student loan debt en-US Student Loans: The Third Way to Ruin Your Finances <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/student-loans-the-third-way-to-ruin-your-finances" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="Alma Mater Sculpture" title="Alma Mater" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>I've long said there are two ways people ruin their finances &mdash; loss of income or large uninsured expense. I've recently become aware of a third. (See also: <a href="">Pre-Career Advice</a>)</p> <p>The new way to ruin your finances is this &mdash; take on enough student loan debt to get a college education.</p> <p>This is new. It used to be that most people who ruined their finances did it one of the old fashioned ways:</p> <ol> <li>They suffered a sharp drop in income (such as by losing a job)</li> <li>They incurred a large, uninsured expense (such as losing a lawsuit)</li> </ol> <p>I suppose, in a sense, student loan debt is just a special case of the second, with the large expense being the cost of going to college. But student loan debt is special in a lot of ways.</p> <p>First of all, it's the only kind of debt still out there where lenders will send you money without any regard for how you might be able to pay it back. (And why should they care? Usually, the debt is guaranteed by the federal government. Plus, you can't escape it, even in bankruptcy.)</p> <p>Another way it's unusual is that the very first loan &mdash; often arranged before you even turn 18 &mdash; sets you on an irreversible path. Oh, it's not completely unchangeable &mdash; you can change your major; you can even switch to a different school &mdash; but if you change your mind and decide that you'd rather not go deeply into debt, you're left without the degree that was your main hope for earning enough money to pay the loan back.</p> <p>It's as if you'd borrowed money to buy a car without realizing that, in practical terms, you'd committed to buying seven more cars over the next four years &mdash; and if you decided you'd rather not, your first car quits running but you have to pay for it anyway.</p> <p>So, what are you're choices? Here are my thoughts:</p> <h2>The Old Usual Route</h2> <p>The standard advice has long been to pick the best college you can get into and borrow whatever it costs to get a good education.</p> <p>This may still be a good choice &mdash; particularly if someone else will pay a lot of the money, so that &quot;whatever it costs&quot; doesn't put you in debt for the rest of your life.</p> <p>So this is still a reasonable option for plenty of people. In particular, it's a fine option for rich people. (And we're not just talking about the 1% here. Probably the whole top 5% can afford to send their kids to the college of their choice with little or no borrowing necessary, if they want to bad enough.) It may also be an option for people with mad skills in one area &mdash; sports, music, anything that catches the eye of someone with scholarship money to dole out.</p> <p>If this is you, you hardly need my advice. Carry on.</p> <h2>The (Now, Sadly Risky) High-Reward Route</h2> <p>If you <em>really want</em> to do something that <em>pays really well</em>, you can just grit your teeth, borrow the money, and then hope that all goes well and you earn enough money to pay off your debt.</p> <p>There are a lot of jobs that will earn you enough money to cover those monthly bills. The old standbys of doctor and lawyer have the downside that you come out of college needing several more years of further study, but there are others. Any of several flavors of engineer will do the trick.</p> <p>Because the truth about student loan debt hadn't been so apparent until the last few years, a lot of people took this route without looking at how much money they could earn with degree that they'd spend all the money earning. This is why there are so many people out there with degrees in English or social work suffering the ungentle ministrations of our modern debt collection system.</p> <p>If this is you, my advice is that you only go down this route if you really want to do whatever it is you're being trained for. Don't do it because someone said petroleum geologists make good money; do it because you're really interested in rock strata. And then only do it if you're prepared to take the risk. If anything goes wrong &mdash; if you don't like the work, if you can't do it, if you guess wrong about there being good paying jobs a few years from now &mdash; you're screwed.</p> <h2>The &quot;Not Going to College&quot; Route</h2> <p>If you don't go to college, you can jump right in doing something to earn money.</p> <p>Of course, that's also the rub. How will you earn that money? If you jump in waiting tables, working at a gas station, or moving furniture, you'll start earning some money, but there's not really much of a path up from there.</p> <p>If you like the idea, try it for a summer. Then, look around. If you're where you want to be, fine &mdash; you're all set. If not, it's probably not too late to go to college.</p> <p>But what if you have some much more interesting way to earn money? What if you want to do something creative or artistic? What if you have a great idea for starting a business?