12 Tips To Help New Parents Avoid Money Mistakes

12 Tips To Help New Parents Avoid Money Mistakes

“Don’t raise kids to have more than you had. Raise them to be more than you were.”



Having a newborn baby is a time to rejoice. However, the reality of raising a child can be daunting. The costs are often underestimated. Even those with the best money habits may get carried away for a new family member. We justify our spending more easily as we seek safety, comfort and fulfillment. Costs will mount if we don’t put some brakes in place in advance.

New parents must put a financial plan in place to fit their new responsibilities. To avoid financial blunders, parents should increase their efforts to save and invest, spend within our means, take a fresh look at workplace benefits and utilize tax credits.

Here are 12 tips to help you dodge potential financial mistakes:


1. Be Financially Ready With An Emergency Fund

Every household should have an emergency fund with 6 months of savings set aside for unforeseen events. It is no different when we are expanding our family. Arguably, we need this money cushion even more so.

Raising a child in the first year costs $13,186 on average.. These costs are before hospital costs which may be covered by health insurance. A LendEdu survey found that parents budgeted $9,371 for that first year, saving roughly that amount. However, this falls short of the actual amount. Diapers costs, among other items, are miscalculated.

Why Do We Underestimate?

It is so easy to be blindsided when we lack experience, especially when we are raising our newborns. Ask any new homeowner and they will share major home costs that were a surprise. That’s what an emergency fund is for.

I recall being surprised by the many purchases we had to make in a rush for our baby. We learned that the delivery date for our son was moved up about 2 weeks unexpectedly. Comparison shopping was just not an option. We were older parents but felt like helpless newbies. Excited at our upcoming birth, we acted like children in a candy store.

My Bad

One of my worst purchases (ever!) was handmade Egyptian cotton linens for the crib for $1,000. I was suckered into it by a salesperson at the now-defunct Bellini’s. How ridiculous a thing to buy for a newborn baby!

We were fortunate to have ample savings having worked for several years. But I always wonder, what if we were younger or didn’t have a cushion to spend.

2. Don’t Overspend For Your Newborn’s Needs

We want the best for our children always. However, we need spending limits or go broke before they go to college. Be judicious about spending early and learn to budget. We need good financial habits when planning for our new child. Not everything has to be the best, the newest or the most expensive. Emphasize safety above all else. Plan out what is important to get initially, borrow from family or friends for some items and consider thrift shops.

Find Acceptable Price Ranges For Needed Items

Initially, you do need diapers, a place to sleep (crib or bassinet) and a car seat. There are some great sites to find average costs and price  ranges for bassinets, cribs and mattresses, diapers (cloth is cheaper versus disposable) and a diaper bags, changing tables, baby monitors (audio or video), car seats, glide rocking chairs and ottomans, baby swings, and bath tubs.

You probably don’t need Louis Vuitton monogram mini Lin Diaper Bag, the world’s most expensive diaper bag at $2,200 or the other most expensive newborn items on this list.

What You May Need

Luxury is not a necessity. Some of your costs are one-time like baby proofing your home. Other costs will vary significantly by where you live. For example, if you are both working and want to hire a nanny the average fees can range from $400-$1000+ per week. Additionally, you may need a babysitter and their rates go from $10-$25 per hour.

The US National average for day care is $611 per month, however, in major cities like Boston or New York, it will be well over $1,000 per month. Well baby doctor visits without health insurance average $95 per visit according WebMD. Visits may be significantly higher in New York and other urban areas.

You can bulk up on baby food and diapers, however, your baby may reject some brands or tastes.

3. Avoid Lifestyle Inflation

As your child gets older and makes friends, you may feel pressed to shop for more stylish clothing and sporting a luxury stroller. Remember, young kids will size out of these things fairly quickly. Avoid throwing lavish birthday parties even though you want celebrate each year. Their friends will have fun no matter where you have the party. Of course, we do it to impress the other parents but we don’t need to.

Speaking of lavish waste, we once received a beautiful box delivered to our doorman. It was from a friend of our son’s with an invitation to a 5th birthday party that read like a wedding invitation. My jaw nearly dropped and I worried about what kind of party my son would want. The funny thing is I recall that Tyler did not have a good time at this birthday party.

It may start with birthday parties but we soon may think about bigger homes and nicer cars. Keep your spending in check. 

4. Saving Early For College

Set up a 529 savings account as soon as you have a social security number for your child. Start saving early for college to benefit from tax advantages and compounding growth. You are not limited to the plan offered in your home state. There are many investment choices to suit anyone. Don’t get so overwhelmed at the choices that you end up not activating the account.

To read more about 529 Savings Plans and alternative savings devices  for college, see our recent post here. Start with any feasible amount and continue to add to this account. Tell your child’s aunts, uncles and grandparents that you would prefer a cash present over another toy or outfit. Make them aware of your savings account.

There are several ways to save early besides the 529 Plan although that is preferable. Below, we discuss life insurance for babies and infants that have a savings component that may appeal to you.

5. Keep Up Your Retirement Savings

While saving for your child’s tuition is important, do not sacrifice  your own retirement savings. Many parents do that but it is not a good idea. As much you may hate your child borrowing for college tuition, taking a loan our for retirement is a worse outcome. It is better to reduce your spending on unnecessary items to save more than face withdrawal of your retirement funds or borrowing against it.

6. How To Talk To Your Children About Money

Our children take their cues from us in a number of different ways. Start to teach your kids early about money at an age-appropriate time. They may be better able soak in how to treat and respect money values.

We should be good role models in helping them learn how to save money. Teach them to know the difference between wants versus needs. Don’t give in to impulsive purchases when they get upset. Instead delay gratification on purchases. Set a good example on investing now for future growth.

Both parents should be on the same page in this regard. My husband and I often argue from on opposite sides.  He can’t seem to say no to the kids so I play the heavy parent. However, my kids just ask me less for things and go around me and get what they want from Dad. I think I just admitted that my kids manipulate us. (They do!).

 7. Your Employee Benefits Need A Fresh Look

Once you have a child, it is a good time to take a fresh look at your employee benefits package. What may not have jumped out at you when you first started working there, may be more important now for your growing family.

According to Harvard Business Review, when making a decision between a higher paying job or lower paying job but better benefits, health insurance (88%), more flexible hours (88%) and work-from-home options (80%) scored the highest in their survey.

Childcare Are Among Our Largest Expenses

The cost of child care is high for those who are working and need support. According to Care.com’s 2015 Cost of Care Survey, 28% of families pay more $20,000 annually for this. Childcare is the largest expense for many families and may even surpass college tuition and housing costs for some families.

Among the employee benefits that can lift some of working parents’ burden are dependent care assistance, child care financial support by way of tuition assistance and scholarships, long term care resources and referral. Back up child care is also key when the nanny is ill. Onsite child care centers are often offered by companies that have large campuses.

8. Flexible Spending Account (FSA)

If you have a health plan through your job, you can use a flexible spending account to pay for co-payments, deductibles, some prescription and non-prescription drugs and other out-of-pocket health care costs. The FSA is a savings account with tax advantages.

This account allows employees to contribute a portion of their pre-tax earnings to pay for qualified expenses.  Employees have limits of $2,650 per year per employer. If your spouse has an FSA at their employer, you can put in an additional $2,650 per year. It is a “use it or lose” plan. Your FSA does not earn interest.

Another type of FSA is a dependent-care flexible spending account which is used for childcare expenses for children age 12 or under. The maximum dependent care FSA contribution is $5,000 per household.

Making use of these accounts may provide you with beneficial cost savings.

9. Health Savings Account (HSA)

The HSA is similar to an FSA as it provides tax advantages. HSAs are associated with high deductible health insurance plans which are often used by the self-employed. Like the FSA, you can contribute your pretax earnings, making your contributions tax-free. Here, the contribution limit in 2018 was $3,450 for an individual or $6,900 for family coverage.

Unlike the the “use it or lose it” feature of FSA, you may rollover the unused contribution to the next year for the HSA. Your account earns interest and if you leave the job you may take the account with you.

10. Life Insurance Is Essential For Growing Families

To protect your growing family, you need to have life insurance coverage. You may have a starter plan from your employer but generally the amount is insufficient, especially with young children. In the event of the passing of the main earner of the family, your life insurance should cover your fixed living costs as college tuition and other child care needs depending on their ages.

