Category Archives: Rant

Stay at home mom starts online petition to get a credit card – despite her lack of income

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I was recently asked to weigh in (on a radio show) on a story that is developing in regards to new credit rules. A stay-at-home mom is angry because Target denied her a credit card. She is making a huge deal of this denial, and has started a petition at Change.org.

If you’ve read this blog before, then you know that I go to great lengths to stick up for stay-at-home moms. I think financial bullying of women continues to be a big problem in this country, whether it’s pay scales or corporate board appointments. However I refuse to give anyone a pass when it comes to violating basic laws of personal finance.

Per the CNNMoney article, the story goes like this:

After nearly five years managing her family’s finances, Holly McCall, a 34-year old stay-at-home mother of two from Vienna, Va., never thought she would have trouble getting a credit card.

She makes the majority of family purchases, has an excellent credit score and has been approved for several cards in the past. But when McCall applied for a Target card last fall, she was denied.

She blames that denial on a recent Card Act rule.

The law was passed in 2009 to protect consumers from unfair and deceptive credit card practices. But some stay-at-home parents argue that a Card Act rule that took effect last October has made it harder for them to get approved for credit cards.

Aiming to protect consumers from racking up too much debt, the Federal Reserve now requires credit card issuers to consider individual income from applicants instead of household income.

As a result, stay-at-home parents who rely mainly on their spouse’s income have a harder time getting approved for credit cards on their own.

“I think it’s demeaning — I don’t want to ask my husband’s permission for a credit card,” McCall said. “Just because I don’t get a direct paycheck for [my work], doesn’t mean it’s not worthwhile work that I’m doing.”

-Courtesy CNNMoney.com

There is so much failed logic in this viewpoint. To be fair, I’ve never spoken with Mrs. McCall. But fortunately her thoughts are pretty clear. However, this is not a gender issue. It’s not a class issue. It’s not a marriage issue. It’s not even the problem of the credit industry. This story is REALLY easy to understand. This story is about a person – without an income. That’s it. End of story. Why should a financial institution lend money to an individual that has no personal means to pay back the debt? There is a very easy solution to her problem, yet she has decided the solution is actually an insult. The solution is to get the credit card with her partner. Yes, the partner that brings home the income for the household. This doesn’t mean that her husband is a better, more valuable person. It simply means that he personally has an income. This isn’t offensive. It’s just fact.

She isn’t conceding her value by filling out a joint application for the credit card. She isn’t setting women back 50 years by asking for the person with income to promise to pay back the debt that they might incur. I’m a HUGE supporter of stay-at-home parents. My wife is currently staying home with our children. My mom stayed at home when I was a kid. But the valuation of the stay-at-home parent isn’t the issue here, yet Mrs. McCall wants you to think that’s the issue. Check out this quote from the article:

“I used to be CEO of a small software consulting business and am now staying at home to take care of a toddler and first grader. If you had to pay someone to do what I do now, it would cost you at least $120,000, which is a lot less than what I used to earn,” one stay-at-home mom wrote on the online petition. “BTW, it’s a 24×7, not a 40 hour per week job. Don’t you think I should be allowed to get a credit card on my own?!”

No, I don’t think that qualifies you to get a credit card. I know this seems hard to believe, but credit used to only be extended to people that personally had the financial means to cover the debt. A person with no income has no means to pay back the debt. This doesn’t mean the person isn’t necessary. It just means that the person doesn’t have income. I applaud the new credit card rules, just as I applaud the efforts of stay-at-home parents all over the world.

We can’t demonize lending institutions for protecting their assets. You can’t sign a petition asking an institution to loan money to people with no income. If someone is offended that an institution won’t lend them money based on a lack of income, then the person doesn’t understand how credit works and probably shouldn’t have a credit card in the first place.

And furthermore, how is a credit card a solution to their situation? Do they not have enough household income to cover their monthly bills? Do they just want to take advantage of discounts at the register? I’ll never know. But I have a hard time thinking that someone who’s fighting for the “right” to get a credit card from a private company, despite her lack of income, might not truly understand proper borrowing strategies. I’m not trying to be rude or mean. This isn’t a personal attack on her. I’m just further concerned about how we’ve been socialized in regards to credit. Being an American citizen doesn’t guarantee you the right to borrow money. Your creditworthiness is what gives you the privilege to borrow money.

