Money In The 20s http://www.moneyinthe20s.com Finances For Millenials Sat, 17 Sep 2016 19:28:06 +0000 en-US hourly 1 116873799 Things College Students Can Do Now That Will Pay Off Big Later http://www.moneyinthe20s.com/things-college-students-can-now-will-pay-off-big-later/ http://www.moneyinthe20s.com/things-college-students-can-now-will-pay-off-big-later/#comments Sun, 04 Sep 2016 08:54:12 +0000 http://www.moneyinthe20s.com/?p=3334 Things College Students Can Do Now That Will Pay Off Big Later

Going off to university is a rite of passage that’ll help you prepare for a rewarding career. While it might be tempting to focus on course readings, exams, and making new friends, however, you also need to consider and plan for the costs associated with tuition, living expenses, and books.

You definitely shouldn’t allow the cost of a quality education to dissuade you from studying at the post-secondary institution of your choice. That said, you also don’t what to contend with a mountain of debt after the pomp and circumstance of graduation is over and done with.

Consider these sobering statistics:

  • The class of 2016 will on average graduate with student loan debt worth $37,172 a piece, which is up from a year ago by 6%
  • Around 43 million Americans owe almost $1.3 trillion in debt attributable to student loans.

There are certainly some things you can and should do now to reduce, if not altogether eliminate, the amount of student debt you accumulate and to position yourself for success early on. So here are some things that college students can do now that will pay off big later.

Student Aid

One of the best ways to steer clear of debt is to apply for financial aid. NerdScholar previously reported that U.S. high school graduates left $2.9 billion worth of free grant money from the federal government unclaimed during the last academic year. That’s a lot of unclaimed money that could of helped to defray the cost of getting a good post-secondary education.

Grants, scholarships, and loans offer a way for you to get the money you need to fund your college education. Grants, or money that you don’t have to repay, and scholarships, or money offered as a gift, are preferable in that they’re free. Loans are another option, though they obviously need to be repaid. Depending on your situation, you may chose a combination of these options. A good site to look at is FinAid. It provides student aid resources. But before you get ahead of yourself, be sure to fill out the FAFSA (Free Application for Student Aid) form.

Start Early

The sooner you start saving, the better. As a millennial, you have the advantage of time on your side. Adding factors like time, regular saving, and compound interest to the equation can lead to a very profitable outcome down the road. Consider this example from a USA Today report: Imagine investing an initial $1,000, adding $100 monthly to this investment for four decades, and earning interest of 8% on average. In four decades, you will have saved $320,000. Meanwhile, if instead of 40 years you opt for investing for three decades, you’ll end up with only $146,000. So start early, be consistent and disciplined, and reap the benefits later.

Get a Job

Yes, essays and studying can eat up a lot of your time, but getting a job while you’re in college can pay off big later. You can use the money not only to get in the habit of saving, but also to cover your expenses and to reduce the amount of student debt you need to accumulate. The sort of work ethic, time-management skills, and determination you’ll need to balance college and employment will serve you well when you eventually head out into the workforce.

Avoid the Plastic

It can be tempting to swipe a credit card to get whatever you want, but the exorbitant double-digit interest charges can leave you owing an eye-watering amount sooner than you think. What this means is that you need to be careful about racking up high bills that leave you in debt. Live within your means and try to avoid joining the list of Americans struggling with credit card debt.

If you take the advice mentioned above to heart, you’ll be a step or two ahead of your peers after you graduate. Get student aid, start investing early, get a job, and stay away from credit cards. You’ll be glad you did!

]]>
http://www.moneyinthe20s.com/things-college-students-can-now-will-pay-off-big-later/feed/ 2 3334
4 Great Mortgage Options For First-Time Homebuyers http://www.moneyinthe20s.com/4-great-mortgage-options-first-time-homebuyers/ http://www.moneyinthe20s.com/4-great-mortgage-options-first-time-homebuyers/#respond Fri, 02 Sep 2016 03:27:31 +0000 http://www.moneyinthe20s.com/?p=3329 4 Great Mortgage Options For First-time Homebuyers

Homeownership is a huge part of American culture, and that’s great for first-time buyers — there’s a lot of help available via government and private home loan products.

Here are four mortgage programs ideal for first-time buyers – featuring low-to-no down payments and flexible underwriting.

