Five Twenty Nein

Baby Ninja decided to stop being a fetus ten months ago when he graced us with his presence last June. The second he breached the birth canal he forced Girl Ninja and I to start thinking about his future. The numbers 5-2-9 were no longer a sequence of three random numbers, but one of many ways Girl Ninja and I could begin saving for Baby Ninja’s future.

Apparently there is a good chance this human of mine could one day decide to go to college. Kinda like his mom and dad decided to do.

Oh crap. 

It was easy when I went to college. I just asked my parents to pay for part of it. My college to give me scholarship money. And the bank to loan me money. Easy peasy.

But now, here I am, 18 years away from potentially having the roles reversed.

Girl Ninja and I had to ask ourselves a question most parents do…

Should we start saving for college for our children? 

A few of the most popular ways to do this are:

Educational savings account- a tax free way to invest money for your child’s future education expenses. Could be used for K-12 as well.

529 Plan- similar to the ESA, has higher contribution limits, and no income phase out

Get Account- Washington’s 529 plan that guarantees your investment will keep pace with tuition increases. Basically you lock in today’s college prices for your child. Imagine if your annual tuition payments today were only $2,000 or so like they were 18 years ago. 

I’m sure there are many other options I am not aware of, but I don’t care to research or learn about them for one simple reason.

Girl Ninja and I have decided we aren’t going to save for Baby Ninja’s college. GASP!

That makes us like the worst parents in the world, right?

We came to this conclusion after considering the following things:

I’m a tuition bubble believer. 

The tuition increases we’ve seen over the last decade are unsustainable. If tuition continues to inflate 7% or more a year for the next 18 years, college will be so expensive that only the countries richest will be able to afford it. This bubble, like all bubbles, will eventually burst.

I’m not saying Baby Ninja’s tuition wont be more than it is today, but it will either be so expensive it would make no sense for him to go to school. Or, as I expect, the bubble pops at some point during the course of his youth, and future tuition increases are more in line with inflation (3%-4% per year).

The internet is a beautiful thing.

The internet literally makes life cheaper. Amazon forces retailers like Best Buy and Target to be more competitive in their pricing. I also expect the internets ability to provide access to information at little cost to have a dramatic effect on college costs over the next decade or so. Online schooling is still a relatively new thing, but twenty years from now, it will be so normal that brick and mortar universities will be forced to rethink their costs. Why would I go to University of Washington and pay exhorbinant fees, when (insert other college’s name here) is offering online courses for a fraction of the cost.

I expect this will also happen with real estate commissions. You hear that real estate agents. Your days (probably more like years) are numbered. Why should Agent X get a $3,000 paycheck on the sale of a $100,000 property, when Agent Y would make $30,000 on the sale of a $1,000,000 property. The work load is the same in either case. Fee for service will become the industry standard. Unfortunately, it’s gonna take a while before this shift happens.

Americans want their cake and to eat it to.

Much like the Affordable Health Care act has brought health insurance to the majority of Americans. I expect over the course of my lifetime politicians will socialize education. We recently saw Obama state community college should be “as free and universal as high school”. Expect the government to reform education.

What if Baby Ninja doesn’t want to go to college. 

Much like withdrawing early from a retirement plan, if your child decides not to go to college, you will be penalized for withdrawing your investments from a 529 plan for things other than education expenses. This isn’t a huge issue for me, but is still a concern.

Baby Ninja can pay for his own darn school.

I graduated college with $28,000 of student loan debt. That was above the national average for my graduation year. While being in debt was not a ton of fun, it taught me to appreciate money more and the importance of managing it. I don’t want Baby Ninja to grow up with a sense of entitlement. Maybe we will have so much money in the future we can pay for four years of Ivy league education for him. Or perhaps we will have a series of unfortunate events that will hinder our ability to help him financially. Either way, I want him to grow up knowing that nothing in this world comes free.

I’m happy to forfeit the college savings plans’ tax breaks.

At the end of the day, I just want options. I feel like the college savings plans are too specific and limited for me to commit a significant amount of money towards them each year. Instead, Girl Ninja and I plan to save for Baby Ninja’s college through general wealth building practices.

