Listen to the show below
What you missed
In the last episode, FRS008, I covered Part 1 of this 2-part series on Myths Broke People Believe.
Topics and your questions answered on the show
- Myths Broke People Believe Part II
- Financing College
- How to budget food expenses
- Getting out of credit card debt
- How much down payment for house
- Teaching kids about money
Read the Transcript
You can download a complete, word-for-word transcript of this episode here or click the toggle button to read online.
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Myths Broke People Believe Part 2
Welcome! Rockstar Nation to the Financial Rockstar show. I’m your host Scott Alan Turner ready to help you get out of debt, save more money, and retire early. In the studio with me is producer Katie, who has ridden a camel in Cairo. On the show today, we will be answering your questions about money, business, and life. If you have a question you would like answered on the show visit GoAskScott.com
Last time I shared with you some of the myths broke people believe. If you haven’t had a chance to listen to that episode first, go back and check it out.
Today is part two and we’ll be wrapping this up. These are things you and I have believed in our lives at one time. Not all of them for everyone, but certainly some of them for all of us. Myself included.
But all of them, if you fall for them, will keep you trapped in the land of broken until your very last day unless you recognize them for what they are – myths and lies. Until you hear about them, and can recognize – oh, yeah, maybe I do believe that until then we just keep doing what we’re doing and living in ignorance.
Let’s continue on talking about employment.
Discussion of the article: https://scottalanturner.com/30-myths-broke-people-believe/
Now on to your questions.
QUESTION: Renee wants to know the best ways to finance going back to school for a Master’s Degree.
ANSWER: When Katie worked for a defense contractor she knew she was never going to advance beyond a certain point. All the higher ups were ex-military so it was pretty clear she was never going to be a Vice President of anything. She decided to get an MBA with a concentration in commercial real estate where there were more opportunities.
If you’re in a career path that seems like it isn’t going to take you where you want to go or you find yourself in a job you don’t want to be in long term, going back to school can be a great decision. It can also be a terrible decision for finances if you don’t plan carefully though.
There was an article in the Star-Telegram about an aerospace engineer named Ernie Rosales who went back to school in his 30’s. He already had two associate degrees but wanted to get a bachelor’s in IT. Two years after getting that degree he got his master’s so he could make more money.
Now 52, he’s paying $500 a month to pay off his undergraduate and graduate loans. Including his wife’s student loans they pay $1,500 a month.
That’s insane! $1,500 a month in student loans.
The best way to finance going to back to school is to pay for it in cash. You finance it through the Bank of You. If you work for a company that will pay for your master’s degree, that’s a great option too. Usually, employers only pay for a degree related to your field of work or related to a field you might move into within the company. And there are caveats that if you leave your job right after you graduate you have to pay back the company. The company wants you to work for them and use that knowledge they paid you to get. Sometimes it’s one year, two years, three years. So you’re stuck there for a while. But you did get a free education.
The Bank of You doesn’t come with that restriction. Katie’s MBA was $15k for an in-state school. And that was a cheap MBA. But she also cranked it out in 18 months. She had a part-time internship to earn some money and we paid for the rest out of my income.
If you take your time and pay for classes in full as you can afford them, yes it might take you three or five years. But you’ll come out with no debt. And no debt gives you more flexibility and options. Plus grinding out a masters degree in two years while working full time is a real beat down.
You want to consider what type of field you’re going into, what the pay scales are, and how much your monthly loan repayments are going to be when you graduate. If you have a loan with a repayment of $500 a month when you finish school and you’re entry level job in your new career starts at $40,000, you might want to rethink where you’re going to school and how much you’re going to borrow.
A lot of people have found out their first degree they got has limited income and growth potential. Well, we are where we are right, we can’t undo what’ we’ve done. But you can make a wiser choice the second time around. Does it make sense if you already have student loan debt to get yourself out of debt by taking on more debt?
Yes, we consider student loan debts one of the good debts. And I think that used to be true when college was affordable. Not so anymore. And not so when you’ve got people majoring in underwater basket weaving thinking they’re going to make $50k a year going to a school that will cost them $125k.
You have a choice of no debt. It’s the best choice you can make. Work a side job to save up for school. Pay for classes in cash. Go to a less expensive school. A master’s degree is about the piece of paper, not how much you spend each year to get the piece of paper. When you stay away from loans you’re creating a future in which you can succeed and not be straddled by more debt for decades to come.
What if you decide you’re willing to take on the debt? You’ve made a conscious decision to have student loans? I can appreciate that. Some people are willing to take that risk. It’s silly to think every person is going to pay for college in cash. If you’re not, what then?
The first step is to find out what funding options are available to you. You can fill out the FAFSA—or the Free Application for Federal Student Aid online at fafsa.ed.gov. When you include schools on your application the school you want to attend will send you an award letter indicating how you can pay for the school. It can include grants, federal work study programs, or several kinds of federal loans. If you come up short you’ll probably be offered private student loans through a bank or the university.
There are loan recalculators at StudentAid.ed.gov you can use to help you out and see for yourself what these decisions are going to cost you long-term. Find out what you’re going to be paying after you graduate and how it looks compared to your potential income. It’s worth spending an hour of your life doing some research on a decision that has financial repercussions for the rest of your life.
Thanks Renee for the question.
