We often talk about education choice and the financial aspect of paying for tuition year after year. What underlies this – and is critical to understand – is the mind set behind it all. Without you will be in a constant struggle and live a life of deprivation. With it an easy path of increasing quality of life and financial security awaits.
In short when a new technology comes out everyone is very excited and fired up. And they are willing to pay up to get it. For those of use paying tuition and don’t have the resources to benefit from new technology it makes sense. New technology soon has competition and introduce new challenges.
Leverage the Hype Cycle
This is fine and good and indeed presents an opportunity to purchase these items for a discount in the trough of disillusionment. A recent example is electric cars – at first they were high tech, solve important problems and costs more. And they should have as they have huge and positive implications. But soon enough other challenges (cross country trips) temper the excitement – and the pricing. That is when you can move in to benefit from the new technology while not paying top dollar to be the first one in. After schooling is done perhaps you can be that person – but for now, slow down and simply wait.
For my “something to read” item I usually request some book to totally geek out on. One year, I requested, received and thoroughly enjoyed a book called Salt: A world history.
A Journal of the Plague Year
About three years ago I asked for and received a book by Daniel Defoe (better known for his book “Robin Crusoe”) called “A Journal of the Plaque Year”. Defoe was born in 1660 in England and his book is written in the dialect of that era. Because of the old English writing style, it was a slow read and I just finished the small book this past fall.
Defoe, a journalist, wrote this book in 1722 a full two hundred years before antibiotics were invented. He had access to the stories of those who experienced The Great Plaque of London in 1665-1666, facts in figures in the public record and his own observations of the 1720-1721 Great Plague of Marseille. He admittedly took creative liberties writing the book to write in the first person style that made him famous (and paid) during that time.
Buraun, Kiisu. “Investing Is Like A Bar Of Soap.” Seeking Alpha. Seeking Alpha, August 10, 2015. https://seekingalpha.com/article/3425216-investing-is-like-a-bar-of-soap.
Staying put usually refers to staying in your current place
of residence but the financial benefit principals apply to many situations.
Let’s compare the lives of the Doolittles and Movealots families to illustrate.
The Doolittles are creatures of habits and tend to only make changes when its make a lot of sense to do so. The Movealots are all about improvements – upgrading and updating for the latest benefit.
In 2010 the Doolittles and the
Movealots both purchased a $300,000 house. A few years later the Movealots had some
equity and some raises and went ahead an upgraded to a $450,000 house. Around
that same time both families bought a new car for $30,000.
Oh, and the Movealots just replaced their car with a new ride this past
year with a new and improved $40,000 ride.
At first glance it would appear that the Movealots spent
$190,000 more in the same time period. Is that right? After all, even though
they now have a higher mortgage, they don’t have to pay it back right away.
True – but you still have to pay it back at some point. And that is money that
could have been used to offset other future costs. Let us assume only half of those expenses hit
them during the time they are saving for or paying tuition. That is still
$80,000 which is quite a bit of tuition costs in almost any school.
Second Order Effects
What we didn’t talk about yet are the second order effects
– the tax, tags and dealer fees on new car, the realtor and moving fees. This are substantial but nowhere near the hit
of a third order maintenance fees.
Third Order Effects
That fancy car new car needs fancy new insurance. That
upgraded and presumably larger home will need more care and feeding – from HOA
fees, lawn, heating and cooling. These bump ups are bad – but not as bad as the
fourth order costs.
Fourth Order Effects – The Big One
All items have a useful life, parts wear out and need to be
replaced. And these occasional fourth order costs are the gotchas and they
occur because when we replace an item it is almost always with a better more
complex (and often bigger) item. Here is a real life example from our own
lives. Our postage stamp sized house had to have the roof replaced. This set us
back a mean $3000. Our friendly
neighbors who moved up on up had the same task in the new and larger home.
Although the current cost estimate for our friends is well over $20,000.
That single fourth order effect – a random plus up costs of
$17,000 is huge. Just a few of those will pay for tuition. Got a double oven? Double
trouble! Dual zone heat? – Twice the replacement costs!
So if you are going to be a Movealot family – fine – but avoid being an Upgradealot family so you don’t get hit with huge fourth order costs. Do you make more money then you did ten years ago? Great – keep it. Use it to go on vacation instead. Just kidding – vacations are for wimps.
Consider These Four Factors Before Making a Big Move
So before making a big move consider these four factors
The up front cost
The transaction fees
The regular maintenance
The rare but large one
time expense differences
By doing so you will have at least compared the costs to
see if the move is about the same much more or even saves you money for private
About five years ago our household switched from a regular phone line to an Ooma voice over IP device. Since we already had internet access there would be no additional monthly cost to have a land line in all the wall ports. Admittedly these days we tend to use cell phones but it is nice to have a home line and not very expensive. We spent the $149 on the ooma purchase already so it’s a sunk cost.
