Saving for College

apple_dollar_signHow should parents go about financial planning for college? Do you plan to save enough to pay all expenses – for each of your children? Do you expect your child to fund his/her higher education through loans, part-time employment or both? Naturally, all parents would love to give their child the gift of a fully paid education to his/her child’s college of choice…but what is the financial reality here? What expectations and financial goals have been established by you and your spouse, and what is your child’s level of involvement in the process?

My 13 year old who dog walks and babysits already has a couple hundred saved. It may not seem like much right now, but what’s most important is that she has established financial goals and taken responsibility for her continuing education. My husband and I have set clear and realistic expectations for college. She will attend college. She will be responsible for at least partially funding her education, and she will NOT graduate with student loan debt. Can I guarantee any of this? No; however, I believe goal setting and involving my kids in weekly discussions about money, savings, and college help set the course for a high likelihood of success. We’ll see.

Does past performance predict future performance?

My husband graduated high school in 1987, but didn’t earn his bachelor’s degree until 1994. It took 7 years because he’d work a year, save a bit, pay a year’s tuition, work some more, take a half-load, pay another semester’s tuition, work a little more, save, pay and repeat. He lived at home while working and going to school part-time the first few years out of high school. His parents gave him nothing for college (even charged him rent while he was living at home – working and saving).

By 1991 he had finally scraped up enough money and credits to transfer to a state university five hours from home. From that point on, he took full credit caseloads, PLUS worked 40 hours per week, plus paid for off campus housing. Graduated with zero student loan debt.

Although this was 20 years ago, I refuse to believe it’s no longer possible for any motivated young person who is determined to graduate without debt to do so. Too many people shrug their shoulders and embrace the status quo.

You don’t need “rich” parents to graduate without debt.

Live at home, work while attending school, attend a community college the first few years. Save. Ride your bike and forego an expensive car, insurance, and gas prices while you’re a teenager. Who says kids have to have what their parents have? Just because YOU have a smart phone and nice car, doesn’t mean your kids are entitled to it, or need it for a happy or comfortable life.

Your kids are young, and should be expected to WORK, take ownership of their lives, and be responsible for themselves.  This is the BEST thing you can do for your them, and  it’s exactly how my husband, Mr. Money Apple, was raised. Although his parents couldn’t give him financial contributions for school, they did  give him a strong work ethic, taught him the value of responsibility and hard work, and set expectations for his success.

Now, IF you’ve paid yourself first….meaning you’ve fully funded your employer sponsored 401k and maximized separate ROTH IRAs contributions for yourself and your spouse, refinanced your mortgage down from a 30 to a 15 year term, paid off all your cars, and carry no credit card debt, NOW, you can start to set aside a monthly contribution for the kids’ college expenses. After I did ALL these things – here’s how I invested for my kids’ college educations…

But wait! Please note before you read any further. I am not giving YOU financial advice. I’m not your financial adviser. Do whatever the hell you please with your hard earned money. You can even tell me I’m an idiot for paying my mortgage off within 5 years when I only had a 2.875% interest rate (more on this later). Bottom line: I’m simply sharing the personal finance experiences and choices I’ve made over the years with you, the happy reader, so enjoy!

In late 2001, shortly after the birth of my first daughter, I invested $5000 into a state sponsored 529 plan. In 2003, after my second daughter’s birth and lackluster performance from the “managed” 529 plan, I decided to invest $3000 into a DRiP custodial account. My stock of choice? McDonald’s which was trading around $12/share. Today, after steady contributions to Daughter #1’s EdVest account and much smaller contributions to Daughter #2’s DRiP – mostly the dividends that are reinvested – the DRiP has considerably outperformed the 529. Remember now, this is a case study of one. I repeat, “do whatever the hell you want with your money.”

Because there is a tax benefit –  I continue to contribute $3000/year to Daughter #1’s 529 as that’s the most one can claim for a state tax deduction. After that, I place the rest of my investment money into custodial DRiPs (Daughter #3 owns high dividend yield AT&T).

Another powerful strategy I’ve employed (and many will whine and say it’s impossible – but here I sit doing it) is paying off the mortgage – in full – before your first child heads off to college. Once the mortgage is paid off – that monthly payment can be put directly towards tuition expenses.

I bought my current home in 2010. I have about 1 1/2 years remaining on my mortgage. Once the loan is paid off, if I start allocating that monthly mortgage amount into DRiPs, 529s or brokerage accounts…well, you know the rest.

A final thought: language is powerful. I never, ever tell my kids stupid things like, “Don’t worry, we’ll cover the costs of college for you – even if it means co-signing or mortgaging the house…” “You’re so precious, you deserve an ivy league school – only the best for my baby – worry about paying for it later.”  “Enjoy your college years – focus on studies – you’ll have the rest of your life to work at a job and earn money…” Blah blah blah – BARF. Comments like these spoil children and build a sense of entitlement. My kids don’t hear phrases like this in our household.

