Independent, Fee-Only Financial Advisor

Independent, Fee-Only Financial Advisor

Tuesday, October 25, 2016

Reducing the Cost of College

On the radio this morning (will post a link when it goes up) we discussed receding the cost of college.  Immediately everyone wanted to talk about 529 plans and how crazy student loans were, but there is a less explored area that deserves a lot more attention.

live and worldwide this morning
at Mississippi Public Broadcasting

Let's get this out of the way: When people talk about the cost of college, financial advisors will often talk about the importance of saving. This is natural for a financial advisor to do because it involves some pretty easily calculable things. You know how much you want to save (or can guess) and you know the timeline (roughly, as long as you know how old your child is, you have an idea when they will go to college. 529 plans make it easy for us to say something like "if you save $100/month in the target date plan option then you will likely have around $35,000 when your child starts school." If you just want to pre-pay tuition, Mississippi offers a nice pre-paid plan called MPACT that lets you lock in tuition prices now for a single transparent price based on the age of the child, the number of credit hours and what type of education you want to pay for. (The price chart is here). These are easy and natural things for a financial advisor to talk about.

The other topic that comes up a lot, especially now, is student loans. Student loans are almost unavoidable these days. Student loans are in the news. Everyone talks about the cases where people have six digits of student loan debt and no great prospects. For a financial advisor, if you have clients with student loans, you have to deal with them. There are a few options for dealing with them and a few considerations you have to make with student loans, but they are a finite problem. You can deal with them. In general, income based repayment plans are an excellent options. Be careful about getting the loans, and be prompt with your repayments.

If you need loans to pay for school, do not be afraid of them. If used well, this will rank amongst the best debt you take in your life. For many people, a university education will have a high return on investment, and if you can borrow at fixed rates to fund that investment, all the better. Don't be afraid of the debt, just be very careful about the amount you use.

For what it is worth, I do not think student loans are the problem, it is the cost of college that is the problem. With that in mind, lets turn to the more interesting, more complicated third pillar of educational funding. This involves directly reducing the cost of college through finding the right college, getting a better offer and tinkering with your financial aid eligibility. I will generously call this "everything else".

With the average cost of college brushing up against $10,000 for an in-state public university, $24,000 for out of state or $33,000 for a private college, plus another $10,000 for room and board and a few thousand for other expenses, it is easy to see that this is a HUGE financial decision. Furthermore, it is a HUGE financial decision that is placed largely in the hands of a high school student who does not really understand all of the implications. Getting a discount on the sticker price can translate to big savings.

Let's go ahead and get this out of the way. One way to reduce the cost of college is for the parent to just put their foot down. If you have looked at your budget and assets enough and have a good grasp of what you can afford, just put an upper limit on it and let that be the law. But beyond cutting off heads, lets look at what can be done to reduce that price you pay, now and in the future!

There is a lot of talk about making sure that you are getting in to a major that will get you a good paying job when you leave. This is important, of course, and everyone should pay attention to this as they think about what they want to study and be. As a caller on the radio mentioned, it is more than just the academics, but it is the people, it is the network. If there is a specific company you want to work for, study what schools that company has relationships with. Where do they recruit key personnel from?Other schools will have reputations for sending student to work in specific industries. This is important, and should not be ignored. Getting a return out of your college investment should be kept in mind as a key, if not primary, goal.

A classic way of reducing college cost for most people is to look at going to Community College first. This will benefit MOST college bound high schoolers. Higher achieving students who have taken AP classes and Dual Enrollment classes may not have much left to get out of Community College, but most everyone else may. Not only is Community College tuition cheaper, but there are initiates underway to make it free! Scholarships based on ACT scores are pretty straightforward with most Mississippi Community Colleges as well. Lastly, living at home is a practical possibility as most community colleges have multiple convenient locations.

Community College may not be for everyone. Like I mentioned, if you have already taken a lot of college courses, or have credit through AP exams, you may get less benefit than others who have followed the standard high school requirements. Community College is a great step for those not ready for full time university, however. If you are planning on going to a state university, Community College can be a great step before climbing that ladder.

One huge way to reduce the price of college is focusing on the school itself. I don't mean just looking at what school has the lowest sticker price or what school has the best financial aid packages in general, but what school will give you the best offer. While many people grow up wanting to go to a specific school, or may think a specific school has the program that is just right for them, there are about 2,500 public and private four year institutions in America, and a few of them are looking for exactly what you have. Instead of looking for what school you want, see if there are any schools out there that want YOU. Working with a professional admissions counselor can help identify schools looking for your combination of academic successes and extracurricular skills. The if you are an ideal candidate for a school, they will make you a better offer. Keep an open mind when applying to schools you had not thought about before, you could be in for a treat!

