Cost of Education

The following is a guest post. Enjoy!

In Bob Dylan’s memorable song Mr. Tambourine Man there are some interesting verses such as, ‘How many roads must a man walk down before you can call him a man…’. The path to growth and enlightenment, and certainly to financial independence is education. Wisdom is the sum total of our life experiences – both theoretical and practical, while success comes from a clearly formulated plan. Very little comes from haphazard behavior, unless of course it’s a windfall payday off a lucky lottery ticket.

For most of us, achievement is the result of working intelligently towards an objective. With this in mind, it’s important to formulate a blueprint for academic excellence. In the United States, tertiary education is a major expense item. By the time a young adult enters high school it is important to start planning for college. Unbeknownst to many students, the federal government offers many programs to assist students in paying for their schooling. These include grants, work-study initiatives, and loans. This federal aid is often what makes the difference between being able to pay for college education or not.

Understanding What Options Are Available for FAFSA

Depending on what type of education a student is looking for, costs can vary from a couple of thousand dollars a year to tens of thousands of dollars per year. Community colleges offer an alternative path to regular college, after completing 2 years before credits can be transferred over. This is an affordable option for many folks, and a workaround to the high costs associated with traditional colleges. There are several ways that students can enjoy federal aid, including the Free Application for Federal Student Aid. Otherwise known as FAFSA, this determines your personal eligibility for different types of student aid. The form can easily be completed online and can translate into free money for a college education. Students who apply for these forms of government aid may be enrolled in work/study programs or approved for different types of loans.

The bureaucratic red tape surrounding many federal aid programs is a disincentive to many folks. Fortunately, there are services out there that make it relatively easy to determine qualification for student aid, given specific criteria. The application process is 100% free, since there is an official federal government site available. Even universities and colleges across the United States use FAFSA applications to determine a student’s eligibility for non-federal student aid. Once the low-interest loans have been approved, students can use that as a tool to build their credit scores. The competition to enter US colleges is fierce. Students who show initiative by actively applying for student aid often fare better in admissions than others. Since the application process can typically be completed in under 30 minutes, it is an easy way to begin taking meaningful steps towards a college education.

Facts and figures:

  • Students can apply early for FAFSA loans – as early as 1 October
  • The deadline for students is 30 June
  • Corrections must be made by 15 September
  • Early applications do not guarantee early loans
  • Tax forms from the previous 2 years must be presented
  • Every year $150 billion is dispersed in federal student aid
  • You don’t need to apply to a college before you apply for Federal student aid loans

There are many benefits to receiving one of these loans, including no payment until graduation. It is also possible to temporarily postpone payments, or even lower payments accordingly. If a graduate works in public service, a significant chunk of the loan may be foregone. In an era of rising interest rates, such as the present, FAFSA loans are offered at a much lower rate than credit cards and personal loans.

How Our Spending Patterns Have Changed Over the Last 100 Years

The following post is by MPFJ staff writer, Melissa Batai.  Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.

Do you go out to eat several nights a week?  Do you feel like you’re just getting by financially even though you have a decent income?  Do your kids have so many clothes that they can’t close their closet doors?  Do you have three cars in your driveway?

Think back in time 100 years ago to 1917.  Our finances and conveniences have changed drastically since then, yet many of us still feel dissatisfied and that we don’t have “enough.”  Why is this?  Why are we unfulfilled when we have so much more than our ancestors who lived 100 years ago?

Our spending habits have changed dramatically since then, but we’re still not satisfied.

 

Spending Habits in the Year 1900

The Atlantic put together an eye opening article about how drastically our lives have changed since the year 1900.  Back in 1900, “A quarter of households have running water.  Even fewer own the home they lived in.  Fewer still have flush toilets.  One-twelfth of households have gas or electric lights, one-twentieth have telephones, one-in-ninety own a car, and nobody owns a television.”

Just stop for a minute and imagine being without these things.  If a 1900 household didn’t have to pay utilities, make care payments, or purchase a television, cable, Netflix, etc., how did they spend their money?

According to The Atlantic, “Families [in 1900] spend a whopping 80% of [their money] on food, clothes, and homes.”  Eighty percent!   More precisely, this breaks down to approximately 43% for food, 14% for clothing, and 23% for housing.

Undoubtedly, life in 1900 was simpler in some ways, but a family needed to be diligent with their money just to take care of the necessities of life.  There was very little leftover for extras and “fun money.”

 

Spending Habits Now

Thanks to outsourcing our textile industries to foreign countries, our annual apparel cost is only 4% per year, and yes, that includes those big spenders who have many, many more clothes in their closet than they will ever be able to wear.  Thanks to big company farms, our food costs are now only 13% of our annual income (The Atlantic).

While it cost 57% of an annual income to pay for food and clothing in 1900, now those same categories only require 17% of our annual income.  That’s a lot of extra money left over.

