Plan for your financial future

"Plan for your financial future. As you move through life toward retirement and the decades which follow, we invite all . . . to plan frugally for the years following full-time employment. Be even more cautious . . . about “get-rich” schemes, mortgaging homes, or investing in uncertain ventures. Proceed cautiously so that the planning of a lifetime is not disrupted by one or a series of poor financial decisions. Plan your financial future early; then follow the plan" 

(“To the Elderly in the Church,” Ensign, Nov. 1989, 4).

Now is the time to plan your financial future. The best place to start is by deciding what you want out of life. How can you motivate yourself to save your money when you don't know what you're saying for? Why do you want to be financially self-reliant? Do you want to retire at 50? Do you want to pay off your house in 20 years rather than 30?

What are your goals? Most goals have a financial element tied up in them - it's important to know what you are working towards or you might miss the mark. I find that when I go through life without setting goals, I'm often disappointed when I look back. I wish I had accomplished more. By setting your goals now, you can avoid that. Write your goals down - a goal not written is only a wish.

For your reference, here are some of our goals:

-Graduate from school debt free

-Become CPA certified

-Plan on  Greg pursuing an MBA

-Stay up to date on personal finance topics (through magazine and WSJ subscriptions)

-Go on a date each week 

-Have money for our kids to participate in extra-curricular activities

-Take a trip to Alaska

-Go on a cruise, maybe to some of the islands in Greg's mission

-Take one family trip per year

-Take at least one trip on our own, just Greg and me

-Find a way to still participate in ballet

-Be spontaneous

-Save 20% of every dollar we make

-Save money for children's educations, missions, marriage

-Find a good deal on a second car

-Become better at couponing, finding deals, going to garage/yard sales

This semester I took an personal finance class for an elective for my major and I loved it. Well, I loved what I learned. We learned how to budget and how to analyze our spending. We learned about the appropriate amounts of health, car, and life insurance. We learned about the basics of investing and how to save for retirement.

It was great. I want to share everything I've learned with everyone. Before I took this class, I was so intimidated by investing money. But really, the principles are quite simple. There are so many basic principles that, if people knew, could empower them to make great decisions and save so much money. I considered pursuing financial planning as a career, but the set-up of most firms doesn't really appeal to me. Plus, I don't really want to be managing people's money - I'm more interested in coaching people on the basics so that they are empowered to manage their own money. I'm more interested in helping regular, every day people rather than rich people.

I guess personal finance will become a hobby for me. I hope that friends, family, people at church, etc. will approach me with their questions. I've thought about doing a blog series to share some of the more interesting/pertinent things we learned in class. I want to help other people feel empowered to save money and invest to meet their goals. Would that be interesting at all?

Rising Tuition Rates?

[I love hearing from Greg about how economics explains things that are happening in everyday life, so I asked him to guest post! Greg has a knack for explaining things in a simple way that make sense. This is his first blog post and I think it is very interesting - enjoy!]

You have probably heard that college tuition rates have risen dramatically over the past 10-15 years. This is correct. In fact from 2001 to 2011 rates have risen by over 60%. The problem though is that these facts don't tell the whole story - there is a very interesting story behind these raising rates. A closer look proves that, while tuition rates are rising, the amount that students actually pay is increasing at the same rate as inflation. So, how is this all possible?

The first reason is something called price discrimination. You may have heard this term from Econ 110. This is when businesses charge different rates to different people for the same product. Some examples are student or senior rates at the movies. Another example is airline tickets. Depending on how busy a flight is, or how desperate a flyer is (determined by how recently they bought a ticket) the price of a ticket fluctuates a lot. Most colleges do this too. Take the case of Harvard. Harvard's tuition for one year of school is about $40,000. The great thing about Harvard is they offer a very "generous" financial aid program for their students. They request the information regarding the incomes of each of the student's parents, and offer scholarships depending on the income level. The richest of students pay the full $40,000, less wealthy get perhaps a $10,000 scholarship, even less wealthy get a $20,000 scholarship and so on until the actual price of the tuition equals what it costs Harvard to provide it to that student. I have no idea what that would be. But basically what they have pulled off is some of the best price discrimination out there. They charge people very close to what they are able to afford, and make a killing.

Harvard has been doing this for a very long time, and other schools are starting to catch on. More and more school are shifting to this type of system of having very high tuition rates, which only a small portion of students pay, and offering a very "generous" financial aid program. What does this translate into? A 60% growth in tuition rates (the sticker price that few actually pay) but the growth of actual payments made by students growing at about the rate of inflation (2 percent a year).