If you cannot find or afford a professional admissions counselor, there are some resources that can help you figure out who wants you the most. College Navigator is a resource managed by the National Center for Educational Statistics that can help you sort through schools. College Data (dot com) has great resources that can show you what colleges you are an ideal fit for as well as useful guides for the daunting application process.

Work study programs are great, but you will have to assess for yourself if it makes sense for you to work while in school full time. A better option may be co-op years or semesters. Co-op is particularly common in science and engineering courses. Essentially, the student takes a year or semester off to work in industry. This gives you a paycheck, work experience, college credit as well as the possibility of tuition reimbursements or even a job offer! If you are thinking about engineering or hard sciences, look for schools that have strong industry connections and advertise co-op options.

Leaning more towards the financial side of things, students should of course apply for scholarships! Local and regional scholarships are typically much less competitive, but are harder to find. Apply to local civic organizations, such as the Rotary Club, to find local organizations willing to support your dream. While they can be hard to find, many websites aggregate scholarships from all over the country and can help you cut through the mess. Check out this post for more resources.

Two considerations brought up by a parent who called in are absolutely worth considering. If you are applying to a program that is not offered in your state, the Southern Regional Education Board has a Common Market throughout 15 Southeastern states that gives you in state tuition if your state does not offer the program you want. Seeing as out of state tuition can tack on $10,000 or more to your education, this can be a huge savings.

The other point made was that if your student is in private housing, just renting an apartment while they are in school, their lease probably goes for the full calendar year, not just the academic year. This means you are paying rent over the summer too! Her suggestion was to make this money spent wisely. Instead of moving home and doing nothing all summer, encourage your student to get a job in town or even summer school at the university or a local community college. This is a good way to knock out some classes to make sure that you graduate on time. If you are paying for the apartment lease, you may as well get some value out of it!

As a teacher who called into the show mentioned, EVERYTHING you do in high school matters. Your high school transcript is a clean slate for incoming 9th graders, so get them focused on the bigger goal of a a college education starting then, at the latest! If they have older siblings or family friends in college, they may be an excellent recourse of them to start to truly understand the importance of their academic achievements right now.

This may also be a useful tactic in the debt conversation. You can sit down and explain to your high school aged child what debt is, and how they might end up with $100,000 worth of debt or more, but it may still seem a little abstract to them. Again, if you have a family friend or older sibling who can explain to them what it means to carry that debt, they may get the picture a little clearer and have a little more respect for the total cost of college  - regardless who is paying for it. This goes back to just putting your foot down on the total cost as well. If you explain to your child that you simply cannot afford the school they want, work with them to find a lower cost option.

Going to college is one of the biggest financial decisions that you can make, and much of it is in the hands of a high school student that, however smart, probably doesn't truly appreciate the ramifications of their decision. Most financial advisors will focus on the savings aspect of college because that is comfortable and easy. We also focus on existing debt burdens as they are unavoidable. The middle area of reducing the sticker price is complex and happens very quickly.  A lot of research and preparation must go into it to make sure you are getting the best deal. But with the cost of four years of university education ranging from $80,000 to $200,000, getting a discount on the front end can be immensely valuable.

This has been a fairly long post, so I will try to break some of these points down with more detail and clarity later. In the mean time, feel free to reach out to us with any questions you may have about this exciting and expensive time of life!

Since we are on the topic, here are some ways that you can play around on the edges with your income and assets to make sure that you get the student aid that you need. These are the basic good sense ways to prioritize your finances in the years before sending a child to college.

Financial tips:

  • Best owner for a 529 is the parent. This is important for legal reasons of ownership so that the parent retains control if the situation changes. Additionally, as an asset of the parents, it does count on the FAFSA form, but withdrawals of it do not. If it were an asset of grandparents or someone other than a parent or the student, withdrawals would count as income of the student, drastically reducing the amount of financial aid they were eligible for.
  • The FAFSA form takes an earlier year's tax information now. The earlier availability is nice, but it means you have to start shifting income and assets around even earlier. If you are planing on maxing out IRAs and 401(k)s to reduce your FAFSA exposure, do it a few years in advance.
  • If your child has savings of investments of their own, spend those down a few years before the FAFSA comes up. Money in UGMA/UTMA accounts must be spent on the child, but that is a very flexible definition. You want to get your child's assets down to a minimal level as they count about 20% against financial aid.
  • Having grandparents or other family members chip in for school costs is nice, but can come at a steep price. As in the above example of a 529 plan being owned by a grandparent, you want to make sure that the gift does not count as income of the student. If it will count, you may want them to delay making the gift until the last two years of college. This way, it won't affect the FAFSA while the student is still in school. Alternatively, you could hold the money until after college and use it to pay down loans quickly.

