my husband and the house is being rented out.  As we all know, the housing market has declined dramatically but another issue we are facing is that the Home Owners Association has basically allowed the neighborhood to fall in value as well (due to the current tenants living in the neighborhood).  If it continues like it is, the value will never return to the house and after 30 years of paying the loan, exorbitant HOA fees, repairs, etc, I would have put over $780,000 into a house that is only worth $50,000.00.

If it was a regular home I would have no problem "sitting on it" until value returned...but the trend has only been for the value to decline more every day with no hope of ever returning.

The other problem is that currently my mom is on the deed as well and while she has plenty of money she is not interested in taking the house.  The bank will not see this as an economic disaster.

What's your advice for her?

Now $1 Million is Not Enough to Live On

We've already covered one story of a couple who can't make it on $100,000 a year and another who can't make ends meet on $250,000 a year. Now, here's a family who is struggling to make it on $1 million a year. Here's where it all goes:

• $1 million in compensation for a year
• -$500,000 -- half of pay is in deferred stock
• -$250,000 -- taxes
• -$50,000 -- Wife wants to upgrade their Hampton's rental
• -$60,000 -- Private-school tuition (one kid in kindergarten and another in second grade), ballet and fencing lessons
• -$60,000 -- Mortgage (for 1200 sq. ft. apartment in NYC bought for $1.4m -- ha!!!!)
• -All the rest and then some - housekeeper, babysitters, gym memberships, therapists for husband and wife, plus couples therapist

Cry me a river...

Ok, I'll give them a break on the deferred compensation and the taxes. He really earns $500,000 a year (which is still good BTW) and a boatload of that goes to the government. So he has $250k to live on. Should be enough, right?

But he's got two other problems:

• First, he lives in New York City. Very expensive. $250k in NYC isn't the same as $250k in St. Louis, Cincinnati, Nashville, etc.
• Second, he and his wife can't control their spending. It's a DEADLY money mistake -- the worst you can make. No matter how much they earn, they'll always fall behind if they can't control their spending.

The result? They are racking up debt every month. Get this quote:

"I don't know where it goes every month, but I know my credit card is being used to pay for it."

Ugh.

Well, I guess it's true that $1 million isn't what it used to be. ;-)

Best of Money Carnival

The Best of Money Carnival is now up. Congrats to all participants and especially the winning post, Firefighters Let House Burn and Pets Die Over $75.

Enjoy!

Why a Less-Selective College May Actually Be an Advantage for a College Student

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Today I want to share some of the book's thoughts on one advantage of attending a "lesser" college:

Krueger's study also found, not surprisingly, that students who are accepted to more selective colleges but attend less selective ones tend to graduate with higher GPAs than comparable students who attend more selective colleges. Krueger writes, "The improvement in class rank for students who choose to attend a less-selective college may help explain why those students do not appear to incur lower earnings; employers (and graduate schools) may value their higher class rank by enough to offset any effect of attending a less-selective college on earnings."

Krueger points out rather obviously that "a student who goes to Penn State instead of the University of Pennsylvania is more likely to end up near the top of the class. Employers and graduate schools may not adequately adjust for the competition." Krueger's research found that students who graduate seven percentile ranks higher in their class earn about 3.5 percent higher earnings, "which may largely offset any advantage of attending an elite college on earnings."

The book goes on to suggest that instead of going to "the best college you can get into" that students might be better served by attending a good (though lower ranking) school where they can excel. It's not a bad argument when you look at the facts -- especially when they note (as I've stated in other posts on this book) that the #1 factor to whether or not a student is successful at college (based on ultimate career results) is the student himself. In other words, if Joe is a go-getter, he'll have a great career whether he goes to Penn State or the University of Pennsylvania. So why not go to the one that costs significantly less if the total return is the same?

A couple extra comments:

• Note that we're talking about the difference between a "good" school and a "great" one. It's not like Penn State is some lame school that anyone can get into. It's still a very good university.
• I myself am a product of the less-selective school plan. I went to an obscure undergraduate college, but I finished in the top few percent of my class (plus had tons of high-profile extracurricular activities) and it was good enough to get me into a "good" graduate school (not a top-tier, but certainly a good one -- top 25 for those really interested.) I finished near the top of my class again, got a job with a name-brand company when I graduated, and the rest is history. ;-)

How about you? Anyone else out there attend "only" a "good" school and come out better for it?

Is Ten Percent Enough?

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why.

Here's an article that's bound to get some people riled up. ;-)

Crosswalk has a piece that asks if giving ten percent (tithing) is enough or if we should consider giving more. Their thoughts:

When I got married about 11 years ago, my bride and I continued to give 10%. Then, about five years ago, I read a book entitled Money, Possessions, and Eternity written by Randy Alcorn. I shared the book with my wife and we both agreed that 10% was no longer a sacrifice and we made a commitment to increase our giving.

Soon after, I read another of Randy Alcorn’s books called The Treasure Principle. This took our giving to another level. My wife and I made a commitment to limit our spending to a specific amount each month and then we would give the rest of the money away. As it is with many of us, our income generally increases each year and we realized that we didn’t need that much. We could live on less than we were earning. Last year, we gave away about a third of our gross income. I struggle with sharing that with others as I’m reminded of Jesus’ words in Matthew 6:3,4: "But when you give to someone, don't tell your left hand what your right hand is doing. Give your gifts in secret, and your Father, who knows all secrets, will reward you." So I don’t mention it to brag, but rather to encourage you.

The bottom line is this: God allows you to have things not for your own use, but for His use. I’m reminded of one of the treasure principles that Randy Alcorn gives in The Treasure Principle: "God prospers me not to raise my standard of living, but to raise my standard of giving." Everything we do must be for His glory. Otherwise, it is meaningless, a chasing after the wind.

