Friends of the Family

On Saturdays I list four blog posts from the week that I thought were really good. I hope you enjoy them as much as I did.

Cosigning for a Family Member? at Along for the Journey: We all know the general rule here is not to co-sign, but what if it’s a close family member?

Classifying Wants and Needs at Get Rich Slowly: It’s important to distinguish between the two, but don’t get so carried away that you worry about whether eggs and cheese are really a want or a need.

Career Lessons From My Mom at Modest Money: Here’s a shout to all the moms out there. We’ve all learned a ton from our moms. Thanks mom!

Avoiding the Payday Loan Trap at MoneyNing: Payday loans are one of the absolutely worst financial moves you can make and should be avoided at all costs.

Also, thanks to Money Talks for hosting this week’s Carnival of Personal Finance.

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Lessons Learned: College Financial Aid

Every Friday I post about one of the lessons I’ve learned so far in life, both financial and about life in general. We’ve all learned valuable lessons along life’s journey, sometimes the easy way and sometimes the hard way. Hopefully someone will read what I learned and avoid having to learn the same thing the hard way. Check back every Friday for a new lesson learned.

College Financial Aid
When I was a senior in high school, my parents and I received a letter in the mail from a company hosting a financial aid seminar. It said they would discuss how college financial aid works and strategies for getting the most aid. The seminar was free, so we decided to attend.

The presenters at this seminar concentrated mostly on explaining how the FAFSA (Free Application for Federal Student Aid) worked and how most financial aid is based on information contained in this form. They really emphasized the importance of filling out your FAFSA correctly and recited several horror stories of students that filled out their forms wrong and missed out on financial aid.

They concluded this seminar with a sales pitch. Basically, for $500 (I think that was the price, but I don’t remember for sure), they would fill out your FAFSA and make sure all the forms were correct. In addition, they would send you a bunch of information about the colleges you were interested in attending. We didn’t want to risk filling out the forms wrong and missing out on financial aid. We were a pretty poor family, and financial aid was the only way I was going to be able to attend college. So, we paid the money and signed up to have them fill out my FAFSA. Later on when we actually looked at the FAFSA, we realized that this company was basically running a scam, albeit a perfectly legal one.

Now, anyone that’s ever filled out a FAFSA knows that it really isn’t that difficult to fill out. Almost all the dollar figures on this form come straight from your completed tax return. But at the time of that seminar, we didn’t know any of this. I was the first of my family (including extended family) to go to college, and we were all pretty clueless about the whole financial aid/paying for college thing. For my next three years, I filled out my own FAFSA online. It was easy and didn’t take very long at all.

There are many companies out there doing the same thing: preying upon those that don’t know enough about financing college. Technically, this company did nothing illegal. They filled out my FAFSA that year for $500. It was just a rip-off. I know now that there are many resources available to assist families that need help filling out financial aid forms.

Along the same lines, I know there are other companies out there that charge a fee to help locate college scholarships. The thing is, you can go online and search for college scholarships for free. You can go to your guidance counselor’s office in high school and find many available scholarships as well.

The Bottom Line
Before agreeing to attend any type of seminar or pay for any service, do some research first. If we had done this, we would have known not to waste our money. And know that any company that offers to find scholarships or fill out financial aid forms for a fee is just out to take advantage of you.

Our Parenting Mission Statement

I’ve mentioned on here several times that my wife and I have a little boy who just turned a year old last month. Well, while we were expecting our baby boy’s arrival, I stumbled upon the idea of having a parenting mission statement. Much like a company’s mission statement, our parenting mission statement presents our guiding principles and hopeful results of what we will strive to do and achieve as parents. Any new parent knows that it is an awesome responsibility, and my wife and I take it seriously. Below is our parenting mission statement, which we printed, signed, and have posted on our refrigerator. In full disclosure, I did not write all of this. I found a great example online that I absolutely loved. I couldn’t write a better one, so I just changed bits and pieces here and there.

