Free Family Finance

The following is a guest post by Rob Kuban. Rob is the author of “Dollars & Doctrine: What Does The Bible Actually Say About Money“. Find out more information about him and his book at DollarsandDoctrine.com. On a more personal note, Rob is a close friend of fff and a trusted resource of Biblical finance.

Ok, so plenty of people have written on the fundamental advantages of living debt-free. This post is a little different. I wanted to provide ten “lesser known” reasons for living debt free. I want to shed light on things that don’t really show up on the surface of analyzing leveraged living, but become evident as one begins to live freer and freer of debt. In no particular order:

1. It teaches you self discipline. Walking away from a purchase you can’t afford flexes your “self-discipline muscle.” It teaches you to make more and more disciplined decisions in your life.

2. It causes you to make better decisions with your money. When you decide to spend only what you make, there is less to spend. Therefore, you are more cautious to spend your money. By doing so, you tend to make much wiser decisions with the resources that you have.

3. It increases your patience. You simply have to wait longer to have things when you deny yourself “20 Easy Payments of 29.95″. You learn patience as you wait to purchase things with cash.

4. It increases your planning. You must begin to think with longer time-tables to be able to purchase anything expensive. You have to plan ahead to make things happen.

5. It simplifies your life. While waiting to purchase goods you “can’t wait to have” you realize that you don’t really need quite as much as you previously thought. The debt free person has a much deeper understanding of the difference between “wants” and “needs”.

6. It teaches you contentment. When you have to wait longer to purchase things and your life is increasingly simplified, you become more and more content with what you do have. In a sense, you become unplugged from the instant gratification bigger is better culture in which we live.

7. It deflates unnecessary ego. I remember the first time I had to tell a friend I couldn’t afford something. It hurt my ego for sure, but on the other side of the fence it was liberating to not feel as if I had to “keep up with the Joneses”.

8. It increases your creativity. When spending money is no longer the only option for having fun, you begin to become more creative with your time and entertainment. You find things to enjoy that are “free” and often more enjoyable.

9. It decreases your regret. With less to go around you become more focused and spend money on the things that you actually desire. You make less and less impulse buys.

10. It will affect all areas of your life. So many of the skills listed above will translate into other areas of your life: your health, your marriage, your career, your friendships, and on and on. Living debt-free requires a skill set that will inevitably have a positive impact on all areas of your life.

photo | alancleaver_2000

Did you know that $14,000 could pay for a $100,000 college education?

It’s true. If you invested $14k the day a child was born, assuming 11% return, it would be work over $100k by the time the child enters college. Unfortunately, a young couple with a new baby (and subsequent hospital bills) is rarely ready to chunk all that money toward college.

A recent study found that two-thirds of American grandparents provided financial support to their grandchildren during the past 5 years.

The average amount given over that time period was $8,661, and 25 percent increased giving as the economic downturn unfolded.

A recent bankrate.com article provides us with 4 options for Mimi & Pop-Pop to cover school:

Section 529 college savings plan. This 14-year-old educational investment vehicle, named after the Internal Revenue Code that created it, is administered at the state level, although a student may use the funds anywhere in the country. The popular plan enables investors to choose from a menu of mutual funds, much like an IRA or 401(k) plan. The parent retains full control of the fund, which is revocable. Anyone may contribute and there is no age restriction on a 529 plan.

I would give this plan as an A- plan.

Section 529 prepaid plan. Many states and public colleges and universities offer the option to prepay all or part of the cost of an in-state public college education. An Independent 529 Plan offers a similar program for private colleges. The return on investment will usually decrease should the recipient attend school out of state or choose a different college.

The return on these plans do not measure up to the market. Thus, I would give these plans a D.

Coverdell education savings account. Think of Coverdell as an educational Roth IRA, although its annual limit of $2,000 per child and parental income limits make it an awkward fit for some families. The parent typically acts as custodian for this irrevocable fund; investment options may include mutual funds and/or individual stocks and bonds. On the plus side, the fund can be tapped for certain K-12 expenses. On the minus side, K-12 flexibility will expire — and contribution limits will drop to $500 annually — in 2010 unless Congress extends them. Coverdell contributions end when the recipient turns 18 and must be withdrawn by age 30 to avoid fees and penalties.

ESA’s are fairly new products, but are the best option for college savings. If it were not for their contribution limits, they would be an A+ option.

UGMA/UTMA. This supercharged, modern-day equivalent of a grandchild’s savings account was made possible by the Uniform Gifts to Minors Act, or UGMA, of 1956 and the Uniform Transfer to Minors Act, or UTMA, of 1986. It essentially allows donors to give or transfer assets into a custodial account for a minor without creating a trust.

The UTMA is a great choice if the grandparents can just write a check for college. If circumstances permit, the UTMA route is an A choice.

In the end, any college savings plan outweighs not saving for college. But choosing the proper plan can mean thousands of dollars in tax savings and inversely increased savings.

Article | College savings options for grandparents.
Photo | Beverly & Pack

In this clip from The Middle, we are reminded of the cold, wet reality of impulse buying – especially impulse buying using debt. Sometimes things are too good to be true and sometimes it just takes time to realize it. Just a friendly reminder of three very important financial principles:

1. Don’t buy things you can’t afford. If you can’t pay cash for something, you either can’t afford it or you suck at planning. Either way, you are not in a position to spend money. You should especially avoid buying things that go down in value – i.e. electronics, furniture, cars, etc.
2. ‘No Payments Until…’ offers are bogus. Such offers are usually packed full of gotchas, such as prepayment penalties, huge interest rates, and interest balloons for late payments. One of my family members once bought a couch on a ‘No Payments Until…’ offer. After the fact, he found out that his payments would only be accepted on Thursdays. Early payments would be discarded and late payments would receive interest penalties. He had to go, in person, to the store on each Thursday to pay his bill. Ridiculous!
3. You can’t count on tomorrow, much less next year.  Delaying payments in order to ‘invest the balance until then’ is absurd. If you have the money, pay for the item. If you are so concerned with the the interest you could earn, maybe you should be investing the money instead of spending it.