Personally, I think ten percent is the starting point for giving -- it begins here, but should increase over time. As I said when I discussed the 10-10-80 budget (which suggests you give 10%, save 10%, and live on 80% of what you make), "As time goes on, I think you need to work to exceed the first two numbers and cut back on the third." That's what we've done (over time, of course) and it's worked pretty well for us.

And for those of you who think the author above (or perhaps even me) is bragging, there is scriptural support for sharing what you are doing financially in order to encourage others to do the same. It's found in Hebrews 10:24 and states:

And let us consider how we may spur one another on toward love and good deeds.

One way to "spur one another on toward love and good deeds" is to tell what's worked for you and how others can apply the same principles. ;-)

How to Graduate from College in Three Years

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Today I want to highlight the book's suggestions for graduating from college in three years (and thus avoiding a boatload of costs versus the standard four-year graduation period):

1. Take the maximum course load every single semester.

2. Take community college classes during the summer.

3. Keep very careful track of major requirements, general education requirements, and the number of classes needed to graduate.

In other words, pack as many classes as possible into three years, get your degree, and get on with life.

A few thoughts from me:

• Do most colleges charge by the semester or by the credit hour? If it's the former, then tip #1 will save you on tuition as well as several other costs. If the latter, tip #1 won't save on tuition, but will save on room and board, fees, etc. -- costs that are dependent on being at college every year (you'll save a quarter of these by going from four years to three.)
• I'd add "take community college classes while in high school." You get a head start on your college credits and don't have to push it so much during your college years to graduate in three years.
• Certainly you need to keep track of all degree requirements. Otherwise, you may be taking classes that don't count towards your degree -- not a great money saver, you know. You'll also want to be sure that community college credits will transfer to your main college choice.

I'm not sure if graduating in three years is a realistic goal, but even if it's not, then three and a half years is certainly achievable, don't you think?

Examples of How to Pay for College Without Borrowing

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Today I want to go through an example the author uses to illustrate how to pay for college without accumulating debt.

Let's start with the keys to making this strategy work. They are:

• The student attends a community college (cheaper) for two years before transferring to a more well-known public university.
• The student works and saves his money to pay for his college education.
• The parents make moderate lifestyle changes to save money -- which they contribute to the college costs.

Here's what it looks like year-by-year:

Year 1 -- Community College

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $6,860
• Savings from parents (they spend $15 per week less on bottled water, snacks, etc.): $780
• Earnings from student (30 hours per week -- less during school year -- and saves the equivalent of 20 hours per week at $9 per hour after taxes): $9,360
• Year 1 total income (parents' savings plus student's earnings): $10,140
• Year 1 surplus (after paying for college): $3,280

Year 2 -- Community College

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $6,860
• Savings from parents (they spend $15 per week less on bottled water, snacks, etc.): $780
• Earnings from student (30 hours per week -- less during school year -- and saves the equivalent of 20 hours per week at $9 per hour after taxes): $9,360
• Year 2 total income (parents' savings plus student's earnings): $10,140
• Year 2 surplus (after paying for college): $3,280
• Year 2 accumulated surplus: $6,560

Year 3 -- Public University

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $15,600
• Savings from parents (they spend $15 per week less on bottled water, snacks, etc.): $780
• Earnings from student (30 hours per week -- less during school year -- and saves the equivalent of 20 hours per week at $9 per hour after taxes): $9,360
• Year 3 total income (parents' savings plus student's earnings): $10,140
• Year 3 deficit (after paying for college): -$5,460
• Year 3 accumulated surplus: $1,160

Year 4 -- Public University

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $15,600
• Savings from parents (they spend $15 per week less on bottled water, snacks, etc.): $780
• Earnings from student (30 hours per week -- less during school year -- and saves all earnings at $9 per hour after taxes): $14,040
• Year 4 total income (parents' savings plus student's earnings): $14,820
• Year 4 deficit (after paying for college): -$780
• Year 4 accumulated surplus: $380

It seems like the college costs are too low and the amount the student works is too high (though the author makes a good case why students can and should work during college, I'm not sure 30 or 40 hours per week is reasonable.) That said, this example does illustrate some options/ideas for how to pay for college with little to no debt.

But I think it can be improved upon (and made more realistic). Here's what I'd factor in to pay for college:

• Same community college/college split as above (though higher costs).
• Parents save a good amount in advance.
• Parents help by contributing out of current income.
• Student works (though not as much as the example above).

Given these, here's a more workable example (IMO) from me:

Year 1 -- Community College

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $10,000
• Savings from parents (saved during the pre-college years): $30,000
• Parents contribution/savings from current income: $5,500
• Earnings from student (15 hours per week -- less during school year -- and saves the equivalent of 10 hours per week at $9 per hour after taxes): $4,680
• Year 1 total income (parents' savings, parents' income, and student's earnings): $40,180
• Year 1 surplus (after paying for college): $30,180

Year 2 -- Community College

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $10,000
• Parents contribution from current income: $5,500
• Earnings from student (15 hours per week -- less during school year -- and saves the equivalent of 10 hours per week at $9 per hour after taxes): $4,680
• Year 2 total income (parents' savings, parents' income, and student's earnings): $10,180
• Year 2 surplus (after paying for college): $180
• Year 2 accumulated surplus: $30,360

Year 3 -- Public University

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $25,000
• Parents contribution from current income: $5,500
• Earnings from student (15 hours per week -- less during school year -- and saves the equivalent of 10 hours per week at $9 per hour after taxes): $4,680
• Year 3 total income (parents' savings plus student's earnings): $10,180
• Year 3 deficit (after paying for college): -$14,820
• Year 3 accumulated surplus: $15,540

Year 4 -- Public University

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $25,000
• Parents contribution from current income: $5,500
• Earnings from student (15 hours per week -- less during school year -- and saves the equivalent of 10 hours per week at $9 per hour after taxes): $4,680
• Year 4 total income (parents' savings plus student's earnings): $10,180
• Year 4 deficit (after paying for college): -$14,820
• Year 4 accumulated surplus: $720

Of course this example isn't right for everyone either. But it does have me realistic (IMO) college costs and student working requirements.

