Courtesy of: Schools.com
A fascinating look at college costs
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An open letter to my son
Junk town. On Tuesday I found out that Mrs Planner and I are having a baby boy. I’m already a dad to a lovely little lady, and I’m very excited to meet my son later next spring. I can’t possibly imagine that being the father of a son is any better than being the father of a daughter, but time will tell…me the obvious. The relationship that I had with my father is/was amazing. I want to get off to a good start with my boy. Since he can’t read…yet, this is my first letter to him. While money doesn’t define me, its understanding is what I have committed my life to. Therefore, this letter is my best stuff. This is: what I would tell my own son about money in 500 words or less.
Hi Son,
I love you. I wanted “I love you” to be the first words that you ever read from me. It’s important that you know that I love you, because I’m about to talk to you about relationships. Relationships are life. Your relationships will define you. Your ability to nurture, grow, and maintain relationships will make your life either easy or hard. But here’s the rub, boy, many things will disguise themselves as something other than a relationship, when in fact, all things are related to relationships.
Take for example, money. Money appears to be about everything except relationships. Money seems to be about getting what you want. Money seems to be about giving you things that you need. But it’s not. Money is about relationships. Why do your mother and I forego vacations from time to time? Because we love you. We want to pay for your college education. This requires sacrifice. Sacrifice becomes palatable when a sacrifice becomes about a relationship. There will be times in your life when you want to buy something for yourself that you can’t afford. There will be times in your life that you want to make your wife happy by buying her something that you can’t afford. But the reality is that if you really value your relationship, then you will do what’s right for your family, not just instant gratification. Sometimes saying no means “I love you.” Thirty and forty year-old adults have a tough time with this concept, so I thought I would start teaching you about it early. And by early I mean five months before your first breath.
I have had the good fortune to look into the financial lives of thousands of people. I don’t take this privilege lightly. The major downfall of modern financial humanity is the inability to see the forest through the trees. Many people that read my financial thoughts often think that I’m a proponent of deprivation. When in fact, deprivation has nothing to do with it. I’m not asking people to “go without” blindly. I’m merely suggesting that people think 10 years ahead when making any financial decision. So that’s exactly what I’m asking of you. Always think 10 years ahead when making a financial decision.
When you are 18 and entering college, think about your financial decisions. Because you are likely to be paying the price for them when you are 28. When you are 25 and thinking about buying a house instead of renting, think about your life at age 35. And don’t make the false assumption that you will automatically be in a better financial position the older that you get. It’s your willingness to scrutinize important financial decisions in the moment that gives you the right to have a secure financial future.
And finally this: money has nothing to do with money. As long as you know that money is about habits, discipline, and relationships, you’ll do fine. I’m excited to teach you more about life, but I wanted to start with the basics. Life is relationships.
See you soon,
Dad
Pete the Planner’s guide to college planning
Saving for college has become increasingly difficult for American families. There are two primary reasons for this: 1) decreasing financial sensibility 2) college price inflation. While this blog is always dedicated to helping you overcome financial sensibility deficiency, today’s post is dedicated to helping you deal with skyrocketing college price inflation. Cool?
I very much enjoy the “college is too expensive: conversation. I’m dedicating two hours of my radio show to this very topic this coming Friday. I’ll post the podcast of the show here early next week. College education has become increasingly inefficient. Whereas technology is leveraged in many industries to decrease consumer costs, colleges (for the most part) have refused to pass on the saving to consumers. Not only that, but colleges have been able to take advantage of student loan subsidization and push college costs even higher. Check out this chart from FinAid.org. If shows college inflation compared to general inflation. College inflation is almost double general inflation. That’s not cool.
| Year | College Inflation | General Inflation | Rate Ratio |
| 1958-1996 | 7.24% | 4.49% | 1.61 |
| 1977-1986 | 9.85% | 6.72% | 1.47 |
| 1987-1996 | 6.68% | 3.67% | 1.82 |
| 1958-2001 | 6.98% | 4.30% | 1.62 |
| 1979-2001 | 7.37% | 3.96% | 1.86 |
| 1992-2001 | 4.77% | 2.37% | 2.01 |
| 1985-2001 | 6.39% | 3.18% | 2.01 |
| 1958-2005 | 6.89% | 4.15% | 1.66 |
| 1989-2005 | 5.94% | 2.99% | 1.99 |
What does this mean? It means since the US Government is guaranteeing student loans, that more students can borrow. Which in turn means that demand for a college education is high. And competition to attract and retain students is even higher. This leads to some pretty nutty stuff. Why does your college have a climbing wall? Why does your alma mater have dorms nicer than most three star hotels? All of these amenities cost money. And you are paying for it. Well, your student loans are paying for it.