We have got to stop borrowing when we don’t need to borrow. Borrowing is not the solution to all of our financial challenges. Yes, borrowing money for a car or house can make sense. But our escalating assertion that our borrowing rights are being violated by student loan interest rates, or the denial of credit to those of us without incomes, is only further separating us from reality. People are wronged everyday by the financial world. Yet many more people claim victimization when it’s just not there. Mrs. McCall is not a victim.

The Stafford Loan interest rate discussion is missing the point

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Unless you’ve been living under a rounded stone, then you know about the possibility that Stafford Loans (the federal student loan mechanism) could see their interest rates increased from 3.4% to 6.8% on July 1st. This means that current and future students would have higher interest rates on the money they borrow for college. There is outrage. Absolute outrage.

The outrage is misguided. If you will for a moment, suspend your outrage and look at the college cost problem from a different perspective. The average student will suffer an economic loss of $1000 based on the rate increase. This means that a hypothetical education will cost $1000 more than it did prior to the rate increase. (People that currently hold student loans aren’t really affected). The solution is simple, yet immediately dismissed. Take out less student loans.

I have studied peoples’ spending and borrowing habits for nearly 15 years, and I can say without a doubt, that people that get angered about interest changes are people that look immediately to debt for solutions. At some point in the last 30 years, the solution to every economic problem in this country became borrowing. Can’t afford a car? Borrow. Can’t afford surgery? Borrow. Can’t afford a TV? Borrow. Can’t afford fast food? Borrow. Our collective financial sensibility has gone to hell.

We look at challenging financial situations and immediately come to the conclusion that we must borrow. The government does this, and the citizens of this country do this. If you are getting heated while reading this, then this newfound debt complacency has started to trickle into your mind. The absolute last resort should be to borrow money for college or anything else we can’t afford. But it’s NOT the last resort. It’s the absolute first thing we do. Show me a student that finds a way to pay for college without immediately turning to loans, and I’ll show you a young person that I will immediately hire. In fact, I just hired a young lady who refuses to take out student loans to fund her education. Her determination isn’t short-lived. Why aren’t we teaching young people how to scrap? Instead, we teach people to bitch about student loan rates.

There’s another piece of legislation on the table in Congress called the Student Loan Forgiveness Act. It’s a RIDICULOUS piece of legislation. Yes, several people across the country are struggling to pay back the crazy amount of student loans that they took out in college. But how is that the government’s problem? If I get a tattoo on my neck that I later regret, should the government step into pay for its removal? I had a young lady in my office the other day that had an “extra” $12,000 leftover from her student loan check. She went on Spring Break with it, fixed her car, and paid for a relative’s cell phone bill. I would be beyond salty if my tax money went to pay for her student loan forgiveness.

In my book, Avoid Student Loans, I write how the average student can save thousands of dollars by simply taking the correct high school courses. Why isn’t that being talked about? Why isn’t there outrage about the choices being made by the people? If you blame the government for everything, then this nation is doomed. Our future is dependent on our individual choices.

What about all the kids out there hustling? Our lives are defined by our decisions. If we are constantly bailed out for poor decisions, then we will never learn from our mistakes. The solution isn’t to forego college. The solution is to take out less student loans. The solution is beyond simple. Yes, you have to work hard to replace student loans with actual earned income, but the alternative is unacceptable. Well, at least it should be.

We will never progress forward if we are constantly looking for other people to solve our problems.

 

 

***Peter Dunn (a.k.a. Pete the Planner), is responsible for some of the most cutting edge financial advice around. Whether he is preventing high income earners from wasting their opportunities or teaching single parents how to raise financially adjusted children, Pete the Planner always arrives to the scene with his trademark comedic wit. In January 2012 he was named the fourth most influential personal finance broadcaster in the US.

He released his first book, What Your Dad Never Taught You About Budgeting, in 2006 and is the host of the popular radio show The Pete the Planner show on 93 WIBC FM. He was also the mastermind behind 24 Hour News 8’s 60 Days to Change and has appeared regularly on Fox News, Fox Business, CNN Headline News and numerous nationally syndicated radio programs.

His second book, 60 Days to Change: A Daily How To Guide With Actionable Tips to Improve Your Financial Life was released in December of 2009. His third book Avoid Student Loans, was released in January 2012.

There’s a difference between being patient and waiting

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As strange as it sounds, I’ve seen several people ruin their financial lives by simply waiting. Yet I’ve seen several people become financially successful by simply being patient. There are majors differences in waiting and being patient. Here are examples of both.