Regardless, if there’s a million bucks in my kids’ college accounts by the time they’re ready to head off to school, you can bet I will still expect them to work, save, and contribute. After all, a sense of pride in hard work and accomplishment really is the best gift a parent can give.

 

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Mr. Money Apple’s $2 Father’s Day Gift!

Mr. Money Apple's $2 Father's Day Gift!

Mr. Money Apple hasn’t had a new pair of walking shoes since 2009. Today, he was so proud of himself – he scored these $65 Fila shoes with Kohl’s coupons, discounts, and an unused gift card for a grand total of $6. Afterwards, I reviewed the receipt and noticed he didn’t get the “extra 15% off for using your Kohl’s charge” that we’d been promised. I promptly returned to the store, and got an additional $4 credit (the second receipt pictured) brining the grand total to $2.00.

 

 

Money Apple Introduction

Here we go. Approaching the big 4-0h in 2014 with three children ages 10, 11, and 12, and married to Mr. Money Apple since 1997. My first bit of relationship advice: find a person who is financially like-minded when in comes to money. I knew within the first month of dating that DH was a hard worker with no debt. As our relationship matured, we began bivouacking cash together – even before marriage. DH had been contributing the max to his 401k and me, my 403b.

We collectively believed that saving for retirement begins in year one. That philosophy has maintained throughout our seventeen year marriage. Time and again, I’ve heard others lament the fact they can’t even contribute the minimum up to the employer match. An argument I find to be so utterly ridiculous that it’s nothing short of a bold faced LIE. These individuals are most definitely lying to me (inconsequential) but more importantly lying to themselves (highly consequential).

If you’ve read this far into my blog, you may be wondering what my objective is. Well, I love reading financial blogs – especially those that focus on financial independence, or for lack of a better term: early retirement. I prefer the term financial independence…it’s a much more appropriate and accurate representation of what I’m all about.

I’ve found while perusing these financial blogs that the “best” ones are written by men, single men without children, older men. Blah. How about a middle-aged mother with three “tween-age” daughters who’s constantly battling heavy consumerism pressures and attitudes?

To be clear, if were only about me, things would be far easier – and thus less fulfilling – because choosing NOT to have children would never have been part of the success equation. Extra money, financial security, pursuit of new learning, travel and early retirement mean nothing to me without a family.

Saving and frugality are second nature. They have been woven so tightly into the fabric of who I am that they are of almost no consequence whatsoever…to ME.

Don’t get me wrong, many acquaintances and neighbors over the years have tried to talk down to me because of what I don’t purchase, I’ve rarely let it affect my psyche and have never allowed it to pressure me into spending money frivolously.

However, my children attend a public school in a typical middle class suburb, and therefore succumb to daily pressures and comments from their peer groups. Their young minds aren’t as sophisticated as my own. It takes time and good parenting to make your children independent thinkers and consumers who can shake off the disdain others project onto them because of “things” they don’t own. THIS is the challenge, THIS is one major point of my blog. However, I’m a teacher by nature, and I know there are other individuals out there who want to succeed at financial independence. I’m here to help those readers as well. My target demographic is the working or stay at home mother type; however, anyone with a will to succeed will hopefully find my posts both inspiring and informative.

I’m going to write about things such as housing, investing, saving, frugality, and parenting, plus whatever else ties into the motif of financial independence.  I hope you enjoy my posts. I welcome reader feedback and hope I can learn from you as well. Thanks for visiting my Money Apple page!

Once Upon an Apple – Part Two

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There once was a little apple who didn’t fall far from the apple tree. This little apple, though not really realizing it at the time, intuitively picked up on many good spending and saving habits her parents had exhibited over the years.

Then, one day, on Little Miss Apple’s 16th birthday her parents handed her the keys to her very own car and a credit card.

Wait…THAT doesn’t sound prudent or frugal or wise on the parents’ part at all. Let’s dig a little deeper here (plus I’ll return to writing in first person).

As I was saying — on my 16th birthday —  I got a car, a red 1979  Ford LTD.  It was a BOAT —  for lack of a better metaphor, and before I owned it, it was my great-grandfather’s car.  Dad had a knack for buying used, well cared for cars from family members over the years. This was no exception.  Along with the car, my parents handed me my first credit card complete with my very own name on it. I still remember the feeling of exhilaration I felt holding that shiny silver card and lightly tracing over the letters of my name with my fingers.  What a thrill.

I was told the “rules of card usage” once. Only Once.  And from that day on,  I’ve been using credit cards appropriately.

Rule #1: the purpose of this credit card is for emergencies only – such as gas or a tow truck

Rule #2: you’re responsible for paying the bill – in full – every month

Rule #3: if you break rule #1 or rule #2 you lose the credit card

That’s it. Those were the rules and I followed them. I got a job and earned my own money and paid my bills. As a matter of fact I had the job before the car and credit card. I suppose that was my way of showing my  creditworthiness – as banks refer to it – or by definition the ability to pay back what you borrow.  Dad bought me the car and mom got me the credit card, but I paid for the gas and half the insurance payment (as long as I stayed on the honor roll, Dad paid the other half).  If Dad would have told me I was responsible for the full annual insurance premium, I would have paid that too, and he knew it. I guess that’s what mattered more than the actual cost.

