Friday, September 30, 2005

College Financing Calculator

Even though my college days are a ways off, it's never too early to know where the resources that will be useful for college are located.

For those looking to get a rough estimate of coolege costs and what you may be expected to pay, you can use the College Board's college financing calculator to get a rough estimate of your costs.

The estimate will be quite rough since there are a lot of contributing factors that it can't take into account, but for those who would like to see a number, it can be a good place to begin.

Free College Savings Plans

I am beginning to learn about the free college savings plans that are out there. The four that I have come across so far are Upromise, BabyMint, The Education Plan, and futuretrust. Basically, you sign up with them and then if you make purchases through them with their paticipating stores, they kick a small amount of money for your 529 college savings plan. I need to do a bit more research on each of them and will likely sign up with all of them to see which one is the best. I'll be reporting on my findings as I do that and hopefully this will also add a few extra dollars into my account.

Another $20 Into The Pot

I had another 2 referral sign ups from ING come through today which added another $20 to my growing nest egg. That means I'm up to $2100 and haven't even reached the ripe old age of 3 months yet!

Thursday, September 29, 2005

The More I Save, The Less Aid I'll Get Myth

As I was sitting in my baby carriage minding my own business and dozing off to sleep, I happened to overhear a conversation between my mom and one of her friends. My mom was was explaining about how we were already beginning my college savings to which her friend replied, "it's not worth saving money for college because the more you save, the less aid you're child will qualify for."

Well, this certainly woke me up and mom had to shove a pacifier in my mouth to keep me quiet. I had a conversation (well, I gurgled and listened) with my uncle about this concern and knew that saving money for college will reduce aid is largely a myth.

First off, it's important to remember that a lot of financial aid is in the form of loans. So when you have saved money, you're less likely to need to borrow money and thus won't need this form of financial aid.

There are a few issues that you need to be aware of that can help you save money while not affecting the financial aid that you qualify for. The main issue is that I don't want a lot of the college savings in my name. If the money I save for college is in my name, up to 35% of it may be counted against the aid distribution formulas. now if the money is in my parent's name, those same aid formulas will only count 5.6% of my mom's and dad's assets.

While the Coverdell ESA and 529 Plans are set up and meant for me, they're classified as "parental assets" instead of my assets under federal aid rules. Another aspect that makes them an appealing way to save for college.

While saving money now may mean that I qualify for a bit less in financial aid when I go to college, it certainly won't be a dollar for dollar reduction. I would much rather have the savings than the loans. While saving for college will reduce financial aid may be a convenient excuse for parents not to save, it's a false excuse that should be avoided.

Wednesday, September 28, 2005

ING Referral Bonuses

Let's hear it for the ING referral bonuses! I've already received 3 which has added another $30 to my college savings. For any of you that want to help me increase my college fund and also would like to get a $25 bonus into your account, simply email my uncle with your first and last name. There are no fees with the account, it currently pays 3.4% in interest and you only need a $1 to open the account.

Tuesday, September 27, 2005

Carnival of Personal Finance #15

I'm a little late getting this up, but this weeks Carnival of Personal Finance is up at Free Money Finance. There is quite a few articles this time and my contribution was Why Compound Interest Loves Time. These carnivals always have a wide variety of articles that make for good reading, so check them out if you have the chance.

ING Account $50 Bonus

My uncle sat down with my mom and got her to open up an ING savings account that will be dedicated to me. She wanted to try an account out in her name first and if it works out well, then she will open another joint account with me as the primary account holder. Mom is a little wary of submitting information over the Internet because of some problems of identity theft from the past, but I'm hoping it all works out fine and we can add some more money to my savings.

My uncle found a $50 deal through taxact which is better than their normal deal of $25 for signing up through a friend. That adds an extra $50 to my savings. There is also the possibility of referring 25 more people which would add another $250 to my savings which my uncle said he'd help me do. Then if mom agrees to put an account in my name, I can earn even more money toward college saving.

Saturday, September 24, 2005

Coverdell Education Savings Account

My uncle and I have been researching the different education savings opportunities that I have. Even if I don't think that I will use any of these, it's always a good idea to know all the different education saving opportunities that are out there.

Today I learned (well, listened, drooled and smiled) while my uncle explained a bit about the Coverdell Education Savings Account (also referred to as CESA). This is what was formerly known as an Educational IRA.

The Coverdell Education Savings Account is basically a savings account that was created as an incentive to help parents and students save money for the child which can be set up at most financial institutions. It's quite similar to a 529 college savings plan, but comes with many more contribution limits and restrictions. There is a $2000 per child per year contribution limit. In addition, the adjusted gross income of the family must be less than $110,000 (for singles) or less than $220,000 (married filed jointly). In regard to financial aid eligibility, the Coverdell Education Savings Account is classified as the parent's asset. This means that 6% of the account value counts against your kid's financial aid eligibility.

