The truth exposed

The truth about how to pay for private school isn’t very exciting. While good income, low costs, careful spending and regularly saying no to a myriad of worthy spending choices are important they aren’t “it”.

Voluntary Self-Sacrifice

Instead, they are signs of an underlying philosophy that is rare these days but common throughout history. And that is self-sacrifice.  In short, this is giving up something worthwhile for you so someone else can have something even more worthwhile.

This framework may seem familiar to you as it the basis or morality of most religions.

US Currency - Source Wiki Commons
US Currency – Source Wiki Commons

This beautiful concept has a stark reality. Rare vacations. Older cars and furniture. A higher thermostat in summer. A delayed retirement. Smaller living quarters.  On paper this sounds good but the reality is a bit different. For example, my old Subaru leaked gas fumes in the car when the temperatures dropped by 30 degrees (a clip as contracting too far). While not overwhelming it did result in the windows down in January and February.  Freezing winds, icy rain and strange looks penetrating even the fuzziest of ear muffs.*

Voluntary self-sacrifice is how family of limited means pays for private school.

This can make you all stronger

Madeyski Suffering -Source: Wiki Commons
Madeyski Suffering -Source: Wiki Commons

As an extra benefit, these hardships are part of the education process. They build toughness, humility, empathy, resilience and demonstrate to all the ability to focus as a family on higher goals. They teach you to be resourceful and solve difficult problems without simply purchasing your way out of every discomfort. It helps prevent a family with extra resources spoiling their child. By definition they will have less materials goods, entertainment and goods as a result.

A better quality of life

You will invariably become an environmentalist as well as produce more and consume less. You will make mistakes, adjust and move on. It might not work. But you will take the leap. Some will praise you but most will criticize you. Be ok with people being upset with you because they think you are wasting money or choice is seen as undermining the public school system. It is ok not to have every one agree with you. Indeed, it is desirable.

.* The Subaru was eventually replaced by a 10 year old Volvo station wagon – a low cost way to get a top IIHS safety rating on the cheap. The second week I had it the passenger window fell into the well. Forever open. Instead of rushing to the dealer I checked the weather (no rain for a week!) and after a lot of research and $19 later the window opens and closes again.  It’s not perfect, but it works.

Volvo Wagon - New to us!
Used Volvo Wagon – New to us!

 

 

Should I get a loan?

No, you should not get a loan to pay for private school elementary or high school.

A loan means you don’t have the money

A loan means you don’t have enough money to pay for the school. A loan means you would spend more than you have, every month. That is not sustainable for the long haul of tuition for private school which can go on for decades.

Debt has specific uses

caption2
By Sander van der Wel from Netherlands – Depressed, CC BY-SA 2.0, Link

Debt is appropriate for a business venture where you can reasonably expect to recoup it and then some – such as a highly employable four year college degree or a medical emergency. Or for a house where the deductible interest usually (depending on interest rates) makes the loan cost less than paying cash outright.

Everything else is a pants on fire debt emergency. Don’t add to it.

Here are your options

  • Cut expenses
  • Increase income
  • Choose a lower cost school
  • Choose a public school

What!

Public school?

Yup, public school is an excellent option. Seriously consider it. It is ok to not go to private school. It is not ok to destroy your family life and health in the pursuit of this singular goal.

Confront reality, and then adjust

Confront reality, whatever that may be – don’t put yourself in bondage and mortgage your future time just because you wished things were different.

Instead, you can send your kids to public school and pick up a  tutors and religious education on the side to augment the education. That is an acceptable and perfectly fine version of private education. So is home schooling. Remember the goal: an education for your child that results in a balanced, centered, inquisitive and knowledgeable adult with an internal morale compass. There are lots of paths to get to the end result without selling your future on this  one way of achieving your goals.

Half priced cars ! On sale now! And every day!

An introduction to mispricing

Use the economic concept of mispricing.  to reduce your costs and free up more money for tuition.

Mispricing occurs where sellers out number interested buyers for a particular item and where the item is able to be repriced lower based on that demand imbalance.