The teenage driving years were good. I had a car and a job and cash for gas and clothes and social fun with my friends. I stopped asking my parents for money, though by now my mom had her accounting degree and was working for a firm full-time so their income had increased significantly. This bump in income gave my parents a nice cushion, but it didn’t mean their spending increased. It meant their savings increased (I could add a few exceptions to that statement here like my spoiled little sisters and brother – but I’ll save that for another day:) I noticed once my mom had a good paying job,  retirement savings increased and they began investing more regularly in the stock market and rental properties. Most importantly, they continued to live in their paid off little home with four of their kids.

I worked as many hours as the theme park allowed. I opened a savings account and started accruing money. Little bits at at time. I met my husband at my summer job when I was 17. He didn’t become my boyfriend though until I turned 19. And then we broke up and finished our college degrees at universities five hours apart from each other.  And then we made up. And then we got married. And here’s where I became Mrs. Money Apple and the story gets interesting…

Once Upon an Apple – Part One

There once lived a little girl who lived in a small town in southeastern Wisconsin. Her dad was a mechanic and welder for a world-wide waste disposal company in northern Illinois. Her mom was a homemaker for about ten years until she went back to school around age 30 and earned her accounting degree.

The reason for this tale is to teach you what the little girl learned from her parents. It’s important because frugality, responsibility and discipline aren’t learned in a day or a week or even a college course. These are lifestyle attitudes — modeled daily by parents — the most significant influence in their children’s lives.  We adopt these habits and attitudes through very little explicit instruction, instead internalizing learned behaviors and eventually making them our own.

Reflect for a moment about your own parents and memories of their interactions with money. How did they respond when you were out shopping with them at the store, and begged desperately to purchase something? What kinds of gifts did you get for your birthday? Christmas? What did they teach you about charitable giving? In short, how did they spend their hard earned money? What did they value?

I can tell you this. I am where I am today because my parents simply lacked the money to indulge their five children. Having no choice is sometimes a good thing. Back in the 1980’s there were credit cards, though I never saw my mom use one. My recollection of mom’s spending was her whipping out the check book for nearly all purchases. This meant she had no choice but to be careful with expenditures. If spending outpaced earnings mom would be left with a negative number on her register which was simply out of the question. So we’d do without, put stuff back on the shelf,  and buy only the necessities with an occasional splurge.

Fast forward for a moment to the 21st century. Even with so-called “credit card reform” –  plastic is still readily available and debt rampant. For most Americans, conspicuous consumption is difficult to get under control — especially for those who don’t understand basic math, or feel compelled to participate in “lifestyle inflation”.

As I mentioned above my dad had a “good” paying union job as a welder and mechanic. And by good, I mean he earned a livable wage that supported a family of seven’s basic needs with enough left over for a modest amount of savings and recreation. Mom stayed home for most of my childhood, though I do recall her peddling things like Avon or dabbling in real estate  to supplement the family income. The best part about this once upon a time tale is that I had a fulfilling childhood. Sure, I wore second hand clothes and rode second hand bikes and we drove around town in big, clunky used cars; but we ate good, smelled good, and took many memory-making, camping trips in the old, black Ford Econoline.

I never rode on an airplane until age 17, but you know what? It didn’t affect me adversely at all.  My parents gave us all happy childhoods on (for the most part) one middle class income.

Do you want to know what would have probably affected me adversely as a kid?  If my parents had projected their constant stress and bickering over money onto me. If they’d gone deeply in-debt trying to “keep up with the Joneses” and give their kids the life they never had…blah blah blah. I saw many childhood friends experience divorce, mostly because of their parents’ misery, regret, and inability to keep spending under control, no matter how much they earned. Now that’s sad.

Mom and Dad bought their modest three bedroom 1.5 bath ranch in 1975 for $35,000. My dad was a competent self-taught carpenter on the side, adding two bedrooms, a playroom and a rec-room to our basement over the years. In 1984 they put on a $10,000 addition to add a little more square footage to the homestead.  Sometime in the mid 80’s my dad had a little celebration. He called us all into the kitchen and announced the mortgage on our home was officially paid off. He made a point of educating me on the importance of this, but at the time,  I honestly didn’t give a shit. I was pre-occupied with other things in my life, like Jordache jeans and pet rocks. I remember though how important this event was to him and that’s why I remember it today.

But, it’s not about a one time event. I had many happy birthdays, lots of great toys like Cabbage Patch Dolls and Atari. My parents could afford, with careful budgeting and saving, just about anything, they just couldn’t afford everything. And by practicing frugality day after day,  Dad proved what small saving habits could compound into: an entire home – paid off – within ten years. Think it can’t be done in this day and age? Stay tuned.