  • FHA
  • HomeReady
  • USDA (Rural Housing)
  • 80/10/10 “Piggyback” loans

FHA

FHA offers several advantages for new buyers, but repeat buyers also use the program.

  • The required down payment is just 3.5 percent, and it may be gifted or borrowed from an acceptable source.
  • Borrowers can have FICO scores as low as 580 to qualify for a 3.5 percent downpayment. You still must demonstrate responsible debt management.
  • Debt-to-income ratios (your monthly debt payments divided by your monthly before-tax income) can be as high as 50 percent.
  • FHA loans are assumable, meaning a future buyer can take on your loan.
  • Renovations and energy improvements can be wrapped into FHA loans.

For buyers with more money to put down and / or higher credit scores, FHA home loans may not be the cheapest option, and there are some disadvantages:

  • The upfront mortgage insurance premium (which can be rolled into your loan) is 1.75 percent of your loan amount.
  • Annual mortgage insurance premiums of .85 percent apply to most borrowers. This may be higher than private mortgage insurance with good credit.
  • FHA mortgage insurance cannot be canceled, unlike private mortgage insurance.
  • There are maximum loan amounts.
  • Many condo projects are not FHA-approved.

HomeReady

Fannie Mae’s HomeReady program is a great conventional (non-government) program for those whose income meets eligibility guidelines. And if you buy in a low-income census tract, income limits are waived.

For everyone else, the maximum is equal to the area median income (AMI).

You can see if you’re eligible by checking the HomeReady Income Eligibility Lookup tool.

HomeReady is not limited to first-timers, but first-timers are required to complete an approved homeowner education course.

HomeReady’s advantages include:

  • A minimum down payment of just three percent.
  • Mortgage insurance premiums are discounted, and can be canceled once the loan balance has been sufficiently paid down.
  • Flexible underwriting allows consideration of income from non-borrowing members of your household. You may also have a non-occupant co-borrower.
  • Money for down payments and closing costs can be gifted or borrowed from approved sources.
  • Manufactured housing is okay with five percent down.

There are no real disadvantages, unless you dislike the idea of completing homebuyer education. Note that Freddie Mac offers a very similar product called Home Possible, and it comes with the same advantages, and similar requirements.

USDA

The USDA (Rural Housing) mortgage is unique. To be eligible for USDA financing, a property must be located in a designated “rural” area. This means homes in many small- to medium-sized towns as well as suburban areas outside larger cities. The USDA’s property lookup tool lets you see if the home you want to buy is eligible for a USDA loan.

USDA loans also have income-eligibility guidelines. For the Guarantee program, in which the government insures your loan, your income cannot exceed 115 percent of the area median income. Borrowers with low or very low incomes (up to 80 percent of the AMI) may qualify for the Direct program, in which the USDA lends them money at subsidized interest rates as low as one percent.

Advantages of the Guarantee program include:

  • No down payment is required.
  • There are no limits on loan size.
  • Closing costs and lender fees can be rolled into the loan if the home appraises above the sales price.
  • Renovation / rehabilitation costs can be rolled into the loan.
  • On October 1, 2016, the upfront guarantee fee will be reduced to one percent from 2.75 percent. Annual mortgage insurance will drop from .50 percent to just .35 percent.
  • USDA loans are assumable.

The only real disadvantage of the program is that the annual mortgage insurance cannot be canceled as long as you have the loan.

Piggyback

“Piggyback” loans are not specific mortgage programs – they’re actually a combination of loans. Piggybacks allow homebuyers to avoid mortgage insurance by combining an 80 percent first mortgage with a “purchase money second” mortgage, typically, of 10 percent of the purchase price.

The name of the program refers to the percentage of the home’s purchase price for each component. An 80-10-10 loan, for example, means you have an 80 percent first mortgage, a ten percent second mortgage and a ten percent down payment. An 80-15-5 requires just five percent down.

The second mortgage is riskier for lenders because if the property must be sold in a foreclosure proceeding, the proceeds might not cover both the first and second loans, and the first loan takes precedence. For this reason, interest rates for second mortgages are higher.

Making A Decision

When comparing piggyback programs and other low-down-payment alternatives, analyze the total costs for the length of time you expect to own the home. A good loan officer or mortgage broker can help you compare options and choose the lowest-cost loan.