Tuesday, October 18, 2016

Nancy on Money Talks: Identity Theft

Today's episode of Money Talks on Mississippi Public Broadcasting, the topic was identity theft. Hosts shared tips on prevention and resolution, and listeners called in to share their personal experiences. If you missed the episode when it aired, you can listen online here:

Our favorite quotation: "You're never bored when you own a yacht." - a listener called in to today's episode on Mississippi Public Broadcasting. Her 16 year old is interested in the stock market, wants to retire at 40 and doesn't plan on having a boring retirement.

Water Sports: Not a dull way to spend retirement

Friday, October 14, 2016

The Wells Fargo Problem - Midday Money on WLBT

If you missed watching Midday Mississippi on WLBT yesterday, Nancy was on the program for her Midday Money segment discussing the current Wells Fargo scandal. Watch it online here:

The Wells Fargo Problem - Midday Money

Wednesday, October 12, 2016


What it is.

Little kids tend to get a few things wrong. Back in the early 90’s, my friend Katy and I were scootin’ around her living room, and she confessed to me that her mother had picked up a dead roach with her bare hands. My vocabulary was a bit wanting back in my early days; I had zero idea that homonyms were a thing. So, instead of being properly grossed out I was just puzzled. Who has bear hands? Did she put them on like mittens? Where’d she get them from? I’d never heard of anyone doing such a thing, but who was I to judge? Mulling it over, it started to seem like a pretty ingenious idea. I mean, you’d hardly notice you had a dead roach in your hand if you were wearing bear mitts.

It wasn’t until years later that I pieced it together.

Another childhood puzzle was this thing called the permanent record. I don’t know if kids still worry about it. I don’t know any kids. But I remember worrying about it. What was on it? Was it just my report cards? Did it say anything else? Did it only say bad things kids did or did it also say good things? More importantly, how could I get my hands on MY permanent record?

Well, I never managed to get my hands on it. I’m out of school now, but that doesn’t mean that my permanent record has been erased. (I know what permanent means.) It’s just full of other things too. Things like criminal activity, previous addresses, employment information, and credit history. And I can check on these and know just what’s on my record. No more mystery.

My credit report spills all the secrets of my credit history. It began fairly early; in high school my parents put me as an authorized user on one of their credit card accounts. In college I opened a handful of credit card accounts on my own. I’ve taken out student loans. I’ve taken out car loans. I haven’t had the courage to buy a house yet.

My credit history tells the story of all the times in my life I’ve said, “Yes, okay. If you give me the money now, I’ll pay you back later.” And my credit report reveals if I’ve been honest about that or not.

Why have it?

Illness, traffic, work, family… They’re all a little easier to deal with if you know you’re covered – if you have the ability to pay for insurance or tires or a trip to Pictured Rocks in Michigan with your little brother for an extra-long weekend before you turn 30.

And there’s nothing quite like money—or, I guess, not having quite enough money—to add an extra level of stress onto this thing we call life.

A healthy credit history, however, allows you to make the bigger purchases. And it costs less to borrow the money to make those purchases if you have excellent credit.

Even if you hate debt and hate owing money on something, it’s unlikely that you’re in the position to pay cash for absolutely everything. One day I’ll bite the bullet and buy a home, but I can’t imagine paying cash for it. I’m not even going to calculate how long that would take to save. Like the majority of homeowners out there, I’ll apply for a mortgage. My credit history will tell the bank whether I’m good for it or not. The better my credit history, the less risky I seem, so the less I’ll have to cough up in interest payments each month.

How to make it happen.

Pull your credit report. You can get three free credit reports each year from Experian, Equifax and TransUnion. These are three credit reporting agencies. You can get a report from just one of the agencies or two or all three. Whatever you prefer. Once you’ve gotten it, look at it—all of it. It may not be exciting, but it also shouldn’t take very long. Maybe five to ten minutes.

If you’re just starting out, you may not have a history. You should still get a report. It’s a good idea to check to make sure you haven’t been the victim of identity theft.

Your report will show all the names associated with your credit. If one of these isn’t you, you’re probably going to want to find out who that person is and why they’re affecting YOUR credit. It’ll also show any previous names. I recently had to dispute this part of my own credit history. Sure, Susan McAdory was listed as a name on there, but it also said I was previously known as Susan Mcdory. So, I clicked a button on the report—I was viewing it online—and submitted it for dispute. Also listed are any previous addresses associated with your credit. Doublecheck that you’ve lived where it says you’ve lived.

