Review: Debt-Free U
Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.
When I went to college back in the late 1990s, my school was pretty much selected for me due to the scholarships I received. I didn’t have any financial resources of my own to help me get into college, nor was the internet widely available and full of easy resources to learn more how to acquire them. In short, I was left with a decision that seemed pretty much made for me.
Looking back, I realize that the decision was not as clear-cut as I originally thought. With my academic qualifications and financial state, I could have chosen from a lot of different schools, and the choice among schools was actually quite a bit different than I thought.
In short, when my children choose a college, the process will be a lot different than my own process was – more open ended, more thorough, and with more ideas out there on the table.
This, of course, brings us to this week’s book review, Debt-Free U by Zac Bissonnette. The idea behind this book is that many of the standards and reasoning people use to select a school and pay for it are way off base. Instead, what makes or breaks success in life is the person and the opportunities they have available to them. Because of that (and some research to back it up), the book comes up with some interesting conclusions on the entire college selection process.
1 – How Much Can You Afford, and Where Will You Get The Money?
Bissonnette focuses this chapter on the idea that scholarships are overrated and loans are dangerous. So, how should one pay for college? The old fashioned way – by saving for it and paying for it out of pocket. Work a second job. Don’t fall into the trap that you have to go to the most expensive school you can find in order to get a “good” education. Most of the rest of the book focuses on these latter points.
2 – Student Loans and Stagnant Wages: A Dangerous Cocktail for Future Graduates
So, why no student loans? Anyone under the age of about 40 probably knows the answer: they can be a punishing load after you’re out of school. Not only have you sacrificed years of income in order to get that degree, you’ve also got huge debts to pay back. Often, even with a much increased earnings potential, it’s a zero sum game – or worse. The better approach is to pay as much out of pocket as you possibly can.
3 – Does It Really Matter Where You Go to College? The Solution to the College Funding Nightmare
That’s great, but great colleges aren’t cheap. Bissonnette’s argument against that is that the idea of a “great” college is overrated. Most people who are successful in their field don’t come from “great” colleges – they come from all over the place. What makes a success story isn’t the school the person goes to, it’s the person. Instead, you should seek out the schools that leave students with the lowest debt burdens after college, which are mostly large state schools.
4 – How to Make Any College an Ivy League College
But how do you get the “ivy” experience at Big State U? It’s all about how you approach it. A great college experience that you can base a career on comes from connecting with people and building your skill set at every opportunity. Networking, acquiring unique experiences, and building specific skills are the trademark of success, not the name on the degree that you get.
5 – Why Large Public Universities Are Better Than Private Colleges
Most of the time, big state schools offer the best opportunities to do those very things, given the large number of people there. There are countless opportunities at a large school that just can’t be found elsewhere. Simply due to the sheer numbers, you’re much more likely to find experiences that really click with you and enable you to build skills that match your talents and interests at big state schools – and that’s what draws attention in the workplace.
6 – The Community College Solution
Another advantage of a big state school is that it’s often easy to transfer community college credits. That means that while you’re in high school, during the college summers, and perhaps even during a year or two between high school and a four year college, you can get general education requirements out of the way at a very inexpensive rate at your local community college, drastically reducing the cost of a four year school.
7 – Make Money, Prepare for a Career
This was my favorite chapter because it so directly matches my own college experience. As established earlier in the book, the best way to maximize the value of college is to earn money while there to reduce your tuition bill. Also mentioned earlier, college is the time to have great experiences and build skills that translate to the post-college life. Why not do both at the same time? Seek out paid internships or work-study positions. See if you can find a job with a professor who is engaged in a field that interests you. Ask, ask, ask – it never hurts.
8 – How Your Child Can Save Money While He’s in College
The stuff here is basically personal finance 101 – avoid credit cards while in college, read your college bill carefully and ask about any and all fees you don’t understand, and so on. It’s valuable, though, because these types of tips can make an enormous difference on how much you have to take out in student loans and how much debt you’ll have after college. The lower both numbers are, the better.
9 – Invest in College-Town Real Estate
This chapter felt really out of place, because the rest of the book talks about great ways to minimize expenses and thus reduce any debt you have to incur after college. This chapter really speaks to people who already have a lot of money and are looking for someplace to sink it. Why not buy your child a condo as a gift as they leave for college? They can live there while in college, then rent it or sell it after school is over? Good idea, but it speaks to people with a lot more money than I ever dreamed of having in college.
