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Education Funding

I’m going to just get this out of the way.  Currently, I am not saving anything for my kid’s college education.  I have two kids, 2 and 6.  I’m not heartless and I do have a plan.  Let me explain.  In our current situation, my wife and I thought it was more prudent to save for retirement than the kid’s education.  You see, my wife is currently raising our children and thus has no income.  We are solely living off of my income.  There just wasn’t enough to go around to fund both retirement and college for the kids.  That doesn’t mean we never intend to save for it, just not right now.

Going Back to Work

My wife plans on rejoining the workforce once the kids are both in school.  She plans on going back to college to further her education.  We estimate that her schooling will take a couple of years.  Her intention is to become a school counselor and thus have similar hours as the kids.  So, hopefully there won’t be any additional childcare expenses with her beginning work.  It is with her new income that we plan on funding any education expenses for the kids.

The Number

Even before our first child was born, we had known that my wife would stay at home with the kids.  It was something she wanted to do and we thought would be best for our kids.  We are fortunate enough that I am able to support all of us on just my income.  Knowing all of this, I set about to estimate whether we could afford to pay for college when the kids are of age.  I started out by assuming a starting salary for my wife when she reenters the workforce.  I estimated $52,000 a year.  This was based upon her salary when she left the workforce, then inflated to future dollars.  I then assumed we would lose about 25% of her salary to taxes.  Then I assumed we would set aside 50% for college funding and 25% for retirement savings.  I then made an assumption about my investment return.  I assumed that I would be conservative with the money and only earn a 4% return.  I also assumed that college costs would increase at a 6% annual compound rate.  I assumed that if my children went to school today, that the one year cost would be $30,000.  So, the first year for my daughter would cost about $64,000 and the first year for my son would be $81,000.  The last assumption that I made was that the contributions we make would increase at 5% per year.

The Result

Based on my calculations, we should have just enough for both of the kids.  If they turn out not to need the money because of scholarships or some other reason, I am going to on a really nice trip.  In the end, we will let the kids decide what the best school is for them, but it also won’t be a blank check from mom and dad.  We know exactly how much money we are setting aside.  If our financial picture is one that allows us to help further we will, but we also won’t let it derail us financially.

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My Retirement Calculations

I have mentioned a couple of times in recent posts that I would talk about how I calculate my retirement nest egg, well today is the day.  It was probably about 5 years ago, that I wanted to seriously analyze my retirement savings.  I had some decisions to make and needed to figure out what my retirement savings would look like in 30+ years.  I tried looking at various on-line calculators, but found myself disappointed in them.  Essentially, the calculators weren’t robust enough for me.  I couldn’t change some basic assumptions that were built into them.  So, I built my own.  It is not overly complicated.  It is simply an Excel spreadsheet that projects out for about 30+ years.  I’ll talk about the things I put into it and the variables that I changed over time.

Employers’ Plans

The first thing you would need to look at his what retirement benefits does your employer offer.  For me, the company provides a matching contribution to the 401k, along with a fixed percentage of salary contribution regardless of whether I contribute or not.  The assumption I made was that the plan would remain the same throughout my working career.  Not very realistic, but it would be too hard to guess what the changes would be in the future.  Also take note when looking at your plan, is what compensation is included in the employer match?  Is it against base salary only?  Are bonuses and overtime considered?

Salary

The next assumption I made was related to my salary.  How did I think it would change over time?  I wanted to be a little conservative, but also have faith in my ability to grow my earnings.  Here I decided to grow my salary at 4% every year from its current level.  I felt this was reasonable given my track record since I graduated college.  I have managed a 6% average annual growth over the last 15 years.

Savings

The next decision I made was how my contributions would change over time.  This was the biggest drawback I felt to the on-line calculators.  I wanted to increase my savings over time.  For me, I wanted to assume that I would increase my savings by 1% of my salary every year.  The thinking is that when I receive a raise, I can raise my savings rate and not notice a decrease in my take-home pay.