You can play with the variables however you like. For instance, we've saved more than $30,000, so we'd make that number higher and take less out of current income each year (I still think making the student work is a good idea.) You can adjust your plans based on your preferences to get a plan that works for you and your family.

The key point: if you plan ahead and work at it, your student can graduate from college debt free. Pretty cool, huh?

Star Money Articles and Carnivals for the Week of Oct 11

Let's start off with a reminder: FMF is on Facebook. Every weekday I post a couple pieces that usually aren't on FMF. It's a great way to connect and get some extra money advice/news if you're on Facebook quite often.

Here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week and my posts that were included:

• Festival of Frugality - Enjoy Your Vacation More (and Maybe Save Money) by Choosing a Home Over a Hotel
• The Wealth Builder Carnival - Eight Steps to Early Semi-Retirement
• Carnival of Personal Finance - Leaving Money on the Table, or Not, when Negotiating
• Smart Spending compares generics versus brand names.   
• Money Smart Life details Section 105 HRA plans.
• The Digerati Life covers Groupons.
• The Sun’s Financial Diary asks how much it takes to get to $1,000,000.
• Lazy Man and Money saved on his cable bill.
• FrugalDad says borrowing is risky.
• BripBlap details the chocolate diet.
• My Dollar Plan lists three membership programs you want to subscribe to.
• Wise Bread tells how to have a frugal Christmas.

Enjoy!

P.S. Carnival Hosts -- If my post is in your carnival in a given week, please send me the URL to the carnival and I will include it in my weekly roundup.

One Legit Way to "Game" the FAFSA (And One Crazy Suggestion)

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Yesterday we talked about the FAFSA (Free Application for Federal Student Aid) and how it spits out your expected family contribution (EFC) or the amount of money the government believes you should contribute to your kid's college education.

There are two ways to work the system so you minimize the amount you should contribute (and thus maximize the financial aid you may receive.) The first is more realistic while the latter is a bit "out there." Here's the first idea:

To maximize your financial aid eligibility, you can take advantage of the FAFSA rules that disregard home equity when determining EFC. This is a somewhat risky strategy because you might end up house poor. But as a strategy for maximizing financial aid eligibility, it's hard to beat. Here's how it works: take any money that you have in savings accounts or the stock market (outside of retirement accounts, which don't count against you in the financial aid race) and use it to pay down your mortgage.

The thought here is that because savings is counted in the FAFSA formula and home equity is not, by converting savings to equity, you help yourself out. The book shares an example: if you have $100k in savings and use it to pay down your mortgage, this could qualify you for an extra $20,000 in financial aid (5% of the $100k per year -- as "taxed" by the FAFSA -- for four years.) Not bad, huh?

This won't work for me since my mortgage is already paid off. But I could buy a bigger home -- stuff a huge portion of my savings into it (leaving a decent emergency fund, of course) -- and take a boatload of money off the FAFSA radar screen. If I thought now was a good time to by a home because costs are low (which I do) and that home prices would be higher at the end of four years (which I do), this could be a viable strategy. Of course you need to factor in costs and hassles of moving, so this method is not as great of an idea as it seems. It's really best for those who have savings and a mortgage on their current home.

Now, here's the second, far-out idea: have your child get married. Yep, that's it. From the book:

Students who are married file their FAFSAs with their spouses, not with their parents. So two college kids earning close to nothing who are married would likely have an expected family contribution close to zero.

The author doesn't recommend this strategy (for obvious reasons) but points it out to "provide an example of just how stupid the financial aid formulas are." Yep, they sound pretty stupid to me. ;-)

What to Do When Your Car Reaches 100,000 Miles

Yahoo says that there was a time when cars hitting 100,000 were worn out. But they say many of today's cars can go twice that far without major repairs. Here are their guidelines on what to do when your car reaches 100,000 miles:

"Typically, around 100,000 or 120,000 miles there are some major preventative maintenance things that need to be done," Schappell says, so it's a great time to catch up if you've been lax until now.

"Things like the water pump and timing belt should be changed before you notice a problem," Schappell says. Replacing them won't be hugely expensive, but "if that belt breaks, it can cause internal damage to the engine, or if the water pump fails, you can overheat the engine and warp the cylinder head."

The liquids that go into your car (gas, oil, brake fluid, power steering fluid, etc.) are crucial to its survival. To extend the life of your car beyond 100,000 miles, these experts suggest frequent oil changes and fluid checks.

"With your home, something needs fixing and you get on it," she says. "With your car, especially one with a lot of miles you have to get on it right away too."

In other words, if you take care of your car -- and are proactive on many of the maintenance issues -- you'll have a better chance of it lasting longer without hitting you for a big repair. Makes sense.