10 – It’s Not Just a Personal Finance Issue: How to Solve the College Crisis
Bissonnette has a lot of good, if overly grand, ideas here. There’s just one that I really, really wish would take hold in society – I wish society would stop stigmatizing financial prudence. I understand why it won’t happen – marketers don’t make money from financial prudence. Still, if everyone were financially sensible, society as a whole would work much better.
Is Debt-Free U Worth Reading?
If you have children and have at least some intent of directing them towards higher education, or if you’re a high schooler or early college student with the ability to read and digest more than one viewpoint, Debt-Free U is a very, very worthwhile read. It’ll provide a ton of food for thought for your college planning process.
As with any book like this, though, couple it with your own homework. When you’re making such a huge choice, get information from lots of different sources – make this book part of your education about college choices, but never make one book the be-all end-all. It’s very solid and has a lot of great ideas on maximizing every dollar from your college education, but it deserves to be coupled with additional reading, as does any book on a major life decision.
Continue reading Review: Debt-Free U …
From The Simple Dollar.
FREE: Debt Free Bible
FREE: Debt Free Bible
Continue reading FREE: Debt Free Bible …
From Frugal Simplicity.
Paying Down the Mortgage or Investing for the Long Term? What Shall We Do?
As I mentioned a bit last week, we’re currently debt free except for our mortgage and a student loan with such low interest that it would be financially reckless to pay it back early. The CD in which we were keeping the money to pay for our Prius matured (it was earning a higher percentage return in a CD than we could get on a car loan, so cracking the CD early and paying a penalty just to pay cash seemed like a poor move), so we paid off the full balance of that loan and own both of our vehicles now free and clear (we paid cash for our 2004 Pilot a few months ago).
Right now, we’re sitting at a decision point. Should we start prepaying significant amounts on our mortgage or should we invest that money elsewhere? I think we’ve come to a decision, but I also thought walking through our decision-making process.
Our home mortgage sits at about 5.5%. We are looking into refinancing it at 4.75%, but we haven’t yet fully run the numbers to determine if it would actually save us any money or not because of the cost of the refinancing and because of our intent to pay it off quite early. We’re already making payments that amount to about 50% more than what we owe each month.
Our question currently is simple: should we raise those overpayments to 100% or more or should we be investing that extra money into stocks or something else?
If we increased our payments to 100% of what we currently owe each month, we would pay off our mortgage in about seven years. If we exceeded that amount, we would be paying for even fewer years than that.
We view money put into the mortgage as being an investment with a guaranteed return of 5.5%, because that’s the amount of annual interest we’ll save by knocking off some principal. If we pay $1,000 early, it’ll save us $55 in interest this year and about $57 in interest next year and so on.
On the other hand, we could invest that extra mortgage payment each month into something else. We could put it into a savings account that would earn us 1.5% or 2% or so, but it would be very liquid.
We could also invest it in the stock market. It would be very liquid there and it would also have the potential to greatly beat the 5.5% we’re making on our home loan.
Of course, “potential to greatly beat” reveals the hard truth. Stock market investing, particularly in the short term, implies quite a bit of risk. 2008 was incredibly painful, for example, as were 2000 and 2001.
The truth is that stocks only pay off as an investment over a long timeframe unless you’re banking on some luck.
So, what’s our timeframe here? Our plan after our mortgage is paid off is to buy a piece of land in the country and build a house on it (and likely a small barn as well).
If we put the money into our home, we would be completely debt free in five years, buying land a year or two after that, and building a year or two after that. Let’s figure five to ten years is our time frame.
Is that “long term” in terms of the stock market? Sadly, it’s not. As Warren Buffett so eloquently put it, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” The simple fact is that over a period of time less than ten years, the stock market is notoriously volatile.
This becomes even more true when you consider that we won’t be investing all of it now and just waiting. Instead, we’d be investing small amounts regularly over the next several years. Large chunks of our investment would be in stocks for only a year or two.
That’s not the kind of fragile foundation we want for our next home. We’d far rather own our current house free and clear. It’s in a good location, rurally placed with great access to the Des Moines metro area, and similar houses have held their value or even gone up over the last several years. We feel, based on the evidence, that we’ll get out of it at least as much as we put into it when we sell it.