Investment Return

This is perhaps the biggest unknown.  I assumed an average return of 9%.  Some will argue that is overly aggressive, but I am comfortable with it.  I feel like over the course of 30 years, I should be able to generate that level of return.

Inflation

Here is another assumption that can have a huge impact.  When I calculate what my savings will be in 30 years, what I need to know is will that be enough?  I translate the future amount back into present dollars via the inflation factor.  I used 3% as my assumption.  That has been the historical rate of inflation and I felt it was a reasonable assumption.

Do I have enough?

In the end, trying to figure out if I have enough is just a guess.  The bottom-line I looked at was would my savings be enough to generate an income equal to my take-home pay when I retire.  I assumed a 4% withdrawal rate.  I figure if I am living off my take-home pay just before retirement, then that amount should be adequate to retire on.  As I get closer to retirement, I’ll have a better idea of what my spending will actually look like.

Have you calculated your retirement number?

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Top Ways to Make Extra Cash on the Side

It has happened to us all where we’re desperate for some extra cash as finances are tight or we have a holiday or family occasion on the horizon and an incident occurs that we haven’t planned for and the numbers are coming up short. In these situations we need extra cash and quickly, but what are the best ways to make some extra cash on the side quickly?

• Overtime at Work

You use these each day within your job so, if there are extra hours available, speaking to your boss and looking to take these on would be the easiest, quickest and most reliable ways of adding to your take home pay at the end of the month and ensuring that the cash void that you are experiencing is filled.

• Taking a Part Time Job

If you are already working then it is highly unlikely that you will have the opportunity to take on a second full time position in order to make up the extra money that you need. However, there are usually many menial part time jobs on offer that would allow you to work around your current job and boost your net pay by working extra hours in the evenings and weekends. However, you do not wish to work too many hours in a second job as this may cause a large jump in tax rates leaving you working for almost nothing in this second job. Why not try your luck at these part time jobs on the Guardian.

• Tutoring

If you have children and enjoy helping them with homework, then you may be in luck with being able to tutor. All you need to do is locally advertise your services as a tutor in the subject/subjects that you are most knowledgeable in and, especially with it closing on end of year exam time, you will get plenty of interest from parents looking to see their children do well and from students desperate to cram. At tutoring rates starting at around $15 an hour, this may be one of the top ways of make some extra cash quickly. You could check out this site for more tutoring information.

• Online Gaming

Fortune, as they say, favours the brave and there is certainly plenty of opportunity to make extra cash on the side by utilising online gambling skills. Whether you are a poker whizz, have luck at the bingo tables or are capable of taking bonuses at casinos and  eleasing them without losing your initial stake there are a variety of methods of adding to your incomings on online bingo gaming sites. Online gaming sites have produced countless winners and for a lot of people their luck has changed. You could check out this bingo site Butlersbingo.com which has loads of young people in their 20s in the chat rooms. Ask them for some advice about how to win big!

• Freelancing

There are always people looking to take advantage of other people’s skill sets on freelancing jobs sites such as PeoplePerHour.com and Freelancer.com. You can make excellent money based on your experience and skills by bidding on the many positions available each day and completing the work within the set timeframe. The more work you do, and the quicker and better it is done, the higher your rating on these sites is and the more likely you are to increase your workload and make more money.

As you can see, there are plenty of ways to make extra cash on the side. What are your best ways of adding to your monthly incomings?

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Would You Cash in an Annuity?

Have you seen all of those commercials on day time tv about getting a lump sum from an annuity or structured settlement?  Generally, you will receive more money overall if you take it over time.  But there are emergency situations in which you would rather cash it in.

Cashing in an Annuity

If you need the cash in a lump sum instead of paid to you over time, you’ll want to look at all of your options like Cashinyourannuity.com to see where you can get the best deal.  You’ll need to get several quotes to make sure that you are getting as much as you can from cashing in early.  Generally, you will lose at least some money overall, so you can take control and make sure it is as small of a loss as possible.