There other types of insurance families need to consider including disability insurance. We cover several insurance types here.

Should You Have Coverage For Your Newborn Or Infant?

Generally, you don’t need to buy life insurance for your baby. Hopefully, they are healthy and they don’t have earnings streams to protect.

Among life insurance providers, Gerber Life Grow-Up Plan has some attractive features:

1. Parents, grandparents or permanent guardians may purchase this plan. It is whole life insurance of $5,000-$50,000 of coverage. They may apply for their newborns or infants when they are 14 days to 14 years.

2. As a whole life insurance policy, there a cash value portion that accumulates as premiums are paid. According to Gerber’s plan, coverage doubles during the child’s 18th year at no extra cost. Additional coverage may be bought as needed.

3. It guarantees insurability and locks in an affordable premium for a child at a young age. For families with high risk of medical issues, this may be an important benefit.

4. With a whole life insurance policy, it provides death benefits plus you are building cash value in a tax-deferred manner. This savings component can be used for college tuition. The policy may be surrendered for its cash value.

True, the death benefits is a bit macabre and hopefully not needed for children.

The Criticisms:

I don’t believe life insurance for babies is needed. I have read some criticism of Gerber’s plan. Despite having a longstanding good brand name for baby foods, review the details carefully.  Look into the fee structure for additional insurance coverage, its tough cancellation policy, and how slow the cash surrender value actually builds.

Although this plan has some appeal, I prefer 529 Savings plan for college tuition and it is debatable if life insurance is needed for babies.

11. Several Tax Benefits For Your Children

Our children may be helpful when it comes time to pay taxes.There are a number of different tax credits  that you can use if you have a child. Check with your tax professional for possible changes associated with the 2017 Tax Law.

Child Tax Credit

You may be able to reduce your tax bill up to $2,000 for each of your qualifying dependent children under age 17. The credit is intended to offset the cost of raising children. Parents may get the maximum amount with qualifying incomes (married couples who make under $400,000 or single persons under $200,000).

There is a $500 non-refundable credit for qualifying dependents (eg. an incapacitated parent) other than children.

As a tax credit, it reduces your taxes dollar-for-dollar. If you do not benefit from the full amount of the Child Tax Credit (because the credit is greater than the amount of income taxes you owe for the year), you may be eligible up to $1,400 for a refundable amount.

Child And Dependent Care Tax Credit

Paying for childcare and dependent care can be quite expensive. The Child and Dependent Care credit can be worth from 20% to 35% of up to $3,000 of child care (or $6,000 of expenses for two or more dependents) related to some or all of the dependent expenses you paid. The higher 35% is for incomes below $15,000.

This tax credit may help you defray childcare costs for dependent children 12 years or under. For dependents, other than children, the IRS requires that they must have lived in your home more than half the year.

Adoption Tax Credit

There is a federal adoption tax credit up to $14,080 per child for finalized adoptions in 2019. This is not refundable so you can only use it if you have federal tax liability.

This credit may be used for qualifying expenses you paid to adopt a child. These expenses include adoption fees, attorney fees, court costs, traveling expenses (including lodging and meals while away from home), and other expenses directly related to the adoption. You would need to have supporting documents that you received If you claim this credit.

American Opportunity Credit

Tax credits are for qualified education expenses for an eligible student for the first four years of higher education. The maximum amount you can claim is $2,500 per eligible student per year. The amount of credit is 100% of the first $2,000 of qualified education expenses you paid for that student. However, if the credit pays down your taxes to zero, you can have 40% of the remaining credit (up to $1,000) refunded to you.

There are income limits to claim full credit with modified adjusted gross income pegged at $160,000 or less for married couple filing jointly (or $80,000 for a single filer). The American Opportunity Credit is preferable, however, if you don’t qualify, you can try for the Lifetime Learning Credit.

Student Loan Interest Tax Deduction

You may be able to claim the Student Loan Interest Deduction for interest paid on a qualified student loan, even if you choose to claim a student tax credit. If you decide to claim the deduction, you could reduce your taxable income by up to $2,500 of the student loan interest you have paid for your dependent child. You don’t need to itemize your deductions to claim this deduction.

To qualify for this deduction, see respective modified adjusted gross income limits.

12. Estate Planning

The best time to think about your plan is when you don’t have a compelling reason to do so. When you are raising children, it is a great time to be  thinking of your family’s best interests.

Set Up Your Designated Beneficiaries

By creating your estate plan, you will have control over your asset distribution during your lifetime to your loved ones. A significant portion of your assets can be easily transferred to your intended heirs. This will help you to avoid often painful and lengthy probate court procedures.

When setting up your beneficiaries, think carefully whether to identify for your children as there may be complications for you to be aware of and we discuss here.

Creating a will, possibly a trust, and advance directive documents will help you with the rest of the way. Read  our guide to basic estate planning in 6 steps.

Make sure to consider your digital assets as part of your estate. We have addressed why you need to make an inventory of digital assets here.  

Final Words

Planning for a newborn is essential. It is an exciting time in your life and it is easy to get overwhelmed. We have all been there and made mistakes, especially financial ones. Hopefully, this will help you can avoid some of the more obvious errors by organizing well ahead of time.

Hearty congratulations to you and your expanding family. What steps have you taken to prepare for your child’s experiences? What mistakes did you encounter that you may want to share with us? We look forward to hearing from you!


12 Ways To Make College More Affordable (Or Even Free)

12 Ways To Make College More Affordable (Or Even Free)

Affording a college degree is difficult with costs rising for decades. Yet, having a college education remains an important way to reach success. We will point to ways to make college more affordable and even free. Planning early as parents and with your students, to save, actively budget, research college costs and seek financial aid are beneficial steps.

The Price Of A College Education

According to Trends in College Pricing 2018 (2019 should be out in about a month) College Board average annual tuition, fees, room and board charges published prices for 2018-2019 are:

$48,510 for private nonprofit four year colleges, and $35,830 before room and board costs;

$21,370 for public four year in-state colleges, and $10,230 before room and board costs, and

$37,430 for public four year out-of-state colleges, and $26,290 without room and board charges.

College prices and accompanying costs have outpaced inflation since the 1980s and have jumped nearly 8 times faster than wage growth. This is a concern for me as a mom of teens and as a college professor. I am a first generation American and the first in my family to go to college. Like many, I was raised on the belief that a college education is essential for advancement. It is still true today despite many paths to success.

In Sallie Mae’s 2019 National Study of college students, about 77% of families said they considered financial cost slightly more important than academics (73%) when choosing their college.

The share of the cost of college in 2018-2019 was relatively similar to the prior year:

  • 30% was covered by parent income and savings.
  • 10% from parent borrowing.
  • 13% was contributed by student income and savings.
  • 14% from student borrowing.
  • 31% was covered by scholarships and grants.
  • 2% from friends and family.


The Need For Family Planning For College

Planning helps families get ready for the college decision. More families planned early in their children’s lives for their college future in 2018 than the previous year according to the Sallie Mae survey. The top three ways families planned to pay for college were: 1) save for college (64%), 2) researched college costs and financial aid (40%) and 3) actively budgeted (36%).

Getting prepared for higher education also include activities for students such as taking Advanced Placement courses, enrolling in community college and learning more skills or practicing their talent.

Benefits of Preparation

By getting ready, families had access to resources to understand their purchase options and they often borrowed less, received slightly more financial aid by way of grants and scholarships than non-planners.

For these reasons, we believe that being prepared as early as possible may help you and your student afford the best college possible.

12 Ways To Make College More Affordable (Or Even Free):


Early Funding of your Child’s Education:

Saving early is a first step for your child. The different plans below are not mutually exclusive. As always, check with your tax professional as to the respective tax implications.

1. 529 College Savings Plans

Your children’s financial future may begin as early as their birth. Establish an account once you have a social security number for your child in their name or initially in the parent’s name. You can change the beneficiaries later on.

The more you begin saving early, the more you may benefit from compound growth using tax-deferred dollars. As a result of saving well before your child’s needs, the less you will need to borrow later on. There are imposed federal student loan limits, the more affordable borrowing source, as compared to private loans. Your best bet, if your child’s education is a priority as I am sure it is or will be, is to adopt a saving strategy.

