New Years Resolutions Revisited - How YOU Doin'?

We are about ten weeks into the new year, or about one-fifth of the way through, depending on how you look at it. Remember the New Year's resolutions you made back on January 1 - hopefully in a reasonably sober state? I do. I posted them here (note to self: dumb thing to do). I guess ten weeks is as good a marking point as any to do the first check-up.

#1 - I resolve to take more days off from work in 2007. Hmmm...this is not going as well as I'd hoped, but it is not a complete failure, either. So far, I have used zero vacation or sick days this year - and along the way, I have accumulated more. But, I used my one personal day and the comp day that I earned for working a weekend when we hosted a tour for guidance counselors. Those days were used on my previously mentioned Houston/Austin, TX trip. I also took some partial days off to go and watch our school's basketball teams play some road games. Unfortunately, it is the second week of spring training, the ACC Tournament is going on right now nearby, and our women's basketball team is playing in a regional tournament this week, too. Me, I will be at work. :-( This needs work. Perhaps after I do my taxes, I will start planning summer vacation.

#2 - I resolve to blog more often in 2007. This one is, for now, a win. I am ahead of my pace from last year, and I have been submitting articles to blog carnivals to drive more traffic. I even started my own - the Carnival of Dining Out, which has had two successful issues, so far. I have also begun the work on a new online project that I hope to launch soon. When this happens, I will have to consider this one in the win column.

#3 - I resolve to further reduce my outstanding debt in 2007. The only additional payments that I have made so far have been an additional $50/month on my condo mortgage. I have been earmarking some additional money to pay down my student loans, but I haven't made the payment yet. Also, I have been using part of my travel reimbursement checks to pay down student loans. To date, I have not had any work travel, but expect some coming up in the next few months. I don't know if I am willing to consider $100 of extra principal paid on my mortgage as a true win here, but it is no worse than a push.

#4 - I resolve to make more money in 2007. Kind of like the mortgage payments, the only additional money that I have made when comparing this year to last is the simple change in my salary from one year to the next. Money earned from blogging (actually in my pocket) is zero, but there has been an increase in my AdSense account, and I will hopefully cash a check from them in the near future. If my new online venture hits, there will also likely be a small revenue stream there, too. I have yet to sell anything on eBay, or anywhere else. My latest obsession is covered call options in the stock market. If anything pans out in that direction, I will post some details. I have also been floating a few bucks into Prosper - mostly for giggles - but, I am earning a return of 13.6%, so far, on a small investment. I was willing to call the previous resolution as "no worse than a push," but this one will have to be labeled as "a push, at best." Still, I think things are heading in the right direction.

#5 - I resolve to live a healthier lifestyle in 2007. I knew this would be the toughest one. Let's see - I have eaten more at home - or homemade foods at work for lunch. This has had the side benefit of being frugal, too. Unfortunately, when I cook for myself, one of the things that goes out the window is portion size. Last month, I made a conscious decision to cut out fast food of any kind - I called it "no food that is delivered to you in your car, through a window." I was pretty successful - only two window trips, and one was almost unavoidable. I had no Chick-fil-a, which I do enjoy - and no morning stops for Dunkin' Donuts (medium coffee and two donuts - more than $3!) - so that helped eliminate some of my own "latte factor." Now I need to cut out Publix chicken tenders, and I will really be on the right track. I still lacked in the exercise department. I played tennis once - which is once more than I had played in the previous ten weeks. Net result - no weight gain, but no weight loss. Again, this looks like a "push-minus."

I think that was a pretty objective view of the situation. All in all, I would give myself a grade of C. There is significant room for improvement, but I do think that I am on the right track. So, how did you all do??? Come clean. No one's keeping score.

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Just How Much is None?

The other night, I had dinner with a close friend. One of our conversation topics was debt consolidation and finances (yes, this friend is close enough that we can talk about such things and still leave friends). We have previously discussed my desire to become debt-free, and the small steps that I am taking to make that happen. His life is different than mine -- wife, kids, big house, car payments, better paying job, etc. I don't really know who is "winning" or even if we are keeping score, but he is happy, as am I -- and we are living our lives very, very differently.

I mentioned in the course of conversation that I have applied some of the principles I have learned from a personal finance radio program, The Dave Ramsey Show. I like Dave Ramsey -- well, I started to like Dave Ramsey a little more once I figured out that I had to weed out all of the God-related stuff. I believe that the personal finance ideals are good enough without the aspect of formal religion that I am willing to overlook that aspect of the show. Most days, he does not shove religion down your throat -- other days, it seems like I am listening to Rev. Jerry Falwell. Anyway, Ramsey preaches that debt-free means no outstanding debt except for a personal mortgage (15-year, fixed rate). When I told my friend this, he looked dumbfounded. He asked what are you supposed to drive? When I answered "a car that you can afford," he looked a little dumbfounded again.

