How to Send Your Kid to College Without Taking on Debt

Raising a child is expensive. Just ask anyone who’s had a baby. Parents can expect to spend thousands of dollars — whether it’s for painting the nursery or buying diapers and clothes — before their child is even a year old.

Parenthood only gets more expensive as your child grows older. According to the U.S. Department of Agriculture, the average cost to raise a child today is about $234,000 over 18 years. That works out to $13,000 per year — a figure that pales in comparison to what you’ll likely spend annually to send your child to college.

Higher education at a high cost

Today, the average cost of attending a public university, including room and board, is about $25,000 a year. For a child born in 2015, the cost will be double that amount if recent education inflation (currently about 5% annually) continues. That translates to about $200,000 for a bachelor’s degree. Ouch!

Sure, your child can apply for scholarships, and parents can tackle the Free Application for Federal Student Aid form to seek financial aid. But barring a full ride, you or your offspring will need to cover the remainder of the costs by paying out of pocket or with personal loans. These high-interest-rate student loans are one of the key reasons so many young graduates are saddled with mountains of debt.

Tips to help avoid college debt

What can parents do to prepare for and manage these staggering education costs?

Here are a few options:

  • As soon as your child is born, start a 529 college saving plan. This is a state-sponsored savings plan, and the growth of the account is tax-free if it’s used for higher education. You’ll probably have to contribute $500 each month to fund most of your child’s education expenses. If you can’t afford that, start with half that amount. Also, encourage grandparents, aunts and uncles to contribute to this plan.
  • Set up a UPromise credit card account. You will earn 1% to 2% cash back on eligible purchases, and this money can be directly transferred into your 529 plan.
  • Pay off your mortgage early. If you pay your mortgage off in 15 years instead of 30, you can then apply the amount you save to college tuition.
  • Have your child attend a local “commuter” college. Having your college student live at home can add up to big savings. The downside, of course, is that your child might miss out on the more traditional college experience.
  • Have your child start off at a junior or community college. For the first two years of college, you could send your child to a junior or community college. If your child excels and later transfers to another university, the degree will state where your child graduated from, not where he or she initially enrolled. This is a popular option in California.

With the final two options, be prepared to fend off the social pressure of not “sending your kid away to college” — and remember that few 18-year-olds can fully comprehend the magnitude of being $100,000 or more in debt.

The bottom line

If you’re just starting a family, planning now for your child’s education can save you six figures by the time your child is ready to go to college. With that kind of savings, your child can pursue his or her passion rather than opting for a “safer” career merely for the sake of paying off college debt.

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Robo vs. Human: Choosing the Right Advisor for You

There’s a new force in the financial planning industry — “robo-advisors,” automated online money management platforms that handle your portfolio without the involvement of a human investment advisor. Whether a robo-advisor is a good option for you depends on your circumstances. To decide, start by considering the differences between a robo platform and a traditional financial advisor.

Although the automated nature of robo-advisors is relatively new, what they actuallydo is not. Robo-advisors take a disciplined and diversified approach to investing using low-cost exchange-traded funds (ETFs). Many human advisors have offered the same thing for years, but robo-advisors typically make it very convenient to open an account online and give their customers a better online experience.

Robo-advisors also charge very low management fees, usually ranging from 0.15% to 0.5% of the assets they manage for you. Traditional investment advisors charge about 1%. What’s more, robo-advisors will work with individuals who have as little as $500 to invest. These distinctions are very appealing to younger investors.

But despite the presence of the word “advisor” in the nickname, robo-advisors don’t actually offer advice beyond the investment algorithms they use. In that sense, they are simply an investment platform. And it’s important to remember that investments are just one part of your financial security. Human advisors offer comprehensive planning that robo-advisors can’t and ask questions that the online services don’t.

For instance, robo-advisors are not designed to answer such key questions as:

  • Am I saving enough for retirement?
  • How should I pay off my student loans?
  • Can I send my kids to college without taking on a lot of debt?
  • Should I buy or rent a home?

They can’t answer such questions because an algorithm cannot understand your goals, dreams or desires. Only a human advisor is capable of listening and understanding what your real needs are and creating a plan for your financial success. No client fits neatly into a box; every client has unique needs.

If you’re young, have only a small amount of money to invest or have fairly simple financial needs, a robo-advisor may be best for you. However, if you’re older, have more complex needs or want a more customized financial plan, there is no substitute for a forward-looking conversation with a human advisor.

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Real Estate vs. Stocks: What Trump Can Teach Us about Investing

Is real estate or the stock market a better investment? Of course, this is an apples-to-oranges comparison, but the argument never ceases.

