Education and Four Other Expenses that will Consume 50% of Your Lifetime Earnings.

So, yah... Four huge expenses and then Education--the one that interests me most.  Here they are as cited in this article:
1. Home
2. Car
3. Kids
4. Education
5. Retirement

Which one of these things doesn't belong here? Well, if you're human you'll want children (or not, but most do).  If you're living in an area without public transportation, you will need a car.  If you are old, you will have to retire.  And all humans need shelter, i.e. a home.  An education sticks out on this list as the one thing that may be unnecessary to living a viable middle class life.  In our cases, it has actually served as a barrier to living a middle class life.  I know I piss people off when I say that education is unnecessary, but I look around me (mostly to my family) and see a shitload of blue collar people that are financially stable, and my educated self makes strategic decisions between cup o'noodle and peanut butter and jelly.  Well, I'm wondering if I'm doing the right things with my financial decisions and how this article relates to my life.  I can't imagine feeling more poor than I do now.  Maybe, I can get back my 50%?  Not sure... let's see.

So, here are the hints on how to make these 5 items more affordable, but I will focus on education last (my comments in italics):

1.  Don't bite off more HOME than you can chew. How much house can you comfortably afford? For most people the answer is a house with a purchase price of no more than 3x their annual household income. Rationale: the cost of a home includes much more than the monthly mortgage payment. It's also property tax, insurance, upkeep, etc. Typically these costs run 2%-3% of the price of your home each year. Assuming a 20% down payment, a 30-year fixed rate mortgage, and interests rates in the 5%-6% rate, the 3x your income rule of thumb will translate into total housing costs of roughly 30% of your gross income.
Hmm.When bought my last home, it was 1X my salary at the time.  The problem is that the job didn't last.  Now it's about 4 to 5, or maybe even 6, times my salary.  So, it's hard to plan for this.  These days, in these volatile times, who can count on their income.  But considering what I could afford at the time, I certainly did the right thing.  I live in the ghetto and have had one attempted break-in. Thank God for ADT!
2. Don't let your CAR drive you to the poor house. The same logic applies to your car. Most people can comfortably afford a car that is 1/3rd of their annual income. If you make $60,000 you can comfortably afford a car that costs $20,000. If that seems low — now you know why so many Americans are in financial trouble. They are driving it. A car has many other costs than simply the monthly payment. There's insurance, gas, parking, maintenance, etc. If you follow this rule of thumb, your total transportation costs should be 10% or less of your gross income.  This is why I live in NYC.  I realized early on that a car is expensive and when it's cheap, there are unforeseen costs that make huge dents in your savings.  HUGE.
3. Don't let your KIDS kick you in the wallet. Kids are expensive. From a purely clinical standpoint the Dept. of Agriculture estimates it will cost $220,000 to raise a child born in 2008 from diapers to age 18. And that figure is before you add in the cost of college! Deciding to be a parent is a major financial obligation. Don't make it worse by over-indulging your love bundles.  As much as I love babies, I know I can't afford one now... and maybe ever.  So, this point doesn't apply to me either.
4.  Don't underestimate the need to feed your RETIREMENT nest egg. How much will you need to retire? A simple rule of thumb is to multiply your current income by 25. So if you make $50,000 a year and want to maintain that standard of living in retirement, you'll need a nest egg of at least $1,250,000. Understanding early on in your working life what "your number" is… will help you see just how important it is to plan for this major savings goal. Ha.  I had a savings, but the job was lost and that's down to nearly nothing.  So, I have no plan for retirement as of yet.  I have a couple of 401Ks that have nothing near $50K in them, let alone $1,250,000.00.  So, in regards to this, I am an idiot and will be a homeless old lady one day.

And Finally..........

5.  Don't forget to ask "How high is too high for higher EDUCATION?" It used to be good debt was defined as mortgage and student loan debt… and bad debt was everything else. Not any more. We've now learned that too much of a good thing can indeed be bad. Rough rule of thumb, don't take on more in total education debt than you think you are going to earn on average annually during your first 10 years after graduating (from college or grad school). In plain English, if you think you'll make $50,000 a year, don't take out more than $50,000 in loans. The logic behind this is that if it takes you more than 10 years of paying 10% of your income a year in student loan repayments, it's going to be tough to meet your other financial obligations.  So, at the time that I went to law school, the median/average salary (I don't know which one, but it was a lie in any scenario) was $74,000. That number sticks out in my mind.  I remember being satisfied with that number.  Consequently, and completely accidentally, I only had $70K in loans.  So, according to this guideline, I was one of the smart ones.  HOWEVER, the problem herein lies that the law school misguide you and misinform you as to what you should expect to earn.  So, the wildcard here is what you "think you are going to earn on average annually during your first 10 years."   I'm sure there are some careers where starting salaries are standard... but that is not the case with our careers.  You salary can range from $0 to $30K to $160K.  There is no way to know.  So the only way to get an education on the cheap and smartly is to make sure it's free.
But like I said, an education isn't necessary for so many different careers...unless sitting behind a desk is your end all be all.

When an education takes away from your esteem and security, is it really a need?

It's About Time, Tim!

Timothy Geithner, the man notorious for his role in Tarp, has conducted a study entitled "FINRA Investor Education Foundation's National Financial Capability Study" to figure out what I already knew:  Young people are horrible with money. Most do not save and many are incapable of making financial decisions.  This is evidenced by the many people that read BIDER that decided that law school was a cost-effective decision:

Few are able to perform basic interest calculations necessary to compare the cost of a loan or to figure out how much to try to save. On just about all measures, the study found young adults are the least money-savvy.

As a result of this study, Geithner and the U.S. Government have decided that student should be receiving some sort of education in personal finance. I think this is a brilliant idea. It's been done in schools such as Stone Wall Jackson High School in Manassas, Virginia where "teacher Terri Carson helps students manage the student-run credit union and includes a financial literacy boot camp in all her classes."  I am advocating a class that simply teaches students not to buy things when they don't have the money to do so. I imagine teenagers today will be worse off than our generation.  My parents didn't have a home equity loan on the home that they used like an ATM card.  Today, up until the Real Estate Bubble exploded, kids witnessed their parents furnish their homes, buy cars, pay for vacations and buy yet more homes with their home equity.  I am not convinced that today's teenagers have been told to do without.  I was constantly denied EVERYTHING... including assistance with college tuition.   Can you tell that I'm bitter?

We hope to see more locally driven efforts to make youth financial education a priority in schools across the country. At the same time, we'll be doing our part at the federal level. In our schools, we will promote a well-rounded education that includes financial literacy. We will give consumers the information and education they need to make smart financial choices. And we will work to provide all American families with access to the bank accounts they need to manage their daily finances.

The agenda is clear. Let's pass serious financial reform. Let's promote financial access. And at the same time, let's make sure that we are providing all Americans -- especially our youth -- with the financial education they need to succeed in this increasingly complex, fast-moving economy. Their futures -- and ours -- depend on it.

 The conspiracy theorist in me suspects that this is a plot to make young people into smarter consumers, which will perpetuate our consumer driven economy. I hope that the education has a focus on saving and investment more so than calculating interest on credit cards and student loans.  But I am not going to hold my breath.  This is how my class would go:

Don't Buy Stuff

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