Thus, our extra money is going into our mortgage for the time being. I altered our automatic monthly mortgage payment to be 125% more than our normal monthly payment and may yet alter it again (I want to watch our monthly cash flow for a while). This leads us to paying off our house in just a few years and pushing us right towards the country home we’ve dreamed of.
Continue reading Paying Down the Mortgage or Investing for the Long Term? What Shall We Do? …
From The Simple Dollar.
The Simple Dollar Weekly Roundup: Resolution Updates Edition
I thought I’d update you on my progress with my 2010 resolutions.
Resolution #1: Lose 40 pounds I lost three pounds in January, so I’m more or less on pace with this one. My biggest challenge here is the weather, which makes it very difficult to just get outside and take a long walk, something I love to do every day when the weather is nice.
Resolution #2: Pay cash for a replacement for my truck I have an adequate amount of cash ready to go. I’m just merely waiting for the right replacement vehicle to come along. Oh, and I’ve had additional truck troubles in the last month, so I have even more incentive to switch.
Resolution #3: Learn to play the piano After testing out two piano teachers, I’ve been taking weekly hour-long lessons from a teacher for the past three weeks. I’ve also been practicing a lot at home. So far, I can read most simple sheet music if I go slowly and I can play a few simple songs at a reasonable tempo.
Resolution #4: Reduce my entertainment and hobby spending by 50% This is going really well so far, as I spent just a few dollars on entertainment in January. If the rest of the year goes anywhere near this well, this one will be easy to do.
So, to put it simply, #2, #3, and #4 are very much on pace, and #1 arguably is. I’m pretty happy with that.
Here are some personal finance posts to enjoy.
Star Trek and The Time Well Spent Continuum In the last Reader Mailbag, I argued that MMORPGs like World of Warcraft and Star Trek Online could be potentially good ways to reduce your entertainment spending. This article actually makes the opposite argument. (@ debt free adventure)
The Hypocrite Test: Should Rich People Pay More? As with many such fundamental political issues, I think there are valid arguments on both sides of the coin and that some reasonable compromises can be reached. The only problem is that people don’t sit down at the table and rationally discuss such issues today – instead, they resort to arguing, insulting, and “straw man” representations of the opposition. I have little interest in that, whether it’s Keith Olbermann or Glenn Beck – I wish they’d both shut up. Whatever happened to the Lincoln-Douglas debates? Such thoughtful coverage of the issues of the day went away with the advent of fifteen second news blips. (@ awake @ the wheel)
Does Renting Make Sense? J.D. pulls out the P/R ratio to take a look at whether renting is more worthwhile financially than buying. The problem, though, is that it doesn’t really take into account individual financial situations. (@ get rich slowly)
How is disorganization and clutter affecting your job performance? In my own case, I notice a serious downturn in productivity when my office gets disorganized and messy. I’m far better off just stopping for a bit to get things in better order than I am just charging ahead. (@ unclutterer)
Continue reading The Simple Dollar Weekly Roundup: Resolution Updates Edition …
From The Simple Dollar.
Fiscal Geek is debt free
Would you like motivation to become debt free? Go see how one family did just that by keeping their long-range goals in mind.
Paul from Fiscal Geek and his wife Angela tell their story of how they can now say “We’re debt free!”
Continue reading Fiscal Geek is debt free …
From Monroe on a Budget.
Candy wants to be debt free – and she’s working on it
My friend Candy at Deal With It, Simply! and her husband are working through the Dave Ramsey Financial Peace University classes.
She’s been posting about her experiences and perspective on her blog:
This week our goal was to sit together and plan out our budget. It was stressful trying to find the time, but we did and have a goal. I wanted to say that there is an amazing feeling when you and your spouse are on the same page. When you spread out your bills and you see in front of you how much you are really paying for things. When we totaled up everything and looked at each other and said “I thought it was going to be worse. We can do this!”
There are other programs and classes that can help you get on top of your household finances. The one that I have personally used and have referred to from time to time on this blog is Crown Financial Ministries, which was co-founded by the late Larry Burkett. I was listening to Larry’s radio show in the early 1990s!
I’ve compiled a list of financial literacy programs in southeast Michigan so you can look up locations, dates and topics that work for you.
Continue reading Candy wants to be debt free – and she’s working on it …
From Monroe on a Budget.