</p> <p>In that case, it might well make the most sense to just jump right in and do whatever it is. Maybe you'll be able to make a living at it, and maybe you won't, but it's harmless to try. It's harmless, that is, unless you run up a lot of debt. Then you're screwed just like you'd borrowed the money to go to college, except you don't even have a degree.</p> <h2>The Cautious Route</h2> <p>Probably the safest thing to do is to minimize your borrowing by getting the <em>cheapest education possible</em> &mdash; go to community college for two years, then transfer to a state school where you can pay in-state tuition.</p> <p>This is not a bad option. It used to be that there were a lot of gradations of schools, with a wide range through the middle, but I think the advantages of a mid-tier school over a bottom-tier school are smaller than they used to be. (For a lot of reasons, beginning with the Internet.)</p> <p>You don't get a better education by going to a better school; you get a better education by using your time there as an opportunity to transform yourself.</p> <p>What you get out of going to a top school is mainly better contacts. Unless <a href="">your plan requires those contacts</a>, don't bother.</p> <h2>Already Down that Road?</h2> <p>If you've already picked a route &mdash; or, more accurately, parents and guidance counselors and some high school kid picked a route and now you find yourself on it &mdash; your options at this point are limited.</p> <p>If you're still in college, you're on the &quot;potentially high reward&quot; route. If it's not too late, make it a priority to get a degree that will help you earn the money to pay off the debt.</p> <p>If you're out of college and &mdash; for whatever reason &mdash; you're not earning enough to pay your expenses and cover your debts, your options are limited. Do look into options for <a href="">restructuring the debt</a>. And don't forget that Wise Bread is full of tips on living large on a small budget &mdash; which is probably your best remaining option.</p> <p>&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="">Philip Brewer</a> of <a href="">Wise Bread</a>, an award-winning personal finance and <a href="">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="">Should You Wait to Go to College?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="">Contributing to a Roth Versus Paying Down Debt</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="">Student Loans: How to Make Post-College Decisions</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="">Cancel Student Loans to Save — and Receive an Interest-Free 120-Day Loan</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="">Can Borrowers Still Pay Off Their Student Loans in 10 Years?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management Education & Training college education financial disasters student loan debt Tue, 19 Feb 2013 10:36:45 +0000 Philip Brewer 967917 at Should You Wait to Go to College? <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/should-you-wait-to-go-to-college" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="teen in chair" title="teen in chair" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>For many recent high school graduates, it&rsquo;s almost unheard of to consider <em>not</em> continuing onto college the following fall. There are some reasons people simply can&rsquo;t go to college &mdash;&nbsp; financial problems, etc. &mdash; but what if you were to have the time and money available, yet still opt out of the higher education route? (See also: <a href="">40+ College Resources for Parents and Students</a>)</p> <p>This isn&rsquo;t to say you should never go to college, but what about waiting a few years to decide what you truly want to do with your life (and get a little traveling or work experience in while you&rsquo;re at it)? Making a major life decision at the relatively young age of 18 isn't easy, and taking time off from school to delve into your true interests can help you avoid a major career change in the future.</p> <p>So, should you wait to go to college? Let&rsquo;s examine the consequences of this decision.</p> <h2>Avoiding Student Loan Debt</h2> <p>Americans <a href="">owe over $1 trillion in student loans</a>. This is more than what they owe in credit card debt, and according to <a href=""></a>, the average load per person is $27,200. Some people even rack up over $100,000 in student loan debt thanks to high interest rates, and the worst part is that you can&rsquo;t unload this debt in case of bankruptcy. Not to mention the poor cosigners (such as parents) who are left responsible for the debt in instances where the recipient of a loan dies.</p> <p>In this economic climate, the path to a career is no longer as straightforward as merely getting a college degree and immediately getting picked up by a firm that&rsquo;ll pay you the $40,000+ per year that was advertised by your university in the job prospects section. In fact, a significant chunk of the American unemployed is recent graduates who are unable to find work due to a flooded labor market.