Your Money Matters More

Secondary Education Dollars

Congratulations! You are in possession of a future high school graduate.  The carpools have diminished, the lunches have been packed, and homecoming and prom dramas are behind you. You are about to enter the most expensive part of raising a child…and you thought daycare was costly!

There is hope if you and your student are willing to be creative.  In about their sophomore year, given foresight, your teen could have taken Advanced Placement Courses or been involved with programs offered by high schools that allow for college credit.  This does require some footwork.  Talking to a counselor early and knowing your student’s goals is required.  If the student has a culinary, cosmetology or trade interest early, look to see what is available within the high school curriculum (Remember, in most States the educational dollar now follows the student.  You are no longer held by district boundaries.) Applying the credits gained in secondary school to post-secondary often the reduces the number of credit hours required for a degree and are more cost effective in the long run.

Scholarships and grants are free money; no amount of is too small. Talk to, but don’t depend solely on the high school counselor to find these all.  Participation in extracurricular activities, can be a source of scholarship.  It isn’t just the high school athlete or academic that captures these.  Do your research.  A caution here: the scholarship dollar value does not generally rise with the tuition cost.  Often there is added participation requirements on these as well.

Vocational/technical schools and apprenticeships are viable ways into employment without the high cost of other higher education.  Honest dialog with your student about career goals and interests before heading down the road to college is paramount. Projecting parental expectations onto kids without considering the financial ramifications can lead to years of debt.

Beginning at a community college can  offer multiple benefits. The cost is less per credit hour and most transfer to State Universities as well as the cost of "finding themselves” is at a greatly reduced rate.  Commonly, there is up to a 47% reduction in tuition and an associate’s degree can be the added bonus! If one of these colleges is available nearby and your relationship can withstand the growing pains into adulthood, living at home can also be added monies saved. This does not decrease your water bill or food consumption! 

Room and board savings can’t be discounted…as long as it is the right thing to do with your burgeoning adult. You will still incur commute expenditures, parking fees, and they do have to eat, but on average approximately a third of the total yearly cost for a major state school is room and board.  Communicate.  Although not financial, living at home has a cost; in the end you would like to be on speaking terms.

If your student is focused on a program that only fits with a university, starting the program freshman year may be the best choice. There are options here as well.  Work study is available at most universities and carries the added benefit of preparing them for the workforce in general. 

Don’t be intimidated.  If higher education is planned for appropriately, it is not insurmountable. Your Certified Financial Planner can help you prepare a plan that works for you.

Buy Smart

    I have always had medical professionals as clients. One thing this has taught me is that being smart enough to pass med school doesn’t necessarily translate into financial intelligence. Doctors, as well as any professionals who have a steadily increasing salary at the start of their careers, can often make purchases that hurt their cash flow down the road once their income plateaus. This makes it all the more important to develop an emergency or “slush” fund early in your career no matter what your occupation. Then later in life, once your rainy day money has grown, the finer things are less of a strain on your bank account. The two main purchases that can set an individual up for financial distress are expensive cars and big houses. Making the right buys can lead to a life of comfort, if done correctly.

 

Fancy Cars 

 

When individuals jump up into the six figure income bracket one of the first things they want to do is buy an expensive new car. What they fail to realize is that when they drive their so called “investment” off the lot, it loses thousands in value immediately. Their new car will then continue to lose value until the wheels fall off. But Chuck, “How am I supposed to show off my financial superiority while I’m on the go?” It’s  simple. Buy used. Say you think you would look nice in a Mercedes-Benz SLK350. You’ve worked hard to bring in the money and its time to reward yourself. A new SLK350 costs over $55,000. A used last year model costs $36,000. Paying an extra nineteen grand for that “new car” smell seems quite ridiculous. Any other investment that declined in value by 35% its first year would make you furious. Even for individuals with more modest tastes, a Honda Civic loses four thousand in its first year off the lot which is still a 20% decrease. Do yourself a favor and let someone else be the sucker who has to unload their bad investment in a year’s time.

 

Living Large 

 

The other mistake many make is purchasing a house that is too big early in their careers. If your job is putting fat stacks in your slacks the worst thing you can do is tie yourself down to a house that will pull cash out of your pocket for the next fifteen to thirty years. We at Prospero Financial always push to develop a solid emergency account before purchasing an expensive home. Buying a less expensive home allows you to build that emergency fund faster.  You will then be able to make a larger down payment on your next home. This will give you more equity to build on. You will need 20% equity in the property in order to avoid private mortgage insurance and decrease your mortgage payment.

 As unpredictable as the housing market is, you want to make sure that your house and property are sellable when the time comes. Choosing your neighborhood wisely can make a huge difference in the future. Picking the right house in that neighborhood can be just as important. The most expensive house in a neighborhood will be the hardest to sell. When prices in housing go up your palace might increase in value, but a home is worth nothing if there’s no one to buy it. The cheapest house in the neighborhood can be just as tough. Look for a home that is in the upper middle price range for the neighborhood you are moving into and you will have made a safe choice if you ever need to liquidate the property. Lastly, when  it comes time to sell a house, you need to leave yourself at least six months time to keep from leaving money on the table. Selling a home can be profitable, as long as you make smart decisions along the way.

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Rising cost of college tuition

I was looking at an article recently concerning tuition.  Being in the middle of college payments for my youngest son and just finishing up payments for my oldest daughter, I have seen college tuition costs rise at 15% to 20% while at the same time the investment returns in the 529 have gone down.  What you are not told is that any scholarship received doesn’t exactly grow with the housing costs. 

So you are left with financial aid, on a growing basis.  Years ago, I said that a growing number of even the affluent are going to need financial aid to get their children through college.  The only redeeming factor is that anything placed in a 529 is likely to grow at double digits from this point forward, if left long enough.  Pretty soon only the affluent will be able to go to college.