A 529 plan is a college savings plan that offers tax-free earnings growth and tax-free withdrawals as long as these funds are used for qualified expenses. Just about every state has their own 529 plan. You may open an account across state borders. Each state’s plan varies so check which works for you.

529 Plans Post Tax Changes

Originally begun to save for college only, these plans may now be used for tuition at primary and secondary private or parochial  schools or qualified expenses at public schools. They retain their benefits. The Tax Reform Act in 2017 expanded 529’s ability up to $10,000 per year.

Under the Act, the $10,000 withdrawals per year are federally tax-free. State tax treatment of these withdrawals differs from state-to-state but are tax-free if used for qualified educational expenses. This is not allowed in several states like New York at this time.

So check with your state’s taxing authority or state 529 plan administrator. For example, Connecticut’s 529 plan allows you to withdraw tax-free for up to $10,000 per child to be used for private school tuition. There are no maximum caps as to how much money can be invested per year.

Investment Choices

Parents can typically choose among a range of investment portfolio options. They may include Vanguard mutual funds, exchange-traded funds (ETFs), static or fixed allocation fund portfolios and age-based portfolios sometimes called target-date portfolios. Which fund you choose depends on your appetite for control and risk. You can make changes between the funds based on your children’s age or the target date portfolios which shift from more aggressive growth rates to more conservative rates as your child ages.

The amounts can be used for any eligible higher education, not just four year colleges or universities, including vocational and trade schools; community colleges and graduate schools.

529 plans typically do not have income or age limits. An older person can use it for school later on.

2. Coverdell Education Savings Account (ESAs)

These accounts are similar to 529 plans offering tax-free investment growth and tax free withdrawals when funds are spent on qualified education expenses. Like 529 plans the invested amounts are not limited to college and can be used not only for K-12 tuition but also expenses, including books. At one time Coverdell ESAs were the sole tax-advantaged way.

Unlike 529 plans, contributions made to Coverdell ESAs are limited  to $2000 annually per beneficiary similar to limits set for IRAs .This means grandparents can each set up their own account for the same beneficiary with a $2,000 limit for each beneficiary account.

A Coverdell investment option is self-directed. It is not pigeon-holed into the state’s specific options like 529 investment track options.

Limits For ESAs

Coverdell ESAs have age and income limits. A beneficiary must use the funds by age 30 unless the beneficiary is a special needs person.  If your adjusted gross income is between $190,000-$220,000 as a married couple or $95,000-$110,000 as a single taxpayer, you cannot contribute any longer.

While Coverdell ESAs give you greater investment flexibility than 529 plans, the imposition of limits have caused some to consider rolling  their Coverdell ESAs into 529 plans.

3. Custodial accounts: Uniform Gifts to Minors Act (UGMA) or Uniform Transfers Minor Act (UTMA)

Custodial accounts can be set up for each child if they are under the age of 14 years and managed by the parent until the child turns the age of majority, typically age 18 years unless stated otherwise. Investments in these accounts are not limited.

For children below 18, the first $1,050 of unearned income from the investment is tax-free to the child, after which the next $1,050 is taxed at the child’s tax rate, then income above the $2,100 is taxed at the parents’ (usually higher) tax rate. Once your child turns 18, this money belongs to them. They will be paying taxes at their own rate.

Couples filing jointly can contribute up to $26,000 annually for each child, or $13,000 if an individual is setting up an account. Anyone can set up a custodial account, including grandparents, aunts and uncles.

Once the child has access to the account based on their age of majority, it is their asset. The invested money may be used for anything that child wants, including frivolous things which unfortunately the parents have little power in reclaiming that asset.

These type of accounts are typically for supplemental spending for college, and not likely to go to tuition.

4. Traditional IRAs And Roth IRAs

Traditional IRAs are typically used for tax-deferred retirement savings. Normally, you would incur a 10% penalty for withdrawals before 59.5 years. You also would have to pay income taxes on the amount withdrawn.

There is an exception if an individual wanted to use this account for qualified college expenses for themselves, child or grandchild. They would not be penalized for early withdrawals. You would have to pay income taxes.

You don’t have the same 10% penalty for withdrawal from the Roth IRA. You have more freedom with the Roth IRA in this regard.

Tap Retirement Savings As Last Resort

Frankly, retirement accounts should never be tapped for college tuition unless you set up these retirements accounts for your young children. Since you cannot borrow for retirement, but you can for college, parents or a child would be better off to take out a loan for college. I provide it as an option but I would consider other ways first.

5. Invest in discount bonds

You can save for college costs by investing in deep discount corporate, US government (Treasury) or municipal deep discount bonds. These bonds are often referred to zero coupon bonds because its owners are not collecting coupons twice a year.

These bonds come in maturities of one year-40 years and do not pay semi-annual dividends like regular bonds. Furthermore, the IRS requires that you pay tax on the interest portion annually.

Tax Implications Vary

Check with your tax professional about the possible tax implications for respective securities. Federal and state tax treatments of zero coupon municipal bonds are different. Munis are known for federal tax-exemption and sometimes state and local taxes as well.

On the other hand, there is no tax-exemption for holders of corporate bonds.  Treasury bonds are usually tax exempt by state and local authorities.

If safety is a priority, Treasury bonds have triple AAA ratings so they are virtually risk-free while ratings of municipal bonds and corporate bonds vary.

You can redeem the bonds at full face value upon their maturity. The proceeds of these bonds can be used for college costs.

Deep discount bonds are not just used to save for college tuition but their long term nature are suitable for planning for your children’s non-tuition college needs as all.

6. Series EE Savings Bonds

Savings bonds are sold by the federal government for half their value or $5,000 for maturity denominations of up to $10,000.

Like treasury bonds, they are safe based on their triple A rating.

Usually savings bonds are taxed at the federal level and tax-exempt on state and local levels but if you are using these savings bonds for college tuition expenses than they are typically tax-exempt at the federal level as well.


7. Earn College Credit In High School

Want to earn some college credits early at little cost? The Advanced Placement program offers college level courses and exams that you can take in high school. The exam is $94 which may allow to save up to $3,000 for a three credit course .It is a great way to save time and money in college if you are able to earn credits depending on the score you get.

There are 38 AP courses in a variety of disciplines. Having AP credits with a good score on your high school transcript is a huge plus for colleges considering your application.

Check Your School Policies On AP Credits

Be aware that some colleges and universities may a require a score of 4 or 5. The maximum score on an AP is a 5. The exams are given in May. Among the top colleges, 86% restrict the use of AP credits. Paul Weinstein, director of Johns Hopkins University’s graduate program assessed policies of the top 153 colleges and universities in a 2016 study.  A few colleges do not accept AP credits.

You should review your school policies on acceptance of your credits. If you choice school doesn’t accept your credits, you still got a bird’s eye view of what college exams look like.

8. Grants and Scholarships

If you are borrowing money for college, federal loans are far more attractive but have loan limits by year with the freshman year maximum loan the lowest at $5,500 rising to $12,500. Interest rates on federal loans have dropped for the first time in three years based on May’s 10 year treasury yields. 

To obtain a federal loan, grants or scholarships, you need to fill out the Free Application for Federal Student Aid or  FAFSA  for each academic year. The new 2020-2021 FAFSA form is about to be made available here. Make sure you file it on time, if not early as some states’ awards are on a “first come, first served” basis. Check your state’s practice as they differ.

Fill Out FAFSA Please

FAFSA determines whether you are eligible for need-based federal financial aid for college. It also may help you with getting scholarships, grants and work study programs for your student. See our family guide on how to save for college.

It is always a pain to fill out applications. However, since FAFSA will help you to get more affordable federal loans to supplement your income and savings contribution, go for it. It takes time to fill out the papers and get the supporting documents together but it is worth it if you get some financial help. Be super organized ahead of time!

Federal Gift Aid

Federal Grant and scholarship programs account for funding 31% of the needs of the average family in 2018- 2019. This is above the 28% of college costs last year. This is “gift aid” money for college and does not have to be paid back. Almost all of federal grant programs are needed based. See the list of grants here.

The federal scholarship programs are merit-based, received from school, outside organizations, or businesses. Information as to how to apply can be found here. Sallie Mae’s survey of 2018-2019, showed higher dollar contributions of $8,580 for those families making more than $100,000. Another place to look for scholarship opportunities is fastweb.

