Monthly Archives: July 2009

Rating the Best College Savings Plans

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My weekend financial project is to shore up the kids’ 529 plans. With my oldest child a mere eight years from starting college, and us dreadfully behind in accumulating savings, I have decided it is time to move college savings up the list of priorities a bit. Time to hunt down the best 529 plans available.

The first step will be to conduct a more thorough review of our current investment elections, including the 529 plan itself, and the investment elections within the plan. Like most people, we went with our in-state option since it was a decent plan according to most rankings, and we could benefit from a state tax deduction on contributions. However, after reviewing performance of the limited fund options I’m not so sure it is the best place to park the kids’ college savings funds, tax deduction or not.

Which States Have the Best 529 Plans?

Utah

According to a recent Morningstar article, The Best and Worst 529 College-Savings Plans, it would appear both Utah and Virginia offer solid plans. Morningstar’s write up about the Utah plan sounded the most appealing to me:

For those who want a tax-sheltered way to save for college using Vanguard index funds, this is the plan. Utah’s 529 plan has long been a favorite of ours and remains a strong choice for its low costs, flexibility, and tried-and-true Vanguard index funds. The plan’s fees are a rock-bottom 0.22% to 0.35%, making it one of the cheapest plans in the country.

Hard to go wrong with “rock-bottom” fees and Vanguard Index funds! In fact, I think Vanguard is the best place to open a Roth IRA, too.

Virginia

Virginia offers two 529 options: a direct-sold plan managed by the state gives the flexibility to invest in a variety of different mutual fund companies, and an advisor-sold CollegeAmerica plan which offers a nice mix of American Funds with relatively low fees. From Morningstar’s review:

The state’s other topnotch choice, the advisor-sold CollegeAmerica plan, remains a favorite for its large selection of mostly first-rate American Fund mutual funds that give investors access to a broad array of asset classes, including emerging markets, small-cap foreign stocks, and foreign fixed-income securities. Fees are attractive, too, as most of the plan’s A-share options are below 1.00% in total annual fees.

It is still a good idea to check out your in-state 529 plan, because the ability to deduct your contributions, up to a certain amount, is very appealing. But don’t fall into the trap of investing in a bad plan for a tax deduction. Over the long term, you will come out further ahead by investing in a healthy plan out of state, if necessary.

A Word About Age-Based Allocations

Nearly all 529 college savings plans now offer various levels of age-based allocation, from the most aggressive to to very conservative. One problem with these types of plans, and any targeted-allocation fund for that matter, is that the person managing the fund may have a much different risk tolerance than you do. This could lead to funds being invested too heavily in higher-risk investments too close to college age. A sudden downturn, like the one we saw in the fall of 2008, could quickly pull the rug out from under college plans by decimating a 529 plan balance.

Parents, Secure Your Own Retirement First

I love my kids more than anything, but I also recognize that if I don’t manage to sock away $50,000 in a college fund for them, life goes on. They can work their way through school, like I did, and they can apply for financial aid, grants, scholarships, etc.

I’m not particularly fond of student loans, although some small amount of borrowing could make sense to supplement other funding options. And before all you student loan fans email me, let me just say that I’ve heard from too many 24 year-olds drowning in $75,000 of student loan debt to be persuaded to like them.

For Canadians, a plan similar to a 529 is an RESP (Registered Education Savings Plan). In basic terms, this is an account you can start for your child and make contributions to over the years; it’s a great way to save for post-secondary education in Canada. Be sure to look into this as an option.

As parents, our top priority should be taking care of our own financial futures so that we are not a burden on our children. Once we have paid down debts, built a solid emergency fund, and are contributing to our own retirement plans, then we can turn our attention to college savings. Remember, there are no scholarships for retirement.

Save for College with Upromise – College Dream Sweepstakes – Win $10k


Rent Textbooks & Save 65 to 85%

Spend Money Before You Earn It

Posted on by  at  6:00 am
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The following guest post is from Craig Ford of MoneyHelpforChristians.com.

The only good way to spend money before you earn it is to spend it on PAPER.

Spending it on paper first is especially important for UNRI (Unexpected Non-Reoccurring Income)

What type of income is considered UNRI?

