Why NOT To Save For College

Yes, you read it correctly. There are some very good reasons not to save for your children’s college. Some, very, very, very good reasons not to save. People sometimes mix consumerism with the internal desire to give their children a better life with their own sublimations and misjudgements and end up thinking that they are responsible for doing everything themselves. In turn, they end up bankrupting themselves and doing their children a disservice.

Parents DO have responsibilities in their relationship with their children. I think that parents must:

  1. Take care of themselves, physically, spiritually, and emotionally.
  2. Build and maintain relationships with friends and family that are both functional and loving.
  3. Strive to improve themselves and their fortune.
  4. Model the behavior that they expect their children to follow.
  5. Discipline their children to ensure that they do.

Everything else is details!

If you notice, there isn’t anything there that says you have to be able to send your children to the best private college and let them live the high life. You might need to look at the best college values and your children might need to work. Deal with it!

A Contrarian View of Saving

The New York Times has an interesting article highlighting some different ways of looking at savings. While analysts bemoan our negative savings rate, some academics and researchers are looking at it differently.

The argument between the sides is similar to the classic debate between the hardworking ants and lazy grasshoppers of Aesop’s fable. The financial planning industry says saving, even too much, provides a safety net and peace of mind, and possibly a gift to heirs at the end.

The economists answer that people would get more out of their money by using it when they are younger. “There is risk in saving too much,” Mr. Kotlikoff said. “You could end up squandering your youth rather than your money.”

One of my complaints about a lot of financial calculators is that they don’t seem to take life into account. There are times in our lives when we spend more or we save more, it is hard to keep it consistent year after year. Additionally, there are times when we have short-term investment opportunites that can be even more beneficial than socking it away in a Roth IRA.

So, who is right? My guess is that the truth lies somehwere down the middle. Finanical companies have a vested interest in having you save more, as that is how they make their living. Also, by giving conservative advice they never have to worry about a class action lawsuit. At the same time, I am not sure there is any real problem with having a few extra bucks when you might not be working for 40 years or so. I think the key is balance.

Finding Inspiration

You can’t wait for inspiration. You have to go after it with a club.

— Jack London

Buying Used

I was browsing through MSN Money and found a great article titled “10 Things You Should Never Buy New“. There is some great practical advice here, definitely worth a read. Our culture is so focused on consumption and the marketing messages are so strong that it seems positively radical to settle for something other than the latest and greatest new thing. Buying used can be a fantastic way to stretch your resources and truly have your cake and eat it too.

An example … this weekend I took my 3 and 6 year olds shopping and we got bought a soccer ball, a toy helicopter, a model, a board game, and some action figures. Plus, we stopped at the restaurant of their choice and got lunch. Sound expensive? It certainly could have been! However, on Saturday our church had a very large garage sale, and everything they bought was used. The grand total of their purchases was $5, and the soccer ball only cost a nickel. Lunch consisted of a hot dog, chips, and a soda from the card table out front, which cost $2 each, for a total of $9. Now, this was money that they earned (through commissions, not allowance) and they were thrilled with their purchases. Doing this at a toy store and a chain restaurant could have easily cost us a hundred dollars or more.

At the same time, this week the entire family is going to go to see The Lion King on the stage, a big deal for us. The tickets are very expensive, several hundred dollars for all of us. Normally we could not have afforded both a shopping spree and a night on the town. However, we were able to do both by buying used.

Give it a try!

Is it a Want or a Need?

As our family started down the path to financial peace, one of the most useful tools that we had was to classify the things in our life as a want or a need . If everyone could agree it was a need, then we made room for it in the budget, regardless of what we needed to do to get there. Otherwise, it was a want, we prioritized it and tried to fit it in as best we can, but only if it made sense.

If your monthly income covers all of your needs then you are doing well. Otherwise, you are going to have to make some decisions about increasing income or temporarily going without.

You would be surprised how often we disagreed about what was a want and what was a need, and how just considering our lives in this way changed the way we approached money. It is pretty easy to decieve yourself on exactly what is a luxury and what isn’t. Here is a simple test that we came up with …

The Want Test

Think about one of your ‘need’. Imagine your life without it for 90 days, or with a substitute that is significantly less expensive.

  • Would I be considerably less safe or comfortable without it?
  • Would it signifcantly disrupt daily life for me or my family if I didn’t have it?
  • Would it cost me a lot cash up front to get rid of it?
  • Would it violate the spirit or the letter of the law if I lost it?
  • If I was counseling to someone else in my situation, would I recommend that they keep it?

If you can honestly answer ‘no’ to all of these questions then it is most likely a want in need’s clothing. Unless you have completed the baby steps then I would recommend that you reduce or eliminate this cost as soon as possible.

Also, I would take some time to consider if over the long term if this expense is more important then retirement, college savings, or investments. If your first answer wasn’t an immediate, unqualitied, unflinching ‘yes’, then you should really reprioritize this item in your life. I promise you, it will be worth it!

Luxury or Necessity?

Pew Research has published some survey results on attitudes around what the average American considers a luxury and what is a neccesity. The list of things that the average person “can’t live without” has multiplied in the last decade, incorporating items that are new (such as technology and computer-related items) and previously available (microwave ovens, air conditioning, clothes dryers) alike.

While this isn’t particularly surprising, the survey tells a lot about American life in 2007. The thing that grabbed me was this statement:

… one pattern was consistent: wherever there has been a significant change in the past decade in the public’s judgment about these items, it’s always been in the direction of necessity. And on those items for which there are longer term survey trends dating back to 1973, this march toward necessity has tended to accelerate in the past ten years.

I think this tells us a lot about the American mindset and the power of marketing in our culture. We don’t just want it, we want it now, regardless of the consequences. It doesn’t really matter if we need it, or if we can afford it, only if we can get it really quickly.

Thriving on $12K/year

MSN Money provides some inspiration from a true story on surviving and thriving on $12,000 per year. Donna Freedman decided to go back to school to better herself and her future, and in doing so she had to make some radical lifestyle changes. She is now a full-time student with a grant that covers her tuition and books.

In order to make ends meet, Donna:

  • Works doing baby-sitting, mystery shopping, freelance writing, paid medical research, and as the manager of her apartment complex.
  • Takes a brown bag lunch every day.
  • Gives money to those less fortunate than herself.
  • Donates regularly to her church.

I found it totally inspiring to see someone who is making their future better and thriving in a difficult situation. She has totally taken responsibility for herself and is making it happen. Donna is going to sacrifice to graduate from school completely debt free, and be able to live like no one else. It isn’t going to be easy, but it isn’t going to be forever either.

The next time you are struggling with making a financial sacrifice, measure yourself against what the Donna Freedmans of the world are doing.