]]>
http://www.moneyinthe20s.com/4-great-mortgage-options-first-time-homebuyers/feed/ 0 3329
The Challenges of Earning Your First Million in Your 20s http://www.moneyinthe20s.com/challenges-earning-first-million-20s/ http://www.moneyinthe20s.com/challenges-earning-first-million-20s/#respond Mon, 29 Aug 2016 21:58:02 +0000 http://www.moneyinthe20s.com/?p=3315 The Challenges of Earning Your First Million in Your 20s

What would it take to become a millionaire? Would it be getting a high paying job? Or perhaps climbing the corporate ladder until you become the CEO? Be a big time Hollywood star perhaps? Well fortunately, for daydreaming Millennials, there are a lot of ways to become a millionaire. There are a lot of good articles and advice columns sharing how you can land a spot in the millionaire’s row.

But striking a million while young may not be so easy. In the National Financial Capability Study done by the Wall Street Journal in 2012, roughly 60 percent of Millennials have at least “one source of outstanding long-term debt.” This may come in the form of student loans, mortgages, and car loans. In addition to that, short-term debt in the form of credit cards are also affecting the financial capacity of those in the 24-35 age bracket.

So how does a Millennial rise above this difficulty and start working to be a millionaire? The solutions are pretty simple but never easy, but with determination, you might just hit your goal. Here are some ideas:

Set a goal beyond one million

People say to start setting a goal at one million in order to be legitimately called a millionaire. But in reality, we can exceed that expectation or fall short of our goal. So if you want to hit the million mark set a higher goal. This way, you’re tricking your mind to aim for something higher (let’s say two million.) And if you do fall short, you’re giving yourself some space where you may not have reached two million but you’re still likely to hit a million.

Don’t take shortcuts

One very tempting way to grow money is to invest it in schemes that promise really high returns in a short amount of time. These appear to be shortcuts in growing your money but they’re very risky. Interest rates that usually go above 10 percent or higher than what banks give are probably too good to be true. Remember the Ponzi scheme of Bernie Maddoff? People who invested in his scheme thought they’d earn more. But in the end, they ended up broke. Lesson to learn here? Just don’t be fooled by empty promises and invest with credible finance institutions.

Make money out of everything

People who want to earn will find ways to earn. If you look at the finance portfolios of millionaires, you will find that their sources of income are diverse. They don’t just rely on their salaries. They’ll probably have their pad rented out on AirBnB, drive with Uber on their spare time, take up a part-time job, or even sell used items online. The important skill here is knowing how to monetize what is around you. Some earn money by selling recycled items. Remember that one man’s trash is another man’s treasure.

Make your money grow

Even if you earn a lot of money, you won’t hit the million mark if you don’t invest it. Saving alone won’t be enough especially when you have a limited source of income. Investing will help you multiply your savings by going into mutual funds or even the stock market. In this case, it is important to talk to a financial consultant so you can determine the best investment for you. If you are conservative with your money, then you might want to put your money in a time deposit account. The interest is low but there won’t be any losses. If you’re willing to risk your money to get higher returns, then the stock market might be good for you. Banks will usually advise clients on this.

Of course, alongside these suggestions, living a frugal and simple life will help you reach your goal. That’s the hardest part for Millennials as spending is simply so tempting. But with enough discipline and a change of lifestyle, earning your first million won’t be as hard.

Resources

http://www.msn.com/en-us/money/yourlifeyourmoney/10-ways-to-realistically-make-your-first-dollar1-million/ss-BBtGfBd#image=11

https://www.securitybank.com/blog/7-simple-ways-to-become-a-millionaire-in-your-20s/

http://www.moneyinthe20s.com/

http://www.nytimes.com/topic/person/bernard-l-madoff

http://blogs.wsj.com/experts/2015/10/05/the-alarming-facts-about-millennials-and-debt/

]]>
http://www.moneyinthe20s.com/challenges-earning-first-million-20s/feed/ 0 3315
Why Micro Investments Aren’t All They’re Cracked Up To Be http://www.moneyinthe20s.com/micro-investments-arent-theyre-cracked/ http://www.moneyinthe20s.com/micro-investments-arent-theyre-cracked/#respond Wed, 03 Aug 2016 08:47:09 +0000 http://www.moneyinthe20s.com/?p=3299 Why Micro Investments Aren't All They're Cracked Up To Be

Once you make the decision to start investing, one question that usually pops up is: how to get started.

Exploring different investment options might lead you to the relatively new concept of micro investments. While investing for your future is a wise choice to make, micro investments might not necessarily take you where you want to go. They sound cool, but they aren’t all they’re cracked up to be.