  • Gifts - Christmas, birthday, or any other occasions where someone gives you money
  • One time earning opportunities – this might include an honorarium for a speaking engagement, a thank you gift for a service you offered someone, or getting paid to participate in some type of survey.
  • Side Job – You’ve been working away at turning a hobby into a source of income.  Sometimes you make money, sometimes you don’t.  It certainly isn’t consistent enough income that you can depend on it or predict the amount of money it will provide.
  • Inheritance
  • Prize/bonus money – while I personally don’t gamble and rarely even participate in raffles, some people will get money this way.  You might even have signed up for something that rewards you with a cash bonus.
  • Any other source that currently you do not know the amount, frequency, or likelihood of getting money.

My theory is if you don’t pre-spend UNRI on paper you will waste it when it comes!

Our spending can be categorized in one of two ways:  Reactionary or Proactively.

Reactionary Spending:

We get a check for helping someone and we say to ourselves, “Hmm.  I wonder what I should buy?”  On other occasions we might get a cash gift and we immediately start to wonder how we should spend the money.  People love to ask the question “What would you do if you won a million dollars?”  Most of us won’t really need to answer that question, but many of us will need to know what we would do if we got $100.

The problem with reactionary spending is that it tends to be spent on short-sighted, temporary desires.

Proactive Spending:

A better way to spend is proactively according to a predetermined game plan.  In other words, spend it on paper before you make it.

Here are five suggested places you could allocate some UNRI:

1. Giving

If you decide that you will give only when you have extra money, you will probably never have extra money.  Decide today to give a certain percentage of your next UNRI dollar.  Once you receive that dollar you don’t need to decide if you are going to give some or not.  That decision has already been made before your greed can emotionally influence you to keep more of the money.

2. Debt Reduction

A common complaint when it comes to paying off debt is that people feel as if they are not getting any traction.  They feel as though they are simply treading water without making any progress.  Putting your UNRI towards debt payment will both reduce your debt load and motivate you to become debt-free.

3. A Long Term Saving Goal

This might be saving for retirement, saving up for a new car purchase, or saving for a home down payment.  Because the money is UNRI it shouldn’t impact your normal budget so this gives you a great opportunity to contribute to some of your long term goals.

4.  Short Term Purchasing Goal

Perhaps you have been wanting to do an upgrade on your house.  Maybe the car needs a new air conditioner.  Perhaps you have been wanting to take a vacation for some time.  This unexpected income can help you purchase some of those items.

5. Fun

Some of this extra money can be used just for fun.  It’s not bad to blow some of your UNRI, but make sure you decide how much you want to blow.  Since the money is unexpected it is alright to enjoy it, but keep your passions in check by predetermining how much you are willing to use for fun.

Go ahead and decide today, how are you going to plan to spend your UNRI?

You don’t need any number, just percentages.  Grab a paper or open a Word document and write the words give, debt, long term savings goals, short term spending goal, and fun.  Now beside each word put a % amount.  The only rule is the numbers need to add up to 100%.  Below is an example (but not a suggestion).  You will need to customize these numbers according to your situation.  If you have consumer debt that should get your largest percentage by far.

Give: 15%

Debt: 20%

Long term savings goal: 25%

Short term purchasing goal: 25%

Fun: 15%

Now you have officially decided to be proactive with your spending.  Next time you get an unexpected check you know exactly where to put that money.

About the Author:  Relying on his ministry experience and background in Biblical Studies, Craig Ford writes daily personal finance articles from a Christian perspective.  You can visit his site at www.moneyhelpforchristians.com or you can sign up to receive free daily email updates.

Weekly Roundup: NCAA Football 10 Edition

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I’ve never been much of a collector of anything. I have never bought a bunch of DVDs, music, or books. But back in my spending days I did have one weakness: sports video games, particularly college football games. This week, NCAA Football 10 was released for the XBox 360. Oddly enough, it was a non-event in our household.

In years past I have done such things as camp out at Wal-mart to buy (charge, that is) a Playstation 2, and take an extended lunch to run to Target the day a football game was released because I was terrified there would be a run on the stores and I wouldn’t have a copy the day it was released. Looking back it seems kind of silly, but at the time it was my one major spending weakness. Had I traded the games in for credits towards new games, or got more play out them, it might have made more financial sense. But, I usually got bored and tossed it in a pile of other old games and went out to buy another.

These days I play college football on my original Xbox, which I’m convinced will one day return as a classic video system much like the Atari and Sega consoles have done recently.