Waiting

  • “I’ll start saving next year, once I’m making more money.”
  • “I’ll put a budget together if things get tight.”
  • “I’ll pay off my student loans later.”
  • “I’ll pay back my parents when they put heat on me.”
  • “I’ll set money aside for taxes later in the year.”
  • “I’ll get life insurance when I get older.”
  • “I’ll be charitable when I become wealthy.”

Patience

  • “I’ll buy the house I can afford now, not the house that I want.”
  • “I’ll trade-in my car once it’s paid off, not while I still owe money on it.”
  • “I’ll take the proper amount of investment risk now, and not be too risky for no good reason.”
  • “I’ll buy clothes that I can afford without a store credit card.”
  • “I’ll go on vacation when I can pre-fund it.”

It’s all about attitude. Waiting for arbitrary events never gets you anywhere. If you are constantly waiting for time to pass, then you will miss out on opportunity. Take control of your financial future by eliminating arbitrary time measures.

Don’t wait. Be patient.

When schools just don’t get it

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Imagine your child brings this home from school. A letter stating that you are responsible for bringing EVERYTHING on this list to school — the next day.

Here’s the email I received along with this picture of the letter:

I received this yesterday, and have under 24 hours to shop for approximately $80 worth of groceries for my son’s classroom, whether these items are at a good price this week or not. Ordinarily, I would take a list like this and buy items each week as I see them at a good price or have coupons for them. And yes, they are brand specific. For many families, this would be very difficult to swing, and that is when the credit cards come out!

We have an appt Monday morning, so can’t drop it off at that time, so it has to be done today. He is in the afternoon class, so he wouldn’t even be there Monday morning anyway.

Kinda nutty, right? Especially if you didn’t know it was coming. The family that received this letter just moved into the district and had no idea any of this was going on. $80 may not seem like a big deal to you, but if you were finally making financial progress and this thing smacked you in the teeth, you would be salty.

****Not to mention the fact that all the food on this list is CRAP. “Hey, waste your money on crap food for all these kids. Thanks.” Nope.

And now the receipt.

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Financial problems can be the result of the wrong satisfier

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I’ve been stewing on something for a while.

I’m convinced that self-induced financial problems are the result of misunderstanding one’s self. I think people who put themselves in severe financial distress are looking for satisfaction in things that money can’t buy, yet they use money, often money they don’t have, in an effort to buy happiness.

Let’s first examine satisfaction. Satisfaction occurs when you are fulfilled or gratified. We can feel this way in a number of ways. We can be satisfied when we finish a tedious project. We can be satisfied when we receive compliments. We can be satisfied when we achieve an athletic goal. Yet the most common vehicle of satisfaction is commerce. And this usually occurs when we are unsatisfied and are trying to get satisfied.

Next, let’s examine what caused your dissatisfaction. Was it your job? Was it your marriage? Was it your financial situation? To me, this is the most important part of the satisfaction problem. If you are constantly spending money in order to feel fulfilled, then what is it that is making you feel so damn empty in the first place? If you can identify this, then you should be able to curb your spending. Yes, this is a higher level conversation. Believe it or not, no matter how much you want that $1000 purse or that $5000 TV, there is something else that would satisfy you much more than either of these things. And this thing will cost you absolutely nothing.

Here’s the test. For a moment, assume everything you want is free. Your house is free. Your food is free. And all of your clothes are free. Does this leave you fulfilled? Absolutely not. It may bring you temporary happiness, but it is far from fulfilling. The cause of your dissatisfaction is not addressed when you separate items from their price tags. The cause of your dissatisfaction cannot be absolved via supplementation. You can’t add things to your life to remove dissatisfaction. You can try to do this, but you will always still be dissatisfied at your core.

I’ve seen several people stay in jobs they hated simply because they were paid tremendous amounts of money. They used this money to relieve their dissatisfaction. The more they bought, the more frustrated they got at how dissatisfied they were. Sometimes this became obvious in just a couple of years, but it most often took 10-20 years to figure out. The temptation in reading this is to think “but if they quit their job then they can’t afford the house and the lifestyle they currently have.” You are correct if you are thinking this. However my argument is that people who are truly satisfied won’t care if they can’t have the things that formerly temporarily satisfied them.