Reasons You Might

You may wonder who would cash in an annuity or structured settlement if it would be at a loss?  There are countless reasons, but the big ones could be:

- You need major money right now.  An accident or an emergency has popped up that your savings can’t handle. – You are sick.  My aunt cashed in nearly everything recently to use for world travel since there is a possibility that she will die in the next 5 years from cancer.  She left enough in the bank to cover her future if she has one, but everything else is going towards her bucket list. – Your children need help.  Many parents have taken a lump sum from a structured settlement to help children in need.

Overall, it isn’t a decision to rush into but it is one that many people make.  The trick is to maximize what you can get and stretch it as much as you can since you won’t have those regular payments anymore.

Would you cash in an annuity?

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The critical steps before launching your business

So that’s it. You’re fed up with the thankless grind of working for someone else. You feel undervalued, underpaid and overworked. It’s always been your dream to work for yourself, and here’s your chance. The stars have aligned in your favour. The market is buoyant and there’s a nice little savings pot to help you through those uncertain first few months. But before you fire the afterburners, how can you give your business the very best chance of success?

 The critical steps before launching your business

 

Which type of business are you best suited to?

Two factors to consider before making any decisions about your business is how much you need to earn, and how much time you can dedicate to making it work. Should you run the start-up part-time and supplement your earnings with a second job? Perhaps you have savings which allow you to go fulltime from the off? Maybe a seasonal business would make more sense?

If you lack the industry knowledge industry knowledge required to make accurate timescale and earning predictions, information providers like RM Online allow you to research the details of companies in your sector, helping you gain a firmer understanding of who you’re up against and the market dynamics more generally.

When should you launch?

The urge to plough your time and money into a business is tempting, but there are a number of key factors you should attend to first. Businesses can be set up quickly. An off-the-shelf or bespoke website can be purchased relatively cheaply, allowing you to head straight to market. Then, all you need is a laptop, a small working area, preferably a kettle, hopefully a wireless, and you’re away!

Timing the launch of your business is essential, so conduct research to determine when demand for your product or service is at its peak. Unless you’re a seasonal enterprise, launching close to Christmas is generally a bad idea, although things pick up quickly in the new year. There are plenty of reasons start-ups fail; don’t let something as simple as bad timing be the reason yours fails.

What should you sell?

Perhaps surprisingly, what you sell is not the most important consideration. The will and desire to succeed and an understanding how a start-up business should function is far more important.

Some start-ups are product led, run by owners with thorough knowledge of a particular industry or service area, but this is not always the case. If you’re in need of inspiration, websites like Springwise are full of product and business ideas which will help to invoke the epiphany you need.

If you’re stepping into a relatively unknown market, potential customers are an invaluable source of information. Make the effort to meet them. Talk to them about your products and ask questions about your pricing. Do they shop online or offline? When are they most likely to make a purchase?  Criticism should be encouraged, as the more critical feedback you receive, the more refined your product will be.

And keep one eye on the competition…

Your more established competitors are one of the most valuable sources of information you have. If you run an online business, everything you need to know is on your competitors’ websites. How do your competitors’ prices compare? Do they have any special offers? Perhaps their website is more trustworthy than yours? You should emulate the strengths of the competition and take advantage of their weaknesses. If they don’t engage particularly well with their customers, you can steal a march with a regular blog and Facebook page. A common misnomer is to believe your idea is so unique that there aren’t any competitors. The competition is always there; the secret is to be better than them!

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Take It Slow: 7 Things You Shouldn’t Rush

We live in a fast paced society, where everything is lightening speed and everyone is going fast. We need our information as soon as it happens, and we order ahead so we don’t have to wait in line. We’ve become an impatient bunch and wonder why we experience burn out at such a young age. It’s because we haven’t taken the time to sit back and smell the roses. What’s the hurry? What’s the rush? Take your time when it comes to these financial moments in your life:

  1. Your education: So many students are in a rush to get their degree and get out into the real world. It’s becoming uncommon to finish your degree in 4 years nowadays, yet some students are trying to finish in 3 years. Accelerating your learning is not allowing you to grasp as much knowledge as you could. Allow the information to soak in, apply it to your everyday life, and increase the chances of you retaining it. No need to rush through college or grad school. Take your time and do it right the first time around.
  2. Your career goals: What’s the rush on becoming a supervisor when you just got the job? Learn to take a backseat and learn from the veterans at your job before you start taking over. Show them that you’re willing to learn and not just a know-it-all. You’ll get a lot more positive recognition for asking questions and remaining helpful than you will from being arrogant and trying to take over from day one.
  3. Your retirement: I’m seeing a lot of 20 somethings aspiring to retire under the age of 50. Heck, even 50 is optimistic, as baby boomers are staying at their jobs longer. Why is it that we don’t want to work past 50 years old? If you really enjoy your job, you won’t feel quite complete not being able to work there anymore. Enjoy your days in the workforce and you’ll enjoy your days in retirement.
  4. Building a business: Who wouldn’t want the next Facebook or the upcoming million dollar entrepreneurship idea? Well what the glamour stories don’t tell you is how long it took to get there. Do you think success comes overnight? Not for anything worthwhile it doesn’t. Take your time to learn your business, network with people in your niche, and work at building a quality product or service. Rushing a business venture will most certainly cause you to miss vital steps in the process, and can cause your business to fail.
  5. Paying off your debt: Most personal finance gurus will tell you to put all you have into paying off your debt, but I’m telling you don’t rush it. I don’t knock the people who made crucial sacrifices in their lifestyle in order to get out of debt sooner, but the fact of the matter is, sacrificing Starbucks every now and then isn’t going to make that much of a difference in your debt. Just like diets, you should be allowed to cheat when you’re paying off your debt. Just remember to keep your eyes on the prize.
  6. Combining your finances: Got marriage on the brain? Don’t be so quick to rush into combining your finances. Learn all you can about the person you’ve fallen in love with, including their financial history. Do they have a job? Are they in debt? Do they have an emergency fund? Do you guys have the same spending mentality? You want to find out the answers to these questions before walking down the aisle, as they can be major deal breakers.
  7. Your vacation: Something that many professionals seem to do is focus on work instead of enjoying their vacation. Take time to unplug and leave your work alone while you bask in rest and relaxation. We all need time to unwind and get away from the constant hustle and bustle. Make vacations a work free zone and don’t rush to get back to the office.
Life isn’t a race against the clock. Living too much in the future will cause you to miss the wonders of today.
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What’s Considered an Educational Expense?

Fall term is all over, and people are going back to school for winter and spring. With a new school term comes questions about financial aid. While some people will be paying for their education out of pocket, millions of students will be financing their learning using financial aid, such as grants, scholarships, and loans. Some may see this as “free money”, especially grants and scholarships that you don’t need to pay back. However, financial aid funds should be used specifically for educational expenses. Now, it’s a lot easier to determine educational expenses when the money goes directly to your school; it’s usually automatically applied toward your tuition, student fees, educational materials, etc. But how do you determine it when the money comes straight to you? What is considered an “educational expense”?

  • Tuition: If your funds were sent directly to you instead of the school, the first thing you should take care of is your tuition. Your tuition is the cost of your classes. This is more than likely going to be the biggest expense you have for school. Your tuition will be due before classes start, so be sure to pay them by the deadline, or you’ll risk getting your classes dropped.
  • Books and Supplies: Books and supplies are required for every class, and are usually noted in the syllabus. There are required texts as well as optional ones, and while your school may make the materials available through your bookstore, that may not be the most frugal source. Shop around online and local bookstores to find the best deal for your books and supplies for each of your classes. Your financial aid can cover this surprisingly expensive part of your education. I once had to buy 2 textbooks for $315, and I couldn’t get it cheaper because they were new editions with DVDs. Plan ahead!
  • Transportation and Travel: Are you commuting or generally need to get from point A to point B? It’s no secret that transportation costs aren’t cheap, especially due to gas prices. Whether you drive your own car, take the bus, ride the train or rent a ZipCar, your travel expenses can be covered using your financial aid.
  • Room and Board: Certainly the second biggest expense of your college career will be your living situation. Room and board, whether on campus or off campus, can cost quite a bit of money. When you factor in rent, utilities, furnishings, and meal plans (if you’re staying on campus), room and board can cost you upward of $10,000 per year. Your financial aid can relieve you of this huge, but necessary expense. My advice is to live at home with your parents as long as you can and save that money. However, if that’s not an option, be sure to find the most affordable housing option available.
  • Personal Expenses: So what doesn’t fall under tuition, books, transportation, and housing that is still considered an educational expense? Well, other things that are incorporated into your college experience. You’ll need clothes and shoes, you have to do your own laundry, or you may want to join organizations. After all of your major expenses are paid for when it comes to your classes and your living arrangements, get some lower priority expenses like new software or equipment.