</p> <p>So what does this mean for those who are thinking about or currently going to college? It's likely that spending thousands of dollars on an education won&rsquo;t guarantee you a job, possibly leaving you with the burden of debt payments for years to come (especially if you don't get a highly sought-after degree). But if you hold off on the college route, you could ride out the economic downturn and build up your savings in the meantime (allowing you to pay for an education without acquiring debt in the near future).</p> <h2>The Employability Paradox</h2> <p>A major problem faced by the teens and 20-somethings of today is the paradox of needing a job to get experience, but needing experience to get a job. Sometimes, extracurricular activities can give your resume a boost in this area, but if you only have education under your belt, you&rsquo;re likely going to have a hard time finding that first job that pays well. Even in instances of a job candidate with a bachelor&rsquo;s degree and one with just work experience, there&rsquo;s a good chance the employer will choose the latter.</p> <p>Take culinary arts, for example. You could have gone to the best school in the country and dropped $100,000 on your education (thinking you were going to be earning $50,000 right out of school). Unfortunately, like everyone else, you&rsquo;re going to have to start out at the bottom, making a meager hourly salary and wondering how in the world you&rsquo;re going to pay off all that debt you&rsquo;ve accumulated.</p> <p>One way to avert this problem is through the &quot;learn by doing&quot; approach through internships and apprenticeships. This way, you can acquire practical, real-world experience that not only furthers your knowledge in your field beyond classroom theory, but also <a href="">adds a lot of meat to your resume</a>.</p> <h2>Possible Alternatives</h2> <p>So if you&rsquo;re looking to wait a few years before college, what should you do in the meantime?</p> <p>If you had some sort of savings for college, one possibility is investing that money somewhere else. Real estate, stocks, mutual funds &mdash; you name it. Since a four-year education no longer guarantees you a steady job immediately upon graduation, investing the money is an excellent alternative and will really make your money &ldquo;work for you&rdquo; over the course of time.</p> <p>Aside from financial matters, you could pursue non-educational endeavors as well. Perhaps you can finally settle down and write that novel you&rsquo;ve had at the back of your mind. <a href="">Travel cheaply around the world</a> while you&rsquo;re still young. Start a business using your college funds as start-up capital. Your options are limitless, and if you still want to go to college after a few years, that&rsquo;s an option as well.</p> <p><em>College &mdash; now or wait it out? What do you think? Discuss in the comment section below.</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="">Kelly Kehoe</a> of <a href="">Wise Bread</a>, an award-winning personal finance and <a href="">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="">Student Loans: The Third Way to Ruin Your Finances</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="">Finding an Internship as an Adult</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="">5 Tips for My Career-Clueless College Self</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="">8 Colleges With the Best Programs to Get You Jobs</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="">20+ Freebies for College Students</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Education & Training college education internships student loan debt unemployment Thu, 19 Jul 2012 09:48:20 +0000 Kelly Kehoe 941426 at Contributing to a Roth Versus Paying Down Debt <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/contributing-to-a-roth-versus-paying-down-debt" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="Forest Steps" title="Forest Steps" class="imagecache imagecache-250w" width="250" height="263" /></a> </div> </div> </div> <p>This post was prompted by a reader question, but it's an issue that many people face &mdash; we see versions of it all the time in the forums. So, I thought I'd walk through what I think is the best way to approach any problem of this sort. It starts with comparing interest rates, but it ends with a comparison to lottery tickets.</p> <p>The general solution to this kind of problem is to compare rates of return: Is the interest that you have to pay on your debts higher than the return that you can expect get on your investments? If it is (and it usually is), then pay down the debt.</p> <p>In fact it's even stronger than that, because there's the asymmetry between the interest that you <strong>have to</strong> pay versus the return you're only <strong>expecting</strong> to receive. It wasn't long ago that lots of people were expecting to receive 12% (or more) on their stock market investments.</p> <p>Based on that, here's my starting place on where your money ought to go, after you've covered your household expenses and the minimum payment on any debts:</p> <ol> <li>fund 401(k) enough to capture any corporate match</li> <li>accelerated payments on debts</li> <li>max out your Roth</li> <li>further fund 401(k) to the corporate (or IRS) limit</li> <li>regular old (after-tax) investing</li> </ol> <p>(Sometimes it makes sense to skip step 4 and go straight to step 5. I talk about that in my post <a href=" ">When NOT to put money in your 401(k)</a>.)