As we've discussed previously, this is the spot I find myself in today: should I keep my 109,000-mile Subaru Forester or get something new? I need 4-wheel drive to combat the Michigan winters and my kids are getting bigger so we'd like a bit more room if we can get it. Here are my options now:

• Keeping the current car. I've taken very good care of it and it's NEVER had any sort of problem. If I'm proactive on the maintenance, surely it will last to at least 150,000 miles, shouldn't it? I'm comfortable in it even though I'm tall (6' 3") but the space in the back is cramping my kids a bit (though most of my driving is alone.) It doesn't have some of the add-ons a new model would (moon roof, iPod hookup to the radio, etc.), but it's comfortable.
• Getting a new Forester. It's a bit bigger in the back seat (supposedly 4 inches more legroom), I know the vehicle, I like the way it drives, and I get along with the dealership. Downside: they have a new headrest that is angled extremely forward and makes my sitting position a bit uncomfortable. I'm not sure if it's an issue or not (I've driven it twice and one time it seemed fine but the next it was a problem), but if it is, it's a deal killer.
• Getting a Honda Pilot. This was actually my leading candidate until I drove one home and it ate my garage. It's simply too big. Yes, it fits in the garage, bit only gives me about four inches to open the door and get out before I whack something stored along the side of the garage. Yes, I could shift things around a bit, but it would still be tight, would make accessing the snowblower or lawn mower inconvenient, and I'm not in the mood for the hassle. So it's out of the competition.
• Getting a Toyota Highlander. Dare I buy a Toyota? My wife has one and it whistles like a flock of birds. We've been told it's doing no harm -- just a belt that needs adjusting. Unfortunately, doing this costs $250. It started at 30k miles. Ugh. Also, the anti-lock brakes sound like they are ready to blow up whenever they engage. That said, the Highlander has plenty of pep, is between a Pilot and a Forester in size, and will fit into my garage.
• Getting a Toyota Rav4 or Honda CRV. Haven't driven either of these (or even looked at them yet) but they are both highly rated and similar to the Forester. Maybe one of these is a winner.
• Getting some other vehicle. Is there another SUV that Consumer Reports rates highly? I'd certainly be interested in it.
• Going used. I'm not really interested in this option. If I wanted a used vehicle, why not just keep the one I have?

If I found a car I really loved, I think it would be a no-brainer for me -- I'd sell my current one and buy new. But with the lack of a clear winner, I'm considering keeping the old reliable.

Any thoughts/comments?

Help a Reader: Whole Life Policy

Here's a question I recently received from a reader:

Most whole life policies seem to be aimed at the young. I am 60 years old and wish to know if whole life is for me. I have a 20 year term for 100K and am contemplating purchasing a 50k whole life as an investment in the event I pass 80 years.

Also, it seems to be a good investment for my children and grandchildren. The 50k would cost me $2,025 yearly. Is this a smart thing to do?

Not a lot of detail, but the heart of the question is whether or not it's generally a good idea to purchase whole life insurance at an older age. Thoughts?

The Crazy World of the FAFSA

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Today I want talk about the FAFSA -- what it is and why it's more of a hindrance than a help when it comes to paying for college. Let's start with how the author defines it:

FAFSA stands for Free Application for Federal Student Aid. It's a form provided by the federal government that asks for all kinds of information about your finances and those of your child; how much you, your spouse, and your child earn, and what kind of assets you have. Then it puts all that information into a formula and spits out your expected family contribution (EFC) or the amount of money the government believes you should -- or can afford to -- contribute to your kid's college education.

If you want to calculate your EFC, you can go here to do so.

The author then spends the next several pages detailing why the FAFSA is not by any stretch of the imagination an accurate estimate of what anyone can pay to help their child go to college. Here are some highlights:

1. The FAFSA form determines your EFC based on a formula that has nothing to do with how much families will actually contribute. One example: if your income was higher last year than this year, too bad. Your contribution is based on the higher number.

2. The FAFSA does not take into account retirement savings when determining the expected family contribution. To understand how nuts this is, take a look at this example: The parents in family A have a combined income of $90,000 per year, with $12,000 in retirement assets. The parents in family B have a combined income of $90,000 per year, but also $4.2 million in retirement savings. All the parents are fifty-eight years old. Under the FAFSA formula, both families are expected to contribute the same amount toward college expenses.

3. You must be careful about methods of paying for college that will artificially inflate your income for the purpose of the FAFSA form (like selling stock with large capital gains.)

4. If your child works hard and saves a lot of money, he will be penalized on the FAFSA form (35% of a student's savings is deducted from the financial aid eligibility on top of half of his after-tax income over $3,000 per year.)

5. The FAFSA formula does not take credit card debt into account when calculating the EFC. What this means is that two families with identical finances -- except that one has $100,000 in credit card debt and the other has no credit card debt -- will have the same expected family contributions, even though their capacity for paying tuition bills is extremely different.

My take on these:

1. Does it surprise you that a government form is not 100% based in reality? Or that you can "game" it a bit to help yourself out?

2. Personally, I'm glad that retirement savings aren't counted -- I have a huge amount of my net worth socked away in IRAs and a 401k.

3. Another land mine. Ugh.

4. Interesting how the kid working and saving -- two things it seems like you'd want to encourage -- actually hurts his chances for aid.

5. Another reason why credit card debt is so bad. It seems like this is the sort of debt that just keeps on killing your finances.

I'm a few years out from having to complete an FAFSA, but I need to start planning for it now. Great -- another financial hurdle to jump.

How about some comments from real-life experiences? Do any of you have interactions with the FAFSA that you'd like to share? I sure would be interested in hearing them.

Lesson 1: Pay Yourself First

The following is an excerpt from Lessons to My Children: Simple Life Lessons for Financial Success, Wealth, and Abundance. I especially like this lesson because it shows the power of saving as well as how time is your biggest investment ally.

What is not started today is never finished tomorrow.
Johann Wolfgang von Goethe

You are your own greatest asset. If you invest in yourself by getting an education and maintaining good health through exercise and eating well, you reap the rewards throughout life.  The same is true of finances. So when you receive that first paycheck, rather than asking how much is left over for movies, dinners out, and clothes after rent, gas, and living expenses are paid, consider how much to “invest” in yourself through saving for the future. Because the more you save, the more self-reliant and self-sustaining you become, through both good times and bad.