Am I against sending your child to college? Absolutely not. However, I am against cost inefficiency. I encourage you to seek out institutions that honor their commitment to their students’ financial futures. For instance, Grace College has a four year degree that you can earn in just three years. This reduces student tuition costs by 25%. That makes sense to me. You?
So what should you do? It’s pretty simple: plan. I guess if I was Bob the Builder I would tell you to build. But since I’m Pete the Planner, the answer is to plan. The easiest way to fund college is to fund this goal over time. If you start saving right away, then time becomes your friend. If you wait until your kid is old enough to spell college, then time is your enemy. Here’s what I mean:
$200 saved per month for 18 years (started the month your child is born) at a hypothetical 8% rate of return will give you $97,071.03 by the time college rolls around.
$200 saved per month for 12 years (started on your child’s 6th birthday) at a hypothetical 8% rate of return will give you $49,188.71 by the time college rolls around.
Waiting just 6 years cuts your college savings IN HALF!!! That’s not good, but it’s math. So don’t fight math. Use math.
Where should you put your money?
There are several ways to save for college, but choosing the right one can mean the difference between needing student loans and avoiding student loans. Your method for savings should allow you to defer taxes. This means that you don’t have to pay taxes on your investment growth. Your Roth IRA works the same way. It grows tax deferred. The most popular college savings vehicle is the 529 plan. This plan allows you to invest your money into a tax deferred education fund. The money can then be used for college expenses. But here is what makes them VERY attractive in my opinion: many states will give you a tax credit for investing in one. That basically means that you will get a tax refund for a portion of your deposit. For instance, in Indiana by depositing money into the College Choice plan, you are eligible for a 20% tax credit on your deposits up to $5,000. This means that if you deposit $5,000, then you will receive a $1000 tax credit. That means that you will possibly get a $1000 check from the state (some restrictions apply). Therefore, a $5,000 deposit can become a $6,000 deposit, if you deposit the $1,000 tax credit back into the plan.
Let’s see how that would affect our original calculations:
$240 saved per month (original $200 plus 20% from tax credit) for 18 years (started the month your child is born) at a hypothetical 8% rate of return will give you $116,485.24 by the time college rolls around.
$240 saved per month (original $200 plus 20% from tax credit) for 12 years (started on your child’s 6th birthday) at a hypothetical 8% rate of return will give you $59,026.45 by the time college rolls around.
That’s a huge increase!! And all you had to do was save into the right college savings vehicle. Be sure to check on the rules in the state in which you live. Here’s a list of the different state tax rules (provided by FinAid.org).
| State | 529 Deduction |
| Alabama | $5,000 per parent ($10,000 joint) |
| Alaska | No state income tax |
| Arizona | $750 single or head of household/$1,500 joint (any state plan) |
| Arkansas | $5,000 per parent ($10,000 joint) |
| California | – |
| Colorado | Full amount of contribution |
| Connecticut | $5,000 per parent ($10,000 joint), 5 year carryforward on excess contributions |
| Delaware | – |
| Florida | No state income tax |
| Georgia | $2,000 per beneficiary |
| Hawaii | – |
| Idaho | $4,000 single/$8,000 joint |
| Illinois | $10,000 single/$20,000 joint per beneficiary (25% tax credit for employers for matching contributions up to $500 per employee) |
| Indiana | 20% tax credit on contributions up to $5,000 ($1,000 maximum credit) |
| Iowa | $2,811 single/$5,622 joint per account |
| Kansas | $3,000 single/$6,000 joint per beneficiary (any state plan), above the line exclusion from income |
| Kentucky | – |
| Louisiana | $2,400 single/$4,800 joint per beneficiary, above the line exclusion from income, unlimited carryforward of unused deduction into subsequent years |
| Maine | $250 per beneficiary starting 2007 (any state plan), above the line exclusion from income, phaseout at $100,000 single/$200,000 joint |
| Maryland | $2,500 per account per beneficiary, 10 year carryforward |
| Massachusetts | – |
| Michigan | $5,000 single/$10,000 joint, above the line exclusion from income |
| Minnesota | – |
| Mississippi | $10,000 single/$20,000 joint, above the line exclusion from income |
| Missouri | $8,000 single/$16,000 joint, above the line exclusion from income |
| Montana | $3,000 single/$6,000 joint, above the line exclusion from income |