Federal Work Study

In addition to the “free aid” you can get through the federal government, there are federal work study programs which pay at least the federal minimum wage and are on-off campus. These programs are need-based so check out their website here.

State Gift Aid Programs

You can look at state programs for additional loans, grants, and scholarship opportunities which can potentially supplement what you are getting through the federal programs.

Take a look at the different programs by state for possible loan/grant/scholarship opportunities here. You can look for merit-based scholarships by college, if your college is on this list. Some colleges have supportive loan programs for those families that are need-based as the 25 colleges on this list, including Harvard, do

Doug Hewitt, co-author of Free College Resource Book has said that there are more scholarships available for you within your home state than nationally.

9. Student Education Tax Credits

There are two major tax credits available to offset the costs of higher education. The American Opportunity Tax Credit is the most valuable of the two (the other is Life Learning Credit with a $2,000). It only applies to first four years of post secondary education (university, college, vocational, non-profit or profit).

You may claim up to $2,500 per eligible student per year under the American Opportunity Tax Credit. Credits cover 100% of the first $2,500 of qualified tuition.  If the credit brings the amount of tax you owe to zero, you can have up to 40% of remaining amount (that is, $1,000) refunded to you. There are credits for qualified education expenses of 100% up to the first $2,000 for each students and 25% of the next $2,000.

10. Colleges With Free Tuition

There are a number of colleges that offer free tuition though you will likely have to pay room, board and living expenses. Some of these colleges may require work on campus or service after graduation as a means of earning the free tuition.

Accredited colleges with free tuition has been growing, and include:

Alice Lloyd College (KY)

Barclay College (KS)

Berea College (KY)

College of the Ozarks (MO)

Deep Springs College (CA)

St. Louis Christian College (MO)

Webb Institute (NY)

William E. Macaulay Honors College At CUNY (NY)

Williamson Free School of Mechanical Trades (PA)

US Military Academies

This colleges are a way of giving service back to your country:

US Coast Guard Academy (New London, CT)

US Military Academy (West Point, NY)

US Naval Academy (Annapolis, Md)

US Merchant Marine Academy (Kings Point, NY)

Some colleges have made their courses available online for free but may include a relatively small fee:

iTunes (Stanford University)

Open Educational Resources (OER) Commons

Open Yale University (Yale)

School of Public Health (Johns Hopkins University)

11. Go To Community College Or Public Four Year In-State College

There are many reasons to go to community college. Affordability is high on the list for that reason. Tuition and fees for two year in-state colleges were $3,660 in 2018-2019. A full-time student will likely receive more than enough grant aid and federal tax benefits to cover these tuition and fees. If a student chooses to live on campus, those expenses will be out of pocket.

Most of my students live at home and plan to go away from home for the latter 60 credits of college. I teach diverse community college  students with business majors. They are often immigrant or first generation students at community college. Many finish their four year degrees while working full-time and some have children.

The pros of going to community college tend to outweigh the cons for many students. Please see our extensive article on the benefits of going to community college here.

There are some wonderful public four year in-state colleges that are considered great value (See Value School listings in US News & World report). They combine strong academics with lower tuition costs than private colleges.

True Story About My Hiring Preferences

I went to public colleges (CUNY) for both my BA and MBA. When I was Managing Director at my investment bank, I was able to hire “the best and the brightest.” When my human resources employees came with  stacks of resumes, all the Ivy Schools were on top. My preferences were always public colleges given my background.

I always reminded HR to give me the CUNY resumes first, then the rest could be public colleges across the country. The early days of most investment banking firms on Wall Street were filled with public college graduates, if they even went to college. I am referring to Lehman Brothers, Goldman Sachs, Salomon Brothers, and others.

Here is our conversation:

HR: “I got the resumes you wanted. We think these are stellar candidates.”

Linda: “Great, thank you. Did you any from Baruch College (a CUNY Business School)?

HR: “We think this a better group. Most are Harvard, some Yale and Princeton and other top schools. I didn’t look for Baruch. Why do want students from there?

Linda: My MBA came from there. It is a great business school. Many international students. I also like paying back to students who want investment banking or equity research. Give the Ivys to some of the other analysts. OK?”

HR: “But, then you won’t get the best! They told me they only wanted to hire from top schools. You better talk to my boss.”

The funny thing was that at that time all three of my management, including my head of Equity, came from public schools.  I finally did get my way!

12. Certain Majors Are In Demand By Employers

There are certain majors that are in such strong demand that employers may consider picking up some of your tuition in return for your promise to work at their firms or entities for a certain period of time. While there may be a shift in desirable majors, there appears to be a strong call for those students in math, science, nursing, teaching and social work.

If you go to college while working full-time, many employers pay up to 100% of tuition as a major perk to attract those with evidence of strong work ethic. A bit of advice: don’t pick your major solely on the basis of your employer picking up the tab. That said, if you have an interest in that course of study, go for it!

Final Words

Financing a college education is difficult and most students have to borrow some money. Repayment of student loans can be an albatross for many years. If have taken loans for school, the monthly costs for college grads delay them from making their plans for life. Many postpone getting their own place to live, getting married, having children, buying a car and home because of their ongoing loans.

Planning early may help you (parents/students) avoid getting overburdened with debt. Strategize how to get savings ahead of time or while in school.

Once in college, students tend to budget better than after they get their first job. Be creative about saving money even in college when you are living on a limited amount of money. My college students often inspire me with tips they share in class and so I sometimes collect this information as we do here.

 If you graduate with student loans, read our piece on paying back your student loans faster. It may involve some sacrifice when you are young to better financially position you and your family in the future.

Are you applying to college this fall or next year? What steps have you already taken to help you in seeking your college? We would like to hear from you!






















How The Fed Rate Cut May Affect Your Loan Rates

How The Fed Rate Cut May Affect Your Loan Rates

“I think we do need to try to not just rely on the central bank to, in its wisdom, adjust interest rates, but allow for people to avoid being exposed to inflation risk.”

Robert J. Schiller


The Fed has recently cut its benchmark fed funds by one quarter percentage for the second time in two months. This is  the first time this has happened since the Great Recession of 2008-09.  After keeping this rate at historically low levels, the Fed raised rates nine times beginning late 2015 through end of 2018 to 2.25-2.50%.

Leaving aside whether it was a good move (I believe it was, by the way), what does a lower fed fund rate (reduced 0.50% to now 1.75%-2.00%), mean for consumers in terms of borrowing, saving and investing?

Yes, The Fed Cut Is Beneficial For Consumers

A short answer is that a reduced fed funds rate means lower loan and savings rates. The fed funds rate is the lending rate for banks and other financial institutions. Declines will likely be relatively small unless we see future Fed cuts. If you have a lot of debt outstanding, you may feel more relief.

However, the best result in lowering monthly payments is to improve your credit score. You will see greater incremental benefits.

While we can’t borrow at the fed funds rate, it directly and quickly influences the prime rate, the loan rate charged to the best creditworthy customers. Prime rate was  just lowered to 5.0% from 5.25%.  Other consumer borrowing rates are often pegged to the prime rate, London Interbank Rate (LIBOR) or Treasury yields.

However, There Are Two Factors That Determine Your APR

The major consumer financial products are mortgage loans, home equity lines of credit (HELOCs), car loans, credit cards and student loans. Two factors are important lenders use to determine your loan’s annual percentage rate (APR). They are:

  1. Federal Reserve action to modify the federal funds rate, which is out of our control and
  2. Your credit score which you can take steps to raise for lower borrowing rates.


What About Savings And Investments?

The savings account rates at banks will likely decline quickly by 25 basis points (or one quarter of a percentage point) matching the fed’s lending rate for intra-bank loans overnight.

Our investments in financial securities, notably short and long term debt and equity securities tend to move in the opposite direction of interest rates.Therefore, the cut, which was anticipated by markets, usually improves performance upon widespread speculation. This cut may fuel beliefs of future cuts by the fed.

Lower borrowing rates often mean higher consumer and business spending and therefore stronger economic growth.

Before we take a look at how a Fed cut may influence consumer financial products, a little background on the Fed may be helpful.

