Student Loan Help

Use the Library: The library is a great place to save money. Most libraries nowadays have internet access (although you have a time limit), periodicals, music catalogs, and obviously books. Library cards are also very inexpensive, if they even charge at all. Libraries are literary treasures and are underused. I go there to look up consumer report information on appliances while my colleague loves taking out books from Oprah’s book club list. My brother Dan loves music and takes out CD’s to listen to.

Hit grocery sales twice. The standard sales at a grocery store last 7 days (they generally run Friday – Thursday in my region). Wouldn’t it make sense for me to make a return trip back on Thursday night and hit that sale one last time? Most people couldn’t be bothered but over the course of the year you could save hundreds of dollars this way. This is like a giant coupon in and of itself, and you don’t need to clip it out of a paper.

Pay cash for gasoline. Did you know a lot of gas stations apply a surcharge when you pay for your gas by credit card? In some places they actually charge as much as 10 cents more per gallon! That is just crazy. It is the classic bait and switch tactic. Some gas stations have now been forced to post two prices at the pumps, but not every station is required to do so.

Get the right phone plan. If you don’t get the right plan it can cost you dearly! I had a 1400 minute plan with Verizon and discovered I only averaged 650 minutes each month (I have become a textaholic). They had a 700 minute plan that I moved to and saved myself about $20 per month. Do the math, that’s $240 more bucks in my pocket at the end of the year. Shame on me for not doing it sooner!

Pre-owned better than new Automobiles. Buying a quality pre-owned vehicle may save you thousands over a new one. Sales tax and excise tax will be considerably less, and of course the sticker price will be greatly reduced as well. Autos are a liability and a depreciating asset already; you might as well minimize the damage if you can.

As the hands of time march on, each of us become wiser; at least that’s the hope.  We try our best to learn from past mistakes and accept valuable advice from family and friends who have traveled down that dirt road before us.  Still, some lessons we just need to learn the hard way.  I have had once such lesson I would like to share with you in hopes that you will not suffer the same fate.

I entered into a business venture with my father-in-law in 2006 and got burned badly.  In this instance I am the one who traveled down that dirt road and got covered in mud when the dust cleared.

He and I bought a condo together in Naples, FL in 2006.  As he was located right in Naples he took care of drafting the tenant lease (we had a tenant already in there), taking care of condo maintenance, and paying the mortgage.  I basically served as the silent financial partner from Boston during this time.  Everything was going well, or so I thought. 

Now it’s important to note that the tenants rent was covering both the mortgage and condo fees so I was not required to send down any money.  It seemed to be a perfect scenario, that is, until my place of employment was called for employment verification.  What I didn’t know is that my father-in-law had experience financial hardship and was paying other bills with the tenant’s money while letting our property fall deeper and deeper into debt.  In November of 2006 I discovered no payments had been made since June!

This episode damaged my credit by 75 points.  Also, to compound the problem, I had to pay $6,200 to get the property out of foreclosure status.  Half the money went to past due mortgage payments while the other half went to attorney fees.  This was a hard life lesson learned for me.  I thought I could trust my wife’s father.  The man even contributed $10,000 toward our wedding.  He would never do anything to harm his little girl or her husband, right?  WRONG!

Here is my advice to you.  If you ever enter a business venture with anyone open an online account to keep tabs on things or call customer service once per month to confirm your account is in good standing.  Of course, you could also be the one who pays the bills (which I am currently doing) to make sure it gets done in a timely manner.  Finally, you may consider a credit service like one of my friends to give you monthly credit alerts should anything negative hit (a monthly fee is involved).  That way you will have the information in hand immediately.  

Learn from me my friends.  Here we are two years later and I’m still trying to get the mud off my jeans.  I’ve already tried Tide, Wisk, ERA, Extra, Arm & Hammer, and Shout to no avail.  Perhaps with time it will fade, but it will always be there.

StudentPlatinum.com has created a useful resource for students and parents who are wondering what they can do to improve their credit.  The primary benefit of improving your credit is that you can secure lower rates and more favorable terms on loan and credit cards.  Get more information on how to Improve Your Credit Score at:

http://www.studentplatinum.com/improve-credit-score/

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This is my Bonds 101 blog designed to give you some basics on what a bond is.  I only feature three different types as not to confuse you (or me for that matter).  After you read this blog you’ll be able to walk into that cocktail party ready to flex some intellectual muscle.  Oh yes, you will be armed and dangerous!  Let’s get started and break a mental sweat before you put that mind back on holiday.

What is a bond?

A standard bond specifies the fixed amounts to be paid and the exact dates of the payments.  How much should you be willing to pay for a bond?  The answer deprends on the bond’s characteristics.  We will look at three basic types.