The example usually comes up in relation to financial assets such as stocks, bonds, real estate and so on but applies to consumables as well.

An Example: Mispricing in the stock market

Charlie Munger executed this perfectly in the 2009 financial panic as described in an article in Bloomberg News.

“By diving into stocks amid the market panic of 2009, Munger reaped millions in paper profits for Daily Journal. The investment gains, applauded by Buffett at Berkshire Hathaway’s annual meeting in May, have helped triple Daily Journal’s own share price. While Munger’s specific picks remain a mystery, a bet on Wells Fargo probably fueled the gains, according to shareholders who have heard Munger, 89, discuss the investments at the company’s annual meetings. “Here’s a guy who’s in his mid-80s at the time, sitting around with cash at the Daily Journal for a decade, and all of a sudden hits the bottom perfect,” says Steve Check, an investment manager based in Costa Mesa, Calif., who has attended the publisher’s meetings since 2004.

The stock market profits were first disclosed in a May 2009 Daily Journal regulatory filing under the heading, “Liquidity and Capital Resources.” The section outlined how the publisher was sitting on about $9 million in gains after spending $15.5 million buying common shares over six months through March 31 of that year. The results kept getting better. By the end of September 2009, they had appreciated to almost $48 million.

[1]

The five steps to benefit from mispricing

To execute a mispricing purchase you first must recognize one and then be able to act on it. This requires a number of elements to be in play at the same time:

  1. Patience
  2. Cash
  3. Analysis
  4. Flexibility
  5. Willingness to purchase an unpopular item in scale

We use the mispricing approach for our own benefit on vehicle purchases.

Early on we were striving to get the “best” instead of “good enough”.

Flexibility

So we went with a popular vehicle at the time, a Toyota 4runner. These were popular and expensive and we used the only mispricing technique we knew about at the time which was flexibility. We purchased a new 4Runner from the left over trucks from the previous model year. The $45,000 vehicle only cost us $40,000. We didn’t get the color or exact features we wanted but we saved $5000. Woot! And that popularity was not unfounded. We had the car 14 years and it is still on the road today.

Product is Currently Unpopular

For the next vehicle we got a little better at finding mispricing. The SUV boom was well under way and hatchbacks were unpopular and considered no longer cool. When we actually looked at the features they delivered enough mass and safety features to be safe, better gas mileage and all the functions of a full size SUV (that we needed). They were simply unpopular compared to the monster truck models of the day.

We combined the unpopular feature with the late model technique and got a Subaru Forester for $20,000. This was half the cost of the previous car purchase. Woot! $20,000 saved! These cars have since become popular again as more and more folks figured out the many benefits of these mid sized sport utility vehicles so mispricing affect is largely gone (on this model).  We were in style again, at least for a while.

Cash, Analysis and Patience

For our most recent purchase we added analysis and patience to the mix and to further benefit from mispricing. Many cars are rated by reliability. And they if aren’t rated top tier for reliability they really suffer in the used car market. People don’t want to own something that wasn’t best for reliability when purchasing something used. But when you do the analysis a middle tier rated car is actually more reliable than cars of the past.

We saved $30,000

We combined flexibility, our reliability analysis and the unpopular status of middle tier to watch, wait for and eventually obtain a used Volvo wagon for $12,000 dollars with very low miles. Woot! $30,000 saved! The battle wagon doesn’t have a lot of advertisments 

 

In summary

The market (us buyers and sellers) occasionally misprices goods and servies and assigns artificially high prices to the best and artificially low prices to the runner ups. You can discover and use this mispricing if you conduct the analysis, are flexible, patient and willing to select something currently unpopular (not easy as it sounds) that meets your particular needs. Just do your homework to make sure it is actually mispriced and not low cost for a reason you care about.

What about you? Have you benefited from temporary mispricing conditions?

[1] https://www.bloomberg.com/news/articles/2013-07-25/berkshire-hathaways-charlie-munger-shows-a-golden-touch

Why not improve your local school instead of sending your children to private school?

In an article over at LearnVest a parent graciously describes the details  and sacrifices of why they send their children to private school  to help educate us and share their story.