</p> <p>The reader's question, though, has to do with partially skipping step 2 (accelerated payments on debt) in order to get to step 3. Here's what she asked:</p> <p>&nbsp;</p> <blockquote><p>Thanks to a recent promotion, my salary jumped to $100k. The one downside is that I may only be able to contribute to my Roth for 2009 and maybe 2010 (it's my understanding that the income limits to convert will be eliminated in 2010, but the limits to contribute will remain, and start at $105k for single filers). I'm aggressively paying down student loans and will finish by November, but since 2009 may be the last year I can contribute to a Roth, I'm thinking of stopping the extra loan payments for 3 months in order to contribute the $5k max to my Roth for 2009. I contribute 9% to my company 401k and receive an employer contribution of around 7%, my mortgage is my only other debt, and I'm late 20s. My overall retirement savings is lower than I'd like (the loans have been my priority), and I planned to max out contributions once the loans are gone.</p></blockquote> <p>&nbsp;</p> <p>My answer is: Yes, it makes perfect sense to fund the Roth under these circumstances, even though it means that the student loan will take a bit longer to pay off. In fact, it might well make sense even without the special circumstance of having only this narrow window within which to contribute to a Roth.</p> <p>Usually it makes more sense to just get the debt paid off, which is why step 2 comes first. That's because the interest owed on debt is usually higher than you can reliably earn on your investments. But the Roth is a special case because of the tax advantages and the very long time-scale. Money invested in a Roth by a 20-something has the opportunity to grow tax-free for decades &mdash; and then you never have to pay taxes on the earnings.</p> <p>With those advantages, your gain in the Roth is very likely to match the extra interest you end up paying. On top of that, there's a real chance that, over a few decades, it'll do much better yet. To my mind, that tips the scales: Your cost is low and predictable (the extra interest) and your gain can be reasonably expected to match it &mdash; with a substantial chance of an outsized win.</p> <p>Here's another way to look at it. Investing instead of paying down debt is kind of like buying a lottery ticket. You pay $1 and can expect to win (on average) something like 50 cents &mdash; but with a small chance that you'll win thousands of dollars. Because of the unique advantages of a Roth, in this case it'd be like buying a ticket for $1 and expecting that your average return will be very close to $1 (the expected return on your Roth will be close to what you're paying on your student loan) &mdash; but you still keep the chance that you'll win thousands of dollars, because of the future decades during which your Roth has the opportunity to rack up tax-free gains.</p> <p>I think it makes good sense.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="">Philip Brewer</a> of <a href="">Wise Bread</a>, an award-winning personal finance and <a href="">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="">When to Use Savings to Pay Off Debt</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="">A Society of Fear</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="">Friends Don&#039;t Let Friends...</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="">UK banks are blocking customers&#039; credit cards. Will the USA be next?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="">How To Choose A Financial Planner - Yes You!</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Debt Management debt debt reduction investment return Roth IRA Roth IRAs student loan debt taxes Thu, 07 Jan 2010 14:00:28 +0000 Philip Brewer 4503 at Our Worst Financial Mistakes and What You Can Learn From Them <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/our-worst-financial-mistakes-and-what-you-can-learn-from-them" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="worried man" title="worried man" class="imagecache imagecache-250w" width="250" height="195" /></a> </div> </div> </div> <p><strong>&quot;Learn from the mistakes of others, because you can&rsquo;t live long enough to make them all yourself.&quot; (Anonymous)</strong></p> <p>I&rsquo;ve asked my fellow bloggers here at Wise Bread to tell you about their worst financial mistakes (and have included mine). Hopefully, wherever you may be in your living-large journey, you can learn from us. After you've read our story, we want to hear yours! Tell us your worst financial mistake in the comments and be entered into a random drawing for a $25 Amazon Gift Certificate! (See also: <a href="">Common Money-Saving Mistakes That Can Cost Big Bucks</a>)</p> <p><em><strong>UPDATE: Congratulations to Charile, our winner for the $25 Amazon Gift Certificate drawing. Thank you to everyone for participating!</strong></em></p> <p><strong><a href="/andrea-dickson" title=""><font color="#800080">Andrea Dickson</font></a></strong></p> <p><img src="" align="right" alt="" />My biggest financial mistake was running up a huge credit card debt. The thing is, I did it three separate times.</p> <p>I'm terrible with credit. I've known this for a long, long time. In fact, I knew before I got my first credit card that I simply could not be trusted with a credit card. That didn't stop me from getting one, though.