In 1900, housing costs were 23% annually, while they are now 33%.  That accounts for some of the difference.  Health care is now 6% of our annual spending; it was 5% in 1900.  Another category that is now costing us more is transportation.

However, there can be no denying that our interpretation of “necessities” has changed.  We now consider many luxuries necessities, and that mindset is squeezing our budgets.

 

How Americans’ Attitudes Toward Spending Have Changed

My husband and I like nice stuff as much as the next person, but for the 16 years of our marriage, money has always been tight.  We’ve always been a one-income family.  First, I worked full-time while my husband attended graduate school full-time.  Then, when he graduated, I stayed home with the kids while he worked full-time.

Thanks to student loan payments and a fairly average income while living in a high cost of living area (Chicago), we’ve always had to live on a fairly tight budget.  That means we were a one car family until this last fall.  For 15 years of marriage, we made do with one car.  That car is now 12 years old and has nearly 180,000 miles on it.

We rented until we finally bought our first house 2.5 years ago.  In many ways we were more like a 1950s family than a family living in the 21st century.

In the book, The Overspent American, Jennifer Lawson, who participated in a focus group on spending said:

“In the fifties, growing up in upstate New York, my parents were considered middle-class pillars of the community. My father was an accountant. It’s a fairly poor rural area, and most people worked in a factory or waitressed or something. My dad was actually a professional person with a sign out in front. [My parents] had one car, and they drove it until it fell apart, and then they bought a new one, usually a station wagon. They had a fairly modest house. We took a vacation as a family for two weeks and rented a little cabin in Maine. And drove–nobody flew anywhere. I can’t remember anyone who had a second car. Everyone walked everywhere; children certainly didn’t have $100 sneakers. It amazes me now that my younger brother, who still lives there and who has a job that’s roughly equal to the job my dad had when I was growing up … he has three teenage daughters. And since they were about nine, they’ve each had their own color TV, and they have their own CD players, they all have their own telephone lines, because they complain about calls not being able to get through” (The New York Times).

Our lifestyles have changed dramatically since the 1950s, even more so since the 1900s.  What we now consider necessities—two cars per family (at least), exotic vacations, designer clothes, Internet access and cable tv, college education, just to name a few—were not priorities, or even available, in earlier times.

 

Another phenomenon of spending is that the U.S consumer is quickly bored by what he has.

We can see this phenomenon whenever new electronic devices are released.  Even though their current smartphones, iPads, etc. are working just fine, people are eager to get the newest release.  Never mind that it may cost hundreds of dollars that they really don’t need to spend.

The same mindset is present when people choose to lease a car rather than buy it so that they can continually have a “new” car to drive every few years.  Never mind that leasing costs them much more than buying a car, especially if they buy a used car.

People also frequently redecorate their homes, even though what they have is working just fine.  When they redecorate, they often buy all new towels, couches, etc., depending on what room that they’re “updating.”  Now, we tend to replace long before an item is worn out.

This is a luxury that people in the 1900s didn’t have.  My grandmother, who lived through the Great Depression, regularly washed out plastic baggies over and over again.  Rather than throwing them away, she would get 5 to 10 uses from each bag.  If something like a kitchen towel got a hole, she didn’t throw it away; she mended it.  We’ve lost that bit of frugality that earlier generations developed out of necessity.

Undoubtedly, many in the middle class are feeling a financial strain.  While some of that is due to modern day high costs (such as earning less money because our employers have to take so much out for taxes and insurance costs), much of it is also due to our increased expectations and standards.

The next time your budget feels unbelievable tight, look around your house and see how much you have compared to what your ancestors had 100 years ago.

How about you all? Is there a “necessity” you can do without to find more room in the budget?  Can you be content without the latest new electronic upgrade?

***Photo courtesy of http://www.idpinthat.com/edit/5340

7 Things Wealthy People Never Do

The following post is by MPFJ staff writer,Laurie Blank.  Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.

If you’ve ever read Tom Corley’s Rich Habits or Thomas Stanley’s The Millionaire Next Door, you probably know that there are things wealthy people never do. The rich have a habit of behaving differently than the non-rich and in learning, studying and working to emulate their habits I’ve learned that the results of living the way the wealthy live affect both life and finances.

Here are seven things the rich never do. If you can learn to follow their lead, I’d be willing to bet your money would grow.

 

Fall for Advertising Gimmicks

If you ever take the time to view commercials and advertisements with a skeptical eye, you’d find that the goal of advertisers is to make you think you cannot live a full life without their product. Product users are always smiling, usually look phenomenal and give off the illusion that they have a perfect-beyond-perfect life.

The wealthy don’t fall for that lie. They have a clear understanding of what truly makes them happy and they know “stuff” isn’t part of the answer.

