In my last few columns I have discussed step 2 of Dave Ramsey's Seven Baby Steps (see http://www.daveramsey.com/new/baby-steps/). This week I will answer the question, “how it is possible to get an education without student loans?” Believe it or not, it is possible to get a good education without student loans. For some, student loans are avoidable because of parents or full-ride scholarships. For the rest of us, they can be avoided through hard work, discipline, and sacrifice.
One of the best ways to pay for an education is to work part-time while going to school and full-time during the summer. Studies have shown that students who work up to 20 hours per week while going to school full-time actually get better grades than those who don't work. If you have a part-time job, you will be forced to make your study time focused and effective. If you have all day to study, it's easy to put off studying and find more fun ways to fill your time.
There are many side benefits to working while going to school, such as learning good time management skills and gaining real world experience. I strongly suggest finding work related to your area of study. Those who work during school will find it much easier to find a job after graduating because employers will look for experience in addition to education.
It is also important to work hard for scholarships, which involves getting good grades and applying for every possible scholarship. Getting good grades has a lot to do with hard work and little to do with natural brains. Many schools give full tuition scholarships based mainly on grades, and depending on the school, this could save you $15,000 to $30,000 or more over 4 years.
Do you want to earn several hundred dollars per hour? There is a good chance that the time you spend searching, applying, and writing essays for scholarships will pay off that much. There are many scholarships based on criteria other than grades, and many scholarships even go to those who don't quite meet the criteria because they are the only ones who apply! For two years I received $750 each semester because I found an obscure scholarship for those working for entrepreneurial companies. No one else applied, so I got it every time!
In addition to earning money through work and scholarships, it is also important to conserve money by following a strict budget. The danger of student loans, like any debt, is that they can take the place of creativity and sacrifice. There's nothing wrong with the character-building process of being a starving student. Figure out a budget for the bare minimum you need to survive, and stick to it. If you work hard and sacrifice, chances are you will be able to get through school without student loans. The reward of graduating debt-free will be well worth the effort!
If you have any questions you want me to address in my next column about avoiding student loans or about any personal finance topic, please email me!
Thursday, April 29, 2010
Thursday, April 15, 2010
Baby Step 2 - Living Without Auto Loans
In my last few columns I have discussed step 2 of Dave Ramsey's Seven Baby Steps (see http://www.daveramsey.com/new/baby-steps/). The baby steps are as follows: (1) save $1000 to start an emergency fund, (2) pay off all debt using the debt snowball (besides your home), (3) 3 to 6 months of expenses in savings, (4) invest 15% of household income into RRSPs, (5) college funding for children, (6) pay off home early, and (7) build wealth and give.
I will continue on my anti-debt soapbox this week because I love to hate debt so much. I promise - I will eventually move on to other topics. The question this week is, "how do I get a car without a loan?" Believe it or not, it is possible to live without a car payment. The key here is distinguishing between wants and needs. You might want a car that turns heads on Main Street, but you probably just need a car that will start in the morning and get you to work safely.
If you are really starting from scratch (and most of you aren't, so it will be even easier than this scenario), you can find a car that runs for $1000 or less, which most people could come up with fairly quickly. I'm not suggesting you drive a $1000 beater forever. The average car payment is around $500/month. Let's say that instead of having a debt payment, which includes a lot of interest, you put $500/month into a savings account. Within a year you could pay $6000 cash plus proceeds from the beater for quite a respectable car. Another year would give you $12,000, and so on until within five years (the average length of a car loan) you could pay almost $30,000 cash for a car that would turn heads.
5 years of $500/month payments at an 8% interest rate could purchase a $24,659.22 car, which means having a car payment cost you over $5000 in interest during that time. Furthermore, the average person will finance another car for another 5 years at the end of the loan term, thus continuing a lifetime cycle of car payments. If you put that $1000/year toward retirement savings at 10%/year instead of interest to the bank, you would have almost $500,000 extra after 40 years. Why not sacrifice for a short time and save your family from a lifetime of car payments that eat away at your ability to build wealth?
If you have any questions or comments, please email me!
I will continue on my anti-debt soapbox this week because I love to hate debt so much. I promise - I will eventually move on to other topics. The question this week is, "how do I get a car without a loan?" Believe it or not, it is possible to live without a car payment. The key here is distinguishing between wants and needs. You might want a car that turns heads on Main Street, but you probably just need a car that will start in the morning and get you to work safely.