</p> <p>The first time I ran up several thousands of dollars in debt, my mom bailed me out, and then made me get a summer job to pay her back (I was a freshman in college). I worked the graveyard shift as a security guard for the summer &mdash; I'm not a night person. The worst part was that my mom had signed me up for the card herself, and her name was also on the card. She believed that the card would only be used for emergencies, but she soon learned that to me, &quot;shoes&quot; are an emergency, as is Starbucks.</p> <p>The second time, I was 23 years old, and a boyfriend actually signed me up for a bunch of cards, using his own name to co-sign. I fought the idea, but he convinced me that he could hang onto the cards and that his good credit would build mine back up to acceptable levels. I managed to spend 5K so quickly that I'm sure his head was spinning. Incredibly, I managed to pay this off myself by simply digging in my heels and not spending any more money. I cut up the cards, ate ramen, and sent in a couple thousand every month. Mind you, I didn't have any significant payments that I had to make outside of rent at the time, so it was easy for me. I was leaving for China, so I wanted a clean slate for the trip. My then-boyfriend expressed regret at having convinced me to sign up for the card to begin with, since using my checking account had worked just fine for me up until I got the cards.</p> <p>When I returned from abroad and found myself unemployed, I turned to those same credit cards (new ones had arrived in the mail). I treated the credit cards like debit cards, thinking that I would surely find a job within a few weeks and easily pay off the debt. When weeks stretched into months, and then into a year, I realized that I could not afford to pay off the debt. Over the course of 10 months, I rang up over 10K in <a href="" title="How Much Does Your Credit Card Debt Cost You?">credit card debt</a>. I made all the payments, never delinquent, but when I realized how long it was going to take to pay down all that debt, I called a consolidation organization. They combined all of my debt into one big debt pool, lowered my interest payments, and charged me an ungodly monthly fee that was buried somewhere in the legal agreement that I signed with them.</p> <p>I've long since realized that if I have access to money, even if it's borrowed money, I will spend it. That's why I've set up a system in which I can only spend what I have in my checking account, and money is taken directly from my paychecks and deposited into other accounts (for savings, mortgage, etc.).</p> <p>It's sad, I suppose, that an adult can't trust herself to behave, well, like an adult, but that just happens to be the case for me. I've since sworn off credit cards, and in a way, feel liberated from their grip. I realize that all of my problems with credit stem from my own weaknesses and irresponsibility, so I don't blame the credit card companies because I rang up a huge debt. Don't get me wrong - credit card companies behave terribly. But there was no Earthly reason for me to behave as if I had more money than I did. I hurt no one but myself.</p> <p><em>Lesson Learned: Credit cards can be dangerous; stick with the system that works for you.</em></p> <p><strong><a href="/lynn-truong" title=""><font color="#800080">Lynn Truong</font></a></strong></p> <p><img src="" alt="Lynn" title="Lynn" width="85" height="85" align="right" />Signing up for beauty school.</p> <p>It had been a year since I quit my full-time job to &quot;figure out what I wanted to do&quot; in life. I had been fooling around with gigs like background acting, and transcribing, and had run out of unemployment checks. My mom and friends were throwing pointed questions in my direction and I was feeling extremely lame for being unemployed. (See also: <a href="">Feeling Stuck? 100 Ways to Change Your Life</a>)</p> <p>I'm also rather impulsive. I know this about myself, and so I've learned to mostly be able to distinguish the difference between things I know I'll get over in a few days if I ignore it and things I know I absolutely have to satisfy the drive for. Except in this case.</p> <p>After getting an amazing facial one day, I suddenly decide that I want to be an esthetician. I think I would love to make people's skin beautiful. I don't think my anti-socialness would get in the way at all.</p> <p>I do a quick search for beauty schools and find two good options. One is Citrus College &mdash; $1500 for a 600-hour course. I call for information. They tell me they're pretty full and it's hard to get in. I may have to wait a semester. The other is the Cao Institute &mdash; $6500 and their next class starts in 2 weeks.</p> <p>I check the Cao out and everyone there is friendly and hip. The place is spotless and the students, dressed in all black, look stylish. They tell me they're more expensive because their classes are smaller, their teachers more qualified, and the owners have a lot of connections to help their students find jobs once they finish the course. The next class starts in 2 weeks and their deadline to enroll has already passed, but they could get me in if I sign up immediately. I sign.