If you are thinking “I couldn’t possibly be satisfied with less house or less money,” then just know that you are in the majority. But think about it for a moment, the fulfillment in your life doesn’t have to come from things. If you don’t think you will be satisfied with fewer things, you are wrong. In my opinion, you have created a life in which things have become your measure of satisfaction. This isn’t a permanent problem. And the crazy thing is that it’s not that hard to correct. It takes a while to get there mentally, but the adjustment itself is simple.

I speak from experience. In 2007 I made more money than I had ever earned before, or have ever earned since. But I was very dissatisfied. I achieved fulfillment by spending the money that I made on superflous items. Some five years later I make much less money, and I don’t really care. I don’t measure my success by my tax return. I’m very satisfied, and money really has nothing to do with it. In fact, I believe that my satisfaction enhances my ability to make money. Whereas my income will eventually reach 2007 levels sometime in the near future, I don’t really care. I’ll continue to give money to the causes I care about, and continue to take away money’s power over me. Enough about me. This isn’t about me, this is about you.

Look at your current financial stress point. Is it the result of you seeking satisfaction in the wrong things? Were you trying to seek satisfaction in order to replace your ever-present feeling of dissatisfaction? If this process has put you in the hole, then you have some scrapping to do in order to get back to even. Once you solve your financial problems, then you can start to make big choices on satisfaction and dissatisfaction.

This post isn’t necessarily about changing jobs, but it could be. It also could be about getting healthy, repairing relationships, or renewing your spiritual health. I’d love to hear your thoughts below. Am I wrong? If so, let me know. Have you removed dissatisfaction from your life? If so, tell me about it.

Why your credit score doesn’t matter

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How do you measure your health? Do you measure it solely by your weight? Metrics, such as your body weight, are an important way for us to measure something. But what are we really measuring? Measuring weight tells us that we have gained or lost weight, but it doesn’t measure health. The best measures of your health are the metrics associated with proper nutrition (calories) and exercise (reps, time, or distance). How do I know this? Because about 10 years ago I lost 13 pounds on the Atkins diet. I had never been less healthy while losing weight in my life. Bacon, cheese, red meat, cheese, and more bacon were my method of losing weight. I just didn’t eat carbs (per the Atkins Diet). It was quite obvious that what I was doing was unhealthy, but the metrics said otherwise.

You can achieve a wonderful credit score despite awful financial behavior. And you can also have wonderful financial habits, yet have a terrible credit score. A good credit score is an indication of nothing more than your success at borrowing and repaying money. That’s not exactly something worth celebrating. According to the credit scoring system, someone that has $1 million in the bank and has never borrowed will have a lower credit score than someone $100k in credit card debt. In fact, if the debt is current and the balances aren’t “too high” in comparison with available credit, then the $100k-in-debt guy may have a nearly perfect credit score.

But Pete, if I don’t have a good credit score then I can’t borrow money. Not true. If you have good financial habits, and you have put yourself in a position to borrow, then you will be able to borrow. People who are “repairing” credit and are scrambling to improve their credit score often ignore the fact that their habits got them in trouble. Change your habits and the score will follow. Fix the score alone, and you will find your bad habits dragging you back down.

The best measure of your credit is not your credit score. The best measure of your credit is your credit report. Huh? Your credit report is the detailed listing of your debts over your entire life. The information on this report is all you need to evaluate your credit worthiness. Your score, in my opinion, is completely irrelevant compared to the report, itself. Do you have a ton of late payments on your credit report? Then start paying your bills on time. Who cares how that affects your score? If your report shows you that you have maxed out a credit card, then pay it down. Who cares how that affects your score?

Don’t be a monkey to your credit score. (Wo)man up and manage your habits. Metrics are great, but the credit score isn’t a metric for you. It’s a metric for the lending institutions. Your metrics are your budget and your savings/investing statements. Your metrics are your student loan balances and your credit card balances.

I want to help you with your habits, not your score. My friends at ELFCU will buy you my book, 60 Days to Change. By signing up for the book, you will be entered to win one of three $1000 prizes. Check out their program, and let’s change your habits together. Forget your score. Credit scores are for chumps.

****The best site for checking your credit report is AnnualCreditReport.com. It’s free and you can check your report every year. Do it. Oh, and you can’t re-access your report once you pull it up for the first time. So make sure to print it off…at work. It’s cheaper :)

 

Should you pay your wife an allowance?

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I get all sorts of email. I get emails about debt. I get emails about how to ask for a raise. I once even had a Nigerian prince offer to share his family fortune with me. Despite the fact that I opened an account and emailed him the account number, I never heard back from him. But I digress. My point? It takes quite a bit of craziness for an email to get my attention.

