While families across the country struggle to increase their wealth, young adults face even more challenges than the rest of Americans.

I graduated college in 2009, into one of the worst job markets in recent history. Thankfully my wife and I graduated college without any debt and had a little bit of savings to help us get started as young adults. This afforded us some time to find a job and cover our bills. But this would not last long if we did not quickly find jobs to cover our expenses.

The situation would have become much worse if our cash flow did not improve soon. We were able to find jobs and begin to cover our daily expenses, but it was not easy.

Shortly after we moved in our first apartment (where we spent as little as $600 furnishing the apartment), we both secured jobs. But they were far from our dream jobs.

Heck, back then I’m not sure if I knew what my “dream job” was. (Is there such a thing? Who knows…) Mrs. 20s ended up working as a street canvasser and I worked full-time at a local university.

Mrs. 20s’ compensation included incentives when she performed well, similar to being paid on commission. She ended up being a successful salesperson, which made her the bread winner of the family. This is helpful because we struggled to make ends meet, even with her performance pay.

For the first few years of our marriage, we had a lean budget. It wasn’t until maybe 4-5 years in that we created what we called a fun budget, where we allowed ourselves $500 a month to splurge. Until that point, we prioritized a debt-free lifestyle.

While we were able to make ends meet as young adults, it was very challenging to save money. It seemed like the odds were stacked against us. We didn’t let this get us down and we pushed on, but that is not to ignore the challenges with saving money that we faced as young adults.

Young individuals or families face even more challenges. While young adults may have fewer expenses that older individuals do, that doesn’t mean that saving money is easy.

Below are some of the challenges that young adults face when trying to save money.

Why It’s Hard For Young Adults to Save Money

1. Low Salary: Young Adults Earn Less

Students graduating from college are entering the job market with little to no work experience. As we did when we graduated college, young adults are often forced to settle for any regular job.

Many of my college friends have been forced to continue working at a restaurant or accept an Americorps position because of the inability to find something better.

Having a low salary makes it difficult to save money no matter who frugal you are.

2. High Student Loan Balances

While I was able to graduate from college without student loans, most young adults are buried in college debt.

The average college graduate finished their education with almost $30,000 in student loans.

Most of these loans come due six months after graduation. Even with making the minimum payments, the commitment to repay these loans takes away from what little income people in their twenties do have.

This moves saving money to the back burner.

3. “Need” for Technology

If the first two challenges weren’t enough, most young people have lives that are connected to technology. Interacting on social networks is part of young adults’ culture.

Facebook was created with my generation. The ability to stay connected comes with an associated cost.

Based on an informal poll of my friends, young adults often pay large amounts for the latest gadget. Whether it’s the latest phone, computer, tablet (although they seem to be losing steam), young adults appreciate and pay for their technology (apparently anywhere from $1,000 – $2,000 for a new phone).

In addition to buying new hardware, there are also the ongoing costs, both for high-speed internet and unlimited data plans.

The price of technology gives a new meaning to the latte factor.

Young adults’ commitment to technology and prioritizing this expense means fewer resources to dedicate to savings.

4. Lack of Experience

Starting to manage your own finances can be a challenging task. Learning to reduce your expenses and increase income doesn’t come easily.

It often takes time to adjust. It can even take a few big mistakes to shake people in their twenties into reality.

Many young adults don’t realize the work it takes to stay out of the red each month. It could be that they are used to living on their parents’ income or just a matter of inexperience.

How to Save More Money

Just because the odds may seem like they are stacked against you, it does not mean that you are powerless. Over the past 10 years, my wife and I have learned to save more and more money. We now save about half of our income and you can do the same.

1. Set Financial Goals

I find it extremely motivating to set a financial goal. Similar to how registering for a 5k race can get you off the couch and training, setting a financial goal can also motivate you enough to act.

2. Increase Your Income

The biggest contributing factor to us increasing our savings rate has been advancing in our careers and the accompanying pay increases that come along with that.

Once you start to earn extra income, saving money becomes that much easier. It is not automatic, and you have to prioritize savings, but earning more money makes it easier.

The easiest way to earn more money is to either find a new job because studies show that you can get a huge increase by switching employers, or better yet, earn a promotion at your current employer.

3. Curb Your Spending Habits

This may seem obvious, but the third (and perhaps the most important) step you can take to save more money is to stop spending money.

This is not always an easy task. Often spending money is an emotional decision, not always a rational one.

While on the surface it may seem like you just need to spend less, it may also mean that you have to do some reflection and behavioral changes.

Break the Mold and Save More

It may not be common or easy to save money at a young age, but it is possible. Be creative, commit to incremental change, and be relentless.

The post Why It’s Difficult for Young Adults to Save Money appeared first on 20s Finances.

After we did some job searching and finding an apartment to live in, we had to furnish our very first apartment. At first this felt overwhelming because we didn’t have a lot of income coming in yet. We hadn’t started our jobs and we just graduated college. As I suspect many college graduates can relate to, we also didn’t have a lot of money in the bank.

Despite the consumeristic pressures to buy new, we were ably to furnish our first apartment for a total of $600. It’s true that we got some basic essentials (like a double bed from my wife’s parents), but for the most part it was true ingenuity, grit, and a little bit of luck that allowed us to furnish our apartment for such a small amount.

How We Furnished Our First Apartment:

The only way that we were able to fully furnish our apartment on a budget was by buying things second-hand or used. At the time, and still today, we use Craigslist to find and purchase absolute steals. After several years of looking back on our purchases to furnish our apartment, there are some that I wish I could replicate and some that I regret to this day.

When buying used, you have to know when to walk away (i.e. when a dresser smells horrible) and when to drop everything to go snatch up a great deal.

Craigslist gave us the opportunity to find quality furniture and/or accessories for a great price. I must admit we were quite lucky with some of our ‘finds’. The key to success with Craigslist is diligence and continual effort. Luckily, at the time when we were furnishing our apartment, I had a week before I started working at my new job. This allowed me to make multiple trips to various locations at all times of the day to accommodate the sellers (all the great deals had lots of competition).