The Frugal Roundup

From Discretionary Spending to Discretionary Thrift. I do look forward to watching the American consumer as the recession ends and spending increases. Have we learned a permanent lesson, or will we fall back into old bad spending habits again? (@The Wisdom Journal)

Wealth Creation: Is it a Myth? A thought0-provoking post from Lazy Man that addresses the question of whether or not the creation of wealth is a zero-sum game. In other words, does your building of wealth cause someone else to be poor? (@Lazy Man and Money)

8 Reasons You Should Spend More Than You Earn. Yes, you read that correctly. Without spoiling things, I’ll just mention that there are some spending categories you should heavily invest in. (@Saving for Serenity)

Frugal Tip: Make Your Own Wine. My grandfather has been making his own wine for as long as I can remember. It’s frugal, and he actually likes the taste of it better than anything bottled commercially. (@Million Dollar Journey)

9 Unique Ideas for Frugal Date Nights.  My wife and I are always on the lookout for frugal date nights. When you consider the cost of a traditional “dinner and a movie,” and compare how many groceries you could buy with the same money, it really kills the mood! (@Mom Advice)

Bye Bye Dada Truck. I thoroughly enjoyed this story of another dad giving up his “big boy toy” for his family. Reminded me a little of my own story of “amputating” the Silverado. Man, that was painful! (@Busy Dad Blog)

My Best Posts That Got No Attention. I’m a huge Philip Brewer fan, so when I read about his two-year anniversary over at Wise Bread and these posts which languished without many eyeballs I just had to mention them here.  Maybe it will help! (@Wise Bread)

Best Home Improvement Projects Under $1,000. Though it didn’t make the list, we plan to convert carpet to hardwoods (or laminate) in our home over time to help with allergies.  When we are debt free, of course! (@Wallet Pop)

On My Nightstand

Frugillionaire by Francine Jay. This is one of the better “frugal tip” collections I’ve read in a while. I’ve worked my way through roughly the first hundred of the five hundred presented. Lots of good ideas, and more to follow on this one.

Become A Debt Killing Machine In Five Steps

Posted on by  at  6:00 am
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I’ve written about the subject of getting out of debt in the past, but because I frequently receive emails from people struggling with massive amounts of debt, I thought I would put together five steps for getting out of debt. These steps are more “big picture”-less procedural and more emotional. After all, until you get motivated to change you will simply spin your wheels.

1. Get angry

We go out of our way to repress anger in our society, but anger is a perfectly normal human emotion. An emotion that when harnessed properly can lead to powerful changes.

Find a way to personalize debt, and then get mad as hell at it. I hate debt for a lot of reasons, but a big one for me was the fact that debt limited my opportunities, and those of my family. My kids have missed out on opportunities to make lasting memories because we’ve had to skip family vacations. I had to stick it out in a soul-sucking career because we were too in the hole to consider moving. I spent many weekends mowing lawns a couple summers ago trying to generate extra income to pay down debt, all the while missing my family dearly.

At some point I said enough. I went from being indifferent, to depressed, to downright mad. That debt was not going to beat me. I would no longer ignore it while it festered, eating away at my future income and robbing my family of opportunity.

2. Stop spending money, cold turkey

When deep in debt you don’t have the luxury of saying things like, “I’ll try to spend less next month.” No, you WILL spend less next month. With the zeal of a heart attack survivor starting a new diet, prioritize your household expenses. Anything not contributing to food, shelter, transportation, health and basic clothing gets cut. Period. No excuses.

  • Drop the cable
  • Cancel home phone
  • Cut out the gym membership
  • Get rid of the yard service, the exterminator, and Netflix
  • Turn up the thermostat
  • Brown bag lunch
  • Have a no-spend weekend
  • Ride your bike to work
  • Eat rice and beans

Get drastic. Get creative. The deeper you can cut spending the more money you can direct towards paying off debt. And the more money you can throw at debt the faster it gets out of your life.

3. Eliminate opportunities to go back into debt

Got a problem with credit cards? Cut them up. Order too much crap online? Erase all profiles storing order information and destroy anything with a credit card number on it. Have a thing for cars? Sell the one you owe $20,000 on, and buy a $1,500 piece of junk to get back and forth to work. You’ll discover true friends couldn’t care less what you drive.