If you have credit history already—for example, if you’ve opened a credit card or taken out a car loan—each account you’ve opened will be listed on the report. It will also list a variety of information on the balances, the dates the account was opened and closed and the status of the account. All of these are important pieces of information because they are all factors in determining your credit score. In general, you don’t want to carry high balances of credit card debt. The longer the account has been open, the better. You definitely want to make payments on time.

The Federal Reserve Bank of St. Louis explains it very clearly in this educational video from the Continuing Feducation Video Series (FED-ucation!!!):

How to build it.

If you don’t have any credit history whatsoever, then, hey, you have a clean slate. Of course, since you have absolutely no history, lenders don’t know for sure if you’re a good bet, which means you may not qualify for the credit card with the lowest rates or no annual fee or points for days. You may have to take what you can get. And if you have bad credit, you’ll be less likely to qualify for those sought after cards. Don’t lose hope. You have options. You can apply for a prepaid card and use this to build credit. You can apply for a card and make payments on time and maintain a low balance and then re-negotiate with the issuer later on for lower rates after you’ve established better credit.

You can also build credit by taking out a loan – hopefully with a low interest rate – and do the same thing. Make your monthly payments on time.

The key thing to remember, though, is not to spend more than you earn. If you start down that path, you’re just digging a hole you’ll have to climb out of.

How to repair it.

If you pull your credit history and notice a lot of negatives, it’s time to turn the ship around. Don’t just let it keep sinking. Maybe you see that there’s an account you’ve forgotten about – say an old phone bill that you thought you’d shut down and then let sit in the negatives. Pay it off as soon you can. If it seems impossible, call the company to negotiate. Make installment payments. If you are carrying a large balance on a credit card account, make those required monthly payments on time. Try to pay extra each month if you can. Make your student loan payments on time. Make your car payments on time. Make your mortgage payments on time. You get the point. You just need to let time—and the consistency of your payments—work for you.

It’s crucial to show that you aren’t going to continue to sink further into debt. You want to show that your word is good. You said you’d pay, so you will.

How to maintain it.

Once you’ve proven yourself a trustworthy lendee and built up a good credit history, maybe even an excellent credit history, you’ll want to stay in this sweet spot. Lenders offer you prime interest rates on debt with amazing terms. That’s not something to let fall by the wayside. Keep your credit balances low. Don’t carry high balances. Make your monthly payments. Don’t close credit accounts just because you’re not using them. The longer an account has been open, the better. If you have good rates and no annual fee, why close that account? And if you don’t have good rates, you can probably negotiate lower ones by giving your lender a call. After ten years, credit—good and bad—rolls off your report. So it’s important to maintain some sort of credit activity.

How to protect it.

Look at your account activity. There’s really no excuse not to know what’s happening in your checking and credit card accounts. All of your transactions can be viewed online. Look at them. Get an app and categorize them. Know where your money is going. If something looks suspicious, investigate it. The sooner, the better. If you want to go the extra mile, set up alerts on your accounts to send you a text or an email if a charge is made in excess of a certain amount.

Look at your credit report at least once a year. Remember, you can get one every 365 (or 366 for leap years) from each of the credit agencies. This means you can request one every year—say on your birthday—from all three. Or, you can stagger them. Maybe get the one from Experian on Valentine’s Day, Equifax on Independence Day, and TransUnion on Halloween. Your choice. Review your report. Does everything check out? If not, you can put in a dispute online or over the phone.

If you’ve been the victim of identity theft in the past—or if you’re so worried you will be that you’re losing sleep—put a credit freeze on yourself. You can do this through each of the credit agencies. Sometimes there’s a fee, depending on which state you live in (unless you’ve been the victim of identity theft). A credit freeze requires that each time a request is made on your history—be it to open a credit card account or take out a loan, etc.—that the credit agency will give you a call and require you to provide them with a long PIN number to prove that you authorized the pull on your credit. This isn’t something everyone wants or needs. It can be annoying and it’s not a four digit PIN. But, it can be useful.

Thursday, October 06, 2016

On Getting a New Credit Card

Lets start out with some disclosure and general advice first. Credit cards can be a useful tool to manage your spending and cash flow, but you should never use them to buy something that you cannot actually afford to pay in cash. There are financial and not-exactly-financial benefits to owning credit cards but it is also easy to run into financial trouble if you do not keep a close eye on what you are doing. Even if you only spend what you can afford, missing payment dates or stretching out your payments can lead to fees and excessive interest cost.

In general, if you are looking for a card, focus on a low annual fee and benefits that line up with your actual spending. For the average situation, the Citi Double Cash card is probably an excellent choice. When choosing a card, compare the costs and benefits very carefully.

