Paying for Cars and College without debt!

My last post illustrated the SMART goals concept. Today, I want to show you how to turn your financial goals into SMART goals. For the first illustration we will set a SMART goal for purchasing an automobile. We will state our goal as we would like to purchase a car. Now we will make it a SMART goal.

First, what type of car do we want to buy? We have chosen to purchase a used 2012 Toyota Corolla LE with cloth seats. Based on the current price for this type of car we feel the purchase price should be around \$11,500 by the time we make our purchase in about 24 months. Our SMART goal can now be stated as we will purchase a 2012 Toyota Corolla LE with cloth seats for \$11,500 in 24 months.

Next, how will we reach this goal? Now, we can calculate the amount of money we would need to save each month to obtain this goal. We currently have \$300 set aside for this goal and we will assume a 1% interest rate if we just put the money in a money market account. Let’s use the calculator found at www.timevalue.com.

 Balance on start date \$300.00 Rate of return 1.000 % Savings goal \$11,500.00 Number of years 2

To obtain this goal within 24 months you would need to deposit \$461.96 every month into the money market account. If you happened to already have money set aside for the purchase you could add that amount to the \$461.96 per month and purchase a more expensive car debt free or you could simply reach your goal quicker.

Now that we know our goal and how much we need to save monthly, we can work toward achieving that goal. I know that many people don’t think they can ever afford to purchase a car without a car payment. This illustration shows that it really does not take that long to save up and pay cash for a car in order to avoid car payments.

Another goal we can convert to a SMART goal is paying for our children’s college education. I wasn’t fortunate enough to have my education paid for by someone else so it was very important to me to be able to pay for my children’s education. I was an adult student who commuted to college. It took me many years to earn my degrees, but I can honestly say it has been worth it. Thankfully, I paid for it without borrowing any money so I graduated without debt!

For our college savings example, we will say that the child is 3 years old and you have 15 years to plan for college. At this point, time would be on your side so it would be best to start the college fund immediately. We will need to make a reasonable estimate as to the future cost of attending college and we will assume the child will be attending a college in their home state.

The total cost we have calculated is approximately \$124,000 assuming a cost of \$31,000 per year. I based my calculations on the information found in the article by Mass Mutual found at: https://www.massmutual.com/planningtools/educationalarticles/articledisplay?mmcom_articleid=df94531cb3a4a110VgnVCM100000ee6d06aaRCRD. I choose to go with slightly over 3% inflation. With this calculation you will need \$124,000 in 15 years to pay for your child’s education. You currently have \$500 as an initial investment. The SMART goal would be to save \$123,500 by September 1, 2030, to pay for our child’s education at a public in state college. The monthly amount that needs to be saved is \$563.85 with an anticipated 3% average compound interest rate.  The daily amount to save is \$18.54. For less than \$19 per day you could pay cash for your child’s education if you begin to save early enough!

I know you may be thinking, how on earth can I save \$124, 000 for college? The initial goal of saving for college may seem overwhelming, but once you break it down into monthly and even daily amounts it does not seem as daunting a task. I hope this is the point that everyone understands. You can reach your financial goals if you stay determined and focused. My family is currently paying for my oldest son’s college education and we have done so without debt. It is a great feeling to know he will not have to come out of college and begin paying back student loans!

Are there goals you would like to set but feel you won’t be able to reach them? Put it down on paper. Share your goal with a friend who will encourage you along the way. Remember, a goal will never be reached if it is never set.

SMART Goals

If you are anything like me, you try to multitask and do many things all at that same time. I have lately realized that I am not making much progress when I tackle activities this way. I have found myself beginning one task after another before ever finishing even one task. My efforts were inefficient, at best. I am currently trying to focus on one thing at a time until I take care of that task. So instead of washing the dishes and paying the bills while in the middle of ironing, I simply complete one activity, or goal, at a time.   It makes me feel as if I am actually accomplishing something and I am becoming more productive.

In personal finance, we teach the concept of SMART Goals. SMART goals are Specific, Measureable, Attainable, Realistic, and Time Bound.   It is very important that you set financial goals and that you make them SMART goals. Without goals, you won’t have a destination and you will only go in circles without a purpose just like I did when I worked on many tasks at once. You will be wasting time and energy because you aren’t working toward anything specific.