| Nebraska | $5,000 per tax return ($2,500 if filing separate), above the line exclusion from income |
| Nevada | No state income tax |
| New Hampshire | – |
| New Jersey | – |
| New Mexico | Full amount of contribution, above the line exclusion from income |
| New York | $5,000 single/$10,000 joint, above the line exclusion from income |
| North Carolina | $2,500 single/$5,000 joint, above the line exclusion from income |
| North Dakota | $5,000 single/$10,000 joint |
| Ohio | $2,000 per beneficiary per contributor or married couple, above the line exclusion from income, unlimited carryforward of excess contributions |
| Oklahoma | $10,000 single/$20,000 joint per beneficiary, above the line exclusion from income, five-year carryforward of excess contributions |
| Oregon | $2,090 single/$4,180 joint (i.e., $2,090 per contributor) per year, above the line exclusion from income, four-year carryforward of excess contributions |
| Pennsylvania | $13,000 per contributor per beneficiary (any state plan) |
| Rhode Island | $500 single/$1,000 joint, above the line exclusion from income, unlimited carryforward of excess contributions |
| South Carolina | Full amount of contribution, above the line exclusion from income |
| South Dakota | No state income tax |
| Tennessee | – |
| Texas | No state income tax |
| Utah | 5% tax credit on contributions of up to $1,740 single/$3,480 joint per beneficiary (credit of $87 single/$174 joint) |
| Vermont | 10% tax credit on up to $2,500 in contributions per beneficiary (up to $250 tax credit per taxpayer per beneficiary) |
| Virginia | $4,000 per account per year (no limit age 70 and older), above the line exclusion from income, unlimited carryforward of excess contributions |
| Washington, DC | $4,000 single/$8,000 joint, above the line exclusion from income |
| Washington | No state income tax |
| West Virginia | Full amount of contribution up to extent of income, above the line exclusion from income, five-year carryforward of excess contributions |
| Wisconsin | $3,000 per dependent beneficiary, self or grandchild, above the line exclusion from income |
| Wyoming | No state income tax |
Some parents don’t want to pay for the cost of college. I don’t have a problem with that at all. You can always finance a college education, but you can’t finance retirement. I would just encourage you to make a decision rather than having your lack of action make your decision. I honestly think that college costs will become more efficient. I think there will be a giant student loan default crisis in the next 5 years, and this will help reset college costs. People will think twice about borrowing tons of money that they have no means of paying back. This will bring down demand, thus bringing down colleges prices. It will be exactly like what happened to the housing market in the last 4 years.
Remember, start early. It will make it much easier on you. BONUS TIP: As your child progresses through different stages of life, take advantage of expenses left behind. What does this mean? This means that when you stop spending money on diapers, increase your college contributions by the exact amount you spent on diapers. When you stop paying for daycare, make deposits into your college plan for the amount you spent on daycare. This is the absolute best way to supercharge your colleges savings plan. Good luck!! And don’t forget to listen to my podcast on this topic next week. I will post it for you.
*****Check with your investment advisor on the investment risks involved with college savings plan. Many of them are variable in nature, which means risk.******
5 signs that you bought too much house…and what to do next
One of the most common financial problems facing Americans today is “owning too much home.” And by owning, I mean in the process of owning. In other words, securing a mortgage for a house in which you can’t afford to live. This is a very serious problem. If this happens to be your problem, then you need to address it ASAP.
What sort of problems can “too much house” cause?
Well, lots. High utility costs, high maintenance costs, and high stress levels to name a few. But low housing liquidity and high foreclosure risks are what would keep me up at night. Housing liquidity is used to describe how easy it would be for you to quickly sell your home at an “acceptable” price. The lower the liquidity, the harder it would be to get rid of your house in an “emergency” situation (job transfer, budget contraints, etc). Unfortunately as you will see below, some of the same signs that illuminate the fact that you can’t afford your house, also prevent you from selling your house in a prompt manner.
Foreclosure risk is real for those that can’t afford the home in which they live.