Here are some of the gold nuggets that we found:

Dresser and Desk – $10

Our very first purchase was our best deal yet.  I saw an ad for a wooden dresser for $10. There wasn’t a picture posted on the online listing, but I decided to take the 15 minute drive to look at it. It was a nice, solid wood dresser that would cost at least $100-200 brand new. It did have a few scratches on the top, but for $10, you can’t ask for better. To my surprise, this seller also gave me a matching mirror and a desk that she didn’t want for no extra cost (She was unable to sell them at her garage sale the day before when it was raining). Several years later, we still have this dresser and mirror.

Table with Chairs – $60

We didn’t have the biggest kitchen (and no dining room), so we were looking for a small rectangle table with four chairs. We missed a few great deals by a couple hours and had to settle for a nice table and chairs for $60. This table lasted almost five years before we finally upgraded when we moved to a new city.

Kitchen Island – $50

This is one of my favorite purchases. We bought a kitchen island from a young couple who had just purchased their own home and no longer needed a kitchen island. The kitchen island came with everything: stainless steel countertop, knife slots, and 2 shelves. This would have easily sold for $200 brand new, but we secured it for a fraction of the cost.

This purchase reminded me of the great value that you can get when you buy used. Just because someone is discarding something does not mean it’s low quality. It just means that their particular circumstances have changed since they originally purchased it.

Two Loveseats – $110

We ended up buying two separate loveseats. We had originally purchased a loveseat/sofa set for $150. This was an incredible deal. Similar to the couple selling the kitchen island, another couple had decided to upgrade their furniture and we were left with the near-perfect condition of loveseat and sofa.

I’m not even joking. You could have seen this in a furniture store as a brand new sofa and loveseat combination and you wouldn’t have known that it was used. If you are wondering what the catch was and why we ended up with two loveseats instead of a stunning matching sofa / loveseat set, it’s because we failed to plan for one critical thing: the size of our front door.

This purchase, which we quickly loaded into our moving van, would have been the best deal of all of our craigslist purchases had our sofa fit through the front door of our apartment. When we returned with the sofa and loveseat, the sofa was about a foot too long to fit through the door.

It took me a while to get over the disappointment. And if I’m being honest with myself, there are still days that I think about that loveseat and sofa. We were able to sell the sofa by itself for $125 ($25 less than the price of the pair) and then had to buy another loveseat for $85 before our moving van had to be returned.

We kept these loveseats for about a year until we found a few used Ikea couches on Craigslist to upgrade our furniture. We continue to swap couches and loveseats for the first few years of our marriage. It wasn’t until maybe year 7 that we finally bought our first new couch. And if I’m being honest, it still pales in comparison to that first couch / loveseat combination. (Can you tell I’m still dealing with this one?).

A Few Other Items

We purchased a few more odds and ends to finish off our apartment. As I mentioned, my wife’s parents generously donated an old full-sized bed to us, to save us from that expense and the worries of bed bugs if we were to buy a mattress used.

While we did not have matching sets when we started out, we were able to get quality furniture for an affordable price.

How Much Money Did We Save by Buying Used Furniture?

Buying used as I said above is one of the best strategies for furnishing your apartment on a budget. For our very apartment, we were able to save a lot of money; money that we simply didn’t have at the time. In fact, I estimate that we were able to save over $2,000 than if were to get the exact same items brand new.

Best Tips to Furnish an Apartment for Cheap

Now several years later after now having lived in several apartments after that first apartment, I have come to learn the best ways to save money when you are furnishing an apartment. Many of our strategies stand the test of time and I now have a deeper appreciation for what we accomplished when we were 22 years old.

Here are some of the best strategies for furnishing an apartment without spending a lot of money:

1. Buy Used Furniture

This is kind of a given based on our story above, but the best advice that I have for anyone looking to furnish their own apartment is to move past the social pressures to buy new furniture and look at the used market. You’d be surprised by the quality furniture that you can find for a discount.

2. Take Your Time

One of the biggest reasons that people end up spending more money than they need is because they are in a hurry to furnish their apartment. Don’t feel obligated or rushed to fill your entire apartment. Sure, there may be essentials that will be difficult to live without, but don’t throw away money or sacrifice quality because you are in a hurry.

We made this mistake when we purchased a second dresser. I thought we absolutely needed another dresser and we ended up buying a low-quality dresser to get by. We later donated the dresser because it smelled so bad, and bought another used dresser to replace it.

3. Be Opportunistic

As I highlighted above, some of the best deals are those that won’t last for long. If you have the flexibility in your schedule and the commitment to look for good deals, take advantage of this and you won’t be disappointed (unless the couch doesn’t fit through the front door).

4. Plan Ahead

Along those lines, make sure you plan ahead with your purchases. This means having a vehicle to help you transport the furniture and maybe even a partner or friend to help you load it into the car. It also means measuring to make sure it can fit both in your car and your apartment. Make sure to consider narrow doorways, stairways, or hallways.

Don’t be afraid to ask sellers to send you dimensions before you drive all the way there. This can save you a lot of gas, time, and headache.

5. Consider All of Your Options

Last, but not least, when you are shopping for anything, especially furniture, make sure you perform a thorough search. The last thing you want to do is to settle for something before you know what the options are.

If you want to furnish your first apartment without breaking the bank, all you have to do is spend a little time and energy into being resourceful.

The post How We Furnished Our First Apartment for $600 appeared first on 20s Finances.

It isn’t always the consumerism or the impulse purchases that keeps people from saving money. In fact, it was just recently that a reader commented that it’s hard to save money when they barely make enough money to pay the bills. Do you have to make a ton of money to be able to save any significant amount? While it may be easier to save money when you have more of it, having a low salary does not discount you from saving money. The important principle in understanding how to save money is that every little bit helps… even your milk money.

How I Learned to Save Money

When I think back to my childhood, it makes sense why I am already saving for my retirement in my mid 20’s. When I was in elementary school, my older brothers were middle school and even high school. Like any youngest child, I wanted to be just like them. One brother had a real job and another a few baby sitting gigs. I was too young to have a job, but old enough to know that I wanted to buy things. With no allowance, I was left with one option: milk money.

Everyday I was given $.40 for a carton of milk. Over a standard week, that equated to $2. While that may not sound like a lot to you (or me now), to a 10 year old child, that’s a lot of money, especially for something that I didn’t need. While I still love chocolate milk to this day, I made a decision that saving the money and buying something bigger was more valuable to me than drinking milk every day. I never did tell my parents this because I was afraid they would stop giving me milk money. Slowly, but surely, my piggy bank filled up and I could buy my own toys. I know what you are thinking…”Didn’t your parents buy you toys?” Sure, my parents would buy us things, but they also wouldn’t spoil us. Certain things we were required to buy.