I like to illustrate the concept of SMART goals this way. Let’s say you decided to go on vacation. You pack your bags, load the car, and leave your home.  The decision as to where you were going on vacation was not made so you are simply driving randomly around in your car without direction or a destination. You know that you have to drive west, but you don’t know which roads to take. Sounds crazy, I know, but unfortunately, this is how many people handle their finances. They don’t have a plan for their money or their future and I assume that are just hoping for the best. Without a strong plan in place, they will probably never reach their goals. Here is where the SMART goals concept would come into play.

Specific

To begin with, SMART goals are Specific. In order to reach a goal, you have to determine what the goal is that you are trying to reach. If we just say we are going on vacation but we never decide were we are going or how we are going to get there, it is not a SMART goal. To make it Specific you could choose to go to Portland, Oregon instead of just saying you are going on vacation. Well, at least we know where you are going, but we don’t know when or how. How long do you think it will take you to get to Portland without any specific directions? How will you know when you have reached the goal?

Let’s make our example even more specific. Instead of saying you are going on vacation you could say you are going to Portland, Oregon, on November 8, 2015. That’s even more specific but we still don’t know if you are going to drive, fly, take a bus, train, etc.

Being very specific, the goal could be stated as: On November 8, 2015, we will fly from Shuttlesworth International Airport, Birmingham, Alabama, to Portland International Airport. We will stay in The Heathman Hotel located at 1001 SW Broadway. While on the trip we will visit the following attractions: The Pittock Mansion, the Oregon Zoo, the Oregon Museum of Science and Industry, and the Hoyt Arboretum.   Our return flight will be from Portland International to Shuttlesworth International Airport in Birmingham on November 14, 2015. We could list how we will be transported from the airport, the restaurants we plan to dine in, etc., to be even more specific. This would be a SMART goal.

Measureable

The second component of SMART goals is whether or not the goal is Measureable. Is our goal Measureable as stated? What we mean here is can we measure the progress of our goal. From our goal above we can measure it because we will know when we have reached our goal when we arrive in Portland and stay at The Heathman Hotel then visit the attractions we listed.

Attainable and Realistic

For a SMART goal to be Attainable, and Realistic, it must be within our ability or our reach. If I told you that my goal was to be a first round draft as a linebacker in the NFL but I am only a 5’-5” female, I don’t know how to play football, and I didn’t play football in college, would this goal be attainable and realistic for me? We could honestly say that my goal is neither attainable nor realistic. Our goal of traveling to Portland is both attainable and realistic because it is within our realm of possibility.

Time bound

The final characteristic of a SMART goal is Time bound. We must have a certain time in place in which we plan to reach our goal. Just saying that I would like to retire someday is not specific. If, however, I state that I would like to retire by age 62, then I have made my goal time bound. When we stated that we would travel to Portland on November 8, 2015, our goal became time bound. If we do not travel to Portland on November 8, we will not reach our goal.

In my next blog, we will learn how to turn our financial goals into SMART goals.

How to “find” several hundred dollars per month

You may not realize it, but there is probably money in your budget that needs to be “found.”  What I mean is that you may be unnecessarily spending money each month. Most people I have counseled with over the years think their budget is good, but once we take a look at the budget we realize there is money that can be saved and taken from one category and put in another category to help eliminate debt. Let me explain this “found” money concept for you.

Many people have in their budgets rent/mortgage, utilities, phone, cell phone, cable, internet, insurance, credit cards, medical expenses, etc. While it may be difficult to change your utilities payments much, there are a few categories that you may be overpaying on for no real reason.

Another place to look for “found” money is in your insurance policies. I would suggest that you shop around for the best price for the coverage that you need. Insurance companies welcome the opportunity to give you a free quote on insurance. I usually receive a couple of quotes each year once my policies are up for renewal. Make sure, however, the insurance company is a reputable A rated company. I would also suggest that you read reviews of the insurance companies to help you make the best choice for insurance.   Many companies will quote all of your personal insurance policies such as auto, home, and umbrella. My family switched insurance companies and saved several hundred dollars per year or around \$20 per month.