Alone, They’re Not Enough

Retirement investing is a good thing. However, micro investments alone may not give you enough of an investment to have a substantial impact on your future expenses.

The idea behind micro investments is that by investing small amounts of money on a regular basis, such as spare change with Acorns, you can still invest for the future. You simply link your debit or credit card to an app that rounds your purchase to the nearest dollar and then invests the spare change into a pre-determined diversified portfolio of funds.

Investing in small amounts sounds like a good thing when you don’t have a lot of money to start investing, but if you only end up with $10.00 or so invested each month, you aren’t going to have a large enough investment portfolio to cover your retirement expenses.

Taxable Now or Later?

Acorns is a micro investment company that has become popular amount the younger population. But one drawback to using Acorns is that the investments you make with Acorns are taxable where other investment options, such as 401K’s, are tax-deferred.

The Fees can be High

On the surface, a $1 flat rate monthly fee seems fairly reasonable. However, if your monthly investment is only $10, that’s a 10% fee, which is pretty steep. Of course, as you make more purchases your investment grows and your fee percentage drops, but since the whole idea is to invest in small amounts, those fees are actually quite high.

Fees with robo advisors, like Betterment, are quite a bit lower percentage wise than the fees with micro investments companies. But the best way to save on fees is to take a DIY investing approach.

Limited Investment Choices

The investment portfolios are preset and there are only a few options to choose from with micro investing companies. This limits your flexibility in choosing which funds your investment money is applied to. So, if you wanted to choose the investment funds for yourself, you will be disappointed because that is not an option.

You Can Incur Loses

There is no guarantee your micro investments will grow, and in fact, you might even lose money. The funds your money is invested in can increase and make you money, but sometimes they have losses. On top of that, the money is not usually FDIC insured. Of course, this is a drawback that applies to almost all types of investing.

Before tossing out your piggy bank and throwing all of your loose change into micro investments, research all of your investment options and find out the good points and the bad. Remember, investing is not a get rich quick scheme.

What do you think of micro investments? Are they worth it?

]]>
http://www.moneyinthe20s.com/micro-investments-arent-theyre-cracked/feed/ 0 3299
From Wing Man to Santa: 7 Creative Ways to Earn a Buck http://www.moneyinthe20s.com/from-wing-man-to-santa-7-creative-ways-to-earn-a-buck/ http://www.moneyinthe20s.com/from-wing-man-to-santa-7-creative-ways-to-earn-a-buck/#respond Sat, 14 May 2016 14:00:48 +0000 http://www.moneyinthe20s.com/?p=1476 From Wing Man to Santa: 7 Creative Ways to Earn a Buck

Making a living isn’t easy, and as the cost of living continues to rise, so does the need for extra income. Finding opportunities to make extra cash is easier than it looks if you’re willing to step outside your personal comfort zone and offer up your services, talents, and possessions.  Just take a look at these unique money making opportunities!

The Wing Man

If you have the social skills to pull it off, you can get paid to be someone’s buddy. Standing in as a single guys’ ‘Wing Man’ and running interference while he chats up the ladies can be an easy way to earn some fast cash. From another perspective… what man doesn’t become more appealing to women when he walks in with a beautiful girl on his arm? One word of warning: offer your services as a “consultant” to avoid being labeled as a paid escort!  And yes, this is a paid job!

Sell Yourself

Plasma, Hair, Sperm and Egg Donors make decent money, simply by donating to worthy causes. Plasma donors are always needed at local blood banks or hospitals, and giving blood on a regular basis can bring in anywhere from $20 to $275 weekly. Acting as a sperm or egg donor at a reproductive clinic can bring top dollar if you fit the criteria. Supplying human hair for wigs, hair extensions, or hairpieces can be a lucrative way to make money while helping others.

Be the Santa. The Pirate. Or Smokey Bear.

Birthday parties, corporate functions, sporting events and fund raisers are prime spots to have fun while earning money. People will pay to have a dedicated person wearing their costume or acting as their mascot – because after all, a paid performer is more apt to show up and stick with it… as opposed to making cousin Bob wear the outfit against his will. Another fun way to make money is to appear as a movie star look-alike.  Check out ‘Event Planners’ in the local business listings and offer your services as an on-call performer.