 

Neglect Their Savings Account

This report shows us that the Average American saves 5.7% of their income. And you know that since that is the average, it means that many people aren’t saving at all. In fact, this report shows that 62% of Americans have less than $1,000 in savings.

Adversely, the wealthy save as much as 51 percent of their income. While you might say “Well, yeah, they can afford to save that much of their income – duh!” there is another factor to their wealth and their plush savings accounts – they started saving early (usually as teenagers) and they formed a habit of putting money in savings every month – no matter what.

The study linked in the last paragraph found that one of the key factors in their willingness to save was that their parents taught them the importance of building a savings habit from an early age. Ironically, many of these young teen savers also starting investing a portion of their savings in the stock market while very young.

 

Stop Learning

Eighty-eight percent of wealthy people read non-fiction books every day for at least thirty minutes. They have a love for learning and then using what they’ve learned to reach goals that they’ve set. They spend very little time in front of the TV, opting instead for bettering their lives and increasing their knowledge via learning.

 

Make Impulse Purchases

The wealthy make it a habit to avoid impulse purchases. They think through any purchases, determining what – if any – value the purchase will truly bring to their lives before they buy.

 

Ignore Their Health

Seventy-six percent of the wealthy get some type of aerobic (cardiovascular) exercise such as running or biking four days a week or more. The thing about good health is that it helps you to think more clearly, and to have more energy to work toward the goals you’ve set.

 

Live Without a Plan

Seventy percent of the wealthy set at least one goal per year – and then make a plan with actionable steps that will help them reach that goal.

 

Act with Mediocrity

Speaking of goals, that’s another thing the rich never do: they never act with mediocrity. In other words, when they choose to do something, they commit to doing it well. Go big or go home is their theory.

Successful people – whether it’s being successful at growing wealth, gaining health or whatever avenue of success they choose – reach their level of success because they do things differently than those who aren’t successful. If you’re looking to bring more success into your life, consider doing what the successful do and dropping the habits like those mentioned above, as those habits will most certainly lead to unrealized dreams.

How about you all? What are things you are currently doing – and not doing – in order to reach your goals?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/togawanderings/5899676716/in/

How Hard it is to Hang Onto Your Money?

The following is a guest post. Enjoy! 

One of the main reasons that we use banks is security. Sure there are other benefits – organization, centralization of different accounts, cards, benefit programs, lending, etc. But central to a bank’s identity is the fact that they keep your money safe. The concept simply doesn’t work without that aspect.

That’s why the ongoing PPI scandal from the past several years has been so alarming. Bank customers, without their knowledge or consent, were issued policies for Payment Protection Insurance (PPI for short). PPI isn’t a bad form of insurance on its own, but when it is sold fraudulently, as it was to thousands of consumers across Europe by banks and insurers, then there is a major problem.

PPI claims have poured forth by the thousand since the scandal emerged several years ago. Multiple class action and individual lawsuits are pending, and many individuals have already received restitution. If you find PPI payments drafting from your account, it’s important that you read a PPI claims guide soon, and get in touch with PPI claims handlers.

PPI as Emblematic of a Deeper Banking Problem

Even if you do not personally have PPI auto-drafting from your bank account, there are a number of other ways that large banks have been recently caught in defrauding their own customers. We only have to look back at Barclays Bank as an example.

The results, in some cases, were harmless. In other cases, the bank mis-sold ppi insurance to many of its customers. Customers were confused when they had no received annual letters in the mail updating them to how much they were spending on protection and their rights to cancel.

Other large banks have had large-scale theft of customer data. These have included the loss of sensitive information, such as account and social security numbers. Wells Fargo is one of the banks that have had such breaches, but in this case, the bank responded well, by issuing free identity theft protection services for the affected customers.

In the end, banks are businesses just like any other. Just because they are large doesn’t mean that fraud and mistakes will not occur. For people with money stored in these institutions, it is important to demand that they do their due diligence in protecting the customer’s wealth and preserving the customer’s interests.

Don’t take it for granted that your money is safe in a major bank. Keep an eye on the balances of your accounts, and take action immediately if something seems amiss. Fast action will allow you to achieve quick resolution of any problem that you encounter. The sooner you bring problems to your bank’s attention, the more likely they will be to make the issue right.

Great Federal Programs For Boosting Your Savings

The following is a post by MPFJ staff writer, Toi Williams, who is a professional finance blogger for MarketBeat. She has backgrounds in personal finance, sales, and real estate.

Millions of Americans are having difficulty saving for their future. According to a report published in Forbes, roughly 63 percent of Americans say they would have difficulty coming up with $1,000 to handle a financial emergency.

The struggles of such a large segment of the populace has prompted the federal government to find ways to help. Government agencies have developed a number of programs designed to encourage saving by people of all ages.