I could end here, but there are two other reasons why universities love posting high tuition rates that get marked down with financial aid scholarships. Reason number two follows a similar strategy used by clothing stores. You are looking for a pair of pants, you find a pair that is $30, and another pair that was originally listed at $50, but is on sale for $30. From what you can tell, they look about the same (and the stores little secret is that they are), but hey, how could you pass up the $50 pair that's on sale?! This is the same marketing strategy that colleges are favoring. A high tuition seems to announce, "We're a good school." If you were accepted to a school that is $10,000 a year, and to a school that is $30,000 a year but you get a $20,000 scholarship, I would predict you would choose that latter.

The last reason (that I can think of) is the proud mom effect. Moms love to brag about their children, and does it get any better than her child getting a scholarship at Harvard? Probably not. People feel proud about getting scholarships, so even though everyone else might be getting one too, opening that letter and seeing how much they are going to take off your tuition is a great feeling, and certainly brag-worthy for moms.

To sum it all up, the sticker prices of colleges and universities are rising at a very rapid rate, but this should not be alarming unless you are very rich and can afford the high rates. Everyone else's tuition is staying right where it should, and if you're poor it's actually decreasing. Schools are just using price discrimination to suck the profits out of the rich kids (which I am fine with by the way), and offering discounts to make their school seem more appealing. Receiving that scholarship also makes us feel good.

Now you know the truth when you hear politicians make claims about how students are in dire need of help to stave off evil schools that are charging way too much .

What do you think is going on with these rates?

When I grow up

GUYS.

I have no idea what I want to be when I grow up and it's kind of freaking me out.

For so long, my plan was Big 4. Now that I have decided I don't want to touch that with a ten foot pole, I'm left to wonder what else I could be.

I'm taking a personal finance class right now and have toyed with the idea of becoming a certified financial planner. I love the idea of being able to help people make smart financial decisions. I love that if friends/family members/church members approached me with questions, I would be able to give them informed advice. Part of me doesn't really want to do that as a career though... part of me just wants to get certified for my own sake, just so I can say I am. I guess it's not so much that I don't want to do it as a career, I just don't really know what options there are to do it as a career.

I've considered applying to investment companies like Edward Jones. This would involve being a financial adviser and would require some investments certification. Edward Jones doesn't recruit at BYU so I feel like it would be hard to get my foot in the door.

I've considered going to work in the accounting company of a big corporation. It wouldn't be the most glamorous work (wait, compared to what? Compared to working 60 hours a week? I'd say it's pretty glamorous compared to that). It would probably be very boring, but it would pay the bills and put some experience on my resume. You have to start somewhere.

I've considered working for the government. State governments have auditing departments. Working for the government seems like it would be a sweet deal.

I hate not knowing what is going to happen. I wish I could start the application process right now, but it's too early - no one wants to hire this far out.

I've considered just doing nothing. Is it a waste of my education if I don't work right after college, but rather start having kids?

That brings up another concern - the whole reason I was doing the master's program was for the Big 4. The Big 4 want all of their employees to be CPA eligible, and a master's degree means you are CPA eligible everywhere. Plus, with so many master's degree applicants, you really have to stand out to be considered if you just have a bachelor's degree. But I'm not doing the Big 4 anymore. I will be CPA eligible when I graduate based on the number of credits and the types of classes I've taken. The master's program is way expensive (well, expensive compared to normal BYU tuition). Is it really worth the money and potential student loans to get a degree I don't really need anymore? Really, the only reason for me to get my master's is because I want it. Are my wants worth $7,000?

Obamacare

"Nothing seems so certain as the unexpected in our lives. With rising medical costs, health insurance is the only way most families can meet serious accident, illness, or maternity costs, particularly those for premature births... Every family should make provision for proper health and life insurance." ("Constancy Amid Change," Ensign, Nov.1979, 80).

I'm taking a personal finance class this semester and our topic for the week has been insurance. We've talked about life, auto, homeowner's, liability, and health insurance.

Today, while talking about health insurance, a girl from my class shared a really personal story. Her daughter has undergone three bone marrow transplants, multiple bouts of chemotherapy and radiation, and over a hundred blood transfusions. Her daughter is 3 years old. They hadve health insurance through her husband's job, but there was a lifetime limit of $1 million of coverage per person. Her daughter, at 3 years old, was already approaching her lifetime limit of health care coverage. After they reached this amount, any other healthcare expenses would have to come out of their pockets. 

She said they didn't know what to do - her husband had his MBA and was at a great job, but they were seriously considering having him quit his job and spending all of their savings and retirement on things the government doesn't consider assets just so they could go on Medicaid and have their daughter's medical treatments covered.

Right before their daughter reached her $1 million mark, a portion of the Affordable Health Care Act (Obamacare) kicked in which eliminated lifetime limits. Her husband was able to stay at his job, and they were able to continue getting treatment for their daughter, who has now received over $3 million of healthcare benefits. Without this change, they would have been forced to quit their job and go on Medicaid or go $2 million into debt. As she put it, "You can't come back from that."