Zero-coupon bonds:  These are bonds which promise a single future payment, such as a U.S. Treasury bill.  These are very common.  Basically this is when you buy a bond for a set price, say $70 present value and the bond will pay the full note amount, say $100 in 5 years depending on the interest rate.

Coupon bonds: These are bonds which make periodic interest payments and repay the principle at maturity (a fixed time period is specified).  Coupon bonds do not have an individuals name on it (essentially they are unregistered).  Whoever is in physical possession of the coupon bond itself can collect the money.  Coupons are affixed to the bond itself.  The holder / owner of the bond will send in one of the coupons at a set time and receive an interest payment for the bond. U.S. Treasury bonds and most corporate bonds are coupon bonds.

Consols: These are bonds which make periodic interest payments forever; never repaying the principle that was borrowed.  Because governments are really the only borrowers that can credibly promise to make payments forever, there are no private consols.  So let’s say you by a consols bond for $500.  You will never get a direct payoff, but you will be ensured interest payments until the day you die.

So there you have it.  We’ve covered three different bond types to wet your pallet.  I tried to keep it pretty basic.  Converting the return on your investment by looking at yield to maturity is another blog for another time.  But for now I hope this helps. Now go rush out and get a “Fond for Bond” bumper sticker!

Last month I blogged about the 529 college savings plan and received some excellent questions that I felt would be beneficial to share with everyone (along with the answers of course). 

I pretty much just gave a snapshot overview of what a 529 plan was , but I’m going to get down to the nuts and bolts of it for you today.

Q: David, you are obviously very smart on financial matters and I would appreciate more details about the 529 plan if you get a chance.  I live in Vermont; do I have a good plan here?  If not, can I get into another state plan?

A: You’re right, I am a financial master, and semi-good looking too – ha-ha.  To answer your question Vermont is a Top 5 plan based on performance over the past 3 years.  They even offer a tax credit to the residents of the great state of Vermont.  Your state’s 529 plan is certainly solid, however, it is perfectly within your province to open a 529 plan in another state if you’d like.  Just because you live in Vermont doesn’t mean you can not open a 529 plan in Oregon.  Also, your child would not then be required to attend a school in Oregon either as many assume – this would simply mean your 529 account was located in that state.

Q: What are some of the main differences between state plans?

A:  One of the biggest differences between plans is who is running the plan.  For example in Massachusetts you have but one option, Fidelity.  In Nebraska it’s the Union Bank and Trust Company of Lincoln, Nebraska, and in Indiana it’s JP Morgan. 

Another thing to keep in mind is what types of fees are involved with each plan.  Are there monthly/yearly maintenance fees, program management fees, or start-up fees?  Obviously the higher the fees the less desirable the plan, unless of course that plan is performing at a very high level to overcome said fees.

Q: Is their a contribution minimum?  I can only afford to put $50 per month away?

A: These differ greatly from plan to plan and for residents vs. non-residents.  For example in Kansas the minimum contribution is $1,000, but only $250 for a Kansas residence.  Each subsequent contribution is $50 per month, but just $25 for Kansas residence.  In Louisiana it’s just $10 total to open an account while in Illinois, Nebraska, & Utah there are no minimum payments at all!  Keep in mind that some states also offer lower contribution minimums if you set up ACH.

Other things to keep in mind are state tax deductions.  For example, residents of Arkansas have a deductible in computing Arkansas taxable income up to $5,000 ($10,000 for married taxpayers) when they contribute to their state 529 plan. 

Also, about half of the state 529 plans offer rewards programs as well.  For example, Massachusetts has partnered up with American Express and offers rewards points that go directly into your child’s 529 plan.

I hope this information is helpful!  If you still have further questions or just want to tell me how fabulous I am, fire away!  I love to hear that I am a financial mastermind, look out Bernanke – I have some thoughts on this countries monetary policy too.  Happy Saving.

Hey guys, I thought it might be helpful to take a broad scope view of the Financial System here in the United States. I mean, I’m always preaching about saving your money and getting the best value for your dollar, but why does that really matter? Why does a dollar even have value? Here is a high level overview for you.

First off, there are five core principles of money and banking. The acronym to remember these five core principle is TRIMS, which stands for Time, Risk, Information, Markets, & Stability.

Time affects the value of financial instruments. Interest payments exist because of time.

Risk requires compensation. In a world of uncertainty, individuals will accept risk only if they are compensated in some form. The more risky the investment the larger the potential return.

Information is the basis of educated decisions. If you weren’t given proper information you couldn’t make intelligent decisions.

Markets are used as a meeting place where buyers and sellers come together. This is the core of the economic system. Think of it like a Match.com.

Stability in the economy reduces risk and improves everyone’s welfare.