Many pure real estate investors will rarely, if ever, touch a stock or even a bond because they prefer tangible investments and the steady income that real estate can produce. Investors like myself who favor the stock market — and never want to be awakened in the middle of the night over a leaky roof — stay away from owning rental property. Both sides argue that theirs is the better way to invest.

Let’s look at one of the best-known businessmen of our time, Donald Trump, to see how his wealth grew with real estate. As columnist Joe Nocera wrote in The New York Times last week, Trump’s record is mixed. The son of a wealthy real estate developer, Trump was often bailed out by his family, and there were several times when Trump properties declared or came close to declaring bankruptcy. These setbacks demonstrate how challenging real estate investing can be, even for those very experienced in the field.

It’s also risky. As Trump grew older (and wiser), he became more risk averse. Instead of building new properties, he managed them, licensed his name and became a reality TV star.

Today Trump claims to be worth $8 billion, a lot of money. But what if he had put his money in the stock market rather than real estate. Nocera looked back at Trump’s net worth in 1988 and calculated that if Trump had invested that money in the S&P 500, he would be worth $13 billion now. So, he suggests that Trump’s real estate investmentscost him $5 billion.

But who are we kidding? If you had $8 billion, would you really care about having $5 billion more? I certainly wouldn’t. And you don’t become “The Donald” by investing in the boring old stock market.

So whether real estate or the stock market is a better investment is still not easy to answer. Perhaps the biggest distinction between these two investments is that stocks are more volatile, which is a key reason for their superior returns. On the other hand, real estate is costly to maintain, as one of my client’s found out recently when the rental property she inherited needed nearly $10,000 in repairs.

Some of my smartest clients own real estate, stocks and bonds. They know that each investment will rise and fall, but they are confident that they will do well in the long term. And for a person like me, who doesn’t want to own physical properties, there are ways to invest in real estate through the stock market, an attractive alternative. You can own shares of office parks, retail shopping centers and health care facilities — and never lift a hammer.

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Running a Business and Running an Economy are Two Different Things

Two of the most newsmaking candidates running for the office of President of the United States are businesspeople—Donald Trump and Carly Fiorina.  They are number one and number two, respectively, in a recent poll.

Fiorina’s numbers surged in the polls after the September 16 debate.  She had done her homework and came prepared.  Moreover, she may even have gained more support from some women after Trump momentarily turned the debate into one of his pageants, commenting on Fiorina’s looks.  It was a cringe-worthy moment and one that a man would never have to endure.  Perhaps the best moment of the debate, though, was when these two businesspeople took jabs at the other’s business record.

In his September 22 New York Times column “Trump and Fiorina’s Snake Oil,” Joe Nocera took a closer look at their business records, and as his headline suggests, both are peddling something of no real value when they tout their leadership credentials.

We all know that Fiorina was fired (and for good reason) by her board of directors when she was CEO of Hewlett-Packard.  Nocera writes:  “The company’s stock price dropped more than 50 percent during her tenure, compared to a 7 percent drop in the S&P 500.  And net earnings dropped to $2.4 billion from $3.1 billion during that same time.  The Compaq merger, meanwhile, was a misguided fiasco; today, virtually all remnants of it have disappeared from HP.”

Nocera goes on comparing Trump to a modern-day P.T. Barnum writing about the numerous times when Trump had to bailed out by his father and siblings.  He even had to be put on a budget and certainly wouldn’t be where he is today without his father’s money.  Only more recently, has Trump gotten wiser and more risk averse; he has stopped building properties and instead, manages them.  Today, he mostly licenses his name on properties that he doesn’t own.

Trump claims to be worth $8 billion which is a ton of money.  However, Nocera writes, “if in 1988, he had simply put his money in a stock index fund, it would be worth $13 billion today.”  In effect, Trump’s business “expertise” cost him $5 billion.

Despite these facts, Trump and Fiorina will continue to defend their business records and say whatever they have to to get elected.  What they fail to understand and what so many voters fail to understand, is that running a business and running an economy are two very different things.

Running a business is about profit.  Running a government balances providing services within a budget while regulating an economy.  For an economy to be described as successful, it should be inclusive and sustainable.  A successful economy is one where conditions allow anyone willing to participate to do so at their full potential.  It’s about sustaining and creating which are essential to the common good.

Ironically, Trump & Fiorina are seeking the highest office in the land derived from their “success” as businesspeople, and they’ll continue peddling their snake oil as long as the American people buy into it.  But neither seems to get that leading a corporation does not qualify you to lead the free world.