As you know, we have a taxable investment account. This is where we have been putting all of our discretionary income. As we grow this account, via contributions and investment appreciation, we should have enough money available to pay Baby Ninja’s tuition bills when they come due. What the taxable investment account lacks in tax savings, it makes up for in flexibility.

So there you have it. These are the reasons Girl Ninja and I have no sense of urgency in starting to save specifically for Baby Ninja’s college expenses.  Will he go to college? Probably. Will we have the financial capacity to help him? Probably. Is the 529 appealing to me? Probably not.

What say you? 

Things every high school senior should know about college.

I’ve been mentoring the same group of high school boys for four years. They are seniors now, and most of them are in the midst of receiving their college acceptance/rejection letters in the mail. At one of my recent Bible studies I asked the guys if they would be interested in doing a “college prep” night where I shared with them some insights on the college experience. Here’s what I’ve got so far to share…

Do look in to going to a public school. I made the decision to go private and man oh man did I pay for that choice. My school ran about $30k/yr, quite a bit different than the $5K-10k/yr public school options at the time. Looking back I wish I would have considered going to a state school. It’s okay though, I don’t regret my choice as I had the best four years of my life, but I SHOULD have explored public options more carefully.

Don’t drop out. Yeah that’s right. If you start college…finish. I can’t tell you how many kids I went to school with that didn’t come back after the first year. They paid $30K for that one year, and don’t have a degree to show for it. School can be hard, life happens, and money will be an issue, but you better do everything in your power to make sure you graduate from somewhere, even if it’s your local community college.

Do work part time. I don’t care if you are working 5hrs/wk or 40hrs/wk, but try and make some money. I know, being a full time student can be stressful, but I bet part of that stress comes from being broke. You don’t need to be earning enough to contribute to a Roth IRA (although that would definitely be sexy), I just want you to be able to cover the majority of your personal expenses (food, clothes, school stuff, etc). It also will give you something to put on your resume come graduation time. Think about it, if you were on a hiring panel would you hire someone who graduated college with a 3.5 GPA and no work experience or someone with a 3.5 GPA who also had a job during those four years? I’m going with the latter.

Don’t use that fricken credit card you signed up for. Yeah, that’s right. I’ve been watching you. Some dude at a booth said “Hey fill out an application for this credit card and we will give you this frisbee” and you filled it out didn’t you…DIDN’T YOU!? I too took advantage of a “free shirt” offer, but I actually lied on the application and input all fake info (which I think is actually a crime, but I didn’t know it at the time). Fortunately, I never accumulated a credit card balance while in school and you need to do the same. This is a non-negotiable. Credit cards can not be the means by which you provide yourself food and textbooks.

Do get good grades. Sounds like a no brainer right? But are you really applying yourself in all of your classes. I sure didn’t. In fact I got an A in Organic Chemistry, but a B in Introduction to Art. I picked and chose which classes I wanted to succeed in and where I was okay falling short. I wish I could go back in time and try just a little bit harder. When you graduate your GPA is going to be a huge bartering tool for you. Yes, your college GPA will become less important as you establish yourself in the work place, but until that time comes, it is your most valuable asset. If you graduated with honors don’t be shy about telling your prospective employers about it during an interview. It shows that you are dedicated to working hard and doing well.

Don’t grow up too fast. If you are the typical 20-something college student you have a responsibility requirement to act like it. Have fun. Pull stupid pranks on your dorm mates. Stay up really late and watch movies. Once you graduate college, you have to enter the 9-5 world, and let me tell you… it ain’t pretty. Midnight burrito runs are a thing of the past. Enjoy the college lifestyle.

Do take advantage of EVERYTHING your school has to offer. I was heavily involved in various college activities. Sporting events, clubs, organizations, all at your fingertip. There are so many FREE programs available to college students, you would have to be stupid to not take advantage of them. You aren’t stupid, are you?