Ok. Here we go.

The latest cover of Bloomberg perfectly illustrates people's recent fascination (obsession?) with Chase Credit Cards. Chase has done an excellent job of developing reward combinations and card features to develop an aspirational and status obsessed following. The Chase Sapphire Preferred touts dining, entertainment and travel benefits fit for a jet set lifestyle and a metal core of the card that gives it an impressive plunk when you throw it on the counter to pay for your coffee. Full disclosure, I own this card. I take advantage of the extra points while eating out and I get a little smug satisfaction sliding the weighty card across the counter every time I use it. The financial benefits make it worth the $95 annual fee, in my calculation.

The card at hand, however, is their newest offering, the Sapphire Reserve card. This takes it to a new level of both benefits, status, and price. A quick overview:

  • Three points for every dollar spent on Travel or Dining.
  • $450 annual fee!!
  • Weight of the metal core will continue to impress at Chick-Fil-A.
  • $300 airline credit every year!!
  • $100 credit for TSA Pre Check or Global entry (every 4 years).
  • 0% foreign transaction fees
  • Supposedly very nice concierge service. (I spoke with Bob in Cincinnati today, he was nice!)
  • A 100,000 point sign on bonus.
  • And MORE!
  • But that $450 annual fee though!!!
The $450 annual fee is a BIG barrier. After all, what did I say before? What did I promise myself before? No excessive spending on an annual fee. The draw of the status is clearly strong (as indicated by the Bloomberg cover) people are posting unboxing videos to hype the card. I had to do the math.

So the annual fee is $450. Steep. Way higher than my $95 Sapphire Preferred. That is the price to overcome.

The 100,000 point bonus is worth $1,000 in cash. If you use their points in their rewards portal (easy to book plane tickets or hotels), they are worth 50% more, or $1,500. If you transfer them to your airline rewards program, I have figured they could be worth up to $3,000 (My calculation is based on getting the best deals for reward tickets, I have seen 35,000 points purchase a $1,200 ticket). I want to be very conservative with my calculations, so since this is a one time benefit, I won't have it in the future. I won't add it in my calculations.

Straight off the bat, you get $300 to spend on airline tickets each year. As $300 is about how much a ticket out of Jackson costs, and I travel at least once a year, I'll count all of this against the annual fee. While we're on the topic of travel, you get $100 to spend on TSA Pre Check or Global Entry. Global Entry is $100 for 5 years of basically skipping the gen-pop security line, so that works out to $20 per year. Since I'm being very conservative in my calculations, I am not going to include that as a pure benefit, as I probably wouldn't have gotten that anyway.

Three points for every dollar spent on Travel or Dining starts to add up. I love food. I love eating out. I keep to a budget, but that budget has made sacrifices to allow me to eat out a few times a month. I also love travel, but the main spending there that counts for this card will be airline tickets. I may spend $6,000 on dining out (including happy hour, coffee, chick-fil-a and date night) and travel each year. On its face, this will give me an extra 6,000 points more than my Sapphire Preferred card, worth $60. However, when I use points through Chase, the two Preferred points and their 25% bonus are worth 2.5 cents, but the three Reserve points and their 50% bonus will be worth 4.5 cents! So the $6,000 I expect to spend on dining and travel will be worth $120 a year with the reserve.

So, in strict (very strict) dollar terms, this card is worth $420 per year more than my current card. If I move my Preferred card to the no-fee version, this should actually save me a few dollars each year!

Confident that this move is worth it on a strict cash basis, I can drool over the other benefits. Since this basically gives me free Global Entry, I can leave my belt and shoes on when I go through security, and take shorter lines in busy airports! The card gives you access to over 900 airport lounges worldwide. I'll still impress everyone in the coffee shop with how obnoxiously I can slam down the card as I buy myself a row of espresso shots. This card has probably the best car rental and travel insurance benefits, so I don't have to shell out of my own pocket if someone happens to rear end me on Highway 101 in Ventura California resulting in $947 worth of damage billable to me when Fox Rental loses the paperwork I turned in with the offender's insurance information and photos indicating that I was not at all at fault because we wouldn't want that to happen.

Now excuse me while I keep justifying this to myself.


  1. Again, don't use a credit card if you can't afford the spending.
  2. If you don't want to get into the weeds of the math to see if a card fits your spending habits, keep it simple with a no fee cash back card like the Citi Double Cash.
  3. If you get an exciting new card to replace a current card, drop your old card to a no-fee version and shred it - but don't close the account! Keeping the account open may help your credit score, particularly if you are new to the credit card world (i.e. have had credit cards less than 6 years).