Is College for Everyone?

Hey Paul: I just graduated from East Jessamine. I was an ok student making mostly B’s. I didn’t take any AP classes. I haven’t decided what I want to do next in life. I’m thinking about working for a while and then maybe going to college. Do you think that is a good plan?

 You should join me at Asbury University this fall. Sorry, I’ll try to provide unbiased advice on this very important life decision. There is much I don’t know about your exact situation so some of my advice may or may not apply to your decision.

First let me congratulate you on earning a high school diploma. In doing so you’ve demonstrated a number of key life skills. You’ve avoided and perhaps overcome the educational derailers of trouble with the law or starting a family a little earlier than planned. You’ve been able to sit in a seat and listen for several hours each day – no small task and one that I didn’t do too well.

There are three general paths following high school – college, work, or the military. Of course there is a fourth path of living off your parent’s or the state’s generosity – but that’s not what we aiming for here.

Joining the Army, Navy, Air Force or Marines is not only patriotic but also a great way to build a career. My suggestion is to binge watch war movies ranging from Saving Private Ryan to Lone Survivor. If you end your movie marathon feeling called to serve your country then contact your local recruiter. My recommendation is that you go to college with the ROTC providing an introduction to military life as well as potentially covering your educational costs.

Taking a job after high school can literally buy you some time to figure out your next move. In some cases it may be necessary to have an income as you move on to living on your own or perhaps to afford paying for college. My observation has been that taking a year away from school can easily become a few years and then a permanent break from the classroom.

If you start a job I recommend at a minimum taking one course at JCTC in a subject that really interests you. Take a class that they didn’t offer in high school – auto technology, nursing, or marketing. Learn a practical skill and see if you have a natural flair for that type of work. This will keep you connected to formal learning that is essential for almost any career of choice.

What about college? Well despite what some say, college isn’t for everyone. Less than 20% of Kentuckians have a bachelor degree or higher. This statistic could suggest that only those in the top fifth of their high school class are solid prospects to go on to complete college. In your case I wouldn’t buy into the theory that because you were “average” in high school that you won’t be able to complete college.

I have been a professor at Asbury University for four years and before that taught a Marshall University – yes, as in the movie, We are Marshall! I’ve got to know hundreds of students that are probably much like you. They weren’t academic stars in high school but they made a decision, really a series of decision to make it through college.

Rev. Chuck Swindoll has a famous quote on how attitude and the choices we make are much more important than our circumstances:

“The longer I live, the more I realize the impact of attitude on life. Attitude, to me, is more important than facts. It is more important than the past, the education, the money, than circumstances, than failure, than successes, than what other people think or say or do. It is more important than appearance, giftedness or skill. It will make or break a company… a church… a home. The remarkable thing is we have a choice everyday regarding the attitude we will embrace for that day. We cannot change our past… we cannot change the fact that people will act in a certain way. We cannot change the inevitable. The only thing we can do is play on the one string we have, and that is our attitude. I am convinced that life is 10% what happens to me and 90% of how I react to it. And so it is with you… we are in charge of our Attitudes.”

The “average” students who succeeded in college found a balance – finding a major they enjoyed while sticking out classes that seemed a waste of time, connecting with a core group of friends through FCA, the Greek system or other gatherings of like-minded people. They went to class – 15 hours a week isn’t too much to ask, is it? Being successful in college is more about being wise than being smart.

To many people going to college is about preparing for a career. A rule-of-thumb is that college graduates makes about twice what high school graduates earn over a lifetime. At the state level this rule holds as states like Colorado and Massachusetts that have roughly twice as many college grads as KY and correspondingly about double our income per capita.

The formula: college degree = money = happiness, doesn’t hold true for many college graduates. A cynic could modify the equation to college degree equals huge student loans working in a job that doesn’t require a college degree equals regret. Perhaps this cynic needs a poster size version of the Swindoll quote.  My college equation looks like:

Wisdom + Grit = College degree = Fulfilling Career & Personal Life.

Of course many people can substitute “Army”, “Working” or “Being a Mom” for “College” and end up with everything you could want out of life!