Excuses Why People Can’t Save Money

There are many excuses that people give when they say they can’t save money. Here are the top 10 excuses that I have heard, in no particular order:

1. I don’t make enough money
2. I have to pay off debt
3. I have too many expenses
4. I really needed this or that
5. We live on one income
6. I pay too much in taxes
7. I’m in college (which is kind of a combination of #1 and #3)
8. I have kids (the implication is similar to #3)
9. I’ll earn more in the future and be able to save more
10. I didn’t start saving early enough

I could continue on, with numerous variations of several of these excuses. Many of these I have heard over and over again. In some sense, I understand people’s situation. My wife and I both work and don’t have any kids, so it is easier to save money than others. Or, at least that’s what I am told to believe. My wife and I also have our own obstacles to save money. I don’t make very much money and we live in one of the most expensive areas in the country. A great example of the higher cost of living is this: I pay more than twice the amount in rent (for my 1 bedroom apartment) that my in-laws pay for their mortgage payment on their 3 bedroom home.

“If you find yourself saying to yourself that you can’t afford to save money right now, you are lying to yourself.”

Everyone has obstacles to save money. While I recognize that there are legitimate reasons to prevent people from saving money, there are also many decisions that you can make to save money. If you find yourself saying to yourself that you can’t afford to save money right now, you are lying to yourself. Most of our obstacles to save money are not forced upon us, but are based on decisions that we have made – whether those are decisions we made yesterday or years ago. I think when we are honest with ourselves, we will realize that we can choose to save more money. It’s just that we don’t value saving as much as whatever else we would have to give up.

• If you are the one that can’t save money because you have too many expenses, get rid of your expenses. Whether that means moving to a cheaper apartment or home, using one car instead of two, eating out less frequently, etc. We all have places where we can save more.
• If you are in college, consider getting another job in college to help pay your way through college. Or, consider lowering your expenses. Live with a couple roommates, eat cheap food, etc.
• If you find yourself saying that you really needed a new computer, smart phone, or an I-Pad, think again. These are luxury items. You can get by without them. It just means that having the best technology means more to you than saving for our future.
• If you have kids and can’t find a way to save any money, you might be spoiling your kids. Spending all of your extra money on your kids is not only bad use of your finances, but teaches them a horrible lesson.
• Choosing to have one adult stay home, whether it is to take care of children or another reason, is a just that: a choice. Many families still prioritize saving even though they have one income. It’s just a matter of increasing your income and lowering your expenses.

The “Secret” to Saving Money (or Saving MORE Money)

While I could go on and on, about different situations of saving money, the “secret” to save money is to make it a priority. I’ve already discussed what it means to establish financial priorities, but it really does start with that. Anyone who wants to start saving money needs to begin with understanding the value of saving money. The old phrase of “delayed gratification” is true in this instance.

Benefits of Saving Money

The value of saving money comes in what is offered – or the benefits. While you could summarize it to be “financial security”, that is pretty vague and doesn’t fully illustrate the true benefits of saving money. Here are some of the popular ones:

• Protection from expensive emergencies
• Early retirement
• Other flexibility in your career (the option not to choose the highest paying job)
• Less stressful upbringing for your children (i.e. paying for their college, etc.)
• Peace of mind
• Ability to stay at home with children

How Value Saving Money

It may be as “simple” as placing more value on the future benefits of saving money, sometimes life gets busy and it’s hard to focus on the benefits of saving money. It’s hard to convince yourself that it’s better to save the money for the future than enjoy a new car. Here are some tips to keep you on track in the busyness of life:

• Set Financial Goals – This is a great way to keep you working towards something tangible. You can review my financial goals if you need inspiration.
• Reward Yourself for Saving – A small treat can be a great way to motivate yourself to save money
• Review Your Budget Monthly – Keeping up with your monthly budget, including tracking your expenses can help keep you accountable. Before you know it, you may enjoy evaluating your success each month. I know that I do!
• Track Your Net Worth – While a lot of people place a lot more value on this than I do, it is a great indicator of whether you are saving or not. It can also be fun to track your progress.
• Visualize Retirement – Another great way to motivate yourself is to visualize your retirement or future financial security. Post a picture  that captures your ideal retirement, like a picture of the beach or a golf course. This will help you focus and maintain that priority.
• Don’t keep a wish list – I’ve said this before, but the worst thing you can do in regards to saving money is to think about things you are going to buy someday soon. If you are looking at the items, you may convince yourself in a time of weakness that you “need” it now.

Learning how to save money is just one of the many life lessons that responsible adults need to embrace. It will not only offer you the much needed financial security later in life, but will ultimately mean distancing yourself from the consumerism that drives our society. No matter how much you buy, it won’t satisfy you. The earlier you learn this and the earlier you start saving, the better off you will be.

The post How to Save Money: Even Your Milk Money Counts appeared first on 20s Finances.

As a result of my parents owning a home, I have always know that home ownership is for me. That and the 4 years of renting is enough for me. I’ve had enough. While it is our only option at the moment (and will be for the next 2 years or so), my wife and I are looking forward to buying our own home.

How to Prepare for Buying Your First Home

Buying your own house is no small decision. It requires a lot of preparation and financial security to do it safely. That is why we are preparing years in advance, to make sure that we do it properly. What some people don’t realize is that buying a home is a huge change. It’s not just like buying a car or an iPhone 5. This has huge implications on your future, so you better do it right.

In order to appropriately prepare for buying your first home, without even including the selection process, there are several things you need to do.