While this doesn't look like it will do as well as the antique investing and then a 529 plan, it was good to get a perspective on another possible saving account for education.

Wednesday, September 21, 2005

Why Compound Interest Loves Time

One of the things that I know I have on my side starting to get my finances in order at an early age is "time." When it comes to compound interest, time is your best friend. I will have close to 18 years of compound interest for my college education fund and over 60 years of compound interest for my retirement fund. One of my favorite examples of how powerful compound interest can be is the story of the American Indians and the $16 in beads and trinkets they received for an island called Manhattan.

In the early 1600s, the American Indians sold an island, now called Manhattan in New York, for various beads and trinkets worth about $16. Since Manhattan real estate is now some of the most expensive in the world, it would seem at first glance that the American Indians made a terrible deal. Had the American Indians, however, sold their beads and trinkets, invested their $16 and received 8% compounded annual interest, not only would they have enough money to buy back all of Manhattan, they would still have several hundred million dollars left over. That is the power of compound interest over time.

I did a few calculations:

For my college education, if I take the $2000 in principal I have now and can add $50 a month to it then I will have over $35,000 for college (assuming a 9% return). If I can save $100 a month for education, I'll have over $63,000 for college education.

If I wait 5 years to begin the compounding my results would only be $21,000 and $36,000

The savings are even more promising for my retirement. With no starting savings at the moment, if I can save only $50 a month for my retirement, I can have over $1.2 million in 60 years. Bump that up to $100 a month and I'll have over $2.5 million in the bank.

If I wait 10 years to begin the compounding my results would only be $533,000 and $1 million.

Time and compound interest go hand in hand and that is the advantage of starting my (and for anyone) savings early. Even those small amounts in the early years will pay off tremendously in later years.

Tuesday, September 20, 2005

Maia Joining Me

Just as my uncle has decided to help me with getting my personal finances in order at a young age, he has also decided to help his best friend's daughter (whose name is Maia) be ready for college. She's a year older than I am at 14 months, but still young enough so that there is plenty of time for years of compound interest to accumulate. While the gift will be a bit less than what I received, he's planning to make the same types of investments as he will with my money.

The first order of business was to see if Maia's parents had and college savings already set aside for her. While they were planning to open up a 529 college savings plan for her, they still hadn't gotten a social security number for her (she was adopted from China). So he told them that their first order of business was to get that social security number for her.

Since some states have tax advantages for those that open up 529 plans in their own state, he looked into that. Colorado (where Maia lives) does offer some extra tax benefits to those who open 529 plans through the state and are also residents in Colorado. They therefore decided to open the account in Maia's parent's name so that they could also receive the tax benefits with opening a 529 savings plan.

After discussing the different options and whether they would like the lump sum deposited into Maia's account as soon as it is set up or to invest the money into Japanese antiques like I decided to do, they also opted for the antiques. While I will still focus this blog on me and my personal finance journey, I will also mention Maia from time to time to discuss alternative options where we might decide to invest differently.

I'm happy that Maia has decided to join me in my quest and I hope we can both be financially independent and responsible as we grow up.

Monday, September 19, 2005

Carnival of Personal Finance #14

The latest issue of the Carnival of Personal Finance has been posted at Optimized Living. There are over 25 articles about personal finance from some of the best personal finance and saving money bloggers around. Included is my article The Perfect Baby Gift about 529 college educations plans. There is always great information and I'm sure that I will read a lot more of it as soon as I learn to read :)

Wednesday, September 14, 2005

A Perfect Newborn Gift - 529 College Saving Plan

Let me tell you a secret. I'm not old enough to care how I dress at the moment. I'm just trying to learn to lift my head. No matter how cute the outfit is you're thinking of buying for me, I guarantee I will never remember it or appreciate it at a later date. I'll probably only get a chance to wear it a time or two before I grow out of it. Chances are that I will spit up all over it. It won't impress me in the least bit and the only way that it may ever be remembered by anyone is if I happen to be wearing it when a photo is taken. In other words, that outfit you're thinking about getting me isn't really a gift for me (it's simply a gift to my parents).

If you really want to give me a gift that I will appreciate, it will have to be something that will still be around when I am able to function as a young adult or at the very least, be able to understand the concept of a gift. While you may think that finding a gift that can do this will be difficult, the truth is that it's extremely easy to do. Give me an investment in my future. Simply take whatever amount of money your were planning to spend on gifts to me and set it aside for my education fund.