 

 

 

Seven Quick Money Fixes

Hey Paul: What are some of the easiest (and free) ways to improve our financial picture?

 I like your approach to tackling what may be big financial challenges by starting with the quick, simple and free actions. These small steps can in some cases solve or ward off much bigger problems. So without further ado here are some quick fixes.

Start by Filtering out the Noise. Do you get inundated each and every day with junkmail, spam emails, robo sales calls, and credit card applications? To reduce junkmail go to www.dmaconsumer.org I also suggest setting up a token email account like My.Name.Junk@gmail.com to use for those one time signups requiring an email address. To opt out of credit card and debt relief solicitations go to www.optoutpresecreen.com/. To sign up for Do Not Call register at www.donotcall.gov. These won’t cut off all unwelcome marketing but it will dampen the noise allowing you to better hear the signals.

Money can only go one of three places – spent, saved or taxed. There are several popular, free apps such as Mint and Personal Capital that can track your spending and net worth. There is about 1 in a 1000 people that can manually keep a budget. Today’s technology takes over most of the legwork – if you are willing to trust access to your finances to the cloud.

A Big tax refund could have helped earlier. Suppose that just this week you got a check from the U.S. Treasury for $1000 – Myrtle Beach vacation or new couch? But suppose you’ve got some really nasty credit card debt sitting at 29.99% for over a year. If you had an extra $85 a month in your paycheck rather than giving the IRS an interest-free loan, you are paying down debt in this case saving roughly $300 in interest. You can adjust your withholdings at any time by filing an updated W4. Unfortunately the W4 doesn’t let you directly select the dollar amount of tax withholdings. The IRS and tax preparers have online calculators that can do this calculation for you. See http://www.hrblock.com/get-answers/w-4-calculator.html.

Doubling your money happens much more often through your employer’s retirement matching plan than at Keeneland. Not everyone works for an employer who will match their retirement contributions. Typically the employer matches your contribution up to say 3% of your earnings. There are variations in the plans such as vesting over a few years and the level of matching. I realize that some budgets are so tight that devoting even $100 a month to retirement may seem impossible. But if you can find that money by taking on that side hustle job or trimming back the entertainment or restaurant tabs, you will have effectively doubled your money with each retirement contribution.

Cash transactions remind us how long it took to earn that money. The convenience of credit cards or even debit cards or writing a check blur our wants and our ability to afford those toys. You don’t need to use cash for fixed transactions like your mortgage or utilities. Start by paying cash for the budget busters – restaurants and clothes.

Credit, Loans, Mortgages, or Capital are just nice names for Debt. I suggest cutting (literally) back to at most three credit cards. Preferably you primarily use a debit card that draws on your bank checking account. To see all your debt related accounts request your free credit report at www.annualcreditreport.com. It’s also good to know your credit score that can be purchased for less than $10 or is offered free with many credit cards.

Do you have an exit strategy in place?   Every adult needs a will. I have used the Nolo.com online software to create my will and a living trust. A living trust typically keeps your estate out of probate saving your heirs about 5% of the assets – maybe ask them to spring for the money to put a trust in place. There are a few different health related documents that are simple to complete (other than the contemplation of the scenarios when these would become effective) such as a living will and health and financial power of attorney.

Challenge yourself by completing one of these tasks today!

Dr. Paul Hamilton is an Associate Professor of Economics at Asbury University and a CFP providing financial coaching to middle-class Americans. He is available to provide free workshops to churches, local businesses and other groups.

Contact him at Paul.Hamilton@Asbury.edu or www.USA-Economics.com

 

Try Not to be Valedictorian

Hey Paul: I currently in middle-school taking the top classes. My goal is to have straight A’s in high school. Any advice?

 I am glad to hear from another young person. Last week’s column was my first that deviated from “only the serious stuff grown-ups think about” like taxes and social security. In fact this week I met for the first time a reader of my column under the age of 20 – a shout out to Meredith, my new favorite of my daughter’s friends.

I’ll probably not the ideal person to be asking this question – my two sisters were straight A students from kindergarten through college and my brother a 4.0 Civil Engineering student at UK. My goal in high school was to be the top GPA for those who didn’t study – something I think I accomplished although I’m not sure if this a distinction to be proud.