My eyes are wide open

Dear Pete

Hey. I love your podcast. It cracks me up. You said you take emails, so I thought I’d give it a shot. I’ve got a problem. My wife spends too much money. It might cost us our marriage…unless you can help. Hahaha. No pressure. I’m the only one that works. She stays at home with our two kids. I make really good money (nearly $120,000 in 2011). But we never can get ahead. Between us, we have over $85,000 in student loans, $30,000 in credit card debt, $40,000 debt on my M-Class Benz, and my wife has a major spending problem. It’s got to stop. She makes no money, but wants to spend all of my salary on clothes, and random stuff for the kids. She’s at Target like twice per week. Between the medication for our son, and the piano lessons for our daughter, she spends like $50 per week right there. If I was doing the buying at our house, we wouldn’t be in the position we are in now. We fight so much on the weekends, that I end up leaving the house and playing golf just so we dont fight for 5 hours. What do you suggest I do? 

My buddy thinks that I should put her on an allowance system. I’m thinking about doing it. Have you ever heard of somethings like this? It sounds crazy, but I really think it could work. For instance, if she cooks five meals in the week, then I’d give her $100 to spend. If she vacuums and dusts, then I would give her another $50. I’m thinking she just needs to earn her keep more so that she’ll value money. What’s a fair price for chores? I figure it’s much cheaper than a divorce. Hahaha. Things are just nuts around here. My college buddies are going on a guy’s weekend, and I can’t even go because the cards are maxed out because of her stupid Target trips. Sorry, I’m just venting. Thanks, man. I’m interested to see what you have to say.

Jeff

Jeff, thanks for your email. I’m afraid that I’m fresh out of candy-coating today. Therefore you are simply faced with the unadulterated truth.

I’m really worried about you. You’re pissed that your wife spends too much on your kid’s medication? I would sell all four of my limbs for my kid’s medication. I wouldn’t golf the rest of my life to pay for my kid’s medication. And your daughter’s piano lessons are a problem too? You’re not supposed to feel that way. I generally don’t make a practice of telling people how they should feel, but you shouldn’t resent your children’s medication and/or music lessons.

Anyone that would think/write the things that you thought/wrote clearly doesn’t have a strong grip on reality. I don’t know where you come from, but where I come from my buddies call me out for being an a-hole. They don’t tell me ways to be more of an a-hole. If you have the sort of friends that recommend that you put your wife on an allowance, then get new friends. Your wife isn’t the problem. Your attitude is the problem.

Here’s what I suggest you do. Take a week’s vacation. Given your salary of $120,000 per year, I figure you have the sort of job that allows you to take a paid vacation. Send your wife out of town to stay with a friend for the week, and then do her job for seven whole days. What you will find is that you are lucky that you currently aren’t divorced. My guess is that you will find that your wife doesn’t spend nearly as much as you think she does. She simply spends the money that it takes to run a household…without the (non-financial) support of her husband.

Jeff, I’m really concerned for you and your family. To be frank (as though I haven’t been), this is the worst situation I have ever seen. You need counseling. I highly recommend that you seek professional help. Dude, seriously? You care more about guy’s weekend than your kid’s medication. You have got to man up. You are going to ruin your kids’ lives. All they will ever know is dysfunction if you don’t get help. This is serious. I don’t have any financial advice for you at all. I’m just really sad. You don’t have any true friends that are pushing you to be a better person, and unless this email strikes a chord, then I’m afraid things will have to completely blow up before there is a resolution. Please change.

****Update #1****

This post has caused quite the uproar. I’d like to clarify a few points. First, I didn’t address the financials in the question, because I don’t think the answers would actually help him. In my professional opinion, although he has significant financial problems, his primary issue has nothing to do with money. I chose to treat the problem, not the symptoms.  In addition, the advice is so obvious, that I didn’t think it was worth writing. Alas, here it is: Jeff shouldn’t be driving a $40k Mercedes. He should be driving something paid for or something with a very cheap payment. The payment on his Benz is most likely astronomical. If he were to do this, the savings should then be used to pay down his credit card debt. He and his wife should sit down and work out a budget together using Pete the Planner’s Ideal Household Budget. Any other financial advice would be purely speculative. I don’t know his credit card and student loan interest rates. I don’t know if he has an emergency fund, though I doubt he does. And I don’t know how much they spend per month on their mortgage. My educated guess is that it’s a significant part of their income.