Don’t take out $100,000 in student loan debt to become a teacher. If you know exactly what you want to do with your life (teacher, socialist worker, nurse, etc) then you need to think about the average pay for that position and how much student loan debt you will have. Don’t be naive and take out $25,000 each year in loans, only to graduate and become a Kindergarten teacher who makes $35,000/year (if you even get a job right away). You will literally be in debt for just about ever, and probably doomed to live in your parents basement until your 40.

Here is a general rule I would use; the total amount of your student loans should be less than what you expect to make annually in your chosen profession. If that’s not the case, change schools or change majors.

So there ya have it, some of my thoughts on the college experience. Take them with a grain of salt as they are only my opinions, and according to Girl Ninja, my opinion means nothing.

I’d love for you to share a few MUST SHARE items that I need to address when I meet with these high school kids. What is something that your 18 year old self would have liked to know?

I’ll still be so pissed if student loans are forgiven.

Back in the Occupy Wall Street hayday, Circa 2011, I wrote my 8th most popular post ever. It was simply titled “I’ll be so pissed if Student loans are forgiven“.

Yesterday I read an article by the New Yorker titled “A Student-Debt Revolt Begins“. Here’s a snippet from the article, but make sure to click through and read the whole piece.

On Monday, Heiney and fourteen other people who took out loans to attend Corinthian announced that they are going on a “debt strike,” and will stop repaying their loans. They believe that they have both ethical and legal grounds for what appears to be an unprecedented collective action against the debt charged to students who attended Corinthian schools, and they are also making a broader statement about the trillion dollars of student debt owed throughout the country.

If you took the time to read the whole piece, you’ll learn that it’s pretty clear Corinthian was likely not putting the students’ needs first. But then again, what would one expect from a for-profit entity? Of course the executives primary concerns are going to be how much money they will make, and how much money they can make for their investors.

It’s also abundantly clear Corinthian was taking advantage of the government’s generosity just as much, if not more, than they were taking advantage of their students.

Does this sound familiar? How about just a few years ago when all the financial institutions utilized predatory lending practices, knowing the fed was there to bail the bank out in the event the crap hit the fan.

Tons of upside. Virtually no downside. 

But to be honest, I actually feel for Heiney and think she should pursue legal recourse. If the college operated unethically, and the Dept of Education, requires that colleges do operate ethically, then I don’t know if the blame can necessarily be placed on her decision to enroll.

If she was deceived and lied to, how can I demand she pay back her loans. Lord knows if I was unknowingly ripped off, I’d like a chance to plead my case and get some type of relief.

BUT

Screen Shot 2015-02-25 at Feb 25, 2015, 11.20.55 PM

 

If she is successful in getting her student loans forgiven, then I would demand she forfeit any degree or credential she earned from her student-loan subsidized education.

I mean, her whole case is predicated on the fact that the school she attended sucked, wasn’t actually worth a single penny, and she feels her degree is useless.

Fine.

Give up the degree and I’m cool with you being able to explore student loan forgiveness.

Treat student loan forgiveness the same way that we treat foreclosures and bankruptcy.

I don’t get to revolt against my mortgage AND keep my house. No. The bank will kick my butt out, take back the house, and essentially forgive my loan (and damage my credit a good bit).

I don’t get to file bankruptcy, but keep my vacation properties, fishing boat, two dirtbikes, and $40,000 in personal savings. If I go to Bankruptcy court and convince the judge I can’t afford to pay back my creditors, the court takes whatever I do have, and distributes it amongst my creditors. My loan is forgiven, but I have to forfeit most of the things that debt allowed me to acquire.

So yes, even in Ms Heiney’s situation, as sad as it is. I will still be SOOOOOOOOOOOOOO pissed if her student loans are forgiven.

You can not have your cake and eat it too. 

Where do you see the student loan forgiveness issue going?

I think it’s inevitable and within 10 years student loan forgiveness will be a thing. And I’m sure it will be abused just like bankruptcy and foreclosure often are.

Heck, I’d take a damaged credit score for a couple years if it means I can swoop a free degree in the process.