Here are several of the most popular programs.

 

Saving For College

If you are planning on paying for college in the future, you might want to take advantage of a 529 plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for college costs. The plans are authorized by Section 529 of the Internal Revenue Code and are sponsored by states, state agencies, or educational institutions. All fifty states and the District of Columbia sponsor at least one type of 529 plan.

There are two types of 529 plans available, both with considerably different features. The first type is a pre-paid tuition plan, which allows savers to purchase units or credits at participating colleges and universities to lock in the current price. The credits can generally be used to cover tuition and mandatory fees. There may be exceptions for other qualified expenses provided by the plan’s sponsor.

Pre-paid tuition plans often have an age or grade limit for participants. The payments made from the plan are often based on the age of the student and the number of years of college tuition purchased. Depending on the plan chosen, the student will receive a lump sum or installment payments to pay for their college costs.

The second type of 529 plan is generally known as a college savings plan. These plans establish an account for the purpose of paying the student’s eligible college expenses. All qualified higher education expenses are covered, including tuition, mandatory fees, covered required supplies, and room and board. There are generally no age limits or residency requirements for these plans. Withdrawals from college savings plans can generally be used at any college or university.

College savings plans invest in stock mutual funds, bond mutual funds, and money market funds on behalf of the account holder. The investments in mutual funds are not guaranteed by state governments and are not federally insured, so losses are possible. However, earnings in 529 plans are not subject to federal tax as long as the withdrawals are used for eligible college expenses. They may not be subject to state tax either.

 

Saving For Retirement

The federal government is also trying to help more people save for retirement, which is an important goal for our country. About half of U.S. workers don’t get a pension or 401(k) from their employers and millions of workers do not have any retirement savings at all. As of the end of last year, 68 percent of America’s workforce reported that they are not participating in an employer-sponsored plan.

The United States Department of the Treasury developed myRA to remove common barriers to saving for retirement for people who don’t have access to an employer-sponsored retirement savings plans. myRA is a Roth IRA retirement savings account with no start-up cost, no fees, no minimum contribution requirement, and no risk of losing money. The plan is meant to be a starter account for long-term retirement savings. The idea is that participants will graduate to IRAs and employer-sponsored retirement plans once they get their retirement finances started with the myRA.

To be eligible for myRA, participants must make less than $131,000 a year (or $193,000 for married couples). People can contribute up to $5,500 per year to their myRA account (or $6,500 per year for those age 50 and over). The account maxes out at a balance of $15,000, but participants can keep a lower balance for up to 30 years. If either of those limits is reached, the savings will be transferred or rolled over into a private-sector Roth IRA.

Contributions can be made by linking a checking or savings account to the myRA, transferring after-tax dollars from a paycheck, or directing some of their federal tax refund to the account. Initial myRA investments are set at $25 with subsequent contribution limits set at $5. Most of the participants using myRA make monthly contributions that average between $50 and $100. If a participant changes jobs, they can keep contributing to the same myRA account without interruption.

Contributions are invested in a new United States Treasury security that earns interest at the same variable rate as investments in the government securities fund for federal employees. The Treasury Securities Fund offered a return of 2.9 percent over the past decade, which is still better than a typical savings account. Participants can pull out the money contributed (but not the interest) at any time without penalty. Barring specific exceptions, participants can only withdraw the earned interest free of tax and penalty if they are at least 59-1/2 years old and made their first contribution to the account at least five years ago.

 

Investing In Securities

The TreasuryDirect program allows US individual investors to purchase Treasury securities directly from the U.S. government. Participants can choose from Treasury Bills, Notes, Bonds, Inflation-Protected Securities, and Series I and EE Savings Bonds. The TreasuryDirect website is run by the Bureau of the Fiscal Service under the United States Department of the Treasury.

The TreasuryDirect program eliminates many of the hassles that come from handling physical securities. The securities are held in the account in paperless electronic form. Because they are stored online, they cannot be forgotten or lost and heirs will be able to easily locate them in the future. According to the Treasury Department, there are billions of dollars in matured savings bonds outstanding that have yet to be redeemed.

Users can manage their savings portfolio online as their needs or financial circumstances evolve. From the website, participants can deposit money from their personal bank accounts or withdraw money from the TreasuryDirect account. To redeem the purchased securities, the user selects what securities they want to sell on the website and what account they would like the proceeds to be deposited in. There are no redemption limits to worry about and no fees for purchases.

TreasuryDirect’s security system is top of the line, requiring user names and passwords as well as security codes from a plastic card that the Treasury provides for the account. The money in the account is backed by the full faith of the U.S. government. The website also allows the transferring and gifting of savings bonds, which is a great way to get children and grandchildren on the path to saving for the future.

How about you all? Have you used any of these programs? 

Please share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/brizzlebornandbred/5025896783/in/