Month: September 2017

In the day of state-wide lotteries, students don’t realize it but more college funding and educational scholarships are available than ever before. There are a lot of reasons you won’t receive those and the main reason is because you won’t take the time to find out about them.

Students who carry at least a 3.0 in college, have the opportunity to qualify for many college scholarships and financial aid if they choose to attend an in-state college and if they choose an out of state college, there is still funding available. Financial planning for college starts with parents helping their student find the appropriate resources. However, if students are on their own in planning for their future then the schools will offer assistance.

Financial planning for college starts with the student taking the initiative or the parents helping the student take the initiative to find out what’s available. It may surprise you to know that there are lots of scholarships available based on needs, college aspirations, sports and participation in the area of sports, based on grades and many other college scholarships. There’s a scholarship that you can receive if you just take the time to find out what it is and how to get it.

Parents who can afford to send their kids to college will often fail to check out the scholarships available. After all, if they can afford to send their kids to college, why check on financial aid—right? However, even if you can afford to pay for college, it’s crazy to pay for it when you have a student who has earned the right to have a college scholarship.

Students across America will be introduced to more and more lottery-initiated scholarships and it is time your child used what was set aside for kids who earned these scholarships. In addition to lottery-sponsored scholarships, each year hundreds of scholarships go unused simply because no one took the time to find out about them. The money is there waiting to fund someone’s education. Isn’t it time someone spent it for its intended use?

I often read articles from financial gurus, such as Gail Vaz Oxlade, Dave Ramsey, and various others, who endorse budgeting by using the envelope system. For the most part, the envelope system involves using only cash, and dividing your cash into labeled envelopes according to your budget. The envelopes are assigned to typical spending areas including: groceries, gas/travel, entertainment etc.

I really like the envelope system… in theory. In practice I’ve never found the envelope system to be practical. I find myself short in one area so I slip a bit from a different envelope, and of course change almost never winds up back in the appropriate envelope. Two days I’ve failed miserably to maintain this system.

When I am being really “good” with my finances I use a modernized version of the envelope system. I purchase gift cards from the stores that I commonly buy my necessities from. I keep one for gas, groceries, entertainment, a calling card, pharmacy etc. I also keep a bit of cash on hand for incidentals. I have found this approach to be more practical. It eliminates my biggest problem of robbing Peter to pay Paul, and I also don’t need to worry about returning the change to proper envelopes. This approach also creates a mind frame of looking at these floating expenses as fixed monthly expenses. Load each card once a month with your budgeted amount. This also forces you to stay within that amount.

It is important that you keep an amount of cash on hand as well for incidentals. It is important to define what this can be used for ahead of time. Can you use it if a friend unexpectedly comes from out of town and you want to go out – or is it reserved for more emergency situations such as your car won’t start and you need a cab? Having these boundaries set will cut down on frivolous use of this fund. Keep a small amount on you but leave most of it at home to cut down temptation.

This system can be very helpful when trying to stick to a budget. The most important aspects to making your budget work are foresight, will power and realistic expectations!

Just like with dieting, don’t let one mistake end your whole journey!

AT THE HEART of sound investment theory is a simple calculus known as the Power of Compounding. I know – it sounds like the punch line to a joke you might overhear at a CPA convention. But believe me, there’s nothing nerdy about it.

What the bean counters know is this: If you put your money in an investment with a given return – and then reinvest those earnings as you receive them – the snowball effect can be astounding over the long term. This is particularly true in retirement accounts, where your principal is allowed to grow for years tax-deferred or even tax-free.

This is how it works. Suppose you have Rs. 10,000 in your bank account and decide to put it into an investment with an 8% annual return. Over the space of the first year, you earn Rs. 800 on your investment, giving you a total of Rs.10,800. If you leave those earnings alone, rather than pull them out to spend, the second year would deliver another Rs. 864, or 8% on both the original Rs. 10,000 and the Rs. 800 gain. Your two-year total: Rs.11,664 and climbing.

As you can see by playing with the numbers, compounding produces modest – if steady – gains over the first few years. But the longer you leave your money in, the faster it begins to grow. By year 20 in our example, your money would have quadrupled to more than Rs. 46,000. If you had invested Rs. 20,000, it would have soared to more than Rs. 93,000.

Of course, the power of compounding also works for cash accounts such as money-market funds. But if you adjust the interest rate downward to 4%, you’ll see what you’re giving up: Your 20-year return on that Rs. 10,000 drops to around Rs. 22,000. Now dial the interest rate up to 10%, the average historical return of the stock market. At that rate, your Rs. 10,000 investment balloons to a rich Rs. 67,275.

The lesson is this: The longer you leave your money invested and the higher the interest rate, the faster it will grow. That’s why stocks are the best long-term investment value. Of course, the stock market is also much more volatile than a savings account. But given enough time, the risk of losses is mitigated by the general upward momentum of the economy. We’ll show you why in the next lecture.