While on the subject of insurance, choose the deductible that makes sense for your financial situation. We currently have \$1,000 deductibles on both auto and home. Deductibles generally range from \$250 to \$1,000 per incidence. The higher the deductible you pay, the lower the annual premiums will be. We chose the highest deductible because we are in a position to pay the \$1,000 if necessary. If your budget does not allow you to pay the highest deductible right now, just choose the one you feel most comfortable with and then increase it as you become financially fit.

While looking for ways to find other money that was being spent unnecessarily, we realized that we were paying over \$125 per month for a couple of storage units. When we rented them, we thought it would only be for a few months. We quickly downsized to one unit and eventually no units at all. We just found \$125 dollars every month to pay on our debts. It was like we received a small raise!

You might also want to take a look at your telephone and cell phone services. It is almost a certainty that you are paying for services that just are not necessary and that you may not have even known you were paying for. An example of this might be that you are paying for a monthly long distance package on your landline when you never actually use your landline for long distance calls. For your cell phone bill, look over the data usage and make sure you are not paying for a larger amount of data than you would ever use. We purchased a bundled package for our home phone and Internet service and we now save around \$40 per month on these services.

Concerning bank fees, I would suggest researching bank and credit unions in your area to find the one that offers checking accounts without a monthly fee. Let’s say you are being charged \$8 per month for your checking account, you would be spending about \$96 per year in bank fees on one account alone. A little time spent researching could save you money each month.  We chose the account that does not charge a monthly fee which saves us \$8 per month.

Let’s summarize our findings. Just by making these few simple changes, we have “found” \$20 per month for insurance, \$125 for storage, \$40 for phone service, \$8 for bank fees, and we are not going to continue the \$45 NFL package so I will also include it. The monthly total is \$238 and the annual total is \$2,856! Not bad at all for making a few simples changes that are often overlooked.

Ways to quickly save \$1,000

In my last blog post, I talked about the Emergency Savings Account. Today’s post will discuss several ways to quickly reach the \$1,000 goal for your fund. Here are a few suggestions:

1) Have a yard sale: Believe it or not, yard sales can be a great way to make money and can easily bring in several hundred dollars or more for just a few hours of work. You may not think you have anything valuable to sell, but I have sold items such as used cans of hairspray, nail polish, makeup, etc. Remember that one man’s junk might be another man’s treasure. What you may see as no longer desirable, someone else might see as being usable.   Make sure to check with your Homeowner’s Association to find out if there are yard sale restrictions for your neighborhood.

2) Get a second job: I know this may not be the choice you wanted to make, but in order to clean up your financial situation, drastic steps need to be taken. A second job (part-time) will not be a forever necessity, but a short-term fix to get you where you need to be financially. For example, an accountant could work part-time as a bookkeeper. A nurse might work a part-time job at an assisted living facility. Many of you probably have skills that are transferrable to other jobs. I have known people that started out part-time just for the short-term who ended up truly enjoying the job and staying with it for many years and I have known people who used that second job as a stepping-stone to launching their own business.

3) Sell your items on eBay: My family has sold several items on eBay for a nice sum of money. Electronics are good items to sell, but used clothing also sells well in my experience. Just make sure you have time to check the item auction often and answer any questions potential buyers may ask. I once had an item for sale and did not realize a buyer had a question until the auction had ended and the item did not sell. Expedient shipping of the item is also a necessity if you want to keep a good rating as a seller. I would advise you to include several pictures and list a full description of the item. If it has wear and tear then you would need to note that in the description.

4) Sell your clothes to a consignment shop – Just this past week I sold a few items to a local consignment shop that buys gently used clothing. I took the items in and in about 20 minutes I had cash for the items. Some stores will put your clothing, handbags, shoes, etc., in the store and if they sell will send you the money. If the items don’t sell within a certain amount of time, you can pick the items up or let the store donate them to charity. Consignment shops are a good way to sell children’s clothes they have outgrown.