- You have no equity- How much of your house do you own? Your answer will determine whether or not you are in a “healthy” housing situation. Equity, of course, is the amount of ownership that you have in something (in this instance, your home). Do you have less than 5% ownership of your home? If so, then you are in too much home. What? The market fell and ate up your ownership? Yes, that stinks, but you still are in too much home. Low equity = home selling difficulty. Remember our brief discussion about housing liquidity? Home equity can prevent you from having housing liquidity issues. Low equity isn’t the end of the world, but fire is falling from the sky if you have low equity combined with one or two of the following signs.
- Your payment is 40% of your monthly income- According to Personal Finance Expert Peter Dunn, the maximum amount of your monthly income that should be dedicated to your mortgage payment is 25%. It is quite possible that if your mortgage payment ranges up to 30-35% of your income, you will still be alright. But if 40% of your household income goes to pay your mortgage, then you could be in really big trouble. This isn’t always the case, but it is often the case. The more you spend on housing, then less you can spend on…everything else! This means that you most likely can’t save money, can’t pay off debt, and can’t go on vacation. It is quite common for people that have a major debt issue to mistake a too much house problem for a debt problem. Having a high housing cost percentage leaves you very little room for error.
- You can’t afford to keep up with yard and house maintenance- Haven’t mulched in 2 years? Can’t afford to paint your house? That’s a sign that you can’t afford the house in which you live. If you have to go into debt in order to perform the most basic of home maintenance, then you can’t afford your home. The worst part is that neglecting upkeep will only make your too much house problem worse. Your property value will suffer from your lack of attention. This increases housing liquidity concerns.
- You have unfurnished rooms- What’s the point of having a room that you don’t use? Sure, guest bed rooms and other such rooms occasionally aren’t used. I’m not suggesting that you buy furniture that you can’t afford, it’s just that you might be in over your head. There is a ritzy section of the city in which I live that is famous for having gigantic homes with no furniture. You don’t have to have a perfectly decorated home, but there is something incredibly odd about buying a $750,000 and then not having enough cash flow to furnish the damn thing. Right?
- You struggle to afford property tax increases- I believe that it was Henry David Thoreau who once said, “no, I’m not going to pay property taxes.” Okay, he may not have said that…actually he probably did…but anyway. Sorry Hank, no one likes paying property taxes. No one. Property taxes will consistently increase either through increased tax rates or increased property values. Not being able to afford this increase is a major sign that you are in trouble.
If you are “guilty” of at least 3 of these problems, then you have a serious problem. Not being able to afford your current home should not be taken lightly. That stress you are feeling…yeah, it’s real. This problem will not solve itself. But acting in haste will only worsen your problem. I do think that you need to get some professionals involved. You should contact a licensed and trusted realtor to give you an estimate of what your home is worth. You need information. Whether you sell your home or not, you need to know where you stand. The solution very well may be that you should sell your home. This is a terribly tough decision, but it could save the rest of your financial life.
So you aren’t going to sell you home, now what? You MUST turn to your budget. Don’t know how much you should spend on stuff? Then use this ideal budget. If you can’t afford your house, then you are likely committing too much of your household income to your mortgage payment. This means that you either need to make more money or spend less money. Spoiler alert for the rest of your financial life: those are always the two options. In some cases you might want to consider getting an additional job. This should help you temporarily raise your income so that you can take another more permanent course of action (such as selling your house).
If you do sell your house, then you are unlikely to have a ton of equity for a downpayment on another house. Take this as a sign from God. Don’t buy another house. Rent. Renting is not second place. Renting is one of the smartest financial decisions that you can make. The crazy thing is that you can probably rent a house in the same neighborhood in which you currently live…for less than what you are currently paying for your mortgage.
I can’t emphasize my final point enough: time will not solve this problem. Only three things solve the too much house problem: spending less money, making more money, or selling your house. And in most instances, you need to do all three. Don’t be embarrassed. Be empowered. You are about to take control of your out-of-control financial life. And don’t forget, I’m here to help.
Is tithing realistic?
There are two topics that I have purposefully avoided writing about over the last 5 years due to the volatile responses that I know that I will receive: 1) planning a wedding without being stupid with money 2) should you give 10% of your income to your church. Today I will tackle the easier of the two, #2. Am I overstepping my bounds as a personal finance expert by blogging about tithing? Probably. But if all you ever wanted was stale financial perspective, then you probably wouldn’t waste your time on my blog. I want you to struggle with this as much as I am.