• Learn about the Home Buying Process – I’ve heard lots of stories of people jumping into buying a home without doing adequate research. Maybe I am a bit old fashioned, but I am going to read several books and blogs about buying a home before I commit. I don’t want to get in the middle of the process only to realize I owe more than I expected.
• Determine the Amount You Can Afford – One of the first things you will want to do when thinking about buying a home is get approved for a loan. Lenders will use a formula based on your earnings and other debt to determine how large of a loan you qualify for. Don’t mistake this amount for how much you can afford. What you can afford and what you are approved for are two different things.
• Add Closing Costs to Your Calculations- Too many people are surprised by all of the fees associated with buying their first home. It isn’t just a down payment and monthly mortgage payment. There are inspections, appraisals, and all sorts of other fees that I don’t have memorized yet.
• Get Life Insurance – This may sound strange, but if you don’t have any life insurance and you are getting ready to take on a lot of debt, you should make sure that you are adequately covered. The last thing that you want to happen is to have something happen to you and leave your loved ones with the burden of a home they can no longer afford.
• Save Money – After doing a lot of planning, there’s perhaps no more important aspect of preparing than actually doing the work to get your finances in order. This means saving up a down payment and enough for the closing costs. It won’t hurt to be over-prepared.

Different Paces to Saving a Down Payment

Saving up money for your down payment can be a challenging task, especially for first-time home buyers. You are already paying for your day-to-day expenses which includes your rent. How are you supposed to be able to afford saving up 20% for a down payment on your first home. This aspect is often what keeps people from buying homes. It’s hard to do. Difficult, but not impossible. Depending on your time frame, there are three major tracks to saving a down payment for your first home.

• Aggressive Saver – Call it aggressive or desperate, but these are the people who are on a tight schedule. Whether it is trying to get in your home for a baby on the way or you are just that ambitious, this is the fast track to buying a home. If you are following this pace to saving up a down payment, you put all other savings and investments on hold. You prioritize saving up the down payment over everything else, including unnecessary expenses because you know that the faster you save, the quicker you are in your own home and building equity.
• Diligent Planner – This is how I would classify myself. This pace has a clear goal in place, but the time frame isn’t as tight. You have time to still invest while you are saving up extra money for a home, but you may reduce some expenses to expedit the process a little bit. Depending on your time frame, you may even use some conservative investments to grow your down payment faster. The longer time frame takes away less stress, but delays the time to build up equity in a home.
• Noncommittal Saver – These are the people who have no concrete plans to buy a home. It’s a loosely-defined goal of theirs, but it is nowhere in the near future. This means that there is no special account to house the money for the down payment and there is probably no specific monetary goal formed. This person will eventually buy a house, but probably years or decades later than the other two alternatives.

How to Save A Down Payment

As you can tell from the different tracks to saving up a down payment, there are lots of different approaches to saving a down payment. But, that doesn’t mean that there aren’t universal tips for those who are starting to save up a down payment.

• Keep the Majority of the Down Payment Liquid – While it may delay your savings, if you hoping to buy a home anytime soon, don’t invest too much money in risky investments. Being too greedy when you need the money is never a good investment strategy. If you choose to invest some of the money that you plan to utilize as a down payment, keep it to a minimum. I plan on investing some money because I don’t want to give up investing for my future while we save for our future home. But, I am not counting on that money for the home. If everything goes to plan, I will be able to save up enough to cover the upfront costs AND have money invested for the long-term.
• Use High Interest Bank Account – Another great option to consider is to use a high-interest savings account. My main account at Chase doesn’t offer the best interest, so I am also using a high-interest savings account that gives me nearly 1%. This means the difference of hundreds of dollars over a couple of years. While it’s not a huge difference, every bit helps.
• Automate it – A great way to stay on track is to force yourself to save money each and every month. Setting up an an automatic deposit into your high interest savings account is a great way to save up the down payment. Tell yourself that it is already saved and keep yourself on track.

I have already started researching and have a small amount already designated for the upfront costs of buying a home. I estimate that it will take us 2-3 years to save up enough money while also still investing for retirement. Any extra money from potential promotions or raises will be put towards this goal. I am really excited to be able to buy our first home and I am going to do everything I can to make sure that we are adequately prepared.

Readers, if you have already bought a home, how did you save up to cover the upfront costs of buying your first home? How long did it take you?

The post Buying Your First Home: How to Save Up a Down Payment appeared first on 20s Finances.

While tuition costs are certainly high, it doesn’t mean that the predictions of high annual tuition increases are accurate. For those trying to estimate how much college will cost in the future, you need to read this!

What People Claim About Average Tuition Increase

Recently, I’ve seen a number of other personal finance media outlets highlight the recent high increases in tuition. While I support their efforts to educate the public on the need to save, many are taking one statistic published by various agencies like the College Board, and exaggerating the future costs of tuition.

I noticed a recent article on US News about the increasing cost of education, and how to predict future costs of tuition. Here’s what he says:

According to the US Department of Education, the average annual cost of public school increased 6.5 percent each year over the last decade. That means that by 2030, annual public tuition will be $44,047. The total cost for a four-year degree will be more than $205,000. 

Again, why the statistic seems to be reputable, as he is quoting US Dept. of Education, it fails to take into consideration why schools increased 6.5% as well as the private institution. Assuming that tuition rates will continue to increase at 6.5% each and every year is about as naive as assuming you can get a 10% return on your investments each and every year for the next 30 years.

This article is just the tip of the iceberg. There have been several other writers who have taken a simple average over the past 10 years and inserted it into a compound interest calculator to figure out the future costs of tuition. While I like using compound interest calculators as much as the next personal finance author (especially to retirement or other savings goals), it is inappropriate to apply this approach to future tuition costs.

Why the Average Tuition Increase Numbers are WRONG

What the people who take one statistic and run with it to scare others fail to consider is the real life happenings. I have worked at two private universities within the past 4 years. I probably have more experience working at a higher education institution than 90 percent of the population. Most people don’t know what it is like behind the scenes of a university.

After working at a university, and being part of the conversations where tuition increases are discussed, I can tell you that many of these high annual tuition increases do not represent the whole. While there may be a small percentage of schools that are increasing tuition drastically to skew these averages, my experience has been tuition increases between 2-4%.

To be more specific, I currently work at a University in one of the most expensive areas of the country, which has one of the highest tuition rates. Our administration knows we are one of the most expensive. In a conversation with the CFO of the University, he told me that universities cannot continue to increase tuition to meet the increasing costs. In fact, he said that even a 4% tuition increase isn’t reasonable anymore.