A Short Primer On The Fed

The Fed (formally known as The Federal Reserve System) is the central bank of the US. They regulate commercial banks and have the responsibility for conducting monetary policy. Its dual goals are full or maximum employment and stable prices, meaning  low inflation.

Through its monetary policy, the Fed uses its tools, notably the fed funds rate to influence money, credit, interest rates and  the US economy overall. The fed funds is the rate at which banks and other financial institutions can lend to each other overnight to meet mandated reserve levels set by the Fed.

The Federal Open Market Committee (FOMC) votes on whether to raise, lower or keep the fed funds rate unchanged. FOMC members meet is at predetermined dates about eight times a year. It is made up of the seven Board of Governors of the Fed, notably Chairman Jerome Powell, plus the Presidents of five fed district banks (including the New York Fed).

For more on why you need to understand the Fed, read more here.

The Fed affects every aspect of our financial lives.

You should have a working knowledge of what does, particularly if you are interested in all aspects of money and investing.

The Fed, through its monetary policy, influences our economy, our borrowing and saving rates, as well as our investments. They have a powerful role in controlling money supply based on economic and inflation indicators, factors that affect our economy as well as global markets.

The Fed’s role is multifold:

  • as the bank of last resort when other banks are unwilling to lend.
  • assess risk in our economy based on numerous variables.
  • a fiscal agent to the US Treasury supporting its securities auctions.
  • model for other central banks globally.
  • communicate publicly to explain their reasoning for their actions.


Mortgages: Fixed Rate or Adjustable Rates

The fed funds is a short-term rate but fixed rate mortgages are long term. When you borrow money to pay for your home purchase, you will likely choose between the conventional fixed rate mortgages or an adjustable rate mortgage (ARM).

If you are considering a home purchase, consider the seven steps to buying a home. Many potentials buyers are looking at the merits of renting instead.

Fixed Mortgages

Fixed rate mortgages are preferable for many home buyers. Your monthly payments are predictable for the length of your loan. Knowing your monthly amounts provides certainty and helps families to budget of one of the biggest costs.

Generally, 30 year mortgage rates are higher than the 15 year terms because of the longer time frame. Your rates will be highly influenced by your credit scores. Excellent scores of 750+ provide buyers with the lowest rates. I would encourage you to go for the shorter 15 year term as your total interest paid added to the home price is far lower.

Assuming you were applying for a 30 year loan, the average recent rate was 3.97% based on a range of 3.00%-7.84%. This range reflects best credit quality to fair (or riskier) borrowers. The 15 year average mortgage rate is 3.53% (on a range of 2.50%-8.75%).

Potential For Loan Refinancing

Those with the fixed rate mortgages will not be impacted by the Fed lowering the fed funds rate. However, if the Fed makes more rate cuts in the future, you may want to consider refinancing your mortgage if it makes financial sense for you. Refinancing costs additional fees. For potential buyers who have been on the fence in search for a new home, this cut could be an incentive.

Adjustable Rate Mortgages Will Benefit From Fed Rate Cut

Rates on adjustable rate mortgages (ARMs) change at different periods from annually, every 3,5, 7 or 10 years. They are reset based on either Treasury securities, inflation index or LIBOR. First time buyers often are attracted to ARMs as their initial rates are lower than the fixed mortgages.

A common ARM is 5/1, a hybrid mortgage, which is a 5 year fixed rate with annual rate changes after 5 years. A recent current average 5/1 ARM is 3.78% based on a range of 2.38-8.25% This may be attractive for someone expecting to sell their home or refinance to a fixed mortgage within 5 years. ARMs may fluctuate more quickly for those applying now, reflecting the Fed cut.

I have concerns with ARMs or any variable rate loans. They lack predictability and borrowers often don’t understand the terms of their agreements. Borrowers need to know when rates change and how they are impacted by rising interest rates. It is often difficult to budget their mortgage costs.

HELOCs Rates Will Decline If A Variable Loan

Most HELOCs are variable rate loans. This means that your month-to-month may fluctuate depending on the market interest rate. The benchmark is usually the prime rate. Some banks may offer a fixed rate option for customers who desire predictability and budget their costs. The typical fixed terms are 10 years and may range from 5-15 years.

Your HELOC loan is a credit line secured by the equity in your home and your creditworthiness. As your home serves as collateral like your mortgage, rates tend to be lower than credit cards. Once again, your credit score matters, along with Fed rate, which will determine your monthly payments.

How HELOCs Work

You may obtain an available line of credit of $100,000 but only draw $25,000 of the funds to pay your contractor. You will only pay interest on the $25,000. This provides  benefits for your credit score based on your utilization rate which you can read about here.

Recent average 5 year fixed HELOC rates are 5.09% according to Value Penguin based on a wide range of 2.75%-11.00% to reflect excellent to fair credit ratings. Variable rate is 5.51% (with a range of 3.50%-13.25%). The latter are higher rates and may indicate greater risk.

Generally, you may obtain your HELOC with the lender you already have your mortgage loan with. It is a convenient way to tap the equity in your home to get available credit to borrow money for remodelling your kitchen. A small reduction in your variable HELOC may help you incrementally.

Car Loans Rate Will Change Based On Fed Rate Cut

Most car loan rates are based on fixed terms pegged to Treasury yields. The average loan rate on a 60 month for new cars according to the latest Federal Reserve Consumer Credit report.  You are not likely to see any improvement on your existing loan rate or monthly payments. However, if you can refinance your car, you may recognize a difference in your monthly payments. On the other hand, your loan rate may vary based on three criteria.

1. New or Used Car

You will pay slightly more for a new car loan ( 4.30%) versus a loan for a used car (4.20%) or refinancing an existing loan (2.89%).

 2. Credit Quality

As with all loans, your credit score matters. Your loan rate may range from excellent or 750+ (4.30%), good or 650-699 (7.65%) or fair to poor on 450-649 (13.23%). Monthly payments may skyrocket with fair or poor credit.

Assume the average price of a car of $36,000 and a 20% down payment of $7,200 on a 5 year loan. Using a car loan calculator, your monthly interest payment will jump from $$534 per month with excellent credit to $$659 per month with a poor credit rating.

Total interest paid over the life of this loan will be $3,258 with excellent credit or $10,721 in total interest paid. Your car price with excellent credit amounts to $39,258 versus $46,721 when your credit is poor. Interest costs are the second biggest part of your total car price and may account for 25% or more of your car cost).

3. Loan Term

Term length varies from 36 months to 96 months with the longer time frame requiring the borrow to pay the highest rate. You should get to a shorter term auto loan so you are not shelling out a lot of money on interest. Take the shortest loan term on cars that you can afford. That is a good strategy for any loans you apply for.

The length of the loans have been getting longer and longer. Edmunds says the most common term is for 72 months, with an 84 month loan next in line. I am seeing ads for loans for as much as 96 months. That is an increase from 10 years ago when 60 months were the most common.A longer time frame means you are paying more in total interest cost on your loan.

What You Can Do About Lower Monthly Payments (Or No Payments At All)

Future car buyers may get reduced rates based on the latest Fed cut. However, your best path to a lower auto loan is to improve your credit score. Better yet, buy a used car outright without a loan. After years of car loans and leases (watch for hidden fees!), we are finally biting the bullet and buying older cars with more mileage for cash. Getting rid of these monthly payments are a longer term relief.


Credit Cards Rates Are Likely To Decline

Credit cards carry the highest borrowing rates of most consumer loan products. Their rates are linked to the prime rate which is quickly  influenced by the Fed’s benchmark rate. Interest rates will likely go down as a result of the lower prime rate. Of course, those high rates may not be a problem at all if you pay your card balances in full every month.

Unfortunately, the average credit card debt was $8,398 in June 2019. While the recent Fed reduction may trim some basis points off your APR, lenders are not required to lower rates when the Fed does so. However, there is a lot of competition for borrowers. If credit card issuers do, it will be marginal on on new cards. Lenders are far more willing to increase APRs when the Fed raises the fed funds rate.

Once again, issuers mostly look to your credit score for assessing your risk as a borrower. At the end of 2018, the average credit card rate for new offers were 19.24% and 14.14% for existing offers. The range for those with excellent scores were 14.41% to fair scores at 22.57%.  The national average rate did drop to 17.61% recently after factoring in the 50 basis point decline in the fed funds rate in 2019.