Have trouble in stores? Stay out of them. Shop every other week as much as possible, and only enter the store with a physical list of things to buy. Exit store with only things from that list. No excuses. It doesn’t matter what’s on sale, what’s on clearance, and what you just “have to have!”

4. Focus income towards your debt like sunlight through a magnifying glass.

I recall from my youth that light from the sun when filtered through the lens of a magnifying glass and focused on a particular spot is strong enough to ignite a flame. That’s exactly how you should approach paying off debt.

Focus as much of your income as possible on the next debt in your snowball. That debt should be sweating like a guilty criminal under the bright lights of an interrogator. Work overtime, pick up a second job, start a side hustle. Do whatever it takes to get your income up and direct all additional income towards repaying your debt.

5. Do not backslide, do no retreat, do not give up.

At times, following through on your financial goals will seem like an uphill battle. For instance, sustaining momentum when paying off debt is very difficult. Quick wins give way to long battles with high-balance debt, and it might seem like you are getting no where fast. However, as long as you are making progress, keep chopping away.

Another danger presents when things start to go well. Complacency begins to creep in. You have paid off 75% of your debt, increased your income, and decreased your spending. Suddenly that $1,500 a month you are sending to pay off student loans starts to look pretty good on a television, or on that vacation you skipped the last two summers.

This is a dangerous place to be, because the more comfortable you feel, the more risk there is you will give up and live with that remaining 25% of debt for the rest of your life. Keep your head down, your legs driving and sprint all the way through the finish line. And no matter what, do not quit until all balances reach zero.

Leftovers: A Recipe For Food Savings

Posted on by  at  6:00 am
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If you have any interest at all in reducing your food budget chances are you often find yourself eating leftovers. We certainly have our share of leftovers in the Frugal household. In fact, I’ve found certain foods are even better a day or two later (spaghetti and meatloaf come to mind).  But how long is too long? Do you have to wait for penicillin to start growing on the surface before chunking it?

I posed the question of leftover longevity to Twitter followers last week and received a number of thoughtful responses. One reply from “jessc098“ caught my eye. It referenced a site called StillTasty.com, which allows visitors to search from a list of food choices and receive feedback on how long that particular item will keep refrigerated and frozen. The search results also include a number of tips related to your selection for helping to preserve foods longer.

Here’s an example from StillTasty.com using the previously mentioned meatloaf – a crowd favorite in our house:

Meatloaf – Homemade, Leftovers

Refrigerator: 3-4 days
Freezer: 3-4 months

Tips

  • Refrigerate within two hours of cooking
  • Refrigerate cooked meatloaf in shallow, airtight containers or wrap tightly with heavy-duty aluminum foil or plastic wrap
  • Freeze in covered airtight containers or heavy-duty freezer bags, or wrap tightly with heavy-duty aluminum foil or freezer wrap.
  • Freeze time shown is for best quality only – foods kept constantly frozen at zero degrees will keep safe indefinitely.

Shared with permission from StillTasty.com

There are a couple of ways you can use this information to help shave money off your food budget. One idea is to stockpile ingredients for various dishes when they are on sale, make the dish, freeze it and enjoy it later to realize the cost savings. We frequently do this with things that keep for a couple months in the freezer, and it’s great to simply thaw and reheat a dish on nights when the kids have football practice, or you just don’t feel like cooking a big meal after a long day at work.

Another strategy for reducing your food costs by incorporating leftovers is to plan your meals around recipes that naturally produce a lot of leftovers. In our house, we all eat spaghetti the night it is cooked, I eat it for lunch the next day at work, and we all finish it off the next night. That’s nine servings of spaghetti enjoyed at home with salad and garlic bread for a fraction of what you would pay at a place like Olive Garden.

Leftovers can also be combined with new ingredients to produce new meals. My grandfather had a knack for this and frequently used leftover meats to “beef up” new meals. For instance, spicy smoked sausage sliced the next day and added to a pot of red beans and rice, onion, and Tabasco sauce made an excellent semi-cajun dish we could eat for another couple days.

Frugal living is not only about thriftiness, it is also about reducing waste and using resources wisely. I’m convinced reducing food waste is a great way to help your wallet by stretching out the cost of food purchases across a number of meals. Plan your meals, properly store leftovers for safe keeping, and enjoy maximum savings on your food bill.