When asked more about the subject by a colleague of mine, he clarified. There was a period where institutions would simply increase tuition rates high enough to cover the increasing costs of running a tuition. For those who don’t know, college universities suffered as much as any other investor during the economic downturn. Institutions rely on endowments to pay for a portion of their operating costs. When returns on investments decrease (or are negative), that affects the university’s budget. When revenue is low, one of the easiest ways to compensate was to increase tuition. I imagine that this is one of the reasons for the recent high rates of tuition increases. But, my university acknowledges that high increases in tuition is going to have negative consequences for them financially.

More Reasons why Tuition Rates/Projections are Exaggerated

You may be thinking that my experience is not a very wide reach. My experience could be that of a couple institutions that is ignoring the rest of the trends. In some sense that may be true, but I doubt it. In fact, there are several other reasons why you can expect lower tuition increases in the future, that are not dependent on my personal experience working in higher education:

• Most Universities are not out to make a profit – What tends to happen when people hear these tuition increase figures is that universities are these evil institutions that are trying to take advantage of families and college students. This simply isn’t the case. Very few institutions are for-profit, meaning that most are classified as non-profits. This means they aren’t out there trying to takes as many dollars as they can in order to pad the wallets of a select few. Universities are simply trying to cover costs.

[Tweet “Most Universities are NOT out to make a profit @20sfinances #CostOfEducation”]

• As economy improves and endowments stabilize, universities will rely less on tuition increases to cover expenses – As I mentioned before, many universities have endowments to pay for part of their operating costs. We all know that the market took a huge hit the last few years. This isn’t going to always happen. It was a rare occurrence. This means that universities won’t require large increases in tuition to cover costs.
• The highest tuition schools know they are the most expensive and want to remain competitive – No university wants to be the most expensive in the country or region. It’s an accolade that only fools would try to obtain. When you have the highest tuition in the country, that decreases your pool of applicants. No matter how good your education and employment rates are, if a comparable school is $5,000 less than you, you are going to lose potential students. Universities will want to remain competitive so they will do everything they can to keep tuition increases low.
• Higher education is struggling financially as much as anyone else, but it doesn’t mean they ignore supply/demand principles – It’s economics 101. Supply and demand. When supply increases, price drops. When demand decreases, prices drop. If you continue to increase tuition as a university, this affects the number of high school graduates who see value in attending your university. In other words, the demand for your “product” will decrease. If universities continue to raise prices that are out of reach of the majority of the population, I also think more institutions will be created. As the motto goes, with more supply (of higher education institution), the prices will drop.

Tuition increase rates have been extraordinarily high recently. But, it doesn’t and most likely won’t continue this way. While these high projections may be intended to scare you into saving more for your child’s education (which is a good result, if it doesn’t convince you that saving money is hopeless), these are inaccurate predictions. Tuition will undoubtedly increase, but not at the rates that have been projected in popular media and other financial blogs.

Readers, what’s your take on the projections of tuition increases?

The post Average Tuition Increase Rates: Why High Projections are WRONG appeared first on 20s Finances.

The stock market serves three vital purposes:

1. Helps companies raise capital – Companies raise money by selling shares in an IPO or secondary offering in which the company sells shares of stock in exchange for cash needed by the business to expand, pay down debt, or simply cover on-going expenses.
2. Provides liquidity – The stock market serves as a place where people can buy or sell ownership of companies quickly and inexpensively. Whereas you might spend years trying to find a buyer for a 50% stake in a McDonald’s franchise, billions of dollars of McDonald’s stock is sold each day on the stock market. You can find a buyer for a partial share of a company listed on a stock exchange much faster than you can for a private company.
3. Gives reference point to investors – The stock market is a great reference tool for investors to examine what private companies might be worth. It also provides a historical guide for what’s “normal” in valuing businesses.

The Business of Wall Street

Every company starts out small. Walmart was once a single store with only a handful of employees. Now it is one of the largest companies in the world.

As businesses grow, they need capital. Typically, small businesses get bank loans or investments from friends and family. Friends and family and small bank loans are a great source of financing from day one, but a growing business will need more and more money for expansion.

Today, most businesses start selling stock privately before doing it publicly. Young businesses start selling shares to venture capitalists, who fund risky new businesses. Venture capitalists are in the specialty of investing in small startup businesses. The venture capitalist’s’ goal is to invest in fast-growing young companies for eventual sale to another investor.

Selling out of a billion-dollar company is difficult if you cannot raise funds from hundreds of thousands, if not millions or billions, of people. So once a company starts to mature and no longer matches the desired traits of early investors, it goes public. It sells shares to the public, not private investors, to raise capital or to pay off early investors on the stock market. When companies go public, they do so on Wall Street.

There are three reasons a company goes public:

1. Bring in more investors and potentially more capital.
2. Allow early investors to sell their stock.
3. Use the stock market as a mechanism to manage a growing base of shareholders.

When companies list on the stock market, they often do so by selling shares of the company to raise new money. Also, early investors who want out of the company sell their shares as part of an initial public offering.

Companies may later issue more stock on the stock market as part of a secondary offering in which they issue new shares to raise much needed cash. (This usually happens when companies cannot borrow money for whatever reason – bad financial history, weakness, or simply for the fact they already have all the debt that the company could possibly manage.)

How Stocks Work

When you buy a share of stock, you own partial ownership in a company. Having ownership in a company gives you a right to vote on shareholder proposals, and a right to the profits that the company earns.

You are part owner in any company that you invest in. This does not give you the right to make decisions like a dictator; you’ll need to own 51% for that. Rather, owning part of a company gives you part of the influence in how a company is ran and managed. Most importantly, owning a share of stock gives you part of the company’s future profits.

There are two ways that stocks can make money for their owners:

1. Dividends – Companies can pay out all or part of their earnings to shareholders in the form of cash, known as a dividend.
2. Capital appreciation – Companies often rise in value as they grow and accumulate assets. Thus, stocks rise proportionately with the rise in the value of the whole company.

In general, fast growing companies do not pay dividends as such businesses would prefer to reinvest that money in growing their business. Investors will profit from the appreciation in the company’s value, however, as it grows.

Older and more mature businesses usually pay dividends because they cannot invest all of their earnings into continued expansion. Investors in mature businesses will profit from dividends and increases in the stock’s value as the company slowly grows or accumulates assets.

Participating in the Stock Market

The stock market is as American as apple pie. It gives everyone the opportunity to participate in the beauty of capitalism by investing in businesses that provide goods and services to the public for the potential profit of the investor.