Good News For Student Loans

There is some good news on federal loans for undergraduate and graduate students and their parents for the 2019-2020 school year. This is the first time that these rates have dropped in three years. The rates for these loans were tied to the May 2019 Treasury auction for 10 year notes. Student loans have been a front page burning issue, likely to ramp up alongside the upcoming Presidential election debates.

Federal loans are fixed only with 10 year loans for school years as follows:

Type                                                       2019-2020                       2018-2019

Direct Subsidized (student)                        4.53%                              5.05%

Direct Unsubsidized (student)                    4.53%                              5.05%

Direct Parent Plus                                      7.08%                              7.60%

Graduates Unsubsidized                            6.08%                              6.60%

There is a cap on the amount you may borrow from the federal government for student loans. Undergrads may borrow up to $12,500 annually and $57,500 in total for student loans from federal sources. Graduates are capped at $20,500 yearly and $138,500 in total.

You need to consult the Federal Student Aid guide as the amount you may borrow depends on what year you are going into at school and your dependency status. These loans are not dependent on your credit score. For more on how to pay for college, see our family guide.

Due to federal loans being capped, most students will turn to private lenders where the credit scores of the students and parents matter. Loans may be fixed and potentially go for terms of 10-20 years or are variable. It is a good idea to pay back your student loans faster if at all possible.

The variable rates are influenced by changes in the prime or LIBOR plus the fixed margin tied to your credit score for your total rate. LIBOR rates tend to increase less slowly than the prime rate.

Banks may require a minimum credit score of 600-650 or better. So it is best to work on improving your credit report before borrowing. 24% of families in 2019 borrowed money from federal loans, private student loans, credit cards and other loans. 7% of students and parents each used their credit cards, loans from retirement accounts or other sources. 

Savings And Investing

Savings accounts at banks, including online banks, are likely immediately vulnerable to reduced rates after the latest cut in the fed funds rate. These rates have been low for years and not much of a source of interest income for savers as they have been in the past. However, these accounts did perk up after the rate increases in late 2018 enough to merit ads with “high yield savings rates.”

September 2019 rates have dropped in mid September after the August rate cut but likely not fully reflected. Average savings rates range from 2.00%-2.50%, with many banks requiring minimum amounts of $100-$10,000. Please read the fine print as there may be fees.

Savings accounts are great for accessibility to liquid funds such as your emergency money. Money market funds may offer slightly higher rates than saving accounts. They are great alternatives for safety and liquidity purposes. If the Fed continues to reduce rates, expect more trimming ahead. I don’t wish for high inflation but there was a time (1980-1982) that these accounts provided double digit returns with virtually no risk.

The Bull Case For Investing When Interest Rates Go Lower

Generally, when interest rates go lower, consumers and corporate borrowing increases. The lower interest rates may help some segments of our economy, like industrial companies. They have not participated in higher growth as much. Lower rates often results in strong economic growth. With low savings rates at 2.5% or lower, consumers have less incentive to leave money in the bank earning low returns.

Households may spend more by borrowing for a home or car. The reduction we saw in August and in September may be a small incentive for more buying of consumer assets.

Remember we have had a low interest rate environment with already low mortgages and HELOC rates. The housing and car markets have been strong in recent years because of lower borrowing rates. Those who may have wanted a house or car may already have done so. Can another 25 basis point encourage more buyers to look for new buyers? Maybe. Consumer spending has remained fairly strong particularly in the retail markets.


Better Long Term Returns From Stock Investing

I avidly participate in the stock market which are at or close to all-time highs. When the Fed reduces the fed funds rates, financial securities usually respond favorably or even upon speculation of an upcoming cut. Expectations of a stronger economy tend to push stocks higher. There are always risks that the market rotates from one issue to the next or one sector of stocks or another. To reduce risk, make sure to diversify your portfolio.

For example, US-China trade talks (on or off). There are some pockets of weakness being experienced in different sectors such as industrial companies such as Caterpillar, Fedex, and companies more dependent on strong global markets.

Households may seek higher returns from stocks which grow 8% annually over the longer term. Alternatively, they may seek higher yielding stocks such as ATT, Verizon or BP than they can earn in their savings banks.

Better yet, I would recommend those interested in stocks, to buy a low cost index fund. Vanguard funds are known for their low cost and choices in funds that focus on growth, value, blend or want something to mirror the market like S& P 500. Investors can also look at target rate funds.

 Final Words

The rate cut from the Fed was a welcomed event though it will likely have only marginal benefits for the average consumer. With lower interest rates it is cheaper to borrow than save. This usually leads to increases in spending. That is good for economic growth.

Still, households would realize even better financial health by improving their credit scores, reducing debt and spending within their means. This should be a priority so that you can invest more. Savings are great for liquidity but careful investing could provide better returns.

Have you noticed any reductions in your loan rates? Have the lower rates increased your consideration for house or car hunting? We would like to hear from you about your thoughts and experiences!










Personal Finance Lessons From The Richest Man In Babylon

Personal Finance Lessons From The Richest Man In Babylon

A Timeless Classic On The Basics of Money

Personal finance lessons are all around us in our everyday lives. We handle money all the time. However, we  may not grasp our own financial mistakes. Learn better financial habits from The Richest Man in Babylon by George S. Clason, among my all time favorites. This book can help anyone avoid financial blunders, create wealth and build a financially secure future. I recommend this easy-to-absorb book to my business students and my own children.

Richest Man lays out the major tenets of good money management through ancient Babylonian parables told by charming characters, notably Arkad, the richest man in Babylon himself. It has been read  by millions of readers. Clason gave it out initially as separate pamphlets to banks and insurance companies for their customers. Then it was published in 1926 before the Great Depression and has remained an inspirational classic.

Creation of wealth and growth are reiterated through “Cures” and  “Laws”  utilizing various tales in Babylon is considered among the oldest  civilizations. The Babylonians were known for their resourcefulness, wisdom, enterprise and justice. Clason points out that the Babylonians were clever financiers and traders who invented money as a means of exchange.

Women Did Not Make Money Decisions In Babylon

All of the major characters are men. That is appropriate as women didn’t manage money then. In fact, women were not able to apply for credit cards in their own name until the Equal Credit Opportunity Act in 1974!  Clason wrote at a time when women had finally etched out a win with women’s right to vote was finally approved in 1920. Fortunately, we are now seeing women gain financial independence.

The Babylonians were enlightened in many areas but it is doubtful that gender equality was one of them. That said, don’t let the gender bias hold you back from this good read. Just recast it into contemporary times when women are often better with money!

10 Money Lessons From Ancient Times For Today:


1. Pay Yourself First By Saving 10% of Your Annual Earnings


Start thy purse by fattening

Clason is believed to have coined the term “pay yourself first.”  That means you should put away 10% of every paycheck into savings.  These savings can be allocated to an emergency fund amounting to at least 6 months coverage for basic essential expenses.  Unforeseen events are unpredictable and undesirable but need to be planned for.

Once this fund is established, use some of your savings stash to invest for retirement and taxable investment accounts . Putting away some money may be difficult at first depending on your spending habits.

2. Spend Within Your Means


Control thy expenditures.”

To set aside money for saving and investing, you may need to cut some costs. To control your expenses, assess what is your necessary living needs. These are predictable monthly fixed costs such as mortgage payments or rent, property taxes, utilities, car loans, typical grocery bills, credit card payments and any costs you pay monthly. Remember these costs are for our needs, rather than for our wants and desires.

As our income grows, we often increase our so-called “essential costs” leading to lifestyle inflation. While we are allowed the occasional latte and extravagant dinners, we need to keep our spending in check. You shouldn’t deprive yourself of everything. However, fulfilling every desire is no longer a special treat.

Don’t fall into the trap of spending your raise soon after you have received it. I have often been tempted to buy something special upon getting a raise and bonus after a year of working hard. You soon realize your pay hike is pretax and shrinks on an after-tax basis. If you do need some things, make a list of what you believe are important if you had some extra cash.

Be reasonable about satisfying your every want. For example, that 10% raise on your $80,000 salary may not significantly help you to buy that luxury car (or chariot in ancient times) you have been eyeing. A rise in earnings may not fully accommodate every gratification we seek.

3. Make Your Investments Work For You Long Term To Accumulate Wealth


“Make thy gold multiply.”