Our Parenting Mission Statement
We will work together as partners for the best interests of our children. We want them to be functioning, responsible, healthy, respectful, content, and headed towards a purposeful life. We want them to enjoy childhood, full of memories and traditions. We will do whatever we can within our power to provide the environment they need to achieve that: with loving structure, natural and realistic consequences, shelter, stability, nurtured individuality, and an environment that encourages safe learning. We will strive to have an environment with respect and nourishment – physically, mentally, emotionally and spiritually, so that they may experience the fullness of life and their own individual potential.

Though we may not always agree, we will work to present a united front, postponing decisions on discipline until we have time to not only rationalize, but to communicate and reach a mutually acceptable decision.

We will strive to listen to all sides of a conflict, independently and without interruption, so that we may make the best choice for the child involved. We will also work to recognize each child’s personality, their strengths and weaknesses, and how to approach and parent them effectively without letting our own preferences in parenting influence us. Every child is different and responds best to techniques tailored to them.

We will be open to discussing any and all matters regarding our children so that miscommunication and tension are minimized. Each of us will strive to parent the children to the best of our ability and care for them completely. We will not allow ourselves or anyone else (children included) to treat or speak disrespectfully to either of us.

We agree that when we discipline, it will be fair, consistent, and agreed upon. We will also ensure that the child is informed that the discipline a result of the behavior or decision, not because of the child as a person.

We also agree that if a mistake is made, we will first allow the parent who made the mistake to correct it, and then have it gently and positively reinforced by the other parent, to the children. We will both strive to be an understanding, consistent and stable person in our children’s’ lives, and make sure that they know that we will be there for them.

We will not undermine or otherwise create the appearance of division to the children, and if we do, we will strive to reinforce our unity to them as soon as possible.

We will work together to be the head of our household and to allow our children to be children. We will work to create a safe environment for our children, guided by structure and predictability.

When Looking For Expenses To Cut, Start With The Big Things

Today’s post is part of the “Family Financial Guidelines” series. Whether you’re going through a financial turnaround or are just wanting to stay on top of things, this series will give you the tools to get and keep your family’s finances on track.

Expense Control
No matter your financial situation (though especially when first starting your financial turnaround), an important part of successful personal finance is getting expenses under control. There are a lot of ways to do this, and you’ll generally hear two schools of thought:
1. Cut back on a lot of little things
2. Cut back on a couple big things

Looking at the Big Things
For today’s post, we’re going to concentrate on the big things. Cutting back on these will give you the most bang for the buck and can really go a long way in improving your financial situation. This isn’t to say that cutting back on the little things doesn’t make a difference. It does, and we’ll discuss that in the future.

First things first, what do I mean when I say “big” things? Well, for starters you should have a list of all your monthly expenses as well as regular expenses that aren’t necessarily paid every month (such as car insurance or life insurance premiums). Your list should be pretty long and include everything you spend money on. There is no set threshold of what things are “big” versus “little” but a general rule would be to treat at least the five largest items as “big”.

Housing
For most people, the item at the top of the list is going to be housing. This is also the item that is probably the most difficult to reduce, but it can be done. If you own your home and have a mortgage, what is your interest rate? If you’re paying 6% or higher, you should definitely look into refinancing the mortgage. We refinanced our mortgage last fall, going from a 6.5% rate down to 4.75%, and reduced our monthly mortgage payment by around $150.

If you rent a house or apartment, look into the possibility of moving to another property with lower rent. Of course you have to consider the safety of the neighborhood and quality of the schools (if you have children). Additionally, you can look into the possibility of getting a roommate (or two) to split the monthly payment.

Vehicles
Another big item for many people is their monthly car payment. If you bought a car more than a year ago, check with your local bank or credit union about refinancing the loan. Interest rates have come down significantly, and refinancing can help reduce your monthly payment. One other possibility is to sell your vehicle and buy a lower-priced used vehicle instead.

Cell Phone
Did you know that the average household with a family cell phone plan including data and texting pays around $150 a month? There are multiple ways to cut this down. First, monitor your cell phone bill for a few months and see if you’re actually using all the minutes included in your plan. If you signed up for a 1,000 minute plan, but only use an average of 600 minutes you are over paying for service. Contacting your wireless carrier and switching to a plan with fewer minutes can easily save you $20 or more a month.