Why Pay Myself First?

Let’s face it: It’s much easier to not even think about a savings plan, especially when you’re young. Human nature being what it is, most of us prefer the instant gratification of impulse buying – purchasing whatever suits our whims at a particular moment – over voluntarily denying ourselves and putting away money.  So the best way to make sure you save is to automatically put funds into a savings account at the start of each pay period. If it’s already allotted and you can’t see it, then you won’t be tempted
to spend it. 

Before you start saving, however, you’ll need to know how much you can realistically put away. That involves setting up a budget, a plan involving sums of money allocated for a particular purpose, such as gas, rent, and utilities. To set up your budget you’ll need your first paycheck for the full pay period. Having a complete check – whether you’re paid weekly, biweekly, or monthly will give you an idea of how much money you actually have. Ideally, 90 percent of your take-home pay can be used to create the budget, with the remaining 10 percent being used for savings. See Lesson 3 for more details on setting up and living within a budget.

Ruth’s Story

When I started working part-time, my Dad agreed to match my earnings with a contribution of up to $2,000 per year in an individual retirement account (IRA). Although retirement was the last thing on the mind of this 16-year-old, I really liked the idea of money in the bank, so I went along with the plan. Dad would do this for the two years I worked while in high school and all the years I was in college, up to 10 total years.

However, as part of the deal, Dad asked me to figure out how much would be in my retirement account assuming I got a 10 percent annual return and there were no other contributions.  I calculated that at age 65 I would have more than $1.3 million in the IRA. In other words, because of the time value of money, we invested a total of $20,000 and received back $1.3 million 49 years later. How cool was that?

Then he had me calculate how much I would accumulate if I waited 10 years to age 26 and invested $2,000 per year for every year until retirement. The answer was a real shocker – I would only have about $800,000 at retirement! I would be investing $58,000 more and getting half a million less!

Finally, he asked me to estimate how much I would have to invest every year if I were to end up with $1.3 million, but started after college at age 26. That was a little harder to do, but we calculated that I would need to invest $3,238 per year for the next 39 years, or $126,293, to accumulate $1.3 million. I had only invested $20,000 in those first 10 years, but missing those years would have cost me over $100,000 in additional savings to make up for the lost time. When it comes to investing, the early bird who saves regularly really does get the worm!

Volunteering Can Help Grow Your Career

Here's a piece that discusses the benefits of volunteering in order to get a job. The summary:

With the average unemployment period now lasting eight-and-a-half months, many job seekers are grappling with ways to meaningfully bridge the gap between being out of work and getting hired, especially young adults who may lack experience. For some, the solution is volunteering. There may be no paycheck, but in some cases it’s proving to be a means to a gainfully employed end.

I love, love, love this idea -- and not only to get a job, but to help advance your career in many different ways. My thoughts:

• Yes, volunteering is a good idea when you're between jobs. You can build valuable skills and avoid the resume-gap problem that so many who are unemployed have to deal with. Certainly you won't want to volunteer so much that it interferes with your job search, but you should be able to do both.
• Volunteering is a great way to get a new/better job even if you are currently employed. This worked for me BIG TIME -- at a time when I really needed a career move. It could hold the same potential for you.
• By volunteering you develop a broader network. And having a great network is key to growing your career.
• Personally, I do this by serving on the board of a non-profit organization. I've been president of the board for the past four years of my six years with the board. I not only get to use my skills and abilities to help people in need, but I also develop new skills (which help me in my job) and meet a lot of great people (and many of them are very well-connected.) It's a "win" all the way around.

How about you? Do you volunteer in any capacity (or are you thinking of doing so)?

Nine Myths of College

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Today I want to share what the author says are the nine myths of college:

1. It's important for parents to do what they can to help pay for their kid's educational expenses, even if that means taking out a loan.

2. Scholarships and financial aid will alleviate the burden of spiraling college costs.

3. It's unreasonable to expect students to be major sources of financing for their educational expenses while they are in college.

4. Student loans are a good form of debt: leverage. My child will be able to pay them off out of his future earnings. Student loans are unfortunate, but they won't have a serious negative impact on his life.

5. The name of the school on my child's diploma will have a strong impact on her career and life prospects. The better the college she goes to, the more doors she'll have open to her.

6. "Thrifty" approaches to education like community college will have an adverse effect on my child's life. You get what you pay for.

7. The most important thing when it comes to selecting a college is finding a good fit.

8. Guidance counselors, admissions officers, campus tours, and anecdotes from former students are great sources of advice and wisdom on the college application and financing process.

9. The quality of the education my child receives will be largely a factor of the college he attends. Guides like US News and World Report's "America's Best Colleges" are valuable resources in evaluating possibilities.

My take on these:

1. I would say that it IS important for parents to help their kids get through the entire college process and in our case that means saving in advance to help them pay for the cost of it. I agree that parents do NOT want to take out loans to pay college costs for their children.

2. My plan is to assume my kids will get NOTHING in the form of scholarships and save accordingly. If either one of them (or both!) do get any aid, it will be a bonus.

3. The author says that 1) students have plenty of time to work while in college (he lists studies showing how much time is wasted on various activities), 2) working actually helps the student focus more and thus perform better in school, and 3) paying for school through working helps the student appreciate and value the degree/education more than if it was paid for by someone else.

4. The author hates debt of any sort (me too!) and details how many kids with college loans end up defaulting (it's actually a much higher number than I would have guessed.) As such, he recommends a plan to get through college with no debt at all. Student debt also influences the types of jobs students have to take (limits their occupational choices) in order to pay for the debt.