What do you consider to be an educational expense?

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Use Only a Small Percentage for Gambling

How often have you gambled in your life? Do you have stories of winning big money? Or, perhaps you have a story about losing it all. Whatever the case may be, doing something exciting and having a story to tell is a great thing isn’t it? Why sit around and do nothing when you could get out of the house and create some memories?!

 Yes, You Should Budget

Gambling is fun and exciting, but just like the old saying goes, “Too much of anything is typically a bad thing.” Thinking back to my college days, this can be explained with simple economics. When an ice cold drink is set in front of you on a hot day, you REALLY want that drink. But, after you consume that first drink and a second one is placed in front of you, you still want it, but just not quite as badly. The story continues eventually to the point when you don’t want that brand new drink anymore. As economics proves to us, too much of anything can eventually be a bad thing.

Gambling is no different. Some gambling can be quite exciting and enjoyable, but if you start getting attached to it there could be some very dire consequences. You could lose your house, your retirement savings, even your loved ones. That is why it is incredibly important to budget for your gambling expenses.

For me, I am comfortable budgeting $50 a month for gambling. If I end up winning money, then I just roll that money into the next month. If I end up losing, then I force myself to have to wait until my account is reimbursed the next time. By setting up a budgeting system, I can still enjoy my gambling fun without losing control of my finances.

Thankfully, there are some gambling sites out there that promote responsible gambling like bwin.be. Not only do they allow you to play for free, but there are some sites that will actually put money into your account for registering and getting started. With these helpful tools, you can continue to enjoy your gambling and not worry as much about breaking your budget.

So how much are you comfortable budgeting into gambling? Do you have an additional $50 that you wouldn’t mind losing? If your budget is tight, then perhaps you should only contribute $20 to this fund. Just remember to have fun and relax once in a while. Plus, you could win big in the process.

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My Paycheck is Changing

For me, there is usually only two times per year that my paycheck will change, January and April.  The January changes are the result of benefit changes for that year and the April changes are the result of any salary increases.  With my company’s recent Open Enrollment, I had to do some analysis on potential changes to my take-home pay.  I was pleasantly surprised by the results.

2013 Background

To begin, I have to talk about how my income in 2013 is different than most years.  I was lucky to receive a nice bonus in 2013, so that helped push my compensation higher in 2013.  The largest difference for this year was the IRA I inherited from my mother.  I know I could have continued the IRA, but for a variety of reasons I elected to receive a lump sum distribution.  In order to cover the taxes I owed, I adjusted my withholdings to ensure that I would have enough taxes taken out.  What this means for 2014 is that I can readjust my withholdings, so that less tax is taken out.  I don’t like receiving a large refund when I file.

2014 Benefit Changes

As I mentioned earlier, my company’s annual Open Enrollment period just occurred.  Costs were naturally increasing for 2014, but there were some things I could do to mitigate the impact.  Since I am in a more secure financial position than I was last year, this allowed me to elect higher deductible plans for both my medical and dental plans.  By selecting the High-Deductible plan for the medical option, I became eligible for a Healthcare Savings Account (HSA).  An HSA allows you to set aside money pre-tax to pay for qualified medical expenses.  An HSA differs from a flexible spending account (FSA) in that contributions can be carried over to the next year and the HSA contributions can be invested.  Since my wife and I were planning on setting aside extra money for medical costs anyway, this seemed like the perfect way to save on taxes.  We elected to contribute the maximum amount allowable, which is $6,550 for someone my age.  Included in the $6,550 is a contribution of $800 from my employer, so my net contribution is $5,750.  That means I am able to reduce my taxable income by $5,750 for next year.  That income would have fallen into the 10% Federal tax bracket, so that is a savings of $575 in federal taxes.  In addition, I will also save $287 in state income taxes and $439 in Social Security and Medicare taxes.  My total tax savings will be $1301.  This just keeps getting better and better.