5) Sell your old jewelry – One of the first steps I took to paying off my debt was to look through my jewelry box to see if I had any old jewelry that I could sell for the scrap gold. I only made a little less than \$200 but I didn’t intend to wear the jewelry anymore. We have a local jeweler who will buy some used jewelry. He will take a look at it and if he is interested will make an offer.

6) Sell items on local Facebook community pages – There are several local Facebook community pages in my surrounding area; (Name of City) Trading. These community pages allow you to list items for sale or trade, with stipulations, of course. We sold a used drum set and a weight machine within just the past few months using the community page. I have seen listings for clothing, shoes, furniture, musical instruments, pet items, handbags, toys, college memorabilia etc. Be sure to check the rules of the Facebook page when posting items here and always make sure you meet in a public place to make the exchange. We usually only accept cash because you just never know if someone is writing you a bad check. Always be cautious and use your judgment when selling items this way.

7) Sell crafts on Etsy – You can turn a hobby into a side business to earn extra cash. If you have a creative side and enjoy making crafts, you might want to look into listing your items for sell on Etsy, a website that sells handmade and vintage items. It is free to open an Etsy account but you will be charged a \$.20 listing fee and then a 3.5% on the total item price when the item sells. Items currently listed for sale on Etsy include jewelry, furniture, arts and crafts, hair accessories, rugs, lighting, leather crafts, knitted and crocheted items, clothing, and many more.

Emergency Savings Account

According to an article in the New York Times titled The Dangerous State of Americans’ Savings, just a little over 50% of American households have less than one month of income available that could be used if absolutely necessary.  This is where the Emergency Savings Account comes in to play.  Most personal finance specialists suggest that a minimum of \$1,000 be kept in a fund set aside for emergencies.  Most of us have had emergencies happen at one time or another and if you aren’t prepared they can put you deeper in debt.

Right after my husband and I were married, we realized we needed a new set of tires for my car.  At that time, the set cost around \$400. Unfortunately, we only had \$500 in our savings account, but at least it covered the cost of the tires.  If we had not had the \$500, we would have had to make payments or delay the purchase of the tires.  Neither would have been a good option for us.

What if your heating/air conditioning unit goes out and you don’t have an emergency savings account?  Over the past few weeks where we live, the temperature has been in the 90s with over 90% humidity.  Imagine if your air conditioner went out in this type of weather!  Maybe you need a new engine for your car or your water pipes burst.  How will you pay for these emergency needs?  Again this is why you need an Emergency Savings Account.

People have asked me if they need to keep the Emergency Savings separate from their other savings accounts.  In my experience, it is best to have a separate account.  We have an account I call our Emergency Savings Account at a local bank just for true emergencies, not for when we decide to go on a quick vacation.  Remember, this account is for that completely unexpected emergency!  Even though we won’t make very much interest on leaving it in a basic savings account, the peace of mind that comes from having the funds local is worth it.  I know the money is there, but I wouldn’t use it unless it is absolutely necessary.

Paying off Debt

Before I researched the best way to get out of debt, I would pay extra on every debt that I possibly could which was great in theory but was not bringing me to the point I hoped to be quickly enough. I was working on my debts the same way I was working on other things in my life and that was without real purpose. You see I wasn’t really making any great strides because I wasn’t focused. Once I became focused on one particular debt I began to put my efforts there and saw results.

One of the best ways I have found to pay off debt is by focusing your money on the debt that has the lowest balance.  For example, if you have a debt with a balance of \$275 and one for \$780 it would be best to focus on the lowest balance of \$275.  Once you pay off this balance (and it should be done fairly quick), you would take the payment you were making on the low balance and combine it with the next lowest balance payment.  Before you know it, you will have paid off several small debts and will be on your way to getting out of debt.  While paying off our debt,  I really gained confidence once I saw the debts being paid off.  It really works and I highly recommend this method.

Welcome!

Welcome to the Basic Money Skills blog.  My goal for writing this blog is to help others become more financially savvy by learning basic money skills and beyond.  I am trained as a financial counselor and accountant and I also teach money skills to high school students.  My passion is to make a difference in others’ lives so they can become financially independent and do the things they are passionate about. Thanks for reading my blog.

Alison