I’m not above criticism. When I write advice or give advice that is poor, then please ask for clarification or correction. I will gladly admit when I am wrong. However, in my opinion Jeff was looking for help. He thought his problem dealt with money. I disagreed, and wanted him to see that his family was at risk. Keep calm and carry on.

 

Why you need to avoid student loans

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How to Avoid Student Loans: wishtv.com

This video caused quite the ruckus today. It inspired an angry email. My point is very very simple: avoid student loans. Get your education, but avoid student loans. I give a few examples of how to do this within the above video. There are many defenders of the importance of an education. I am stepping up to defend your financial future, in relation to your education. Learn what I’m saying, and then decrease the cost of your education. There really isn’t anything to disagree with. Read the book and decide for yourself.

Emailer wants to repair credit to buy a house again

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Last week was a HUGE week at PeteThePlanner.com. Cision ranked me as the fourth most influential personal finance expert in the nation. I get a tremendous amount of email from people all over the country. It’s one of my favorite parts of my job. The emails are always VERY REAL questions. They are specific, heartfelt, and quite vulnerable. And I always think there’s something to be learned from everyone of them. We may not have the same problem (as the emailer), but many of us have the same spirit. We’ve made mistakes, we want a do over, and we want to to stop stressing out over money. We just want our lives back. The email below is the perfect example.

Hi Pete

I’ll start by saying my wife and I have made some pretty terrible financial choices and need to do a much, much better job. We were not taught financial responsibility and while we tried (not with the best effort or result) to fake it we’ve fallen into some of the cliché traps you’d expect. We used credit irresponsibly in our 20′s resulting in a bankruptcy in 2002. We tried to right the ship but my wife lost her job and we had late payments, a few collections and even a judgment or two over the last several years. We’ve ignored debts/collections and I’m tired of living with my head in the sand. We’ve entered into a lease-to-own contract for a home we would very much like to purchase, we have until April 2013 to obtain financing and I know we are going to need to build credit to be able to obtain the loan.

Pete – I guess what I’m saying is, I need help. I’ve dug myself a hole and I need help getting out of it. I’m willing to put in the effort and make sacrifices as necessary but I need that experience and additional push that a professional can provide. We need advice on how to build credit and do credit repair. We currently lease-to-own our home and outside of what I’d call our day-to-day living expenses, we have roughly $7000.00 in debt. The debt is a 2 personal loans and 1 collection account. We have no credit cards or auto loans at this time. I’m certain we need to do better with our monthly spending. We do eat out vs. grocery shop far too often, but for the most part I think a look at our lifestyle costs (internet, cell phones, etc.) need to be looked at and maybe slimmed down

Where do I start? Can you recommend a legit credit counseling service? You hear about so many of these places causing more harm than good. I just don’t know what to do to break the cycle and escape from this terrible financial position. I want to be secure; I want to be able to know I can obtain a mortgage and provide for my family. This is no one’s fault but my own, I know this, and I’m ready to change.

I am sorry my email is all over the place. It appears this email has become part confession and part plea for help.

C.E

Do you sense the stress? Its palpable, isn’t it? There’s so much here to address: technical issues, philosophical issues, and behavioral issues. I’m not saying this guy is screwed. I’m just saying that most financial problems stem from both technical and philosophical shortcomings. We’ll address these issues separately. I needed more info to answer the questions so I emailed this person and learned the following: $60,000 household income, he has a 401k at work but no other savings, his current rent payment is $925 per month.

This is a very involved question. I will deal with parts of his question today, and then the credit building stuff tomorrow. Deal?

Technical Issues

C.E. is currently in no position to buy a house. He is not a homeownership candidate. Unfortunately for him, someone might actually loan him money next year. The absolute worst conclusion to his story would be for him to buy the house next April. Based on the income numbers he provided me, C.E.’s take-home pay is about $3500 per month. That means that his rent payment is 26% of his take-home pay. All other things being equal, 26% of income going towards housing would be acceptable per Pete the Planner’s Ideal Household Budget. However, the rest of his financial profile suggests struggle. He’s struggling.

A prospective homeowner should have 10% of the value of the home they are purchasing as a down payment AND an emergency fund on top of that. C.E. currently has zero dollars saved, has debts in collections, and owes personal loans. All of these characteristics are the opposite of a prospective homeowner. This doesn’t make him stupid or dumb. It just makes him mislead. He is mislead that homeownership will solve his financial problems.