Saving and investing your money as early as possible enables you to benefit from compound interest through the years. This is often referred to as a magical way of earning interest on the principal invested and the cumulative effect of earning interest on that interest. Compounding works to your advantage when it is your invested money.

On the other hand, compounding works against you when you are borrowing long term like for your home.

Arkad explained how this magic works: “As they labored for, so their children also labored and their children’s children until great was the income from their combined efforts.

4. Pitfalls of Investment Is Overconfidence


Guard thy treasures from loss.”

Investments are often fraught with dangers, especially for beginners. Not every investment bears fruit. Learn about the risks of investing, whether in the stock market or investing in a new business. Consult those with more experience and trained in that field. Arkad tells of his folly when he entrusted a bricklayer to buy jewels for him and returned with glass.

While you can’t prevent every loss or mistake, there are ways to minimize your risks. When investing, you should diversify your portfolio and implement asset allocation depending of your age and life cycle. As your wealth increases, consult a financial adviser who may enhance your abilities to address and confront many financial, tax and legal issues.

5. Owning Your Primary Home Is A Good Investment


Make of thy dwelling a profitable investment.

Buying your own home versus renting is a very common debate. Clason via Arkad advocates in favor of owning your home. From the 1920s and well past the post World War II period, buying your home was an essential part of the American Dream.

Is it still part of the American Dream today?  US home ownership rose from 45.6% in 1920 to 66.2% in 2000. Ownership of your home has since retreated to 64.1% in June 2019 despite low mortgage rates. North Dakota is the state with the highest ownership ever recorded at 80% and that was in 1900!

Lower Homeownership Rates For Millennials

Home ownership rates in recent years have been impacted by higher property taxes, reduced tax benefits and more difficult conditions to qualify for mortgage loans since the Great Recession. That, combined with crippling student debt, have kept many on the sidelines. Millennials between ages of 25 and 34 made up a smaller percentage (37%) of the home buying market in 2015 than previous generations (about 45%) at the same ages.

Having said that, there are many benefits to owning your home over paying rent in particular parts of the country.  You should weigh the costs of owning your home (downpayment, monthly loan, insurance, taxes and maintenance), against rising rents, lack of control over your home and renter’s insurance.

Housing Appreciation Rates

If you are renting, consider the benefit of having some savings for investments or retirement rather than its use as a down payment. This  could be a major plus. In the best years for the housing market (1976-2005), real price appreciation averaged 2.2% annually. This compares to long term stock appreciation of 8% annually if you were to put your savings into the stock market.

Of course, there are many reasons to buy a primary home such as gardening, more space and decorating rather than as a good investment.   However, investment returns may be a major factor if you are on the fence between buying or renting your home.


6. Retirement Savings And Insurance


“..it behooves a man to make preparation for a suitable income in the days to come, when he is no longer young, and to make preparations for his family should he be no longer with them to comfort and support them.

Although the American Express Company started offering private pensions in 1875, it wasn’t until 1920s that private pensions were offered by a variety of American industries. State governments established pensions for employees in 1911 followed by federal pension plans. Social Security income did not yet exist at the time Clason’s book was published.

Today, fewer people (4%) can count on the traditional defined benefit pension plans if they work in the private sector. Participation through pensions are down significantly from 60% in the 1980s.  The responsibility of saving for retirement falls on us. About half of Americans 55 or older have not put away any retirement savings. Roughly 22% have less than $5,000 in savings earmarked for retirement.

Don’t make this mistake. Saving for retirement is really investing with deferred tax benefits The earlier you save, the more you will benefit from compound growth. Make sure to participate in your employer’s 401K plan, if offered especially if they offer a matching contribution.  This is free money from your company. Don’t throw it away.

The IRS sets caps on the maximum annual amount you may contribute to your 401K plan. Your contribution is made on a pretax basis. Payment of taxes are deferred until you withdraw money. You will be able to direct these funds into an investment vehicle of your choice.

How 401K Matching Works

Many companies offer their employees access to 401K plans. Most  employers provide a contribution match (partial or dollar-for-dollar) based on the employee’s contribution.

A common example is a partial match provided by employers. This means they will contribute 50% of what you put in, up to 6% of your salary. Some companies will provide the more desirable dollar-for-dollar matches where your employers will put in what you do.

An Example

Let’s say you make $80,000 per year and you contribute $4,800 annually based on 6% cap in your plan. If your employer provides  dollar-for-dollar matching, they would be contributing another $4,800. This is essentially a gift from your company. Why wouldn’t you make your contribution in order to earn your company’s match?

Check your plan at work as to what your employer offers. You want to get the maximum amount from your company so make sure to meet the cap of 6% or whatever the percentage is that they will contribute up to.   That is free money for those employees that participation.

Roth IRAs

Separately, you should also fund a tax-advantaged Roth IRA on your own. You can direct your money into a number of different mutual funds. Contribution is made with your after-tax income up to the maximum amount.  Roth IRAs work differently that traditional IRAs as you are contributing after-tax dollars. The benefits of the Roth IRA is that you have already paid the taxes. You will not be paying taxes when withdrawing and can do so without penalties.

As Arkad insists, you need to provide for a suitable income in older age to continue to enjoy your life.

“…no man can afford not to insure a treasure for his old age and the protection of his family, no matter how prosperous his business and his investments may be.”

Insurance Is Needed Protect Your Family, Income And Your Assets


We cannot afford to be without adequate protection.

Insurance planning is one way to protect your family in the event of your passing. Life insurance  is often a benefit that is provided by your company benefit package. However, it is usually a smaller amount than you need. You should make sure to have enough coverage for essential living payments and future costs like college tuition.

Besides  life insurance, there are other insurance types you need to protect your assets, income and family. There are 8 types of insurance to consider: car, home, renters, health, disability, long term care and an umbrella policy.

7. Invest In Yourself


“Increase thy ability to earn”

After you earn your college degree, real learning has just begun. To increase your earnings abilities, leverage any skill-building or training opportunities offered to you at your workplace.

I remember being at an employee orientation with others shortly after I graduated college. The head of human resources at the investment bank provided us with a list of investment workshops (in different kinds of financial securities) she recommended we take over the next 6-12 months.

Being a bit of a learning nerd, I was excited by the opportunity to educate myself about certain areas I was unfamiliar with. Someone behind me kept groaning as each workshop was described, finally saying: “I didn’t take this job to go back to school!” Needless to say, the groaner didn’t stay long and not by his choice.

Use Every Opportunity Offered To Gain More Skills

Increased skills at your job are justly rewarded. “The more wisdom we know, the more we may earn.” Alternatively, you don’t want to be doing the same thing in your 50s what you are doing in your 20s. Seek more skills to make yourself a more valuable employee, in order  to get a better job or start your own company. Learning should be a life long goal.

8. Invest In What You Know Or Seek Smart Advice


“Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep.”

Arkad tells a Babylonian tradition that sons of wealthy parents must earn the right to inherit the estate of the parents. Arkad gave his son two things he himself had been denied by his parents. First, he gave his son a bag of gold and in then, a clay tablet which had been carved with the five laws of gold. He told his son to come back in 10 years and give his father an account of how he did. If worthy, he would inherit the estate.

Ten years later, his son came back to tell his father he handled the gold poorly and lost it all. He had gotten involved with horse racing and wagering with deceitful men. His son admitted he knew nothing of horses, a business he was unfamiliar with. He was essentially defrauded.

The son sought employment but had no worthwhile training. He then turned to the clay tablets which contained financial wisdom and provided him a road to wealth.

Lost The Gold, Gained The Wisdom

Essentially, his son followed Arkad’s wisdom which provided greater value than that of the bag of gold.  As a result, he multiplied his earnings through putting 10% of earnings into savings, spending less than he earned.

He also learned how to make savvy investments from  knowledgeable financial advisors, avoiding the scams he had experienced before.

Arkad was impressed with the multiple of bags of gold returned to him and he provided his son with the inheritance upon Arkad’s passing.

9. A Lesson In Borrowing and Lending From The Gold Lender

Mathon, the  gold lender is approached by Rodan, the spearmaker, who has been paid a fortune of fifty gold pieces. Rodan’s sister wants him to lend his money to her husband because he cannot seem to make enough earnings on his own. Mathon provides counsel to Rodan based on his largely successful  lending experience.