So here is my advice – don’t try to be valedictorian. Sure, work diligently and earn good grades. I have encouraged my three high-achieving daughters to try to get a B in at least one class. There’s a couple of reasons behind my “B’s are not bad advice”. First, you should focus on learning not grades. Second, you will put immense pressure on yourself (or perhaps your parents will) to maintain that perfect 4.0. And third, you will live life conservatively not taking the challenging, risky path that is fraught with failure.

Let me ask you this – what’s your best dive off the board? Head-first, no spring? A pencil? C’mon give me a break. That’s way too safe. When the Jessamine pool opens next month you are going to run down the board, take a deep bounce, and do as many flips as you can before splatting into the water. Why? Because an ugly flip trumps a perfect pencil dive any day.

Hey Paul: I am seeing a lot of ads claiming that Social Security rules are changing this month and that there are strategies to increase our benefits by up to $50,000. Can you explain what this is all about?

 Well like most ads there is some truth and some hyperbole in these claims. First the truth – Yes, the Social Security Administration is changing a few policies on how benefits are paid. The only immediate concern is the changes to what is called the “file-and-suspend” strategy. The option to “get a better deal” ends after Friday, April 29.

The simplest story is a couple, both age 66, where one spouse is a high earner (say the husband but gender is not relevant for how this works) and the other spouse was a low earner. Suppose the husband and wife are entitled to their own social security annual benefits of $20K and $5K, respectively. They could both start their benefits with the husband receiving $20K and the wife receiving spousal benefits of $10K – half her husband’s benefit which is greater than her own benefit of $5K.

The file-and-suspend strategy has the husband filing for benefits and then immediately suspending (stopping) his benefits. This has two purposes – by filing he makes his wife eligible to begin spousal benefits of $10K. By suspending he allows his own benefits to grow by 8% annually once he restarts his benefits. In four years his $20,000 of forgone annual benefits will have grown by 32% to $26,400 when he restarts benefits at age 70.

The BIG social security law change is that while a spouse can still file and suspend, when they suspend this stops ALL benefits based on that person’s earnings record. For the case described above if the husband suspends his own benefits then the wife is no longer eligible to receive spousal benefits. She could file for her own benefits of $5000 at age 66. The monetary damage in this case is $5K each year (the difference between her spousal and own benefits) and a total reduction of $20,000 from age 66 to 70. This loss would have equaled $40,000 if the wife had less than 10 years of earnings and was entirely dependent on the spousal benefit.

Under the new laws could the husband go ahead and start his own benefits of $20K at age 66 and the wife draw spousal benefits of $10K? Yes! This strategy is very appealing as the couple would be up by $80K at age 70 compared to the file-and-suspend strategy. The downside to this go-for-it strategy is that eventually the file-and-suspend strategy will catch up and surpass the cumulative benefits. If one or both live into their early 80’s or older then the file-and-suspend strategy would have been preferred.

To take advantage of the perk of being able to suspend your own benefit and not impact a spouse’s benefit you need to meet three criteria. One, be between the ages of 66 and 70 on April 30th. Two, have a spouse (or minor child or adult disabled child) whose social security benefit is based on your earnings up to you turning 70. Three, have a desire to maximize your own social security by starting benefits at age 70. Many people meet the first two criteria but only a few percentage of people wait until age 70 to start social security benefits.

So if you are one of those rare birds that meets all the criteria to benefit from filing and suspending your benefits, you have only about a week to lock in that strategy. Feel free to contact me for a quick consultation if you are truly perplexed on how to proceed with Social Security benefits.

Dr. Paul Hamilton is an Associate Professor of Economics at Asbury University and a CFP providing financial coaching to middle-class Americans. He is available to provide free workshops to churches, local businesses and other groups.

 Contact him at Paul.Hamilton@Asbury.edu or www.USA-Economics.com

 

 

 

How Can I Get Rich?

Hey Paul: I am 15 years old and I have one question for you – How can I get rich?