*** keep in mind I graduated college with $28,000 of student loan debt, which was above the national average for my graduation year, so I’m intimately familiar with the “Frick, what did I do” feelings that come with a student loan obligation***

Am I a terrible future dad? Be honest. I kind of am.

So I posted up my annual budget a few weeks backs. A surprisingly high number of you all seemed to ask the same question in the comments section of that post.

“Uhhh, Ninja… where’s the college savings fund line item?” -You Guys

Excuse e moi?

I’m sorry.

I punched Sallie Mae in the face a long time ago. College fund? I’ve already been to college. Why do I need to save for it again?

Oh.

You mean where is the college savings fund for my fetus? Gotcha. You really should be more specific.

Well amigos, there isn’t one.

It’s a fetus. 

College Fund

 

In all seriousness, I’m not quite sure exactly how I feel about a college savings fund. I mean I know I will save for my children’s college, but I don’t know in what capacity, or where it will fall on my priority list.

If you’ve been reading my blog over the last couples years, this shouldn’t really be a shock to you considering I literally wrote a post titled My kids will be dumb.

Before I worry about whether my kid will get a B.A. or a B.S. I need to make sure I’m properly taking care of myself and my bride. That means putting a roof over our head, food on the table, and saving money for our future via retirement and personal savings.

Even if the crap hits the fan and we weren’t able to put any money away, there will be options for our kid.

  • Pay his way through school.
  • Community college.
  • State school.
  • Student loans.

I don’t think these options will need to be considered, but they are still options nonetheless. Heck, I didn’t have a college savings fund set aside for me and I turned out alright… I think. 

For now, I’m holding off on opening up an official college savings fund (like a 529 or ESA) until I get a better handle on how parenting (and losing an income) will impact our overall financial picture. Maybe this makes me a terrible person, but I like to think it makes me wise 😉

Where does your children’s college education fall on your priority list? Above or below retirement funding?

Thursday poll: college debt

College debt has been making headlines these last few weeks for a multitude of reasons, none of which I particularly cared about. So today I figured I’d check in and see just how much college debt the average Punch Debt In The Face reader graduated with.

[poll id=”13″]

For extra credit share you debt amount, when you graduated, and what your major was below.

 

Feeling obligated.

You already know Girl Ninja and I spend a few days a week hanging out with high school kids through a non-profit organization Young Life. You also know that we’ve gotten to know these kids pretty well. Whenever our friends ask us when we are going to have kids I always tell them “We already have kids.” About forty high school kids that is.

One of our Student Leader’s is a Senior. She is graduating in a few short weeks and is heading to Grand Canyon University in Arizona in the fall. She got accepted to five different schools, some local here in Seattle, and a few out-of-state schools, but after her visit to GCU she didn’t need to consider her future any further.

 We are excited for her. 

Well, that’s not entirely true. Part of me is excited for her, but a bigger part of me is worried for her. Being the PF nerd/blogger that I am, I feel like I should sit her down and explain to her exactly how student loans will impact her finances upon graduation.

A quick check of the school’s 2013 tuition, housing, and other fees indicate it will cost around $30,000 each year. Or in other words, 4 years at the school is gonna run each student about $120,000. I’m pretty confident she isn’t getting a huge scholarship, and I don’t imagine her single mom can help a ton. Let’s just assume she’ll graduate with $80,000 of debt, after working part-time and qualifying for a few scholarships and/or tuition assistance programs.

Lord knows when I had decided I wanted to go to a small private school in San Diego, no one was going to stop me from getting there. You coulda told me I would have $200,000 in loans and I wouldn’t have cared. Debt is so foreign to most high school kids. They don’t really have incomes and they don’t really have expenses. Why the crap would they know or care how interest impacts student loan repayments?

Normally I wouldn’t feel obligated to have a Personal Finance intervention with someone else, but in this case I feel like I have to. Not because she is going to be $80,000 in debt. But because she is going $80,000 in debt so she can be an elementary school teacher.

Ugh. 