He told me that he is resolved to having a mortgage (30-year, fixed) and at least one car payment -- maybe two. He looked at me like I had six heads when I said that I would never have a car payment again. Mind you, I am fortunate. I "inherited" an almost new vehicle last year -- no payments, and very reliable. If I am not able to save for a new car when I am ready to purchase one by the time this one needs to be replaced, I am doing something very wrong. He admitted that this was a sound plan, but he was skeptical that I would have the means, the fortitude or the stamina to make this plan work. I don't know how it will work out -- but, in a few years, one of us is going to be right.

I still need to pay off my outstanding student loans and a couple of hundred dollars in 0% credit card debt. When that is done, all that will remain is a relatively small mortgage. Frankly, I don't know when all this debt will paid off, but I know that I am on the right track.

On the other hand, I worry about my buddy. I tried to share what I am doing without preaching or telling him what to do. I know that not everyone makes the same decisions, but I have tried to outline for him all the questions he should ask before moving forward. Here is a guy who makes significantly more money than I do, and owes even more -- without the student loans. He borrowed money from his 401k plan to finance the closing costs on his recent home purchase. He told me at the time that he planned to repay the 401k loan with the proceeds from the sale of his previous home. To date, the old home has been sold, but the 401k loan is still outstanding. He argues that he is paying himself the interest on the loan balance -- and could pay off the remaining balance if he needed to change jobs or the loan was called due for some other reason. He cleared a substantial profit on his old home, and told me that he was planning on paying down his new mortgage with the proceeds from the sale. That never happened. He still has this money - and I think he is waiting for some Ralph Kramden-like scheme to parlay that money into something bigger -- but, the outstanding debt that he needs to deal with would just scare me to death.

We ended our conversation with him telling me about his plan to purchase a recreational boat. I know that it makes more sense to me to want to pay off the outstanding 401k loan, pay down the mortgage, save for the kids college education, pay off one of the cars, etc. than to buy a boat, but I hate to think of myself as judging someone else. Just doesn't seem like the way I would handle the situation myself. But, he does believe that because he doesn't have any credit card debt, that he is debt-free.

I know that there is a reason that I am single. Finding someone else who could think like I do about relationships is one thing - but, realizing that many people my age are still in full on accumulation mode and have different financial goals than I do, makes the thought of finding "that perfect someone" even more remote.

So, the question remains, how much money do you figure one can owe, and still consider themselves debt-free?

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Stuff You Oughta Know About Filing the FAFSA

This is actually Part II of a previous post. I know it was promised "tomorrow." I don't suppose you are willing to believe that today is yesterday's tomorrow?

I was talking about things you can do (legally and ethically) to reduce your EFC and increase your chances of getting a favorable aid award from colleges. What follows is a list (by no means complete) of some suggestions to help you do this. If you have any ideas of your own, please post them in the comments section. The advice included is that which should be considered for filing the FAFSA, and assumes their Federal Methodology. Some universities consider additional information not submitted on the FAFSA -- the more people game the system, the more colleges have to figure out a way to get the accurate picture they need to dole out their resources.

There are some key things to keep in mind. Analyzing this type of information is not something that most colleges are fond of. An argument can be made that these actions are designed to make wealthy people, who can theoretically afford to pay for college, appear "poor" to get something for nothing. I have yet to meet too many folks who can simply write a check to pay for college, and until those folks become the rule rather than the exception, I think it is a good idea to share some tips. Also, remember that these ideas are those of some guy you are reading on the Internet -- a guy who does have some experience dealing with these situations, but a random "guy" nonetheless. This advice should not replace talking with financial aid professionals at the schools you are deciding between (all schools' Financial Aid offices operate differently), your tax consultant, or a certified financial planner. If you want to know, keep reading...

Plan BEFORE You File
Filing the FAFSA is pretty much the same thing as taking a photograph of financial picture at that one specific date. Your income, assets, marital status, and all other circumstances are all static at that time. If you plan on following ANY of these suggestions, you will receive the most benefits by doing so BEFORE you file.