By investing in the stock market, you are buying part of a company’s future earnings and growth. It gives everyone the chance to be a partner in a business. You might not have the time or money to start an oil company, but the stock market allows you to be a part owner in Chevron. You might not have the prowess to be a retailing king, but through the stock market you can be a part owner in well-known brands like Target, Walmart or Amazon.

Participating in the stock market by investing in individual stocks, or funds of multiple stocks like mutual funds or index funds gives you the chance to profit on the world’s future superstars of business. It’s the only place where individuals, rich or poor, can be a partial owner of a business.

The post How Does the Stock Market Work? appeared first on 20s Finances.

Some believe that freeing yourself from debt is a critical first step to financial stability. They support their priority by arguing that by focusing on debt first, you save money in interest and get access to more money each month by paying debt off fastest. There are plenty of people who sit in the middle of the debate, but I’m neither a proponent of this priority nor a fence sitter. I strongly believe that an emergency fund should be the first priority for anyone beginning the journey of financial responsibility.

It’s my sister who has convinced me of this position.

Why My Sister Needs an Emergency Fund

My sister is great! I hope, should she be reading this, that I don’t embarrass her too much or cause her to hate me forever. However, her financial struggles are very educational when it comes to how important an emergency fund can be.

To start with, my sister is working hard to make smart financial decisions. She earns an average annual salary, but doesn’t have much left over at the end of the month.  That’s because she has a relatively large student loan bill. For years now, she’s been trying to pay extra to  eliminate the balance. There is only one thing that is really stopping her. She’d chalk it up to inflation, bad luck or just plain life. However, it’s all related to her lack of an emergency fund.

Last week she shared with me her frustrations over paying off her loans. It seems that every time she has extra money, something big breaks and she needs to use the money to make ends meet. In some cases, the unexpected situations have caused her to slip backwards in her goals, taking on temporary debt through credit cards.

It’s a frustrating situation, but there are several reasons why an emergency fund would make money much easier for her.

Earn Interest, Don’t Waste Money Paying for It

You won’t earn tons of money in interest by saving and putting an emergency fund in the bank. However, it’s better than the catch-22 my sister finds herself in.

As I said before, my sister doesn’t have much left over to pay down debt each month. Certainly not enough to handle surprise situations when they happen. As a result, she often taps into credit card debt to buoy her, even though it might be temporary. The effect of this is that she’ll spend more in credit card interest than she would have if she hadn’t been paying any extra towards her student loans.

For people who do not have much left over after monthly expenses, an emergency fund will actually save you money in interest paid. You’ll see that this drain on her budget is noticeable even if she can’t place her finger on the problem.

Earn More Money by taking Small Risks

Did you know that the most important characteristic to avoiding poverty is to hold an asset (an emergency fund is an asset)? Assets give you flexibility, and ultimately help you to earn even more money. Not just by earning interest, but giving you the needed courage to take small calculated risks.

When my sister asked me how she could earn a little extra money, without any risks, I thought I would swoop in with an easy reply. Her employer has an employee stock purchase plan that allows her to buy company stock at a discount. I won’t spend the next three pages boring you with how this thing works. Simply put, she’d need to put extra money from her paycheck in an untouchable escrow. After six months, she’d get it all back, plus at least 15 percent (last period returns were over 100 percent).

There was just one problem to my solution. My sister couldn’t part with the money. She knows that every few months an emergency happens and while she knows this month she could take the pay cut, next month might be different.

You know what? She’s right. The benefit simply wouldn’t work for her, because she really can’t afford to part with the money.

Hopefully, you see that an emergency fund would solve this problem. By having money to cover life’s lemons, she’d be able to earn extra money and pay off her debt faster.

Save and Pay Down Debt if You Must

For my sister, debt reduction is not the remedy for her budget. She’s spending more money on interest – not less. It’s not significantly reducing her balances and freeing up her budget. Worse still, she’s not able to take advantage of simple opportunities to earn even more money.
If you ask me, an emergency fund is a critical part of financial freedom and should come before debt reduction. If you must, pay a little every month into your emergency fund and debt principal – but don’t forget which is more important.

The post Why an Emergency Fund is More Important than Paying Off Debt appeared first on 20s Finances.

Buying a home is a BIG financial commitment that should not be taken lightly. As with all big decisions in life, the answer to whether you are ready to buy a home is very personal. There are a lot of factors at play and only you can answer this question.

Luckily for you, I’ve already been through this and I am an avid planner. I know what it takes to buy a home, and I want to help you make sure the decision you are about to make is the right one. Answering this question is very complex and personal. There’s no simple answer, or single metric that can answer this question for you.

This guide will give you the information to make an informed decision. I detail the costs of home ownership (both common and hidden expenses), and also give you key benchmarks to help you make the decision.

If already know that you are NOT yet ready to buy your first home, make sure to read how you can prepare to buy your first home. It takes time to prepare for buying your first home.

Understanding the Costs of Home Ownership

Before you can answer whether you are prepared to buy your first home yet, you need to understand the costs of home ownership. There’s a lot of costs associated with owning your own home. Make sure that you don’t forget about a single expense when making your buying decision.

1. Mortgage (Principal & Interest) Payment – Unless you are paying cash, you will have a mortgage payment and every mortgage has at least two parts. 1 – Principal, the amount that goes towards paying down your loan. 2 – Interest, the benefit to the lender for providing the upfront capital.
2. Property Taxes – You may pay these directly, or may pay them as part of your mortgage payment via an escrow payment. Regardless of how you pay them, you still have to pay them as a homeowner. As a renter, while a percentage of your monthly rent may go towards the landlord’s property taxes, you are probably not used to paying for this. Property tax rates are often set at the city/town level and you can almost always find that information online.
3. Insurance – Another mandatory expense that homeowners face is insurance. Your lender will often require you to have insurance on your new home in order to qualify for the mortgage.
4. Utilities – Depending on how your landlord set up payment, as a renter you may or may not pay for utilities. As a home owner, you always pay for utilities. This includes not only gas/electricity (maybe both), but also sewer, water, and sometimes waste removal. Utilities are perhaps the most variable cost of a home. Things such as the size of the house, the companies supplying them, your state, and your actual usage all affect the price of utilities. All things considered, the price can be upwards of three hundred dollars a month. However, the cost doesn’t have to be a nasty surprise. You can always ask utility companies for the history of the property, and always remember that the cost usually varies from season to season.