The comments in response to the article were filled with criticisms.

One comment stood out;

“I love the “we had no choice” but to put our kid in private [school] argument.  Why not put your kid in the public school and spend some energy improving the school? “

I honor and respect those who sacrifice by staying in a difficult environment to make things better.  They reject better choices for their family for the good of the community.

So lets extend this persons line of thinking to explore the principal behind it. Couldn’t the family take public transportation every where and become vocal advocates? Or move to a food desert and use their earning power and ability to problem solve to help the entire community have access to fruit and vegetables?

What I don’t understand is the willingness to put someone else (in this case, their children) in an environment that needs improvement on multiple levels that are unlikely to be solved in the time they are there.

Another alternative is to send your child to a private school that teaches social activism and key life skills. Thinking longer term, an adult who  will spend a life time thinking about how to help others and will have the tools and financial means to do is another valid way to help both the family and the broader community.

Getting in to a private elementary school

One of the advantageous of a private school is the alignment of values, approach and focus with that of the family’s interest and needs.

This is a two way street

Many prospective parents are surprised to find this go both ways. Quickly dispel the notion that you paying gobs of money means you are a customer. Incorrect. You are paying for part of the expenses for a community you are joining (and ideally, have been long part of). And this means it goes both ways.

Many private schools often don’t have enough openings. Others have certain entrance criteria (this doesn’t mean academic) and will not diverge from that criteria, even if it means leaving seats empty or shutting down. That is what makes them special – the ability to focus on their particular mission.

In short, this means your family must earn and keep a spot in a private school. That means not only selecting a school that is a fit for you but the school selecting you.

Where does your family fit in compared to other applicants?

To do this we will examine existing models constructed from the research at (where else) a private education institution – in this case Harvard University  – where Michael Porter describes the five competitive forces that should be considered in shaping strategy[1]. These forces include rivalry, threat of new entrants, threat of substitutes, bargaining power of buyers and suppliers.

In your own situation what is your value to the school community?  If you were the school would you select your family as compared to others? Why? And why not?

Remember financial aide is often managed through a blind trust so the ‘I can pay the tuition’ might not be a factor. Or it might be. Depends on the school. And for grade schools, academic excellence doesn’t exist. And for college it might be one of those necessary but not sufficient items.

In our own situation we are members of the religious community where our child goes to school so we offer continuity and shared values.

Our differentiation

Additionally, we enrolled during the last large economic downturn when interest in private education waned because of financial challenges for many families. For us the religious framework was more important than the bank account.

What about you?

What about you? Is a new school forming that needs students and aligns with your vision of a school? Or is the school almost entirely families from one part of town/culture/group and you family can introduce much needed diversity in the classroom?

Investigate and understand. We have seen a class with 85% boys in the class turn away more boys because they wanted a higher mix of girls. Your value proposition can be as simple as having a daughter who is interested in the school.

Lay aside your tendency to fighting for what you think is the right school for your child – you might be wrong

You might be thinking that school ‘over there’ would be perfect for your child. And that might be the case but more than likely the school ‘right here’ is the ideal fit and will seem all to familiar. It might even be your local public school.

The point here is to find out instead of blindly applying to what you think is the ideal or best private school. And consider your families relative position in the five forces competitive model.

And finally, do your research

Do your research. I assure you that is it much better to find out your situation is not a match before your child joins the school rather than focusing on getting in no matter what.

[1]“The Five Competitive Forces That Shape Strategy.” Harvard Business Review. August 13, 2008.

Frugality is a quality of life compounding machine

 

By Julius SchorzmanOwn work, CC BY-SA 2.0, Link

In my grubby little hands I am holding a wonderful 12 ounce bag of dark roasted Starbucks Café Verona coffee. This powerhouse of anti-oxidants and wakey-ness  is sustainably farmed and all of the Starbucks employees get educational benefits and health insurance. So this is the good stuff.

 

A look at the coffee numbers

Each cup of coffee we brew at home takes 2 ounces of the delightfully aromatic Starbucks grounds. And in 12 ounces there are 72 US teaspoons so that means we get 36 cups of coffee from a bag of grounds.