Lead, Don’t Follow  

Do you know a lot about your neighborhood, area recreation areas or hiking trails? Set yourself up to give tours! Walking tours are the easiest to pull off, with low overhead and low liability risk.  If you’re into hiking, take a group along on a (paid) nature hike in the back country.  Do you hunt or fish?  Offer your services as an outfitter and share your skill with others.

Make a Buck… Or Five

Fiverr.com is the go-to spot on the Internet to find someone who is willing to complete a task for just $5. Some people offer wacky gigs – like singing Happy Birthday to the person of your choice in a funny voice, or writing your name on their chest and sending you the photo (really!) From social media marketing to cartooning, it’s easy to offer up your talents to the world on Fiverr.com by posting whatever it is you’re willing to do for $5.

Back yard Money-Maker

Renting your back yard out may sound odd at first… but to the people who own boats, RV’s or sports cars and have no affordable place to store them , your back yard is like an oasis in the desert. If your back yard or property is particularly scenic and large enough, rent it out for weddings, barbecues, or family reunions.

Closet Timeshare

If you maintain a sizable wardrobe of designer clothing or specialty items, consider renting them out.  From business suits for the suit-less, to sports equipment, to wedding gowns, thrifty people have come to recognize the value in pay-per-use.

In the grand scheme of things, being creative is your best bet for making extra income. Utilizing your skills and talents can go a long way toward generating cash – and helping others in the process.

Do you have a unique way to earn money? Share it with us here!

]]>
http://www.moneyinthe20s.com/from-wing-man-to-santa-7-creative-ways-to-earn-a-buck/feed/ 0 1476
5 Ways to Make Extra Money http://www.moneyinthe20s.com/5-ways-make-extra-money/ http://www.moneyinthe20s.com/5-ways-make-extra-money/#comments Fri, 29 Apr 2016 21:28:10 +0000 http://www.moneyinthe20s.com/?p=2974 5 Ways to Make Extra Money

A lot of people don’t make enough money at their full-time jobs. If you’re in that category, there is one of two things that you can do.

The 1st option is to complain about your situation and do nothing. If you’re reading this, I don’t believe that you’re the type of person.

The second thing that you can do is to find a way to make some extra money. In today’s post, I will share with you five possible ways to make extra money.

Get a Part Time Job

The 1st and probably most conventional way to make extra money is to get a part-time job. Retail and restaurants are usually good places to start. They should be flexible enough to let you work after you get off your full-time job or on the weekends.

eBay

One of my favorite ways to make extra money is to sell items on eBay. You can make decent money on eBay depending on what you’re selling. People will buy almost anything. If you’ve never sold anything on there before, I’d suggest that you take a look at their site. You can find a niche you love, find great deals at garage sales, and resale on Ebay for 50%+ profits!

Wash Cars

People can be lazy at times. I had a friend who used people’s laziness to his advantage a few years ago by washing their cars. It was a pretty good side hustle for a college student. He was charging people $15 -$20 per car and averaging about 8-10 cars per weekend. That was pretty good money for a college student. I think anyone can do this hustle, though. You just need a few supplies and some decent promo skills (signs in your area and free ads on Craigslist).

Uber

I figured I’d stay with cars. The fourth way to make extra money is to drive with Uber. Uber is a company that allows people to use their own vehicle to take people places. The more you drive, the more money you can make. I had a friend who used to make $600 a week driving people place to place. Look into your area’s insurance laws before starting just in case though.

Yard Work

Another great side hustle is to do yard work. People are always looking for someone to cut the grass or trim the hedges for them. A lot of people are busy or just physically able to do this type of work anymore. That’s where you come in. If you have some tools and a truck, you should be able to get started in no time. You can advertise on Craigslist or let your neighbors know about you through free sites like Nextdoor.com.

Those were just five ways to make extra money. There are much more out there. You just have to find one way that works for you.

Do you need to make any extra money? Have you thought about trying any of these ways? Please share some more ideas too!

]]>
http://www.moneyinthe20s.com/5-ways-make-extra-money/feed/ 1 2974
How To Save Money On College Tuition http://www.moneyinthe20s.com/how-save-money-college-tuition/ http://www.moneyinthe20s.com/how-save-money-college-tuition/#respond Sat, 23 Apr 2016 17:30:27 +0000 http://www.moneyinthe20s.com/?p=2147 How to Save Money on College Tuition

Every summer the Internet is flooded with students looking to save money on college tuition. This can likely be your greatest expense in your 20s. Actually, most college graduates can be stuck with student debt for even decades after college. Pretty scary, huh?