</p> <p>Over the course of those 18 weeks, where I spent Tues-Sat, 9:30-5pm, I not only received a terrible education at a school run by completely incompetent directors, I decided I don't like giving facials, and wonder what in the world made me think I would like it. There were a total of 5 students in my class, and none of us went on to work at a spa.</p> <p><em>Lesson Learned: Beware of offers requiring your immediate response, especially ones you&rsquo;ve just uncovered and that cost $6,500.</em></p> <p><strong><a href="/paul-michael" title=""><font color="#800080">Paul Michael</font></a></strong></p> <p><img src="" alt="Paul Michael" title="Paul Michael" width="85" height="85" align="right" />It was the fall of 2002. My wife and I had grown tired of renting, throwing our money away to help someone else pay for the mortgage. And although we&rsquo;d only been married a short while, just over 18 months, we thought the time had come to buy a new home. That decision turned out to be the worst financial decision we have ever made, and we&rsquo;re still paying for it.</p> <p>We had not put together a plan for what kind of home we wanted, how far away from the city-center we wanted to be, what we could afford, we didn&rsquo;t even have a down-payment. But no worries, you can get zero-down loans so why bother saving up all that cash? (Oh, how naïve I was).</p> <p>We looked around for a few weeks and found a brand new home that had just come onto the market because the previous owners backed out of the sale at the last minute. I liked it (at the time) and thought it was worth the money. $188k for a new town home on the outskirts of Denver seemed like a good deal. We didn&rsquo;t shop around to check, but what the hell. Real estate always goes up, we&rsquo;ll stay in the house 5 years, cash in our equity and get a much nicer place. We rolled closing costs into the loan, too, and didn&rsquo;t even <a href="" title="The 7 Laws of Negotiation">haggle</a> over the $20k of extras the previous couple had wanted in the house but that we didn&rsquo;t really care for. The base price of the home was $166k, which I now realize we should have fought tooth and nail to get. I had no idea how much power I had at the deal by just getting up and walking out.</p> <p>Anyway, it&rsquo;s 5 years later and we&rsquo;re still in that house. The housing market has slumped. It&rsquo;s now worth less than $180k and we owe more than that. We have no basement and our family has grown from two to four. Storage is always an issue; we&rsquo;re giving away all sorts of things to Goodwill and other charities on a regular basis to stop ourselves from living in a junk pile. We have done our best to decorate the place well, so that we have a nice cozy place to call home, but at the end of the day we&rsquo;re paying a ton of cash each month for a tiny house that&rsquo;s losing money every year. We want to move, but are afraid of making the same mistakes again.</p> <p>We know now is the perfect time to buy, the slump is favoring buyers. But we are also sellers. Do we wait until our own home is worth more than we owe (which could take years) and then buy a home that has increased in value 20% from what it is today? Or do we take advantage of the great deals around right now, but try selling our own home in a depressed and lackluster market for even less than it&rsquo;s worth, just to escape? It seems like Hobson&rsquo;s choice. And all because we just didn&rsquo;t have the patience or the maturity to do our homework and weigh-up our options five years ago.</p> <p><em>Lesson Learned: Research the market in your corner of the world and don&rsquo;t feel pressured to become a homeowner just because it seems like the right thing to do.</em></p> <p><strong><a href="/julie-rains" title="" style="color: rgb(128, 0, 128);">Julie Rains</a></strong></p> <p><img src="" align="right" alt="" />When my husband decided to leave his employer of 18+ years, he had a retirement savings consisting of an ESOP (Employee Stock Option Plan) and an ESIP (Employee Stock Incentive Plan), the company&rsquo;s equivalent to a 401(k). He had company stock in both plans.</p> <p>Now, I know what you&rsquo;re probably thinking; &ldquo;whoa, you had a concentrated position?&rdquo; Okay, maybe you weren&rsquo;t thinking precisely that but rather &ldquo;don&rsquo;t put all your eggs in one basket.&rdquo; (A concentrated position means that most of your portfolio is in a single stock).</p> <p>Though both my husband and I were business/finance majors, he thought it would be wise to consult a CPA and financial advisor with experience in handling the ESOP distribution and his pending displacement. By the way, most advisors and people with three or four letters next to their names will either 1) sweat and squirm at the prospect of having a client with a concentrated position or 2) rub their hands together greedily thinking of ways to make money helping you diversify.