Another thing to consider is your monthly data plan. The average data plan now costs more than $30 a month. While you’re monitoring your monthly bill for how many minutes you use, you should also check how much data you use. If you aren’t using much of your plan’s data, you should really consider dropping the service. However, keep in mind that dropping the data plan will limit your phone choices, as most of today’s smartphones are only available if you sign up for a data plan.

Finally, consider using a pre-paid or no-contract cell phone plan. This way you can make sure you’re only paying for what you actually use, and there will be no large early termination fee if you decide to cancel or switch carriers.

Groceries
One final “big” item for most people is the monthly grocery bill. We all have to eat, we have to do laundry, and we have to shower, brush our teeth, etc. But there are many ways of reducing the cost of all these things. For food purchases, use your weekly grocery store flyers to plan a week’s worth of meals around the items that are on sale. This will help you stretch your grocery dollars and can also help encourage you to try new foods. Buying store brand products and using coupons for name-brand products can also put a big dent in your grocery bill.

There are also many other tried and true methods to help lower the cost at the grocery store. Always make a list beforehand of what you need, and stick to the list once you’re at the store. This helps to avoid purchasing unnecessary items. And it’s true when they say not to go shopping on an empty stomach. Everything in the store looks so good when you’re hungry, and you end up buying more.

The Bottom Line
By first focusing on cutting your largest expenses, you can really get a good start to getting your personal finances under control.

Keep The “Personal” In Personal Finance

Personal finance sounds so simple, doesn’t it? I am an accountant by profession. I enjoy working with numbers, tracking progress, and working in spreadsheets. From that standpoint, personal finance is mostly made up of simple arithmetic. I know that I bring home a certain amount and that so much goes toward non-discretionary monthly bills (the must-have’s), so much goes toward discretionary monthly bills (the nice-to-have’s), so much goes toward groceries and other monthly spending, so much goes toward retirement savings, etc. I can do the math. I can see where the money is going. I can see the slow but steady progress of our finances improving. But there is a lot more to personal finance than math and numbers. There is a reason the first word in personal finance is “personal”.

Beyond The Numbers
When I make spending decisions, is it really about the math? To an extent, yes; but not really.

I know that when my mortgage payment is made that I need to subtract that payment from our checking account balance. I know that more than half of the mortgage payment is going to interest, taxes, and insurance, with a small portion going to pay down the principal. But what I think about most is that making that mortgage payment gives my family a place to live. It gives us someplace to call home.

I know that a portion of every paycheck I receive is deducted and put into my 401k. I know that by making these contributions consistently over my working years the balance will grow significantly by the time I reach retirement. My wife still laughs when I tell her that we’ll have a nest egg well above $1 million by then, based on maintaining my current contribution levels. I know the math behind it: how the sum of my contributions, the employer match, and compound interest over 40 years can really add up. But what I think about most is that making those contributions will give my wife and me a future where we aren’t relying on Social Security for our retirement years (if it even exists by then). I think about a future that is secure, where we can focus on things like spending time with our friends and family without worrying about running out of money.

Last night I went to the Dairy Queen drive-thru and bought my wife and I each a blizzard. From a purely financial (math) aspect, was this the best use of our money? No. Technically I could have put that money toward one of our loans or put it in savings. But we really enjoyed sitting at home eating our blizzards while our little boy was sleeping. It was one of those once-every-once-in-a-while treats that make life a bit more enjoyable.

It got me thinking. Focusing on the math is not the key to successful personal finance. It certainly is an important component of personal finance, don’t get me wrong. The numbers do matter, and you can’t ignore them. But if that’s all you think about, you’re leaving the “personal” out of personal finance.

Friends of the Family

On Saturdays I list four blog posts from the week that I thought were really good. I hope you enjoy them as much as I did.

How to Get Along With Older Coworkers and How It Helps You at From Shopping to Saving: A very interesting post that anyone in their 20’s should definately read.

How To Take a Break From Being Frugal at Sense to Save: Sometimes you just get tired of being “good” with your money and need a little break.