Hidden Costs of Owning a Home

What some first-time home buyers fail to recognize is that there are many hidden costs to buying a home. The last thing that a new home owner wants is another bill that they weren’t expecting. Below are many of the hidden costs that no one talks about:

1. Maintenance – This is a general term that includes many aspects. Not only is there ongoing maintenance for any home (lawn care, landscaping, etc.) but things break and other things need improvement. In my first three years of being a home owner, I probably did 30 separate DIY projects. All of which cost money. I expect to spend a couple thousand dollars a year on home maintenance, but this will really vary from house to house.
2. HOA – If your property is part of a housing association, there may be additional HOA fees on top of regular maintenance.
3. Transaction Costs – There are also hidden costs of buying and selling a home. Realtors charge a percentage of the sale from the seller, and lenders often upfront have underwriting costs for the buyer when you get a new mortgage.
4. Extra Stuff – I’ve talked to a lot of home owners and everyone remarks at the tendency to fill their new home. When you are buying your first home, it’s often
5. Private Mortgage Insurance (PMI) – Hopefully none you have to know what this is, but if you put less than a certain percentage down as a down payment, your lender will often tack on additional fees known as PMI. We’ll cover this more below.

Key Indicators that You are Ready to Buy Your First Home

One of the most basic indicators that you are prepared to buy a home is when you can afford it. You add up all of the costs of both purchasing and owning your home (including estimates for hidden costs), and make sure that it wouldn’t impact your other financial goals.

That’s the simple answer.

The more sophisticated answer is that there are many indicators to help you determine whether you are ready to buy a home. In my opinion, ignoring one of these and rushing in to buying a home could be a huge mistake.

1. You’ve Ran the Numbers of Rent vs Buy – What many people forget to do is to make sure it makes financial sense. I grew up in a household where my parents owned their own home. I’ll be the first one to admit that this contributed to my strong desire to buy a home early on in my adult life. However, I refused to let the emotions of buying a home cloud my judgment. You have to make sure to run the numbers and compare the costs of continuing to rent to owning a home. See if the numbers make sense.
2. You Have a 20% Down Payment Saved – Another easy indication that you are ready to buy a home is that you have a down payment saved. Most people skimp on their first down payment, putting as little as 3-5% down. The problem with this is not only are they incurring additional costs (PMI), but it’s also a sign that they are not ready to buy a home. If you can’t save money for a 20% down payment, it’s a sign that you aren’t ready.
3. You have a Positive Monthly Cash Flow – Similar to the item above, I’m a huge proponent of first time home buyers having a healthy, positive monthly cash flow. This means the amount that you earn each month well exceeds your monthly expenses. The reason for this is that unexpected major expenses pop up all the time and you need a positive cash flow to deal with these items. One great example is when I had to replace my furnace and A/C unit. It was not cheap and without this spending power, I’d be in a tough situation.
4. You are Already Saving 20% towards Retirement – The last thing you want to do is buy a home before thinking of retirement. If you aren’t already saving for retirement, please do that now! I recommend saving 20% towards retirement, which will mean that you can retire in 37 years. Saving any less than 20% means that you are going to work well into your 60s. Why would anyone want to do that?
5. You have a Good Credit Score – Another sign that you are ready to buy a home is that you have a good credit score. Ideally 740 or above, but even 700 or above is okay. This not only confirms that you are good with managing debt, but will directly impact your mortgage rate. A higher credit score will qualify you for lower rates. Typically anything above 740-760 will make you eligible for the best rate possible. I bought my first home when I had a credit score of about 790 and I am loving my low interest rate.
6. You have Job (Income) Security – No one should buy a home without a stable job. While anyone can be let go or laid off for any reason, you can typically tell when you have income stability. Have you been with your company for several years, and are you an essential part of the business? If so, check another item off the list.
7. Not Planning to Move Anytime Soon (5+ Years) – Last, but not least, no one should buy their first house when they are planning to move in less than 5 years. Remember the transaction costs that I mentioned above? Yeah, they are no joke. It’s also good to remember that while real estate values trend to increase over time, it’s not always the case. The last thing you want to do is buy a home knowing that you have to move in a couple years and then be forced to sell at a loss.

Next Steps

If there are a few areas where you need to improve, take the time to improve your situation. The important thing is not to rush into buying your first home.

Once you are ready to buy your first home, the next question is to determine how much of a house you can afford.

The post When are You Ready to Buy a House? appeared first on 20s Finances.

Why Should You Lease a Car? When is it Better to Lease than Buy?

As I started listening to my friend about why she wanted to lease a car, instead of buy a used one, I began to get it. I began to understand why it is not that bad of a decision for her. Here were some of her reasons on why she wanted to lease:

• She will be moving to a big city in 1-2 years and doesn’t want to have to worry about selling her car
• She currently has a older car that is in need of repairs that isn’t worth paying to have done. While she could afford the repairs, it isn’t worth that much to begin with and there is no knowing how much more she will have to spend tomorrow.
• She lives alone with one car, so she wants a reliable car
• Her current car is valuable enough to qualify as a down payment, leaving her to pay for the monthly payment.

As I began to soak in the various factors that go into this situation, I realized that leasing a car makes sense given her situation and priorities. That’s when I began to wonder why people lease a car instead of buying. What is it about leasing a car that is favorable to buying? Here’s why I came up with:

Reasons to Lease instead of Buy

1. You don’t want the hassle of selling it later – Instead of having to go through the various steps to clean up a car, get it ready to sell, show it to interested parties and go through the paper work, a lease seems to be much easier.
2. You want a fixed monthly payment – While it is possible to finance a car to get a fixed monthly payment, that also means that you are responsible for the value of the car. If the car’s value drops, you could owe more money than it’s worth. You don’t have this concern with leases. You pay a fixed amount for a fixed length and then you are done with it. No commitment! I am convinced that this is why many companies go the route of leasing. They don’t want to have to buy X number of cars and would much rather just pay a monthly payment. While I’m not an accountant, I imagine that this would offer many financial benefits for accounting purposes too.
3. You want to build up your credit – 10% of your credit score is determined by the types of credit that you have used. If you are looking to boost your credit score, this is one option.
4. You want a new car without the cost – While the average cost of driving a lease may be larger per year, for leases that are shorter, it could mean spending less money for driving a new car. Instead of paying $20,000 to drive a new car, you might end up paying $8,000 to drive it for 2-3 years. You may question this, but for someone who doesn’t want a car after that period, it may be the perfect situation.
5. You hate dealing with repairs – Driving a new car has a priceless benefit of not having that many repairs. Several dealerships will also offer to cover the maintenance costs, meaning that you don’t even have to pay for the oil change.
6. You don’t want to own two cars at once – I used to think that buying or leasing from a dealership was a huge waste of money. Why would anyone want to do that? Well, when I went through the motions with my friend, I realized how convenient it was. For someone who has one parking space or doesn’t want to have to deal with selling their current car, it is much easier to trade it in at the dealership on the same day that you get to drive your new car home. If you bought a new car before selling your old one (because you need at least one car to get around), you could feel the pressure of having to sell and take an extremely low price. Thus, you went through the hassle without any extra financial benefit.
7. You don’t like owning the same car for a long time – If you are the type of person that likes to change cars every couple of years, buying a car and then re-selling it might not offer you that much more savings. Why not save yourself a lot of hassle and lease if this is the case?
8. You Don’t have a lot of savings, but can afford a monthly payment – While it’s never a good idea to finance a car when you can’t afford it, there may be a situation where you don’t have a lot money to buy a car outright or to provide a large enough down payment. While you will need some sort of down payment for a lease, it’s often not that much.
9. The monthly payment for the same car and same length as a loan is MUCH lower – If you do not want to make payments on this car longer than 2-3 years and you want to keep your payment to a minimum, this is going to be the better option hands down.

As you can tell, there are a lot of different situations that can make leasing a car the right choice for you. Many of these reasons may apply at the same time, making it that much better of a decision. Before you are quick to judge those who lease, you may want to consider the actual reasons why people would want to lease a car.

WHO would Want to Lease a Car

In working with my friend on this fun project, I realized that my stereotype of who would lease a car was being deconstructed. I used to think that it was the wealthy who leases a car because they don’t care about losing money in taking the “lesser” of the two options in the buy vs. lease debate. My friend does okay for herself, but she is not that well off, so it forced me to re-think WHO would lease a car in the same was as I thought through the reasons for leasing. While there is some overlap here, I think this helps paint a clearer picture of all of those who lease cars:

1. Small business owner
2. Large company or organization for it’s employees
3. Person who can’t make up his/her mind on what type of car to drive
4. Person without a lot of savings
5. Employee with a steady income
6. Person too busy to take care of a car
7. Individual who needs a reliable car

The list could go on and on, but the point is just the same. Almost anyone and everyone could decide that leasing a car is right for them. There are many complex situations that go into this decision and it isn’t as black and white as I used to think. The important thing is to list out key points of your situation to determine which is the best option for you. Otherwise, you may be letting your consumerism get the better of you and have society decide for you.

Readers, have you ever considered leasing a car? What was the motivating factor for you?

The post Why Lease a Car: Reasons It’s Better than Buying appeared first on 20s Finances.

Many times people in debt want to do everything possible to get out of debt as fast as they can. This usually leads to them wondering if they should be taking some of their savings to pay off some of their debt.

Unfortunately, many times this can backfire and cause more harm than good. But in some cases, it is a smart thing to do in order to get out of debt.

So when does it make sense to use savings to pay off debt and when does it not? Below you will find 4 scenarios that should make it clear when you should consider using savings to pay off debt.

4 Things To Think About Before Using Savings For Debt

#1. Will It Expose You To More Debt?

Many times taking savings and paying off debt isn’t a smart idea. The reason is because it exposes you to more debt. For example, let’s say you have $5,000 of debt and $2,000 in savings. If you use your savings to pay down your debt, you still are in debt of $3,000.

In addition to this, you now have no savings at all. What if something happens and you need money? Chances are you will have to use your credit card to cover it. Now you are back to a higher debt level and you have no savings at all.

I know you want to get rid of your debt quickly, but using your savings in this manner is only going to lead to more trouble.

#2. What Is The Interest Rate?

Another thing to think about is what is the interest rate on the debt? If it is around 3%, it is essentially interest free debt. This is because inflation averages 3% a year.

The lower your interest rate, the less you have to worry about how much more you will be paying in terms of interest. Of course you still want to get out of debt, but paying 3% in interest is a lot more tolerable than paying 14% interest.

#3. Is The Interest Tax Deductible?

In addition to a low interest rate, you need to know if the interest is tax deductible. If so, the true interest rate you are paying is lower than what it states since you can write off some of the interest on your taxes.

Again, I’m not suggesting you just carry debt for a tax write off, but having the ability to write off some of the interest does take away some of the pain of carrying the debt.

For example, my wife and I have a mortgage. We want to get rid of it quickly, but instead of paying extra each month, we put the extra money for the mortgage in a bond fund. This allows us to take advantage of the interest deduction on our taxes and still come away with paying off the mortgage early.

#4. Have You Gotten Your Spending Under Control?

Finally, before you even consider if you should use some savings to pay off debt, you need to be honest with yourself. Is your spending under control? In other words, are you going to start racking up more debt once you pay off your current debts or are you going to live debt free?

I know in an ideal world you will never get into debt again, but you have to be real with yourself. Is your spending really under control?

If it is not and you take savings to pay off debt, you are just going to end up back in debt with no savings at all. Much like the first point.

When You Should Use Savings To Pay Off Debt

All this leads to the safest time of when you should use savings to pay off debt. The safest time is when you have a small chunk of debt left and you have your spending under control.

At this point, you can take your savings and wipe out the remaining debt you have. The reason this is OK is because you can now move the money you were putting towards your debt every month into a savings account to quickly replenish it back to a safe level.

Final Thoughts

At the end of the day, you are better off not taking savings and putting it towards debt. There are just too many things that can go wrong. And when they go wrong, you will get depressed because you still have debt, and in some cases more debt, and no savings at all.

I would only recommend using savings for debt when you are at the very end of paying off your debt and can use the money you were putting towards debt to rebuild your savings.

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