5. The student herself is the biggest factor in whether or not she'll be successful after college graduation. If she's a go-getter, it's likely that she'll be a success whether she attends Harvard or State University.

6. Going to Community College (for two years -- then transferring to a bigger school) can be a great way to save and has little to no impact on how successful the college grad will be. The most important factor: the student herself (see the preceding point).

7. Fit is over-rated. You'll need to read the book to see why, but the author makes a good case for it not being the end-all be-all that many people make it out to be.

8. Guidance counselors, admissions officers, campus tours, and anecdotes from former students may all be well-intentioned, but they often give you advice that is incorrect, unneeded, and costly.

9. The quality of the education a child receives is based on the child (as noted above.) And the author actually hates (and details why) guides like US News and World Report's "America's Best Colleges".

As you can see, this book has a go-against-the-flow style/contrarian advice -- that's why I LOVE it! It details the conventional wisdom around paying for college and makes a very compelling case for why it's actually incorrect. Stay tuned. There's more coming up over the next several days.

Boo-Hoo -- This Couple "Only" Makes $250k

As if the couple who couldn't make it on $100,000 a year wasn't bad enough, here's a piece from the Wall Street Journal where a University of Chicago law professor and his wife, an oncologist, make more than $250,000 a year and they're having trouble making ends meet. Ugh.

We'll get back to this couple in a minute, but for now let's add another example of "we make a boatload of money and yet spend it all" from the WSJ piece:

"I can show you a client of mine right now who lives in a suburb of Chicago, he's a doctor, makes $350,000 a year, and he routinely racks up $25,000 on his credit cards," says Michael Kalscheur, a financial planner at Castle Wealth Advisors in Indianapolis. The reason? Too many people have "unrealistic expectations," says Mr. Kalscheur. They figure they should be vacationing in Italy, driving expensive cars, the whole deal. "We need to knock him upside the head. He's got to stop spending money."

Double ugh.

Well the WSJ looked over the post written by the law professor (he took it down, but here's the cached version -- update: this link is broken and even the original article doesn't have it, see comments below) and gave him some steps to take to improve his finances (like refinance his mortgage (either he's paying way too much or his house is a multi-million dollar home), get a grip on his spending (ha!), and so on.) They even suggest he consider moving (yep, moving)! Check this out:

Think about relocating. No kidding. It's not about how much you earn, it's about how much you get to keep, and if you are paying too much to live in an expensive town like Chicago, you may be much better off earning less somewhere cheaper. You and your wife both have highly portable jobs. According to the ACCRA Cost of Living Index, someone earning $350,000 in Chicago could get the same standard of living on just $230,000 a year in, say, Austin, Texas or Cincinnati.

I think they are confusing the $250k and the $350k from two separate couples, but their point is still a good one.

Several thoughts from me on this piece:

• Again, this is why over-spending is the worst money move you can make. Because no matter what your income, you can spend it all -- and more. (And conversely, you can become wealthy on an average salary.)
• CONTROL YOURSELF!!!!!! Unless this couple masters their spending, they won't be able to make progress even if they earn $1 million a year.
• Interesting that his wife is a doctor. Adds a real-world example to our recent conversation about doctors versus farmers.
• Huge school loans are part of their problem. He says, "My wife has school loans of nearly $250,000 and I do too, although becoming a lawyer is significantly cheaper." Does this mean he has big loans in addition to the $250k but not as big (maybe $100k)? Yikes!!!!
• Have to say it: move, move, move!!!

And don't get on me about not having any sympathy for them. I don't have any and don't think anyone should. It's time for some tough love and it's really the only answer if these people hope to make any progress financially.

Help a Reader: Two Mortgages

Here's an email I recently received from a reader:

Here is our current financial situation:

• I am 30; my husband is 31. 

• We have $50,000 in emergency savings and $25,000 in a separate brokerage account invested in various stocks, bonds, and index funds.  My husband fully funds his Roth 401(k); it has a current balance of about $50,000.  We both fully fund our Roth IRAs each year; I have a balance of about $26,000, and my husband's is about $13,000. (My balance is higher because I rolled over my retirement plan from my previous employer.)  We've also started a 529 plan for our one-year old daughter with about $3000 invested in it so far. 

• I am a stay at home mom; my husband's position, although new, is relatively stable.  His gross income is $130,000 annually. 

• We recently moved to a new state.  Because the market tanked, we decided to keep our old home, refinance, and rent it out.  After our mortgage, taxes, insurance, property management fees, etc., we net about $125/month.  This home has a 4.25% 15-year fixed mortgage with a current balance of $127,000.  Our payments are $1150/month including taxes and insurance.  I would guess the current value of the home to be about $250,000, and we bought it at $317,000.  We hope to sell this house when the market rebounds, but who knows when that will happen?

• We also purchased a home when we relocated.  This home has a 4.5%, 30-year fixed mortgage with a current balance of $278,000.  Our current payments with taxes and insurance are $1750/month. 

• We have no other debts.

Which mortgage should we focus on prepaying first?  We could obviously pay off the rental much sooner, but I don't know about all of the tax implications of the rental income and expenses.  Psychologically, it appeals to me to get this payment out of the way, but I don't think it makes sense financially.  Any input you or your readers might have would be appreciated.

What's your advice for her?

Four Keys to Making the Most of College

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. We'll start with what the author lists (at the end of the book) as four things he wants to convince us all of (which I view as four keys to making the most of college.) They are:

• You shouldn't sacrifice your own financial security to help your child pay for college.
• Your child should take out absolutely no student loans if possible and if he does take out loans, it should be done as a last resort in the last year or two of his education -- and only after all cost-cutting measures have been explored.
• Attending college is far, far more important than attending a certain college. Students who attend a less expensive college will not be at a disadvantage.
• The effort that a student puts into her educational experience is far more important than where she goes to school. A student who's willing to work hard and work smart can do well at any school.