Tithing, the concept of giving 10% of your income to the Christian church, is one of the most hotly debated topics in the financial world. Except the debate is rarely via spoken word. Yes, one of the most controversial topics in all of money is simply debated within one’s own mind. Yet, it is a painful, embarrassing, and humbling argument that cripples even the most pious individual. While I certainly can’t help relieve your conscience from the spiritual torture involved in this debate, I can shed some practical financial light on the topic.
Here are the questions that I want to address: Is tithing realistic in a modern economy with modern expenses? Can the average person really tithe? If you want to tithe and aren’t, how should you start?
It only seems appropriate that I set some MAJOR ground rules before we go much further.
- You need not be a Christian to benefit from this blog post.
- I am a Christian, but I don’t feel that it really matters for the sake of this post. Just as I would ask you not to hold my faith against me, I also ask that you don’t credit me for simply having the set of beliefs that I do.
- I currently don’t tithe, in the popularly accepted traditional sense (give 10% of my income directly to the church).
- You aren’t going to get any classic Pete the Planner mild cursing in this post. It would just be weird.
- I have as much biblical acumen as a wet stone. I won’t be quoting scripture or any religious material. You get plenty of that at church. This isn’t church. This is the best money blog on the planet (is confidence one of the deadly sins?).
- I’m really uncomfortable writing this post. But I’m doing it because I think many people are very uncomfortable with this topic too. Hopefully this helps you make a decision.
And here we go.
First things first. What makes tithing hard?
- God doesn’t have a bank account- As it goes with most practices of faith, seeing would be too easy. I think that if God knocked on anyone’s door and asked for 10% of what they have, then He would most likely be the greatest collection agency of all time. Because He would collect every dime that He asked for in person. Here’s what usually goes through the mind of a person that is questioning the prudence of handing 10% of their income over to someone that ISN’T God: there sure are a lot of plasma screen TVs in the lobby, the minister sure drives a nice Acura, and/or I can’t believe we advertise in the local paper. Relying on the judgement of other mortals to decide how to spend 10% of my income honestly doesn’t sit that well with me. This is primarily why most of my giving is directly given to charitable organizations, not through the church.
- Your own poor financial decision making- Don’t blame God if you spend 47% of your income on your mortgage payment. Don’t blame God if you spend 23% of your income on dining out. If you can barely “live” on the income that you make, then 90% of that income doesn’t seem that appealing. Are you justified in feeling this way? I don’t know, but no one forced you to buy that house, that car, that pony, and/or that Flobee. There’s not much more that I can say about this particular aspect of giving apprehension. You alone are the one that determine what you can afford.
- Your other charitable giving- This happens to be one of my biggest challenges. Mrs. Planner and I are very active givers to several charitable organizations. Many of these organizations also receive financial support from several local churches. So aren’t I just cutting out “the middle man” by donating directly to the charity? Again, I don’t know. If God “directs the congregation” to give money to ABC charity from the church coffers, then aren’t I doing the same thing by giving money directly to that charity? I’m not trying to play semantics with God here. I just can’t see the difference. If I give 10% of my income to others in need, then how is that a bad thing? I like using my money to put together care packages and Christmas gifts for those in need. I like donating to organizations that research a cure for cancer. I truly enjoy thinking of and providing for others. I appreciate the personal nature of assisting others personally.
There are two major financial principles that are applicable in this conversation:
- Scarcity- You can survive and thrive on much less money than you currently operate on. So if you do decide to pull the trigger and tithe, then just know that you can most likely “absorb” a portion of your new financial commitment. Call this faith. Call this “God will provide.” Call it whatever you want. I’m just telling you that after studying thousands of financial situations over the last decade, you can afford anything you want if you decide it is important enough. I have never seen anyone go deep into debt by tithing. However, I have seen people dine out less, go on fewer vacations, live in a lesser home, and drive an older car all in the name of honoring the tithe.
- All or nothing rarely makes sense- Where does it say in the bible “either give 10% or give 0%”? It doesn’t. If you “can’t” or aren’t currently tithing, then you may want to consider going at it 1% at a time. Let’s say that you have a household income of $60,000 and you currently aren’t tithing. Immediately foregoing $6000 could be a bad thing. However, foregoing $600 would be much more manage at the start. Why not start with 1%, adjust your budget, and then add another 1% every few months? That just seems like it makes sense to me. This same logic works for just about any financial goal. Can’t save 10% of your income? Then start with 1%, and then increase it from there.