401K Changes

When I began to run various scenarios for what my take-home pay would look like, I realized that I could also increase my 401K contribution.  I currently contribute 6% and my employer matches that 6% plus an additional guaranteed 2%, for a total of 8%.  I am going to be raising my contribution to 7%, so with my employers contributions, I will be up to a total of 15%.

Take-Home Pay Impact

After all the changes above, my take-home pay was going to be reduced by about $200 a month.  My expenses are certainly not going down $200 a month, so you might wonder how I am making up the difference.  As I said before, I was already planning on setting aside money for medical expenses.  What I will do now, is that money will make up the difference between my current paycheck and my paycheck in January.  I will put the money into savings still and then just transfer the $200 a month from my savings into my checking account.  In the end, I end up saving more money overall.  I had to run the numbers a few times to make sure my calculations were correct.  How did your benefits change for next year?

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Life Progress?

One weekend recently, I needed to take my car in for some repairs.  I have an older car, 12-years old with almost 150,000 miles on it.  It didn’t need a tremendous amount of work done, a couple of new front tires, oil change, and an oil gasket needed to be fixed.  The gasket needed to be fixed because my car was due for emissions testing.  The testing is mandated by the state and my car wouldn’t pass with the check engine light on being caused by the gasket.  I was guessing that all of the repairs could run about $500 or $600 dollars.  No worries I thought, that is what the car fund is for in my savings account.  I, like I’m sure many of you, have my savings broken down into various categories.  Right now, I have 13 categories.  That’s probably more than most people need, but I keep track of everything in a spreadsheet.  It doesn’t feel complicated to me, but I have also been managing it this way for years and practice makes perfect.

Surprise

So, I dropped my car off Saturday morning and they gave me a loaner car, so that I wouldn’t have to wait around.  My son and I went and ran our normal Saturday errands.  Later that afternoon, I got a call about my car.  The repairs were done; cost was about $690, which was in-line with my initial rough estimate.  I forgot how expensive tires can be for a car.  The surprise was that my car needed more than just those repairs.  The catalytic converter on my car was shot and needed to be replaced.  My first thought was, “Ouch, this is gonna hurt”.  The part isn’t cheap, about $1,200 and  the total repair cost is going to be around $1,400.  Since, I plan on keeping my car until the doors fall off, I told the repair shop to go ahead and order the part.

Still OK, No Need to Panic

As recently as five years ago, I would have been freaking out trying to figure out how I was going to pay for all the repairs, the original ones and the expensive one.  I was like most Americans, living paycheck-to-paycheck with little to no savings.  A series of car repairs like these would have destroyed my budget.  I would most likely have had to put the repair costs on a credit card and then figure out a way to eventually pay that card off.  Today’s situation is quite different.  These repairs will come out of the car fund.  They will not even dent my emergency fund.  Now, don’t get me wrong, my car fund is taking a big hit.  I’m going to have to work to rebuild it.  I have a set amount I contribute to it monthly and will likely add additional funds to it when I come across extra cash, such as a bonus.  It is not a financial disaster.  The repairs will be paid in full and without collecting any interest.  That’s progress.  Without getting serious about my finances and living below my means, I would have been stuck in the same cycle I was five years ago.  Back then, just as I felt I was getting my head above water, something unexpected would pop up and pull me back down.  I would end up back in debt, trying to figure out how I would get out of debt again.  A car repair like this would have been such an event.  Now, my savings account gets dinged a little, but it’s not the end of the world.  By planning for the unexpected, I’m prepared for the surprises when they show up.

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