The whole goal of this site is to help you manage your money in your 20s. We want to help you save money on the largest expenses there is. This is why today we’re going to tackle college tuition. The money you can save here will save you in the future. If you can cut back spending even by a dollar, that’s one extra dollar that you’ll have in your pocket when you’re down with college.

How can you save money on your college tuition?

Look into the funding options.

You should never let money hold you back from attending the school of your dreams. The truth is that the most prestigious schools usually have the most funding available. They want the best students. They won’t let money hold you back.

My first recommendation is to always apply to the best schools possible. Then once you get in, you can look into funding options to see if it’s even financially feasible for you to enroll. Please don’t let money get in the way of a quality education.

You could also look into a custodial account.

Attend a community college first.

Have you thought about attending a community college first?

To be upfront, this is what I did. I spent three years at community college and then I transferred my credits over to a larger university in town. I enjoyed many benefits from attending community college first. Some of these benefits were:

  1. Had more time to mature and grow up.
  2. Was able to work more to save more money.
  3. Had time to figure out what I wanted to do next.
  4. Less money invested into tuition meant less money wasted in case it didn’t work out for me.

I was happy with my decision to attend a community college first. It’s not the best option for everyone, but it could be right for you.

Apply for every single grant, bursary, and award possible.

There are so many sources of funding available. You just need to apply for them. I didn’t know about this until I ran into a buddy in the cafeteria one time. He told me to come with him for a walk. We picked up some forms and went to work on them. I didn’t know why we had these random forms. I did my best to fill out the application.

A few months later I received an email to my school account informing me that I had a $300 check waiting for me. I had received my first bursary. From that point forward, I applied for every form of funding possible.

If you don’t ask the answer is always no, right? Give it a shot. You have absolutely nothing to lose.

Work at your school.

Most colleges post jobs frequently for work around campus. I found that I wasn’t on campus enough so I applied for some random gigs that I saw posted. A few weeks later I was an Exam Invigilator. In other words, I made sure you didn’t cheat on exams (but you wouldn’t cheat).

Working at school allowed me to make some additional money that I could save and use towards my tuition. Plus , the job was pretty easy. Oh and you got to meet more students. I’ll stop there.

Avoid school for a year.

Why rush to attend college? You can take a year off to figure out what do next. College isn’t the next logical step in your life. You can have a year off to work, save, travel, or just decide what you really want out of life. My friend took a year off and realized that he didn’t want to live in this world without an education. He ended up going after his Master’s Degree because he saw how difficult life could be without credentials.

That’s how you can save money on college tuition and even possibly graduate debt free. I was fortunate enough to graduate debt free. The result was that I’ve been traveling and doing cool things ever since I finished up with school.

Are you ready to slap that expensive college tuition bill in the face?

]]>
http://www.moneyinthe20s.com/how-save-money-college-tuition/feed/ 0 2147
My Kids’ Stagnant 529 Plans http://www.moneyinthe20s.com/kids-stagnant-529-plans/ http://www.moneyinthe20s.com/kids-stagnant-529-plans/#respond Mon, 28 Mar 2016 11:00:14 +0000 http://www.moneyinthe20s.com/?p=2941 529 College Savings Plan

When I went to college (too many years ago to count now), my parents didn’t have a college savings plan. But my parents had more than just a wing and a prayer when it came to financing my college education… and it didn’t involve a 529 plan.

529 plans became a “thing” in 1996 – by which time I was already in high school. For a while, they were very trendy – when I was pregnant with my daughter, our financial adviser at the time asked if I wanted to set something up for her before she was even born (before she had a social security number! I politely declined). But eventually, I did succumb to 529 madness – and I’ve regretted it ever since.

If you don’t know how a 529 plan works, here’s a quick blurb from the IRS:

“[A 529 plan is] A plan operated by a state or educational institution, with tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training for a designated beneficiary, such as a child or grandchild. Earnings are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses of the designated beneficiary, such as tuition, fees, books, as well as room and board. Contributions to a 529 plan, however, are not deductible.”

In other words, a 529 college savings plan is basically akin to a Roth IRA when it comes to tax-free growth.

But the real question here is, does your child need a 529 plan? Is it worth YOUR time, energy, and – most importantly – investment?