The bottom line is simple: of course tithing is financially realistic. I find that people try to look for financial reasons as to why they shouldn’t tithe. I don’t really think that makes any sense. You really can afford anything that you make a priority. Not getting religious here, but you aren’t really going to “trick God” by thinking you can’t afford it. If you believe in God, then you believe that He knows what you are thinking. What am I saying is pretty simple: Refuse to tithe because you don’t want to. Refuse to tithe because you don’t interpret the bible that way. Refuse to tithe because you don’t think it’s a priority. But don’t refuse to tithe because you don’t think you can afford it. You can afford it.
I welcome you to offer your thoughts on this topic in the comment section below. I have received nearly 100 messages about this topic since I announced I was writing about it a few weeks back. That means that I fully expect several hundred comments on this particular post. Share your thoughts, no matter how insignificant you might think they are.
Pete’s Video Mailbag #3
Taking personal responsibility will never fail you
A mutual fund manager had $35 million that he needed to invest in a small manufacturing company in order to “fill out” the rest of his portfolio. A mutual fund is group of stocks and/or bonds that is managed by a manager. This allows a person to buy just one investment, yet have diversified exposure across several different companies/industries. In other words, it allows you to invest in many different companies no matter how much money you have. Mutual fund managers and analysts fill these portfolios with different types of company stocks that they research. Sometime the managers interview executives of the companies that they may invest in, sometimes managers study the other investors, and sometimes managers go to even greater lengths to ensure that they are investing their clients’ money into the right companies.
The mutual manager with the $35 million to invest had narrowed his search down to just two companies. On paper, these companies were exactly the same. They had the same amount of cash on the balance sheet, they had the same market share, and they had the same profit margins. So naturally, there was only one thing that the mutual fund manager could do: he decided to schedule visits to both companies’ headquarters. What he found changed the way he ran his mutual fund forever.
The first company he visited was the company that had a slight advantage. He didn’t know why, but this first company just seemed like it had a better chance at long term success and profitability. He drove up to the facility, approached the front desk, and identified himself, stating that he had an appointment with the CEO. The receptionist politely asked the mutual fund manager to have a seat in the small waiting area. The manager obliged and started to look around at the pictures on the wall. He noticed several pictures of celebrities. The celebrities were all posing with the same person. The mutual fund manager didn’t recognize the man, but he did recognize the sinking feeling in his gut. Thirty minutes went by, and the mutual fund manager was getting irritated that his meeting was being delayed. Just then the front door of the lobby flew open. There he was. The guy in the pictures. Every single picture. The guy who wasn’t the celebrity. He was wearing golf shorts, a golf shirt, and golf spikes. He loudly greeted the mutual fund manager. They walked together to the CEO’s office.
On the way up to the office, the CEO filled the mutual fund manager in on his golf game. The mutual fund manager didn’t care. Once inside the CEO’s office (which was filled with even more celebrity photos), the two men began talking about the business. They discussed the challenges and strengths of the small manufacturing business. “I wish I had 30 more of me” the CEO said. The two men then headed to lunch in the CEO’s new Jaguar. “It’s a limited edition” he offered. The rest of the day was uneventful.
One week later the mutual fund manager headed out to the second company. He arrived at the facility, and walked inside to the front desk. Standing in front of the desk was a middle aged man wearing a uniform. “Don?” he asked with hand extended towards the mutual fund manager. The mutual fund manager shook the man’s hand just as the man introduced himself to the mutual fund manager. It was the CEO of the company. “How was your drive in?” he asked the mutual fund manager. Don told the CEO that it was pleasant. They headed down to the CEO’s office. On the way through the facility, the CEO stopped and shared greetings with several employees (who were all wearing the same uniform as the CEO), picked up a piece of trash off of the floor, and helped a worker lift a barrel onto a platform. They eventually got to the CEO’s office. It was a simple office in a random room with no windows. “I give my salespeople the offices with the windows” he offered. “They need the sunshine more than I do.” The rest of the day was uneventful.