The amount of money given is of less importance in the long run than actually helping my parents get a college saving account set up. This is because I'm keeping them plenty busy these days and they are so overwhelmed with other stuff that even though they know saving for college is important, it has been put on the back burner. If you can do the legwork and open a college savings account for them, you'll be providing a valuable service for them as well as giving them an easy way to save for my education in the future.

Consider opening a 529 plan fund for me. Not only will this give a small start to my college fund, your gift to me will also be a tremendous gift to my parents. There are a couple of ways that you can go about doing this:

You can either open the 529 plan account in your name or help to open the account in my parent's name. Which is better depends on what your goal for the account is.

If you're looking to help my parents begin saving for my college education, then setting the account up in their name and making a contribution to that account is the way to go.If you are planning to help and make consistent contributions yourself to the fund, then creating the account in your name and making me the beneficiary may be the way to go. Either is far superior to that outfit you were thinking about buying.

Some basic information about 529 plans for those that aren't familiar with this college saving opportunity:

The 529 plans are named after a section 529 of the Internal Revenue Code which established them.

Contributions to 529 plans use after-tax dollars. The money in the account grows tax-deferred. No federal or state taxes are owed if the funds are used for qualified college education expenses such as tuition, books, room and board.

The 529 plans are not a federal program. Each state has their own individual plans. It's not necessary to invest in your state's plan, but some states have added tax benefits for residents that invest in their state's 529 plan.

Each state usually offers a number of investment options under their 529 plan. The investment choices are usually conservative, with many offering plans where the investments gradually shift toward shorter term and safer investments as the beneficiary nears college age.

The funds in the 529 account can be used at any accredited public or private college in the United States - it doesn't have to be in the state where the plan is set up.

When you open a 529 plan account, the adult is the account holder with the child being the beneficiary

Most state 529 plans require a small minimum investment to open an account. Accounts also have maximum amounts that can be contributed for any one beneficiary.

It's usually possible to contribute through payroll deductions.

It's possible for a number of people to open accounts for the same child as long as the combined amount does not exceed the plan's maximum level.

If the money in a 529 plan is used for expenses other than those specified as qualified college expenses, the earnings are subject to taxes. In most cases, this is a 10% penalty.

The account owner may change beneficiaries if they wish.

Tuesday, September 13, 2005

Quick Acceptance

While the initial email said that the adsense application would take 1 to 2 days, my acceptance email arrived after only a couple of hours. My first potential source of income!

How To Invest? 529 Fund or Antiques

Now that I have $2000, I need to decide how to invest it. At this point my main focus will be getting my college education fund. While I am considering opening a 529 Fund for this purpose and that would be the typical way to go, my uncle has offered to do some investing for me in Japanese antiques. While there are some risks involved in investing this way, the payoff will be much greater if the investments work out.

It helps that he has a track record and is familiar with Japanese antiques so I do have confidence that this will work out better than simply placing it in a 529 fund and leaving it there at the moment. After having a conversation with my uncle where I gurgled (what do you expect at 2 months?) a lot and he explained his plan, I smiled to show my agreement to the plan.

He will begin the investing when he returns to Japan at the end of this month. I hope to double the current amount I have by my first birthday.

Generate ROTH IRA Income

Along with saving for my college, I also want to to begin investing for my retirement. In order to do that, I need to generate income so that I can open and make deposits into a Roth IRA. In order to generate some of my own income at this very young age, I've decided to sign up for google adsense. My plan is to place up some ads up and as this blog grows in popularity, I will place 100% of the funds generated into a Roth IRA account for my future retirement. I have made the application and waiting for it to be approved.

I'm hoping that by starting early the compound interest will mean that I will only need to place a little money up front now to be secure in my retirement years down the road. Even if the deposits are only a bit each year, it will still be better than nothing at all.

Friday, September 02, 2005

Financial Baby Steps - The Beginning

Hi, My name is Margot and I'm the the baby behind the financial baby steps blog. Of course, I can't quite take baby steps yet (I'm only a month old), but that doesn't mean I can't get my finances in order from day one. So how does one start their financial baby steps before they can even walk? In my case, it's thanks to my uncle who is giving me a bit of a head start.

He decided that instead of giving me clothes or some other baby item when I was born that he'd take care of my finances and teach me along the way. The first step he took was to give $1000 of his own money and get grandma (Nana) and grandpa to chip in another $500 each. This puts me in a great financial postion for my age -- at the ripe old age of a month old I'm debt free with savings of $2,000. I bet a lot of you wish you could say the same!

The following is my blog and how my finances grow as I do (with a bit of help from my uncle until I learn to type). I hope you enjoy and cheer me on to my goal!