For my family, the answer is increasingly no. Here’s why:

1) When you invest in your child’s 529 plan, that money can ONLY go towards education expenses. While that doesn’t simply mean tuition, it does tie your hands, especially if you ultimately have a child who eschews college for the military, the workforce, etc.

2) If you invest $50,000 into your child’s 529 plan, you can rest assured that every dime of that $50,000 will go to the school they ultimately attend. However, if you put that same $50,000 into one of your retirement accounts, FAFSA can’t touch it, and your family’s estimated financial contribution will be dependent upon your family’s income, not the assets in the 529. More on this later.

3) For most investors, the typical lead time on a 529 plan is maxed out at 18 years (ie, you start contributing at birth, and start withdrawing at age 18, when the child goes to college). On the flip side, retirement investing is typically longer-term (ie, you start investing at, say, 25, but don’t plan to make withdraws until your 60s). That gives you significantly more time for your investment to grow.

4) Because of points #2 and #3 above, it makes far more sense to invest in your 401k or Roth IRA retirement accounts before sinking a dime of your money into a 529 plan. If you still have extra money left over after maxing out these retirement vehicles, then by all means, invest in the 529!

So how did my parents pay for my school without any type of college savings plan? And how does that differ from someone whose parents used a 529 plan? Let’s take a look at 2 examples from within my own family:

My scenario

My dad – who, full disclosure, is a CPA – chose not to save a lick of money for my college years. I always found this to be an interesting choice, since from a very young age, I became transfixed by the idea of attending a prestigious (re: expensive) East Coast school. I often wondered how my parents would pay for it. I needn’t have worried.

When I got into my dream school and my parents filled out FAFSA, our estimated family contribution was about $25k/year. However, my school of choice gave me a small scholarship and a few grants, which brought it down to closer to $18k/year. My parents were able to pay – on average – $14k/year, and we took out a loan (back when student loans were slightly more affordable – interest rates have since skyrocketed) for the remaining $4k/year. I graduated with just shy of $17k in debt.

My cousin’s scenario:

On the flip side, there’s one of my cousin’s, whose parents started stocking away for her education when she entered kindergarten. When 529 plans became available in the late 90s, they transferred that money into a 529 account, where it continued to grow for about 10 more years. (I’m about 8 years older than my cousin, so part of the financial differences in our situations are caused by age and fluctuating college costs). By the time she went to college, her parents had saved about $75k – but they failed to max out their individual retirement accounts first.

They filled out the FAFSA forms, and by the time my cousin graduated four (and a half) years later, the entire $75k was gone, and she still had roughly $5k in student loans. Oh – and her parents were years behind in their retirement planning, because they had put her college ahead of their retirement.

This all goes back to the tried and true saying that while you can borrow money to pay for college, you can’t borrow money to pay for your retirement. So while a 529 plan may be a great option for you and your family, make sure you do the math, run the scenarios, and ensure that you aren’t robbing Peter (yourself) to pay Paul (your child’s college education).

And as for my kids?

Yes, they have 529 accounts, but I haven’t put a lick into them in 2 years. Once you open an account and put money in it, you can’t really do anything with it (ie, I can’t transfer it to my Roth) – although my new adviser and I continue to look for loopholes to make that happen legally and without paying a penalty! I plan to help put my kids through college, but I’m doing it the way my parents did it. After all, sometimes father really does know best.

]]>
http://www.moneyinthe20s.com/kids-stagnant-529-plans/feed/ 0 2941
The Best Financial Advice for Every Year: Age 22 http://www.moneyinthe20s.com/best-financial-advice-every-year-age-22/ http://www.moneyinthe20s.com/best-financial-advice-every-year-age-22/#respond Wed, 09 Mar 2016 12:00:27 +0000 http://www.moneyinthe20s.com/?p=2949 The Best Financial Advice for Every Year: Age 22

This is the third in a monthly series about specific age-by-age financial advice for 20-somethings. You can find the rest of the series here:

Advice for 20-year-olds

Advice for 21-year-olds

If you’re 22 right now, chances are either your parents or grandparents are “Baby Boomers” – members of the generation born between 1946-1964. These Post-WWII babies came of age during the 60s and 70s, years of turbulence and change. One of those changes happened in 1978, when Congress passed a revenue tax that, among other things, created what we now know as 401(k) plans. That means the oldest members of this generation were 32 when this revolutionary retirement-savings tool was introduced; the youngest members were still young teens.