</p> <p>Thankfully, our people (the CPA and advisor) didn&rsquo;t get particularly nervous but they weren&rsquo;t particularly helpful in looking at the big picture. Instead, they spent time figuring out the tax implications of receiving the ESOP distribution, which was important but&hellip;</p> <p>We were so focused on the ESOP that we barely paid attention to the ESIP and the rules that governed the plan. We decided, independently since the advisor didn&rsquo;t bother to discuss the ESIP as I recall, that we should diversify holdings in that plan. What we learned too late however is that when the ESIP transferred from my-husband-the-employee to my-husband-on-his-own, all of the shares of stock were sold immediately rather than being transferred or rolled over to a tax-deferred account or IRA, awaiting our sale of them. The stock price happened to be at low value on the transfer date; just a few months later, the price doubled and, from my perspective, we lost tens of thousands of dollars.</p> <p><em>Lesson Learned: Pay attention to all aspects of your financial life.</em></p> <p><strong><a href="/sarah-winfrey" title=""><font color="#800080">Sarah Winfrey</font></a></strong></p> <p><img src="" align="right" alt="" />My worst financial decision was choosing to take out grad school loans without thinking about what they would mean for my life after school.</p> <p>I didn't have undergrad loans, due to an inheritance from my grandfather and my generous parents. But, when it came time for grad school, that money had run out. I signed up for loans right away &mdash; it seemed the only way to go. I wanted to go to school, and I wanted to finish relatively quickly, so I wanted to go full-time. I half-heartedly wondered if that was a good thing, and if maybe I shouldn't take one more year through school but earn a little bit more money, but that wasn't what I wanted. I wanted to go, I wanted to go NOW, and so I went.</p> <p>Regarding other matters in my life, that timing was good. But $25,000 is a lot more than I thought it was 4 years ago. I have a job, I can pay, but they tie me down. I had to get a job after school, which means that I'm working outside my field until I can find something in it. I can't work as a teacher overseas unless they pay enough to cover my loan payment. They extend my financial commitment every month, making it that much harder for me to go freelance.</p> <p>Overall, I'm not sure what I would have decided had I thought more. But I wish I had sat down and thought about it, or even talked to people who were paying off their school loans, before I clicked the button on the internet. That was part of it for me &mdash; it was so easy to apply and accept my loans over the 'net. In some ways, it would have been more real (and therefore worth more thought) if I had to sign my actual name to an actual paper with an actual pen.</p> <p><em>Lesson Learned: Just because getting a loan is easy doesn&rsquo;t mean paying it off will be easy.</em></p> <p><strong><a href="/will-chen" title=""><font color="#800080">Will Chen</font></a></strong></p> <p><img src="" align="right" alt="" />My biggest mistake was my decision to stop living with roommates after grad school.</p> <p>&quot;I can't have roommates,&quot; I said to myself. &quot;What if I want to cook naked? What if I have a bunch of women coming over all the time?&quot;</p> <p>Alas, I never really cooked and there wasn't exactly a traffic jam of the opposite sex. I did walk around naked a lot, though.</p> <p>I recently did an informal survey of my friends who lived with roommates. They told me that not only do they save money from the obvious rent and utility sharing, but they also save cash by alternating the cooking, providing free entertainment for each other, and keeping each other accountable during their budgeting and personal development projects.</p> <p>I thought living on my own was a sign of maturity. But in the end, the mature decision was to recognize that I need to make real sacrifices to achieve my financial goals, even if it meant putting on some pants once in a while.</p> <p><em>Lesson Learned: You may need to make sacrifices to achieve your financial goals.</em></p> <p><strong>Feel free to join the party: In <a href="#comment">the comments below</a>, tell us your worst financial mistake story and lesson learned, and you'll be entered in a random drawing for a $25 Amazon Gift Certificate. Deadline to enter drawing is 6/17. Don't forget to enter your email address in the field provided and only one entry per person!</strong></p> <p><em><strong>UPDATE: The drawing has ended. Congratulations to Charlie, our winner of the drawing!</strong></em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="">Julie Rains</a> of <a href="">Wise Bread</a>, an award-winning personal finance and <a href="">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="">How One Couple Paid Off $147k of Debt (Even While Unemployed)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="">73 Easy Ways to Save Money Today</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="">Optimize Your IRA and 401(k)</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="">UK banks are blocking customers&#039; credit cards. Will the USA be next?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="">Contributing to a Roth Versus Paying Down Debt</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance 401(k) distributions 401(k) plans 401k plans becoming a homeowner buyer's market credit card debt credit cards debt financial advisors mortgage rollovers roommates seller's market student loan debt student loans vocational colleges Mon, 11 Jun 2007 05:29:55 +0000 Julie Rains 695 at