I like this aspect of the Affordable Health Care Act. I like that the government has used its power to step in and make sure that people are being taken care of by their health care providers. I like that I can stay on my parent's health insurance even though I'm married. I like that changes are being made to advocate for people who need health care coverage.

With that being said, I do think that some aspects of the act are effectively sticking a band-aid on the problem without really addressing the issue (what can be done to lower health insurance costs without having the government provide it). I wish there was some more enabling going on rather than just providing (i.e. enabling people to take care of themselves rather than relying on the government). I don't think the government should be providing healthcare (umm hello... inefficient), but I do think the current healthcare system needs to be fixed. 

I'll say it - I like a lot of these early portions of "Obamacare."

So there.

School

There is something beautiful about being back at BYU. I don't feel a super close connection to BYU as an institution (I haven't gotten super involved since I've been here, and many administrative and cultural aspects of BYU kind of irk me), but there's something so familiar about this area and campus. I've been here almost four years - Provo is now more familiar to me than my hometown. Driving around town, I feel like I know where I am going. I can anticipate the stupid things other drivers and pedestrians will do. I know the back roads and shortcuts. I know what roads to avoid and where there is good parking. After spending a semester feeling like nothing I ever did was good enough and kind of wading with no real direction, I am so glad to be back at BYU doing what I do best - school.

I love school. Yeah, I complain about the work from time to time. But I love learning. I love being busy. I love being challenged and succeeding. I love being in charge of my own schedule - at school I know exactly what I need to do and when it needs to be done by. I can prioritize my work and decide what I want to work on and when I want to do it. If I need to run errands, I don't need anyone's permission. If I want to take a break, there's no one stopping me. I can study at home, on the couch, with no pants on. I can be home to make dinner and eat with Greg. At school, my life is my life. If I feel like someone/something is intruding on that, I have the power to put my foot down and do something about it.

I've heard so many students talk about how they can't wait to be done with school and start working. No homework. Getting paid. No textbooks. I used to feel the same way. But when I was with E&Y this past summer, I missed school so much. I'm good at school. I know how to do school. I know how to go above and beyond and stand out. I feel powerful at school. I feel in control at school. I like being able to see an assignment through from start to finish. I love being able to talk to other students who are in the same place in life as me. I love being able to ask professors questions just because I'm curious about a topic. I love not feeling like I'm doing things just to get them done, feeling like I'm actually growing and learning and contributing.

I obviously won't be in school for forever. I'm already working on my master's and I have no desire to get a PhD. I wonder what type of job will make me feel the same way school does. Is there such a job? Or will I just need to realize that work will never be as enjoyable for me as school is?

Free as a bird

My internship with Ernst & Young has finally come to and end. Before I left, I had an exit interview with a partner at the firm, where I would find out if I got an offer or not. I was really  nervous because I expected to get an offer and I wasn't sure how to respond since I was leaning towards not accepting. But the meeting turned out to be perfect.

We sat down and he explained that there was an offer printed up for me at the office if I wanted it, but that he wanted to talk to me about whether or not I wanted it. What a relief to actually be able to talk to someone about my true feelings about the job. He said that the rumor through the grapevine was that I said I would probably only stick around for 2 years (I don't remember saying that to anyone, but there are only a few people who I can think I might have said it to, and isn't that really annoying that someone basically "tattled" on me?). Apparently E&Y doesn't think 2 years is a very long time. I can see their point - they put so much money into training you during you first couple of years, and if you leave right after that, they don't really get to benefit from their investment of time and money. But, to me, two years is a really long time. I know that I cannot be in this career and be a mom at the same time, and I'm not going to wait another two years to have kids for the sake of my career, especially when I don't even like it that much.

I talked to him about how I knew public accounting would entail long hours, but I didn't realize how much I would dislike that. I told him that through the recruiting process, I heard so much about how great "the people" are, and how "the people" you work with make the long hours more bearable - I rarely felt that way about the people I worked with, or many people I met at E&Y for that matter. I was really worried about how this would reflect on BYU, but he assured me that this is the reason they do internships - to see who is a good fit - and they'd rather know now that I don't want to stay rather than finding out a few months in to full time work.

So now I get to be the black sheep at BYU who turned down an offer from the Big 4. I've already explained it to a few BYU people who all seemed quite shocked. Uhh... hello.. there is more to life than the Big 4. I'm sorry that I like being home for dinner. I'm sorry that I like having time to do my laundry and clean my house. I'm sorry I like to spend time with my husband. I'm sorry I don't think it's cool to brag about working 80 hours a week. But yeah, you guys have fun giving up your life for your job!