Can the loan be well made if the borrower cannot pay?

Mathon shares the ways he makes loans if the borrower can demonstrate:

  • possessions like property or jewels with greater value than the loan that can be collateral;
  • they are a wise trader or purpose of money is wise;
  • the capacity to earn enough to pay back the debt, and
  • there is a guarantor to pay back the loan if the borrower is unable.

Mathon will not make a loan to a borrower who is:

  • indiscreet with investments;
  • will take shortcuts to make money; or
  • poor (or lazy) workers.

In the end, Rodan made his decision to not lend money to his sister’s husband. He believes his brother-in-law to be not only envious but also lazy. Rodan knows from experience that his sister’s husband is a spendthrift and will use the money on unnecessary things and will not repay him.

Ill fortune pursues every man who thinks more of borrowing than of repaying.”


10. Budget Rule:  10/70/20

The clay tablets of Babylon provided a budgeting plan of 10/70/20 with earnings allocated as follows:

  • 10% goes for savings for future investments.
  • 70%  should go for necessary expenses, notably to provide for home, clothes, and food.
  •  20% for paying off debt.

The above percentages provided by Clason differ from Elizabeth Warren’s popular budget rule of 50/20/30 or spending 50% for your needs, 30% for your wants and 20% allocated to savings.

While the Babylonian budget rule may seem to be antiquated, budgeting of any kind that works for you is the best way to control your spending. Overspending leads to having to borrow and carrying too much debt. Whatever plan can you choose and stick to is good so long as you spend within your means and don’t overly burden yourself with debt too difficult to pay off.

A Final Note

Arkad, as the richest man in Babylon passes on his financial knowledge to generations of readers, which wisdom remains worthy advice to those wanting to create and grow wealth to this day. His stories and that of others in the book are classic, easy to grasp and implement. The rules may differ but remain quite relevant today. Whatever way it is easiest to learn personal finance, take those first steps through tales of old or contemporary means.

If you like classics like The Richest Man in Babylon, check out the personal finance lessons from these classic gems.

Have you a favorite personal finance book or story you would like to share? There are many good ways to learn better financial habits. What works for you can work for others. We would appreciate any thoughts you want to share!









Labor Day Thoughts On The Virtues Of Work

Labor Day Thoughts On The Virtues Of Work

“Pleasure in the job puts perfection in the work.”  Aristotle

Labor Day is here. For most of us, it arrives too quickly with the end of summer. This three day weekend there are bonfires and last-hurrah barbeque with friends and family. Fashion police say it is the end of wearing white clothing. There is that back-to-school edginess for our kids, sales and the beginning of NFL season.

Contemporary images do not mesh with Labor Day’s origins. We don’t necessarily pay attention to its creation to counter abusive work practices by factory and business owners. We should pay tribute to the social and economic achievements of American workers.

Celebrate Hardworking Americans

The first Labor Day was held on September 5, 1882. Ten thousand workers took unpaid time off to march in a New York City parade from City Hall to Union Square to protest poor wages, 70 hour-7 day work weeks, child labor and hazardous conditions. It became a federal holiday in 1894, shortly after labor unions began to claim prominence in the American economy.  

Things are not perfect in today’s workplace but fairer systems prevail. This is a far cry from the late 18th century. I always thought of Labor Day’s celebration as a demarcation between summer and the more casual days in late August. We all need a push to get back into the swing at work whether its after  Labor Day weekend or the start of a regular week. 

Use your days off to have fun with friends and family, get rid of some chores, make time to reflect and plan for the week ahead. It is a good time to consider where you are in your job, seeking a promotion and evaluating your career. 

The Benefits of Work

“Choose a job you enjoy doing, and you will never have to work a day in your life.”  Whether it was Mark Twain or Confucius who said this, it is a sentiment worth aiming for whether you plan to work for 10 years or 40 years.

I always valued my work, appreciated its challenges and a way to give our lives meaning. Sure, there are always days we would rather not be working. However, seek fulfillment from your job and career or make changes. Explore and broaden your interests. Our jobs  give us a sense of pride, independence, identity and purpose, a way to meet people, improve our skill and of course, financial support.   

Post Labor Day, consider these benefits and strive for more. It is no time for complacency at work. Learn how successful people use their weekends. Instead make the time to think about your accomplishments, what you can achieve going into the end of the year and the next year. You may have used your summer to plan out assertive action to successfully reach your goals. Now is the time to pull out your career playbook.

13 Tips For Achieving Success In The Workplace

1.Set reasonable goals and be focused on accomplishments.

2. Develop and strengthen your confidence.

3. Take risks and be bold. 

4. Invest in yourself by growing your skills or taking more classes in your field.

5. Don’t procrastinate as it is a costly habit.

6. Accept and learn from constructive criticism.

7. Negotiate for higher pay and expanding opportunities.

8. Be open to new ways of thinking and always know all sides of an argument.

9. Find mentors to learn from and trust. 

10.Accept failure as a step towards your success.

11. Be a lifelong learner.

12. Value your time and be productive. 

13. Take time to reflect on accomplishments. 

These recommendations whether you are a recent college grad starting your career or have significant experience in the workforce. 

Quotes To Celebrate Labor Day:


1. “Work is no disgrace; the disgrace is idleness. ”   Greek Proverb

2. “Don’t be intimidated by what you don’t know. That can be your greatest strength and ensure you do things differently from everyone        else.”     Sara Blakely, Founder & CEO, Spanx

3. “Labor Day is devoted to no man, living or dead, to no sect, race or nation.” Samuel Gompers

4. “The law of work seems unfair, but nothing can change it; the more enjoyment you get out of work, the more money you will make.”                Mark Twain

5. “All wealth is the product of labor.” John Locke

6. “Growth and comfort do not co-exist.”   Ginni Rometty, CEO, IBM


7. “A hundred times everyday, I remind myself that my inner and outer life depend on the labors of other me, living or dead, and that I must exert myself in order to give in the same measure as I have received and am still receiving.”    Albert Einstein

8. “Stick to your true north– build greatness for the long term.” Ruth Porat, CFO, Alphabet

9. “The truth is, there is money buried everywhere, and you only have to go to work to find it.”  Henry David Thoreau

10. “I would like to be remembered as someone who used whatever talent she had to do her work to the very best of her ability.”             Ruth Bader Ginsberg

11. “Be grateful for what you have, and work hard for what you don’t have.”     Anonymous

12. “Any fool can make something complicated. It takes a genius to make it simple.”    Woody Guthrie

Women’s Rights

13. “Around me, I saw women overworked and underpaid, doing men’s work at half men’s wages, not because their work was inferior, but because they were women… As man’s equal before the law, women could demand their rights, asking favors from no one.”                            Anna Howard Shaw 

14. “If they give you a seat at the table, bring a folding chair.”   Shirley Chisholm

15. “I do not demand equal pay for any women save those who do equal work in value. Scorn to be coddled by your employers; make them understand that you are in the services as workers, not as women.”    Susan B. Anthony

16. “I have yet to hear a man ask for advice on how to combine a marriage and a career.”   Gloria Steinem

17. “It is vain to expect from women till they are in some degree independent of men.”    Mary Wollencraft

18. “We need to accept that we won’t always make the right decisions, that we’ll screw up royally sometimes– understanding failure is not the opposite of success, its part of success.”   Ariana Huffington, Founder, Huffington Post; Founder & CEO of Thrive Global 

19. “I am opposed to ‘right to work’ legislation because it does nothing for working people, but instead gives employers the right to exploit labor.”   Eleanor Roosevelt

20. “No country can ever truly flourish if it stifles the potential of its women and deprives itself of the contributions of half of its citizens.”                 Michelle Obama

21. “Without labor nothing prospers.”    Sophocles

22. “Nothing will work unless you do.”  Maya Angelou



There are still biases that remain in the workplace. That said, Labor Day remains a worthy time to celebration the accomplishments of all hardworking Americans in every field of work. Although most of us dislike the thought of Mondays, try to use a few minutes to reflect and plan out your week. I believe the virtues of work beat idleness anytime as long as you enjoy your job. If not, make changes that can benefit you longer term. 

How did you celebrate the holiday? Are there any quotes we missed you would like to share? Let us know and we will add it. We would like to hear from you!



























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