A few thoughts from me:

• We'll be covering many of the issues talked about above more in depth over the next several days. So if something doesn't make sense at this point, it may once I get a chance to really dig into it for you.
• The first point is one we've covered before -- retirement savings (for you) goes before college savings (for your kids.) Reasons: financial institutions don't give loans for retirement, so if you miss the boat here, you have very few options to make up for lost time/money. Also, kids can borrow for college if need be and pay it back over a working lifetime.
• I'll be sharing how the author suggests paying for college without loans. But for now, let's say he's very, very, very much against taking out any sort of loans to fund a college education.
• What he's saying in point #3 is basically: 1) Any college degree is better than no college degree and 2) There's very little difference (in ultimate work/career results) between attending one college and another (hence you don't need to work to get into the "best" school possible -- look more for a decent school that's affordable.)
• Two points are covered in #4 as well: 1) The key in whether or not a student is "successful" at college is most dependent on the student, not the college. A go-getter will be successful (on average) graduating from almost any school while a slacker (or someone without the intelligence and/or will to do well) will not be successful even if he attends the "best" of schools. 2) There are steps students can take (like getting into honors courses, developing independent study classes with a professor, etc.) that can help a student get a "better" education from any school.

I put so many words above in quotes because much of this is very subjective. Just FYI in case you were wondering.

As I said, I'll be covering more of this book so you'll be able to see if it's for you or not. But my opinion is that if you have a student (or are one) from 8th grade through college, you MUST get this book -- it will save you a boatload of money. Buy a copy, borrow a copy, or check one out from the library. But get a copy of it and read it. You'll be glad you did.

The Best of Money Carnival

The Best of Money Carnival is now up. Congrats to all participants and especially the winning post, The Save 10% for Retirement Rule Is Stupid.

Enjoy!

Top Five Tips to Build Wealth and Success

Yahoo recently shared the top five tips to build wealth and success from the lives of several wealthy individuals (such as Warren Buffett). Their list:

1. Live Below Your Means. Being wealthy isn't just a product of your salary or investment prowess; it's learning how to save. We can make a lot of money, you can make a little bit of money, but the second you spend all the money is when people get into trouble. Saving is the key to preserving your wealth

2. Bounce Back From Defeat

3. Self-Promote. Regardless of the profession, the rich and successful tend to have a strong sense of self-worth — key to skillfully navigating an upward career path.

4. Have Street Smarts

5. Buy Cheap. The rich can afford to splurge, but that doesn't mean they do.

As you might imagine, I like all of these. My thoughts:

• Living below your means (or spending less than you earn) is my #1 piece of financial advice. And if you don't do it, you're committing the worst financial mistake anyone can make.
• Numbers 2, 3, and 4 all seem to relate to growing and making the most of your career, a subject near and dear to my heart. Your career is your #1 financial asset and if you work at growing it, you can reap millions of dollars in extra income.
• Buying cheap is part of living below your means IMO (it makes living below your means possible.) Anyway, why spend $50 on a shirt when you can get it for $40? Why spend $25,000 on a car when you can get it for $23,000? Why buy a house for $300,000 when a similar one is $250,000? You get the point.

This article is just another example of the fact that financial success can be achieved by knowing and applying a few, simple, basic principles.

Carnival of Money Stories

The Carnival of Money Stories is a weekly collection of money-related stories from the blogosphere. And this week, I'm the host! Check out the following posts (along with a brief summary of each, many directly from the authors):