The mutual fund manager went back to his office to debrief his team. He sat everyone down in the conference room and started in:
I didn’t know what to expect when I went out on the road last week. Frankly, I wasn’t really looking forward to it. The thought of judging an investment by anything other than the numbers just seems like a bad idea. Boy was I wrong. Last week I learned how to be a better person. I like to think that I take pride in my job and this company. But oddly enough, I don’t in comparison to a man I met last week. I’ve never met anyone that took more personal responsibility in the success of his company. It humbled me. And furthermore, I had the opportunity to contrast his efforts against one of the most deplorable people that I have ever met. This mutual fund company has always been about the investors. But I feel as though we have been short-changing the investors by not taking the time to understand the people in which we are investing on their behalf. This will never be the case again. I have scheduled meetings at all of the companies that we have major investments in. As of this very moment, this mutual fund is now only interested in companies that not only exhibit financial strength, but that are led by people with extraordinary senses of personal responsibility. And by the way, I’d like to personally apologize to all of you right now for not doing that in the past. Let’s go.
This story was relayed to me years ago by a friend in the industry. I think of it often. I hope you will too. If you take personal responsibility for the things that you do, then you will never fail. And better yet, you will inspire those around you. If you aren’t part of the solution, then you are part of the problem. Those that understand the importance of personal responsibility will find themselves on the solutions side more often than not.
You are the product of who raised you
Mrs Planner and I had our monthly budget meeting last night. We have come a looooooong way in the last six years in regards to how these meetings go. A monthly budget meeting with your significant other may not seem like a great idea, but it is such a vital part of our marriage. It’s our time to take our individual ideas, and convert them into our collective ideas. What did we have to overcome? Our own individual views of money. The craziest thing is that I have adopted her mentality more than she has adopted mine. She has made me more frugal and less materialistic. I am very thankful for this. I honestly believe that by addressing our financial differences, we have strengthened our marriage. Here’s why.
One of the primary reasons that marriage and money can get challenging is the fact that you and your significant other were raised by different parents…hopefully…not that there is anything wrong with marrying your sister…who am I kidding…nevermind…how did I get off track already in the first paragraph? Anyway, different parenting styles create different types of people. The sooner that you take the time to acknowledge this and apply it to your relationship, the better. You think the way you think because you are most likely the behavioral product of the people that raised you.
If you have ever sat down in my office for an appointment, then you know that I ask about your parents’ financial situation, especially when you were a child. I usually ask this near the end of the appointment once I’ve made my initial assessment about your financial habits. What am I listening for? Lots of things, including pride, denial, sacrifice, a lack of realism, bankruptcies, divorces, and several other life altering events. Am I playing psychologist? A bit. Does this “digging deeper” help me do my job better? In the mortal words of Sarah P. from Alaska, “You betcha!”
It’s quite common for a person to recognize the less than ideal financial status of a parent, and then try to coach his/herself in the opposite direction. This flight from familial failure is admirable, but it’s one of the biggest mountains that a person can climb. This is because a person’s financial behavior is just an offshoot of their overall behavior. You can try to isolate and unlearn the financial lessons that you learned (or didn’t learn) from your parents, but you can never unlearn 18 years (or so) of parental socialization. Was your dad always trying to game the system? Did your mom take five free samples at the grocery store when the sign said “take one”? It’s crazy, but this matters.
Your financial character becomes especially important when you share a financial household with someone else. And what is even more challenging is that your partner can more easily see your shortcomings. Shortcomings that you never realized that you had. This can either make for a wonderful relationship or a terrible relationship. But understanding that your way, the only way that you know, may not be the best way. But the comforting thing is that your partner’s way is the only way that they know. This means that you can eventually come up with “our way” when you take the time to work on your relationship.
My recommendation is pretty darn simple today. Take a few minutes to think about your childhood. Identify two positive characteristics that you have adopted from your parents. And now identify two negative characteristics that you have adopted from your parents. How do these affect your life today? What can you do to turn the tide? And to make sure that you can get the most out of this activity, forward this post to your significant other too. They should take the time identify the four characteristics that they have acquired too. Good luck. And one last thing, when you have this conversation, be a listener, not a talker.
Here are our the rules of our budget meeting that Mrs Planner and I use. Use them. They work.
Should you dump your big bank for a credit union? An UNEMOTIONAL look
There is a movement afoot. This past Saturday was “Move Your Money” and “Bank Transfer Day.” These events were scheduled in an effort to cripple big banking in America. Many Americans are fed up with corporate greed and what they deem to be unfair business practices by banks. It has been reported that nearly 700,000 people have left banks since September of this year in order to do their “banking” business with credit unions. What does this mean? Does it make sense? And should you do it?