If you are really starting from scratch (and most of you aren't, so it will be even easier than this scenario), you can find a car that runs for $1000 or less, which most people could come up with fairly quickly. I'm not suggesting you drive a $1000 beater forever. The average car payment is around $500/month. Let's say that instead of having a debt payment, which includes a lot of interest, you put $500/month into a savings account. Within a year you could pay $6000 cash plus proceeds from the beater for quite a respectable car. Another year would give you $12,000, and so on until within five years (the average length of a car loan) you could pay almost $30,000 cash for a car that would turn heads.
5 years of $500/month payments at an 8% interest rate could purchase a $24,659.22 car, which means having a car payment cost you over $5000 in interest during that time. Furthermore, the average person will finance another car for another 5 years at the end of the loan term, thus continuing a lifetime cycle of car payments. If you put that $1000/year toward retirement savings at 10%/year instead of interest to the bank, you would have almost $500,000 extra after 40 years. Why not sacrifice for a short time and save your family from a lifetime of car payments that eat away at your ability to build wealth?
If you have any questions or comments, please email me!
Thursday, April 1, 2010
Baby Step 2 - What's Wrong With Debt?
In my last couple of columns I have discussed step 2 of Dave Ramsey's Seven Baby Steps (see http://www.daveramsey.com/new/baby-steps/). The baby steps are as follows: (1) save $1000 to start an emergency fund, (2) pay off all debt using the debt snowball (besides your home), (3) 3 to 6 months of expenses in savings, (4) invest 15% of household income into RRSPs, (5) college funding for children, (6) pay off home early, and (7) build wealth and give.
Step 2, getting out of debt, gives me so much to talk about that I would like to continue on the subject in answer to the question, "why is debt so bad?" I don't profess to have all the answers or that my opinion is the only correct one. However, I do hope you at least take a step back and consider the impact debt is having (if you are in debt) or will have (if you're considering going into debt) on your life. Especially consider how debt adds risk (and stress) to your life.
Consider how many financial risks we face in life that we can't always avoid, such as serious injury or illness and job loss. Such unfortunate events can cause us serious hardship if don't have debt, but those hardships are compounded when debt is in the picture. In addition to worrying about the essentials of life, such as food, clothing, transportation, and shelter, what if we also had to figure out how to pay that $700/month car payment, $400/month minimum credit card payment, an $200/month furniture payment? In that moment we would gladly take back our hand-me-down furniture and reliable but not-so-flashy, 10-year-old car. When we are having trouble putting food on the table, we would regret that great vacation we charged to our credit card.
Don't get me wrong - I'm not saying that we should live in paranoia of something bad happening and not enjoy life. However, I am saying that we should distinguish between our needs and our wants and enjoy our wants when we are financially ready to enjoy them. It is my opinion and experience that the first 4 baby steps should come before expensive wants: start with $1000, get out of debt, get 3-6 months of expenses in savings, and contribute 15% of your income to RRSP's. After that you can balance extra money to fund kids college, pay off your house early, build wealth, give, and save to pay cash for your wants. Take a nice vacation. Buy a nice car. There's nothing wrong with that - if you have the cash and you've taken care of more important things first. This is one of my favorite Dave Ramsey quotes: "Children do what feels good. Adults devise a plan and stick to it."
If you have any questions or comments, please email me
Consider how many financial risks we face in life that we can't always avoid, such as serious injury or illness and job loss. Such unfortunate events can cause us serious hardship if don't have debt, but those hardships are compounded when debt is in the picture. In addition to worrying about the essentials of life, such as food, clothing, transportation, and shelter, what if we also had to figure out how to pay that $700/month car payment, $400/month minimum credit card payment, an $200/month furniture payment? In that moment we would gladly take back our hand-me-down furniture and reliable but not-so-flashy, 10-year-old car. When we are having trouble putting food on the table, we would regret that great vacation we charged to our credit card.
Don't get me wrong - I'm not saying that we should live in paranoia of something bad happening and not enjoy life. However, I am saying that we should distinguish between our needs and our wants and enjoy our wants when we are financially ready to enjoy them. It is my opinion and experience that the first 4 baby steps should come before expensive wants: start with $1000, get out of debt, get 3-6 months of expenses in savings, and contribute 15% of your income to RRSP's. After that you can balance extra money to fund kids college, pay off your house early, build wealth, give, and save to pay cash for your wants. Take a nice vacation. Buy a nice car. There's nothing wrong with that - if you have the cash and you've taken care of more important things first. This is one of my favorite Dave Ramsey quotes: "Children do what feels good. Adults devise a plan and stick to it."
If you have any questions or comments, please email me
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