Minimize Your Fear of Failure to Reach Your Full Potential at Along for the Journey: Being afraid to fail can really limit what you accomplish. Sometimes you just have to put yourself out there and take that risk.

Changing Your Perceptions of Wealth at Three Thrifty Guys: Being “wealthy” or “rich” is all relative and depends a lot on your viewpoint.

Also, thanks to My Personal Finance Journey for hosting this week’s Carnival of Personal Finance

Lessons Learned: My First Vehicle Purchase

Every Friday I post about one of the lessons I’ve learned so far in life, both financial and about life in general. We’ve all learned valuable lessons along life’s journey, sometimes the easy way and sometimes the hard way. Hopefully someone will read what I learned and avoid having to learn the same thing the hard way. Check back every Friday for a new lesson learned.

My First Car Purchase
I wasn’t really involved too much in the purchase of my first car. This was back in 2002 during my senior year of high school. My dad and I had been looking for used cars, test drove a few, etc. One day after school I went to a car lot and was checking out the cars and saw one that fit the bill. It was a nice little car (a 1994 Geo Prizm), and the price was in the budget my parents set. The actual purchase was handled by my dad, which included coming to a deal with the sales person and all the back office “stuff”.

Two years later I was rear-ended, and my car was totaled. The insurance company gave me a roughly $2,000 check, and suddenly I needed another vehicle. So, I looked online at various car lots and visited a few of those lots. I found a pretty sharp looking 1997 Dodge Avenger. It was a real sporty car, a red, two-door coupe with a sticker price of $7,500. I came back again with my dad to complete the purchase and set up the financing. This was going to be my first real loan, so I needed my dad to co-sign on the loan. I was working part-time and would handle the payments. The thing I remember most is that we didn’t really negotiate with the car salesman. I remember my dad asked the guy how low he could go on it, and the guy said, “I can go down to $7,000 if you buy it tonight.” So, that’s what we did.

When I look back on this, it almost makes me laugh. I ask myself, “What were we thinking?” But the truth is that I had no clue how to go about buying a car, and that is a huge problem that people face. Since that car purchase, I’ve learned a lot about how to buy a car. My next two vehicle purchases were much better, and I felt much more in control of the whole situation. The reason for this is simple: I’ve read up on how to go about buying a car.

Tips for Buying a Used Car
View Listings Online: Get online and browse what cars are out there, both at car lots and from individuals. This gives you the advantage of being able to go to a car lot and know the exact cars they have and a lot of times what the sticker price is.

Research Vehicle Values: While you’re on the internet browsing through used car inventories, check the estimated value of the vehicle. Three good sources are Kelly Blue Book (www.kbb.com), Edmunds (www.edmunds.com), and NADA (www.nada.com). You’d be amazed at how high the sticker price is on most cars compared to the true value.

Arrange Financing First: Before you go to a car lot to purchase a car, call your bank or credit union, and see what kind of financing is available to you. This gives you an idea of what your interest rate and loan payment will be. Additionally, you can use this as a bargaining chip. Most car dealers get a kickback when they arrange financing through the dealer. If you already have financing arranged, a lot of times the dealer will work to get you a lower rate if you finance through them. For example, we bought a vehicle a few months ago, and I knew the rate I could get at my bank. I told the dealer this, and they offered a slightly lower rate. I played the loyalty card and said the rate they offered wasn’t low enough to get me to use a financial institution other than my regular bank. The dealer then offered me an even lower rate, which I took.

Be Willing to Walk: Don’t be afraid to walk off the car lot without buying the car. If the dealer won’t come down to the price you’re targeting, simply tell them that you’re not interested in the car at the price they’re asking. Give them your phone number and tell them to give you a call if they change their mind. If you’ve looked online and researched what the value of the car should be, more than likely the dealer will call you back within a few days and come down to your price.

Act Like You’re in Charge: Whatever you do, do not just walk into a car lot and say, “What kind of cars do you have for $x,xxx?” This lets the dealer know exactly how much you’re going to spend, and they can steer you toward cars that have a sticker price around that amount. Despite what they may say, the car salesperson is not on your side. Hold your cards close to your chest.

Additional Tips
What are some of your strategies for buying a used car?