Never operate in absolutes
Are banks evil? While I love personification as much as the next guy, I don’t think banks are evil. No matter how much you hate big banks in America, they aren’t evil. They are operating in a free (and sometimes highly unregulated) marketplace. While I certainly dislike some of their marketing practices (such as the advertisement below), we are the dumdums that say yes. You will never find me blaming McDonalds for making our kids fat. When you enter into a relationship with a bank, especially one in which you are borrowing money from them, then you are generally going to be placed in a subordinate position. They can position it however the hell they want: “we want to help you grow your business” “we want to help you achieve the American dream” “we want to give you rewards for banking with us.” But the fact of the matter is that whatever happens to you once you enter into a relationship with a bank is YOUR FAULT. Yes, once again I’m speaking of personal responsibility. More on this later.
What about credit unions?
Within the Move Your Money movement you will find an exodus towards credit unions. Why? There are several reasons. For one, credit unions used their marketing dollars to help fan the flames of banking discontent. I don’t blame them. Secondly, credit unions are not-for-profit institutions. I’ve discussed this before. So is it fair to say that the profits of banks are the problem? Um, no. You won’t find this guy demonizing profits. I do however feel that there is a more abstract concept that is at work. I happen to believe that credit unions and small banks (let’s not forget small community banks that are literally the backbone of so many thriving communities) have a more highly developed “spirit of partnership.” No, I’m not going to ask you to walk across hot coals and watch The Secret. Credit unions and small banks really want to be your financial partner. Big banks have shown time and time again that they aren’t really interested in being your partner. They are simply interested in tricking you into spending money.
The sad reality
Many Americans have already voted. Whereas transferring your daily banking needs to a not-for-profit institution like a credit union seems like it makes sense, the past actions of million of Americans (possibly even you) have already cast a vote in the favor of big banks. What am I talking about? Borrowing. More specifically, borrowing money that they never should have borrowed. In the illustrious words of “that guy” that just won a bar fight, “you mess with the bull and you get the horns.” Every time that you ask the bank “how much can I afford,” you lose. Why? Because you are giving them the power to control your household budget. Is it fair that they frequently tell you that you can afford more than you really can in order to increase the revenue that you provide to their institution? Who cares? Arguing fair is silly for someone that just allowed a bank (the institution loaning you money) to dictate the largest purchases of your financial life.
One of the stupidest mistakes that I see on a daily basis is allowing a bank to tell you how much house, car, or remodel (of a house) you can afford. Here’s what may be shocking to you: you are actually supposed to know how much you can afford to borrow without having to ask a bank. I don’t think anyone should ever be rejected for a mortgage or any other type of loan. Why? Because I only think that people should ask to borrow money when they can TRULY AFFORD to borrow the money. Therefore, there would be no rejections. Did you buy a house no money down, it fell in value, and now you can’t sell it because you are “underwater” on the mortgage? This is because the bank let you borrow money that you shouldn’t have borrowed. Buying a house “no-money down” is a way to sell you a mortgage, not provide you a roof over your head.
My conclusion
This is why I think the Move Your Money movement is slightly misguided. Removing your bank accounts and taking them to credit unions will only take away tens, maybe hundreds of dollars per year from the bank. But the loans that you never should have taken provide hundreds if not THOUSANDS of dollars per year to the big banks. Don’t be the vegan in leather shoes. Feel free to leave your big bank, but make sure that you tell your financial habits.
What’s even crazier is that credit unions and small banks traditionally have more conservative lending practices. This means that these institutions are less likely to lend you money that you shouldn’t borrow. Your willful ignorance will only be supported by the big banking industry. A true financial partner wouldn’t hand you the needle. But alas, we need our fix. Yes, we need a fix.
Working with a Realtor just makes more sense.
According to a 2010 National Association of Realtors study:
For Sale By Owner (FSBO) Statistics
FSBOs accounted for 9% of home sales in 2010. The typical FSBO home sold for $140,000 compared to $199,300 for agent-assisted home sales.
FSBO Methods Used to Market Home:
- Listing on Internet . . . 27%
- For-sale-by-owner Web site . . . 11%
- Yard sign . . . 46%
- Friends/neighbors . . . 39%
- Newspaper ad . . . 12%
- Open house . . . 14%
Most Difficult Tasks for FSBO Sellers:
- Getting the right price . . . 23%
- Preparing/fixing up home for sale: 18%
- Selling within the planned length of time: 14%
- Having enough time to devote to all aspects of the sale: 13%
- Understanding and performing paperwork: 10%