This bag costs us $8.59, or 26 cents a cup. A year of home brew will costs a whopping $96 dollars. For two people that is $191 bucks. We use half and half for an additional $2.29 a week or $119 a year. Total coffee expense is around $310 a year.

That same drink is a very reasonable $1.85 made by a hard working barista. For two people over a year that would be $1,317.

Wow, a savings of $1317-$310 or $1007 over a year.

Right?

Wrong!

A second look at the numbers

This is what is so counter intuitive about frugality. Frugality itself is a compounding machine. It took me years to notice it and first I shrugged it off as improbable if not impossible.

What is missing here are the secondary and tertiary by side effects.

The first is the actual financial savings.

Lets take a look.

It takes me less than a minute to scoop the coffee, add the water and push the button.

The drive, wait and drive back to our local Starbucks is 20 minutes.

While waiting for the coffee I usually make breakfast. Nothing better to do as I have plenty of time. But with a 20 minute commitment to pick up coffee in the morning I simply don’t have time to cook and I will add another $15 in breakfast vittles. Another $3750 in  annual expenses to add to the total.

And we aren’t done yet. It is a mere 4 miles to our local Starbucks and back. Sweet! Or is it? The federal government estimated cost of 51 cents per mile in car operating costs. Add another $2.04 to the cost or $532 bucks a year to the total.

  • Coffee savings – $1000
  • Breakfast -$3000
  • Car – $500

 

This results in a grand total  (and I rounded down a  lot here) of $4500 in expenses annually. That home brew actually saves you $45,000 over ten years.

The second benefit is even better. The quality of life effect is what keeps so many already financial independent people to stick with their frugal ways.

Once you have bought a coffee maker, got into the habit of buying ground coffee and then learned to operate the dang thing the actual process is easier than going to get coffee. And there is never a line.

Self taught barrista super powers

This means, after you become a coffee brewing expert, you will have a choice.

Choice 1: Stand in your kitchen drooling with one eye open until the coffee is ready about a minute or two later.

Choice 2: *Or* you can throw on some clothes, find your keys and shoes, rush out, feel the cold rain go down the back of your neck, fight for parking, wait in line and then zoom back home to reverse the process.

If both choices are available which would you choose? Yes the coffee isn’t quite a yummy as the store made stuff but your overall quality of life is so much better.

This is the power of frugality and of doing just some of the steps yourself.

The skeptics among you will note you don’t go to Starbucks 356 days a year and certainly don’t scoff down scones.  I don’t want you to believe me. I want you to try it out for a month and make your own assessment.

This is just a single example. You can find a lot more ways to pay for private school that are much bigger such as avoiding Black Friday, saving $3000 in a single weekend, or using the Granny Smith cash multiplier method.

 

An ode to Peapod

First up, this is an unsolicited article. No one is paying, pushing or promoting me to write this piece.

Here is my typical grocery shopping experience;

Grocery shopping experience diagram -multiple ways to waste
Grocery shopping experience diagram -multiple ways to waste

I will admit, I am very impressed with people who can clip coupons, keep a price book and then find everything on their list, in exactly the right size, in a massive store with an average and ever changing 47,000 items in the store. I have tried many times and repeatedly failed at doing so.

We kept seeing a Peapod truck at the neighbor’s house each week. We quietly snickered and thought even though they are super frugal on everything else they had a hidden weakness.

My interest was piqued so we tried an experiment with this online grocery thing. We intentionally keep detailed records so it was easy to load a Peapod cart online and compare to last weeks grocery expenses.

Oh man was it easy to find stuff. They have a search engine! And it was certainly educational. For example, the two red peppers I buy each and every week have gone up from 50 cents in the summer to almost $4 in the winter.  Green peppers will do just fine and only cost a buck.

That kind of real-time-pricing-feedback adds up – in our case to $50 less than we normally spend (that would be $2,400 a year). So we went crazy and got the Peapod meal kits (all the ingredients in a box). And it was *still* $20 cheaper and we will waste less food as a result. Hmm.