Oooma phone device
Our payment information changed so I dutifully logged in to update the records. I was pleasantly surprised that Oooma had been keeping track of all the savings we made with that one time switch and had it prominently displayed on the initial splash page. So far we have saved $2211 on phone bills with this original $149 purchase. A few years ago Ooma added a nominal and growing monthly fee of $3 which has since grown to $7.26 a month for 911 service and some mystery taxes. Lets assume it was 7.25 a month for the lat 5 years or $435 bucks. That is still a savings of $1775 over the five year period. Based on that initial $149 outlay that is a tax free 64% annual return which handily beats the stock market.
This simple move – which we can probably improve on – contributed substantial savings without any further effort. Automated savings can really add up over time. Even one change can make a difference.
Today I have walked almost 10,000 steps today at my own pace and made money while doing it. Those 10,000 steps, or almost five miles of movement, were collected while insourcing domestic household chores.
The Step to Dollars Experiment
These steps were accumulated solely while doing household chores; this morning I ran five loads of laundry washing over 100 items of clothing instead of sending them to the dry cleaner. And I made lunch instead of eating out. And then I cleaned the house instead of hiring a cleaning service. After that I raked the leaves in the yard on this crisp Washington DC day instead of hiring a lawn service. Finally, I made a simple home improvement and other odds and ends (got the mail and so forth).
Let’s take a look at the domestic insourcing numbers for the
cost, some of which insurance covers – but someone still pays for it)
So I avoided $872 in expenses. And that means I avoided
having to earn $1177 dollars before taxes and deductions. And all of this took
only 9560 steps as reported on my trusty low cost Ozo fitness pedometer ($100
less than a fitbit for those wondering).
Did I actually get paid?
Using these numbers we can calculate that my pay rate was 12 cents per step ($1177/9650 steps). And all this wandering around took about five hours so my hourly pay rate was $235 an hour.
And while I didn’t actually get a check for doing the work I didn’t have to earn that money either. Once you understand how much of your labor is taxed, calculating the un-taxable work of insourcing the numbers are eye opening. All these things needed to happen – by me or someone I hired.
Get up and grab a rake or straighten up the living room before the big game. Every little bit helps conserve big funds for that next tuition bill and might even raise your income back at the office. Get paid to walk!
September is the start of the fall coupon season here in Washington DC. Coupons are mailed in mass to consumers across the region as we stock up for winter.
Many of these discounts , 20% of this week only as one example, are very compelling. And I used to fall for these, well, fall offers. What if I need one later? I sure would regret having to pay full price later on!
It took me years to understand a basic principal I first read about on the Frugalwoods Financial Independence Site. And that approach is to not purchase the item in question at all. This is the quickest and most effective way to save money. And you always save 100%. Do nothing. Say no. Recycle the coupon and go about your business.
Think about it. After all, even 50% off a $100 dollar you bank account balance is lower by $50 dollars.
I have become better (not perfect, but better) at resisting the mad dash of coupons falling from the sky into my mailbox and the internet into my inbox each fall. Brace yourself as more coupons are headed our way as we approach the holidays!
Five Ways You Save!
What I have learned is that by taking the risk of avoiding a sale and perhaps needing to buy that item later at full price is I actually save in five ways.
First, I save the 100% purchase price of the item.a
Second, I often don’t need the item. Ever. I just thought I did when I saw all the money I could “save”.
Third, I save on the shipping, care, upkeep, storage and eventual replacement of items I never buy. This is roughly about 20% of the item for semi-durable goods .
Fourth, I save the taxes I would have paid on the income I needed to earn to purchase the item.
And finally, I save on the ecosystem “stuff” tends to have and all those related purchase for the ecosystem.
The secret life of stuff
I have now observed first hand that many items I purchase appears to have a secret life of it’s own. A laptop needs electricity, software, updates, my time to operate it and eventually replacement. Even a door mat needs water, electricity and detergent for the occasional wash.
The point here is not to do without – just to be ok with just enough. By doing nothing when handed an amazing limited time offer you will often save 120% of the purchase cost and have a simpler life. The funds saved can be redirected to tuition payments.
I am a big fan of Kristy Shen and Bryce Leung over at Millennial Revolution. They have innovative ideas and execute their plan amazingly well. They are way more advanced than me and I learn a lot from their site and recommend you check it out. And they recently released a book called Quit Like A Millionare! I recommend you read the book. Borrow it from the library or obtain a copy via my free give away instead of buying it. In the book Kristy candidly describes her background and correct (in my opinion) perspective on money as a result. In particular I recommend you read “Don’t follow your passion yet” (chapter 4) and “Your house is not an investment”(chapter 9). In the Washington DC area understanding this information can boost the quality of your life in so many ways. Change your perspective of what is awesome and easily pay for tuition and live well my friends despite DC ranking 5th in Kiplinger’s 2019 most expense cities to live in ranking.
Stay close to home. UVA’s in state tuition is around $20,000 a year. Out of state? Almost $50,000 a year. Save your family $120,000 by selecting avoiding a school that requires a trip on the beltway to get there.
Combining these steps can make tuition more affordable for both private and public colleges (and some high schools). These five options total $308,000 in tuition assistance with no scholarships. This will save you from having to earn almost $400,000 in income to pay for the stuff.
Education is a high priority in the DC area given the nature of the work here. Area institutions, governments and employers recognize and support this if you take the steps to apply for the benefits.