Your question is probably the first one on many people’s minds. I have two teenagers and a tweener who have not exactly gobbled up my previous columns’ advice on taxes, social security and Obamacare. But your question is one that perhaps everyone short of the Pope have pondered – Wouldn’t it be nice to have enough money to never have to wonder if you have enough money?

I came across a blog by J.D. Roth that reviewed three national best-sellers on the topic of what makes the rich different from the rest of us – other than they have more money. Roth gives summary lists of Rich Habits: The Daily Success Habits of Wealthy Individuals by Tom Corley, The Secrets of the Millionaire Mind (Think Rich to Get Rich) by T. Harv Eker and The Top Ten Distinctions between Millionaires and the Middle Class by Keith Smith.

Let me share a few of their “get rich” insights. Corley’s survey found that the rich live within their means, don’t gamble, read daily, limit screen time, network, volunteer, work hard, set goals, don’t procrastinate, listen, avoid toxic relationships, have a mentor, and make their own luck. As a young person you likely have heard many of these principles from your parents, teachers, or preacher. What I like about Corley’s findings is that they apply broadly regardless of your wealth status or goals.

Eker believes in financial blueprints that largely dictate our approach to life, which in turn drives our financial success or lack thereof. His rich versus poor contrasts sound like Donald Trump lines – Rich people think big, poor people think small; Rich people are bigger than their problems, poor people are smaller than their problems; Rich people admire other rich and successful people, poor people resent rich and successful people. I have to stop here as my blood pressure is rising. Eker evidently equates a person’s worth directly proportional to their net worth – the millionaire is a hundred times more worthy than the poor person. Young man, let me advise you to never fall into the mindset that your money measures your worth in absolute or relative terms.

Smith continues with a similar list of ten distinctions between Millionaires and the middle-class (I guess the poor have taken enough of a beating). In order of importance he states that millionaires think long-term, talk about ideas, embrace change, take calculated risks, continually learn and grow, work for profits, believe they must be generous, have multiple sources of income, focus on increasing their wealth, and ask themselves empowering questions. These ideas sound reasonable until you read the flip side – for example, the middle class thinks learning ended with school.

I don’t think these authors have it all wrong. People do sometimes get rich because they work diligently towards lofty goals and took risks that paid off financially. In his blog Roth also counters some of the authors’ suggestions mentioning that he has friends who embrace change and love learning but are not millionaires. He notes that it’s possible to be successful and poor and it’s possible to be rich and a fool.

On that note, I will play psychologist and ask what do you really want? Gobs of money and the power and toys that go with it? Financial peace? To find the balance between working to make money and the time to enjoy spending it (or giving it away)? Okay, you are 15, you want to be a multi-millionaire, live in a big house, drive a fancy car and have a beautiful wife. You want me to take a break from giving out “life-lessons” and just tell you how to become rich.

Fine. You will need to work very hard at one thing (everything else becomes a distant second). You need to dream big and wake up and work towards those dreams every day. You need to prepare to make deep sacrifices of time with family and friends.   If you are “book smart” there are well-established paths to becoming a physician or big-shot lawyer. If you are an “idea guy” then you can do everything in your power to succeed financially and you have a really low chance you’ll hit the big time. If you go into business you’ll need to be tough on suppliers and employees and ruthless with the competition.

Alright that was my over-the-top war speech of what it takes to be the best. I have been fortunate to know many wealthy people who did it “the right way”. One thing that I’ve discovered is that to a person their high net worth was not the source of their happiness. Numerous surveys have found that beyond a relatively modest level – what I would consider the low-end of middle-class – that more money had NO impact on a person’s well-being! Things like quality relationships, positive self-esteem, and spirituality factor much more powerfully into quality of life then money.

Confession time – I was probably a lot like you at your age. I too dreamed of being a self-made millionaire (I still think I have million dollar ideas). But I like many others have grown up and found terrific blessings in doing what I love doing, being around people that I love, and living for a higher purpose. Of course if you can do all that and make big money too, go for it!

Dr. Paul Hamilton is an Associate Professor of Economics at Asbury University and a CFP providing financial coaching to middle-class Americans. He is available to provide free workshops to churches, local businesses and other groups.

 Contact him at Paul.Hamilton@Asbury.edu or www.USA-Economics.com