Reduce Your AGI
This doesn't sound like a good plan yet, does it? You might be thinking, "the best way for me to pay for college is to make LESS money?" Well, no. If you just want to "PAY" for college, then just make MORE money, and write the college a nice, fat check. Since that isn't likely to happen, maybe my idea has some merit. First, we are talking about "Adjusted Gross Income." There are ways to do this:

Increase contributions to your IRA to the maximum allowed. This is something that you can still do for the 2005 tax year. 2005 IRA contributions can be made up until April 15, 2006. If you are planning ahead, have your employer withhold a greater amount of your income for your 401k/403b contribution.

Minimize your capital gains. In most cases, capital gains are treated like ordinary income for the purpose of determining EFC. Try to schedule selling stocks for which you will have a large capital gain either before your child's junior year of high school (before the tax year for which you will be filing your first FAFSA) or late into your child's junior year of college (after the tax year for which you will be filing your child's last FAFSA). For tax purposes, you can use capital losses to offset regular income, but for FAFSA filing, this is generally not the case. You can, generally, use capital losses to offset capital gains, but you would do best to check with the college's Financial Aid Office to check first.

Postpone your annual bonus. Some companies will allow you to defer your annual bonus, some will not. It doesn't hurt to check. Since your child is likely to be in college for more than one year, this is really only delaying the inevitable. But, in the course of one year, you may be entitled to more aid, and you now have one more year of time to plan for next year.

Take an upaid leave of absence. OK...this one seems a little drastic, but if you were considering it anyway. Included in this suggestion is to reduce salary taken from your own business (works if you are a C Corporation). There will be an increase in the value of the business (an asset), but that usually has less negaive reprecussions than income or savings.

Reduce Your Savings
Now that I've got you making less money, you should also spend frivously that which you have saved until now. Ummm...no. But, the two things that are considered above almost all else in determining eligibility for financial aid are the parents' income and assets. The first asset that is called upon in determining EFC is cash on hand -- money in your savings. Making that number lower is one way to increase eligibility for aid. How to do this:

Increase contributions to your IRA to the maximum allowed. Remember, this is something that you can still do for the 2005 tax year. 2005 IRA contributions can be made up until April 15, 2006. Is this starting to sound like deja vu? It should. Maxing out your retirement contributions reduces your income and reduces your cash on hand. Retirement savings are considered excluded assets when calculating EFC. Even better, funds held in a Roth IRA can be used for higher education expenses. Are you with me? Making the $4,000 annual maximum contribution to your Roth IRA reduces your savings account by $4,000 for calculation purposes, but if you choose to use the money to pay for education, there is no penalty for early withdrawl. Also, as was discussed above, increasing your 401k/403b contribution for next year will shelter more money that would otherwise be savings.

Reduce your consumer debt as much as possible. In addition to saving a considerable amount on high interest credit card debt, paying off your credit card balances will reduce the amount of cash you have on hand. Most outstanding consumer debt is not considered when determining financial aid. In addition to credit cards, this also applies to car loans -- so, paying off the SUV will reduce your savings, save you money in interest payments to the bank, and allow you the flexibility of an additional +/-$400 per month.

Pay down the mortgage on your primary residence. Equity in your family's primary residence is not considered at all in determining financial aid. Also, the mortgage on a second home can be used to offset assets -- debt which is secured by property is considered in the need analysis.

Don't transfer money to your soon-to-be college student. This goes against what your tax planner has been telling you for years, no? Yes, you can reduce your TAX obligation by gifting money to your children. However, getting aid to pay for college has nothing to do with your tax obligation. First of all, any money that you give to your children becomes their assets -- and that has a number of ramifications. They may choose to use the money for college, or not. It's their money. If they do choose to use the money for college, chances are they will eliminate all or most of their chances to receive aid. Students' assets are calculated differently in the Federal Methodology -- they are expected to contribute a much greater percentage of their earnings and their assets to their education.

Don't wait to make impending purchses. There are a number of items that are excluded from the Federal Methodology of determining EFC. Cars, computers, school supplies, clothing, and believe it or not, boats are excluded assets when determining EFC. I am not suggesting that you go out and blow all of your money, but acquiring excluded assets with cash will increase your chances of receiving financial aid. If you were planning on purchasing a new car anyway, then you should do that BEFORE you file the FAFSA. Keep in mind, though, that student assets are treated much differently than parent assets. So, buying your little angel a $35,000 BMW for their high school graduation gift seems like a good idea (does it, really?), student assets are counted differently and should be factored into that decision.

There are a few more topics to be discussed, including 529 Plans, Grandparents, the students' actual financial situation, and "special circumstances." I will try to get that post done and up in the next day or two, but I am done making promises.

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