So maybe it isn’t surprising that the Boomers – who didn’t grow up hearing about 401(k) plans and other retirement savings options on a regular basis – are now facing a major retirement crisis. According to many reports, the average Boomer on the verge of retirement has between $25,000-$100,000 in their 401(k), a paltry sum when you consider that retirees are living longer than ever.

Why does this matter to you, as a 22-year-old? Because, and I’m taking a shot in the dark here, you probably don’t want to end up broke in what are supposed to be your “Golden Years.”

Retirement Savings

The path to a financially stable retirement starts young – in fact, the younger the better. Play around with this investment calculator (there are many like this out there on the Internet, but this is my favorite), and you’ll see that starting to invest in your early 20s as opposed to early 30s can have a monumental impact on your savings down the road.

Why is 22 the perfect age to start a 401(k) account? Because many Americans – particularly the increasingly large college-educated cohort – will start their first full-time job upon graduation at, roughly, age 22. And when you’re negotiating that first job, you should do it with your future investments in mind.

Here’s what I mean by that:

Say you’re offered a job paying $35,000 a year and health benefits. Now another company offers you $32,500 a year plus health benefits AND a 401(k) employer match.

On first glance, you might take the higher salary and be happy with it. But depending on your employer match – and how much money your budget allows you to put into that 401(k) account – you might be leaving money on the table. An employer match can be a very lucrative option that, because of a whole bunch of complicated tax policies that at age 22 I’m pretty sure you don’t care about (but if you do, click here), doesn’t cost the company all that much money but still has a large benefit for you.

So my advice to all you 22-year-olds (or anyone who just starting their first full-time “adult” job): if you have the option to start a 401(k) plan through your employer, do it. Save early, save often. And if you don’t have the option to start a 401(k) plan at work, be sure to set aside money on your own – whether by funding an emergency account or starting a Roth IRA – so you don’t fall behind.

Trust me, your 65-year-old self will thank you for it.

]]>
http://www.moneyinthe20s.com/best-financial-advice-every-year-age-22/feed/ 0 2949
The Best Financial Advice for Every Year: Age 21 http://www.moneyinthe20s.com/best-financial-advice-every-year-age-21/ http://www.moneyinthe20s.com/best-financial-advice-every-year-age-21/#respond Wed, 24 Feb 2016 12:00:06 +0000 http://www.moneyinthe20s.com/?p=2947 Advice For Millenials

This is the second in a monthly series about specific age-by-age financial advice for 20-somethings. To check out my advice for 20-year-olds, click here.

Age 21 is full of major milestones: you can legally drink, you can legally gamble, and any vestiges of “childhood” – like parental consent for marriage or having a provisional driver’s license – are officially a thing of the past. But with all of these new freedoms comes new responsibility as well; that applies to managing your finances as well.

My financial advice for 21-year-olds is simple: have a plan. When I was 21, I was heading into my senior year of college; my husband was 21 when he graduated. For many of us, 21 is a pivotal age – it marks not only the official, legal end of childhood, but for many, it marks the end of your formal education.

So at age 21, it’s crucial that you take stock of where you’re at financially, and where you want to go. By age 21, you should know:

  • The exact amount of your student loan debt. American student loan debt now tops $1 trillion, and the majority of students will leave college (note I didn’t say “graduate from college” – if you took out loans, you’ll have to repay that debt whether you graduate or not) owing money. If you don’t know exactly how much you owe and the terms under which you’re expected to repay it, you’re already one step behind;
  • Any other debt obligations you’re facing, whether that be credit card debt, a car loan, or something else;
  • Approximately how much money you can expect to earn once you’re out of school. There are a lot of great websites out there that will give you estimated incomes for jobs based on location, education, and a variety of other factors. It’s critical that you know how much money is coming in, otherwise you won’t know how much money can go back out to pay bills, fund an emergency savings account, or just have fun;
  • How to construct a budget. This includes everything from your rent and debt repayment obligations to expenses for gas, food, utilities, telecom, clothing, etc.

Once you’ve figured out the four steps above, you’ll have the knowledge to enter adulthood with both eyes open. I knew far too many 21-year-olds (my husband among them) who entered adulthood with no idea how to manage their finances; his parents had always done it for him, and when he graduated, he found himself completely clueless how to do it himself.

]]>
http://www.moneyinthe20s.com/best-financial-advice-every-year-age-21/feed/ 0 2947