So basically the value of your dollar changes over time. The purchasing power of your George Washington in 1950 was certainly worth more than it is today. In 2050 the dollar will be worth even less (assuming we still use currency at that point).

If you are willing to take some risk and invest in financial instruments than you may be able to outrun inflation. But some factors are simply out of our control. We don’t control monetary policy, nor have the power to turn the economy around when it is slumping. All we can do is educate ourselves and make sounds decisions based on the information provided.

Knowledge is power. Time is our ally. Happy spending.

I speak to parents every day who call me trying to figure out how they’re going to pay for college for their kin. It’s a heavy cross to bear. “Should we take a home equity line? What about the Parent Plus loan? Do you think I should just co-sign for a private student loan for my child and keep the loan in their name?” These are the most common questions I help them work thru.

From a students perspective they’re just trying to get to school and are less concerned with the financials. They don’t fully understand the financial ramifications that go along with the cost of education. Whether it’s $5,000 or $50,000 it doesn’t really matter to them; at least not while they’re in school. These serve as arbitrary numbers. But those numbers become their foe when it’s payback time.

The purpose of this blog is to introduce a 529 savings plan to you. This education savings plan is most useful to those parents having students several years away from college.

Here is a quick cliff note style overview for you.

- Every state has at least one 529 plan available.

- Two general types of 529 plans exist: prepaid programs and savings programs (prepaid tuition plans allow you to lock in future tuition rates at current prices while savings plan do not offer that same guarantee).

- Your investment grows tax-deferred, and distributions of the funds come out federally tax-free when you are paying for college.

- You are in control of the funds, and can even change the name of the recipient to another child or even yourself.

- 529 plans are viewed as a parental asset which is only assessed a maximum of 5.64% in determining a students Expected Family Contribution (EFC) on their FAFSA, opposed to a whopping 20% on non-529 assets that students hold.

As you can see 529 plans have great benefits and are a terrific way to save for your child’s college. I want you to save now and pay less later.  If you plant it - it will grow.

What do you consider your most important bill each month; mortgage, automobile, cell phone? We all have mountains of bills to pay, but the most important bill you will ever pay is the one to yourself. My Dad taught me that a long time ago. I want you to stay ahead in the game of life which is why I am passing this wisdom along to you. Those other bills are certainly important, but not as important as number one.

Think of life like a game of Monopoly. Sometimes you land on Go and collect that $200 while other times you get sent directly to jail (and no one looks good in pinstripes). And think about it, if you get sent to jail you can’t take that ride on Reading Railroad, visit St. Charles Place, or advance to Boardwalk. You’d be relegated to a passenger in the game of life – no fun!

My suggestion is to set an account aside and put money in each week or each month as you deem fit. You are far more important than any other bill that comes your way. No one is going to do this for you. You need to take action to make this happen. Remember, it’s not the denomination that is the important thing here, so don’t get discouraged by that, it’s the act and mindset behind it. As you get older you may be able to contribute more, but for now just start with a $1.

We are always going to owe money to someone, that’s just life, but owing money to yourself is an investment in you. Everyone else can take a number and get in line. 

Follow my simple but rich advice and you can’t go wrong. In fact, I’ll even save you at seat at the Boardwalk Cafe. The view is breathtaking.

Why spend today, what you can save tomorrow?

Have you ever been called a penny pincher? Have you ever been told you are tight with the wallet or are just plain cheap? If so, you’re probably getting the last laugh right about now. With the economy in a state of purgatory and the cost of gasoline and commodities on the rise that nest egg you saved yourself is coming in mighty handy these days I’m sure.

Anyone still around from the Great Depression Era knows how truly bad it can be, and is frugal beyond belief. They mastered the art of saving, unlike today’s generation. The only thing kids save nowadays is their game of Halo.

Well, Dr. Dave is writing you a prescription to be frugal and I want you to follow it to the letter. Now I know what you’re thinking, I can’t just stop spending money cold turkey. Actually, on a sidebar what does that metaphor even mean? I eat cold turkey everyday for lunch. I LITERALLY can’t stop cold turkey, I love it! Anyway, back to you. Take baby steps if you must. No excuses people!

Here are some excuses you’re probably scheming right now: All my friends go out on Friday night, I don’t want to be the only one. I deserve those pair of shoes; they’d look so good on me. I work hard and I want to play hard. My personal favorite – everyone’s doing it. The list of excuses is endless, but your bank account isn’t. I’m not saying become a hobbit, but it’s ok to tell your fiend, “I just don’t have it.”

You don’t need to keep up with the Jones’ to be cool. A penny saved is a penny earned (or at least ¾ of a penny earned with the current exchange rate). Don’t give into the peer pressure. Be your own person.

Next time someone calls you a penny pincher just smile back and say thank you, it’s good to see you recognize an intelligent person when you see one.