A few months in we found we saved about $300 a month on groceries. And this probably points more to my ineffectiveness as a shopper and my susceptibility to “buy it now while supplies last” sales. Know thyself.

If you end up trying this or a similar service I would love to know how it works out for you – or if it doesn’t. And if you are inclined to do so please use my Peapod referral link and hook me up with free (Green) Bell Peppers for an upcoming stir fry. Woot!

Wait for it. Wait for it. Steady. Steady…..Now!

When paying for tuition for years on end I found that be willing to wait can be an ally.

We are going camping soon and usually it’s a school thing (includes tents). But this outing is a separate tent and we needed some gear.

Reviews of the low end tents revealed they are ok unless it gets windy or rainy. A wet tent would not be good for little (or big) people so we wanted to upgrade. Car camping tents can become really expensive quickly. And each night not in a hotel sort of pays for itself.

What we wanted it the glorious 6 persons REI Base camp tent. Ventilated awesomeness. With a footprint and tax it comes in a very reasonable $500. However, we aren’t reasonable. We are paying for private school. So I kept an eye out for a week, and then weeks, and then months. Prices would vary but even on Ebay the used ones were going $300+ something. They must be great tents. We spent weeks looking for one to rent from numerous places (check out lowegear.com if you camp).

Didn’t work out. We really wanted that one. But we have since learned it can be productive to be ok with second place. REI (who we like to support because of their fantastic educational programs and supporting community and the natural environment) had a two week only sale in the spring – 25% off on goods upon check out.

They only had one tent for sale with that would comfortably fit us – a Big Agnes. The reputable brand had a model with good, but somewhat mixed reviews. It was presumably on the way out for improved models so it was 25% off. After further reading I realized it wasn’t selling because bad reviews were being posted about that actually referenced a previous model. So this was an excellent tent and more than we needed for basic car camping and was small enough to serve for other trips as well.

Curious, I put the tent in the basket and saw and additional 25% off. This sucker, new, we being dumped because of mistaken reviews (or REI needed to clear inventory, or both).

It was cheaper to buy this tent new than rent the exact same model. By being patient, and flexible we were able to get an excellent tent for a price that didn’t bust our budget.

Big Agnes Tent

Not a camper? It is low cost adventure option. The long weekend we have planned would have been $600 in hotel costs alone – it is much less money to camp for this particular outing.

 

The simple life

One advantage of sending your child to private school is that much of your income goes along with them. As a result it limits the other available choices because you have much less discretionary income.

Fretting over a grand tour of Europe? Fret no more! You aren’t going!

This extreme financial constraints limit your choices and the resulting simplification actually leads to longer term happiness. It is known as the paradox of choice.

Have you always wanted to simplify your life? Now you can! And what better way than the assurance of a monthly tuition bill.  To be clear this isn’t about poverty – this is about voluntary simplicity. It is an interesting side effect we have noticed over years of sending the kiddo to a private school.

Read more about it in this outstanding book The Paradox of Choice (you are going to have a lot of time on your hands).

Oh, and for the trip? Easy, you are either staying home or going camping. Pick one.

 

Mountains in Italia
By Marco Bonomo – https://unsplash.com/photos/Sa7787z58VQ/, CC0, Link

Five scholarships for the 2017

Did you know financial aid and scholarships are available to help pay for private school tuition?

Income and frugality will be your core mechanism but financial aide can help.  Here are five scholarship sources  to get you thinking about it.

  1.  Your child’s school. Most private schools have financial aid and requests are typically assessed by an independent review board. You won’t know unless look into it.
  2.  The Louisiana School Choice program  had a number of rebates, tax deductions and school choice options. Research programs in your state and keep an eye out – this might expand with the new administrations education appointment.  Georgia has already handed out $117 million in tax credits in 2017.
  3. Or how about an academic achievement scholarship?
  4. Or maybe the better chance scholarship or the Jack Kent Cooke young scholars program is the scholarship for you.
  5. Not enough? Here are 50 more private school scholarship options.

While saving money  will be the driver a small scholarship can certainly help. Feel guilty about applying? Don’t – this isn’t for you.