• Squirreling Gone Wild #16: The Crafty Waitress -- This story is about a waitress who engaged in all kinds of shennanigans - so it would seem - to get a big tip from a business traveler. How would you handle this situation?
• Fathers and Money -- What do our Fathers teach us about money?
• Changing My Mindset From One of a First Use Consumer to One of Thrift -- I was very disappointed a few weeks ago when my salad spinner fell to the floor and shattered.
• Working For Money or For Passion? -- A good friend of mine just starting working at an accounting firm. I asked him how his new job is. He responded, “I hate the work, but love the money.”
• Finding a Sweet Spot for Part-Time Jobs -- In 2010, I worked at seven part time jobs, six of which are seasonal. Based on this experience, I am discovering my sweet spot for characteristics of retirement part-time jobs. Here are some elements of the sweet spot.
• How to Change a Flight -- Features the two most important lessons I learned during approximately 3 hours on the phone with Delta and Orbitz.
• Get A Free Credit Report and Score: But Does it Even Matter? -- This is my story of how I have (in the past) played credit card roulette and how I went about checking my credit score last week. But the bigger question is - does the credit score really matter?
• Do You Have an Inner Entrepreneur? -- What business would you open if you received a $15,000 head start?
• “Easy For Me to Say” -- From the author: Every now and then I get told my advice is "easy for me to say" cuz I have a lot of money saved up. Yeah, easy for me to say because it works! ;)
• Money May Be The Root of All Evil -- I feel that my whole professional, and some of my personal, identity are all based on my financial institution. What happens to me if I leave my comfort zone to embark on a new professional adventure?
• Financial Discoveries in a Consumerist Culture -- The Soviet Union stores were not glamorous or inviting. I remember dim lights, brown and grey interior colors and the gloomy faces of sales people. The customer service was non-existent. The major rule of “don’t ask, don’t tell” applied to the customer service. Clothes and shoes all looked the same: dark colors, shapeless form. Now, imagine a girl who came to the United States and saw all the goods offered to consumers with shiny smiles on the sales people’s faces. Imagine a little kid in Disneyland with free admission and endless possibilities. I made my first discovery: shopping wonderland.
• 4 Tips to Becoming an Outrageously Cool Entrepreneur -- Are you considering becoming or are you already an entrepreneur? Here are 4 tips that will help you.
• Sleeping in Strange Places -- On my recent four week road trip I slept in a number of very strange places.
• 6 Ways to Change the Impact of Food on your Budget -- Food expenses are one of the biggest budget-busters. Find out what you can do to cut back here.
• Should Married Couples Have Joint Bank Accounts? -- One of the most common discussions that I hear from people considering walking down the isle, or those who have already gotten hitched, is the age old topic of whether or not couples should have joint bank accounts – and whether they should share their finances.
• Student Loan Payment Countdown! -- Closing in on having a loan paid off.
• Please Cancel My Account -- Why you should think twice about a subscription program for products.
• We Refinanced Our Mortgage - With mortgage rates are record lows, did you refinance your loan recently? We did.
• Think you’re broke? You probably aren’t. -- When you’re sick as a dog and have just $1 in the house….well, go ahead and complain. My aunt didn't, by the way. She just shrugged and said, “I’m usually not that broke.”
• Do You DIY? -- Learning how to DIY is one of the best ways to save money. Here's just a couple of examples of how you can save money if you do it yourself.
• A Well-Trained Husband -- I've become so well-trained at following offensive orders in stores.
• Firefighters Let House Burn and Pets Die Over $75 -- So, I’m sure that many of you have already heard about the house that burned down in Tennessee because the owner didn’t pay a $75 fee to the neighboring city. Here’s the story.
• How A Second Income Stream Can Give You Some Financial Security -- Here's a story of how someone is working to build a second income stream.
• Check Scam - Don't Be A Victim! -- Let us present an anatomy of a check scam. Its always fun to unravel the details of a scam. The best part is to let our friends and relatives know about it so that they don't fall prey to ever new vicious scams ...
• Getting through a Social Security-free month -- Despite the late, great annoyance of having Social Security confiscate an entire month’s SS income in direct contradiction of what two of its workers said would happen, it looks like October will pass without too much disaster.
• Building a CD Ladder – Month 2 Results -- Arguably the most stable passive income source one could create, investing in a high yield certificate of deposit (CD) can offer a guaranteed return on investment. There are really no surprises when investing in a CD. As long as the certificate is backed by the FDIC, an investor can be confident their initial investment is safe (unlike the stock market), along with the interest earned.
• I’m Sick Of Hearing It’s For The Kids -- Some parents go too far, getting stuff for their kids when their own finances aren't in order. I'm sick of hearing "it's for the kids."
• Meeting with a Fee-Only Certified Financial Planner, Part 1: Finding an Advisor and Gathering Info -- My experience with a CFP.
• If I Had A Grilled Cheesus -- A post about financial wishes and dreams.

Enjoy!

P.S. If you submitted a post and it was not included, there's a simple reason for that: it wasn't a money story and thus doesn't fit this carnival.

Does the Bible Suggest Being a Millionaire Next Door?

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why.

As I was reading my Bible recently, I came across the following verses:

Better to be an ordinary person with a servant than to be self-important but have no food. Proverbs 12:9 (New Living Translation)

Some who are poor pretend to be rich; others who are rich pretend to be poor. Proverbs 13:7 (New Living Translation)

As I read these, I couldn't help but think that they were saying the same thing found in The Millionaire Next Door. The book essentially says that most millionaires in America aren't the glitzy, buy-big-homes-and-cars people that most assume are "rich" but instead appear to be "normal" people with little outside indication that they are wealthy. In other words, they are fine with being "an ordinary person with a servant" (i.e. appearing "normal" from outside appearances but actually being wealthy) versus being "self-important but having no food" (i.e. spending a lot to keep up with the Joneses but actually having a low net worth.) They don't "pretend to be rich" but instead live simple lives, content with themselves and their wealth. I wouldn't say they "pretend to be poor" but simply don't work to flaunt their wealth either.

For those of you interested in the book, I posted a summary of the seven principles of a Millionaire Next Door over five years ago. Principle #3 is the one that fits best with the discussion above:

3. They (millionaires) believe that financial independence is more important than displaying high social status.

BTW, this is the book that I read so many years ago, started to implement in my life, and have reaped massive financial rewards from. It's the foundation of much you read here at FMF.

So, do you think the Bible is suggesting being a millionaire next door? Or am I simply connecting two thoughts where no real connection exists?

$93 Turned into $100k

Here's a great story from Yahoo. The summary:

• Carolee Hazard was at the grocery store when she saw that Jenni Ware wasn't able to pay the bill because her wallet was missing.
• Hazard handed her over $207, the exact amount Ware needed for her groceries.
• The next day, Hazard received a check for $300 in the mail and a thank you card from Ware suggesting that she use the extra $93 dollars to get a massage.
• Hazard instead asked her Facebook friends what they'd do. Several suggested giving it to charity.
• She did this and decided to match the money with $93 of her own.
• She asked her Facebook friends where she should donate the $186. Given the food connection, she decided to donate the money to her local Second Harvest Food Bank.
• A friend added another $93. So did another and another and another! Soon the story was being posted and reposted on Facebook, inspiring others to donate as well. Thus was born the 93 Dollar Club.
• In just one year, the 93 Dollar Club has raised a whopping $100,000 for Second Harvest.

I LOVE, LOVE, LOVE stories like this. Someone is generous (twice in this case) and others get into the spirit as well. Then what was once a very small donation becomes a great big (potentially game-changing for the local food bank) donation that helps a boatload of people.

I'd really like to use FMF in the same way -- to get a "giving chain" started. But how would I do it? And what organization should be supported?

Any ideas?