Philosophical Issues

Peer-pressure is a mamma jamma. It can cause some weird decisions. The overriding social philosophy of Americans that homeownership is the best way to go, is quite strange. I kinda get it, I’ve personally felt that way in the past, but given what’s happened in the last five years in the housing market, I can’t understand why anyone would be in a hurry to jump back in.

C.E. mentioned two personal loans that also need to be repaid. I can’t, under any circumstance, given the information above, recommend that C.E. pursuit homeownership in April 2013. He mentioned that he and his wife have made several bad decisions. I believe that this is primarily due to philosophical issues.

Tomorrow we will continue this conversation by giving credit rebuilding tips and I’ll give you my perspective on credi counseling.

An open letter to parents of high school students

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Greetings. I’m Pete. You may or may not be a regular reader of my work. Either way, welcome to my little spot on the internet. My role in the financial world is pretty simple: protect people from themselves. Your job, as a parent of a high school student, is to help that student make the best decisions during some of the most vital years of their lives.

There is no bigger decision than trying to decide what to do after high school. I hope that you have highlighted the importance of higher education to your student. A post-secondary degree CAN open doors for them. The operative word here is CAN. And this is where our conversation needs to begin. An education does not guarantee employment. An education does not guarantee ambition. An education, the cost of an education to be exact, can actually ruin your young adult’s financial life.

If our relationship just started (if you are a new reader), then chances are I just angered you within minutes of you learning of my existence. For this, I’m not sorry. If you let your student blindly buy an expensive college education, then shame on you. No seriously, shame on you. I’m not suggesting that you should pay for their education. Nor am I suggesting that you have failed in any way, shape, or form if you have failed to save for their education. In fact, you may actually feel guilty if you have not pre-funded their education. I can’t make those feelings go away. It is what it is. But DO NOT, under any circumstance, dig a deeper hole by allowing your student to mortgage their financial future via student loans. And for that matter, you should not take out loans for their education either.

The solution IS NOT to forego post-secondary education. The solution IS to lessen the cost of said education. The $75,000 question is: how in the heck do you do this? Very strategically. More on this in a moment. But first, let’s chat a bit more about student loans.

There is a popular sentiment circulating that suggests a student should never take out more total student loans than what their first year salary will pay them upon graduation. As an example, let’s say their first year salary upon graduation is $40,000. If they were to follow this popular suggestion, then they would feel comfortable taking student loans up to $40,000. Based on a 5% interest rate and a ten year payback period, upon graduation their student loan payment would be $424.26 per month. That is 17% of their take-home pay in their first year. That is completely unacceptable. They don’t have to put themselves through this. Yet, according to the statistics, over 70% of private school graduates may be faced with this very situation. Say no to all of this garbage. Help your student AVOID STUDENT LOANS altogether. There’s a better a way. There’s a smarter way. And you are about to learn it. Don’t let them ruin the first 10 years of their lives after graduation paying for something that they didn’t need to borrow money for in the first place. It’s ridiculous.

There are several ways to decrease the cost of a college education while avoiding student loans. One of the most significant cost-cutting measures is to secure college credits while your student is still in high school. In some instances, acquiring college credits while in high school, from the high school, will result in over a 90% discount on tuition. You read that right. With early and proper planning, you can eliminate thousands of dollars worth of potential student loans. Check out these tuition fee schedule pages from Indiana University (Schedule 1 —- Schedule 2). The first is the credit hour fee schedule for IU Bloomington. It shows that the cost of a credit hour, for a college student, is $263.45 per credit hour. The second is the credit hour fee schedule for Indiana University’s ACP (Advance College Project). This is a program that allows high school students to take high school courses – for college credit. According to the schedule, your student can gain college credit for just $25 per credit hour. Um, yeah. Many high schools and universities all across the country have programs similar to this. It’s about time that you take a serious look at them.

There’s more. And that’s why I wrote a book about it. Avoid Student Loans: A guide for maximizing scholarship earnings and making smart financial decisions during college. I wrote the book along with Aaron Martin. He was able to practice exactly what this book preaches, and SIGNIFICANTLY reduce the cost of his education. The book is written for your student, but you obviously would benefit from reading it too.

How’s our relationship now? I angered you, then taught you one small way to lessen the cost of your student’s education. Want to continue the relationship? Feel free to come back to this site every day. Want to take it to the next level? Buy the book.

Your (new) buddy,

Pete