This girl doesn’t know that $80,000 means she’ll be making $850/month payments for 10 years just to get rid of them. What’s more, while I’m sure she knows starting teachers make between $30k and $40k depending on the school, she definitely doesn’t know how health insurance, income tax, rent, groceries, etc can destroy a paycheck.

If she was going to school major in business, chemistry, or engineering then I would just mind my own business since those fields have potential to earn a significantly higher salary. But when she is going to have an $850/month student loan payment on a very predictable $2,200/month budget, I have to at least  break down the numbers for her. I mean she’ll have $1,400/month to cover literally everything else; food, rent, car, phones.

This makes me very sad. Although I feel like I should say something, I probably wont. I feel like if I sat her down and broke all this down for her, I’d only be doing it so I could say Told ya so four years from now when she walks across the stage with a diploma and a fat student loan obligation.

Maybe I should just tell her to check out this really cool blog I know called Punch Debt In the Face 😉

Do you intervene when you see someone putting themselves in a financially stressful situation? Even when they have the best of intentions? Would you have really been able to be talked out of your college of choice after you had already sent in your deposit money?

I apparently have really crappy timing.

I called our agent the other morning to express interest in a house that  was newly listed (click here to see the listing). After a few back and forth emails, we decided we would look at it that evening (the same day it came on the market). A couple of hours later, my agent called to inform me we wouldn’t be looking at the house. Our appointment was for 5pm, but the listing agent had already received four cash offers, well above asking price, and had five more offers expected. What’s more, they were accepting one of these offers by 4pm, an hour before our appointment to see it.

I was frustrated. 

Not because I didn’t have a chance to even compete for the house – we probably wouldn’t have put in an offer – but because of the timing of our house hunting journey. Seriously annoying.

As I started thinking about it I just got more and more depressed. So depressed I compiled a list of other frustrating things that have happened during my, relatively short, 5-year PF journey:

I graduated college in 2007 with $28,000 of student loan debt. My sister, who graduated just a few years before me had a similar amount. But between her college graduation and mine, student loan interest rates nearly quadrupled.  Her $20,000+ student loan had a 2% interest rate, mine a 7% rate. There was nothing I could do about it. You can’t refinance student loans like you can a mortgage when rates drop. For no other reason than graduating in 2007, I had to pay four times as much interest as those who finished up just a couple of years before me. Did you know I actually considered NOT paying these loans off early, because part of my thinks when the student loan bubble bursts (which it surely will), student loans will get special treatments…possibly forgiven altogether. 

I graduated college in 2007. Wait. Didn’t I just say that? Yeah I did. I was fortunate to get a job right out of school, but many of my peers weren’t. I got my degree just in time to watch America take a dump on itself. I finally had an income and an ability to contribute to my retirement accounts. Too bad that virtually every dollar I invested during my first few years working, dropped in value. I get that investments will go up and down over time, but having my first exposure to Wall Street be during the Great Recession wasn’t exactly ideal.

I also decided to be a good Ninja and save up 20% for a down payment. Girl Ninja and I reached that threshold in January, right in time to kiss the buyers market goodbye. Inventory is at an all time low. House prices are up a stupid 18% year-over-year. And interest rates are ticking up. Had we just been irresponsible and bought a place last year (with only 10% down), we would have gotten waaaaaaayyyyy more bang for our buck.

We have a ton of money in a savings account. Why is this a bad thing you ask? Well, when I had just a few thousand in my high-yield savings account, I was earning 3% or more on my money. Now that we finally have a substantial amount of liquidity, my high-yield (can you even call it that anymore?) savings account pays a paltry 0.75% APY…FOUR TIMES LESS!!!! There’s nothing quite like having money in the bank, when the bank is arguably the worst place for it to be right now.

Ugh, I could keep going, but I can only wallow in my own self pity for so long. As frustrating as some of these circumstances can be, I gotta keep my head up and fight the good fight. Hindsight is always 20/20 and some of these things I really had no control over.  You can’t let an unfortunate thing, like a recession, totally rock your world and keep you from doing what you know is right.

I’d love to hear some of the frustrating things you’ve experienced during your financial journey. Share them below!