QUESTION: Autumn wants to know how much does a credit score affect my homeowner’s insurance? I’m a single mom and I’ve lived in an apartment for three years. My credit score isn’t very good at the moment because of some past late bills and some credit card debt. I’ve paid off my debts and have started saving up for the downpayment on a house. How is my low credit score going to affect getting home insurance?
ANSWER: Most people aren’t aware your credit history is used to determine your insurance rates. Not your credit score, but your credit history. When insurers look up your credit history they are pulling what’s called your credit-based insurance score. It’s some secret calculation used to determine how likely you are to file a claim in the future.
A credit score measures your creditworthiness, or how likely you are to repay a debt on time.
An insurance score measures your insurance risk, or how likely you are to file a claim and have an insurance loss.
Your credit-based insurance report is created using financial data collected by the major credit bureaus. The look at:
– Outstanding debt.
– Length of credit history.
– Late payments.
– New applications for credit..
Your credit score is an increasingly important factor in how much you’re going to pay for homeowner’s insurance.
There was a study just put out by InsuranceQuotes.com that found homeowners will poor credit pay twice as much – two times more – for homeowner’s insurance than people with excellent credit. If you have an average credit score you’ll pay 32% more. Yet another reason why a good credit score is important.
If you live in California, Massachusetts, or Maryland, you’re safe. Those three states prohibit insurers from using credit to calculate your premiums.
So what can you do? #1 and most important is to pay all your bills on time. That’s the single biggest factor in your credit score. Next keep the balances on your accounts low and pay off everything each month. Also check your credit reports for errors and get them fixed if you find any. You can get a free copy of your credit report at AnnualCreditReport.com
Thanks for the question Autumn.
QUESTION: Emily is having trouble managing food expenses with 8 children. Especially since I have already a lot of debt to pay off that is eating (ha,ha) most of my husband’s paychecks.
ANSWER: Wow – 8 kids! Good to hear you haven’t lost your sense of humor. With eight kids I think all my hair would have fallen out. Twins two-year olds are enough for us and they are eating machines. I can’t imagine feeding eight kids.
Food is one of the biggest expenses for most families. It’s also one of the ones that provides some great opportunities for savings because most of us spend a lot on food. Trimming the food budget can be a challenge for some but it can be fun to see how much you can whack it down and still eat a good meal.
I know of a couple websites that will help you stretch a dollar when it comes to cooking.
Both of those sites have free recipes and recipe bundles you can buy for super cheap. They have ideas for shopping at Costco, Sam’s Club, Aldi, regular grocery stores. If you aren’t buying in bulk already, definitely check out the warehouse clubs like Costco and Sam’s Club. You can easily make up the cost of a membership with the size of your family.
Here is another idea – look in your area for stores that re-sell non-perishable food that was dented or getting ready to expire. Your question triggered a memory from my childhood where we occasionally went to this store and one of the things they sold were cans of food that were dented. Grocery stores unload their damaged products which gets resold at discount stores and you find some great deals. It’s the same food, just the packaging is messed up and it’s cheaper. Plus sometimes you can find stuff that’s a couple weeks away from expiring. There aren’t any national chains I’m aware of that do this so I wasn’t able to Google anything specific. You’ll need to do your own research and see what you come up with. Try the smaller grocery stores in your area and just pop in to see if they have any deals. You might also check out the dollar stores or Big Lots. I haven’t been to Big Lots in a long time and don’t recall if they sell non-perishable food there or not.
I have to assume you don’t live in an apartment with a family that size. I would suggest putting in a garden next spring if you don’t already have one. Your oldest kids can plant and tend to it. It’s a valuable lesson for the whole family. Now is the time of year to prep the garden beds and get ready for spring. Find some free recycled wood to build some raised beds. Depending on where you live, some towns offer free compost. Seeds are cheap. Gardening isn’t that difficult. It builds character for your kids and teaches them some life lessons. We always had a garden growing up. My dad loved to garden and we just started doing it this year. Unsuccessfully, but we tried. There’s always next year.
Depending on where you live and if you have any restrictions in your neighborhood you might also look at getting some chickens. We tried that this year too (a fox killed all of ours). You can make back the money you spend on chickens with all the eggs you get to eat. Egg prices are going up steadily. If you have too many eggs you can sell them. Science has taught us eggs aren’t bad for us like we’ve been told for the past twenty years. Common sense should have taught us that too. Between a garden and chickens you can put some real food on your table, and that’s better for your whole family.
Try out some of those suggestions and let me know what results you get.
Thanks Emily for the question.
I want to hear from you
If you have a money-related question you would like answered, please visit GoAskScott.com to get in touch with me. That website has my email address, twitter, and you can also leave me a voicemail. Please contact me, I’m here to help you.
Segment: Don’t close that account
When you’re getting out of debt one of the first steps is to cut up the credit cards and stop using them. And after toiling away for months, or years, you’ve finally got to the top of the mountain, your debt free, you can breath. A big sigh of relief, and now you think let’s close those credit card accounts forever. Let’s stick it to those guys at MasterCard and Visa and get them out of our lives forever!
But a crazy thing about how credit cards work is if you close down an account, your credit score will go down, instead of it going up or remaining the same. That’s crazy, right? You would think after you paid off all your debts you should be able to shut down all of your cards and get up to a score of 850.
30% of your credit score – 1/3 of your score – is how much of the available credit you’re using. It’s called your credit utilization rate. When you close down a credit card account you reduce the available credit, and increase the percent that you’re using. What if the percent your using is zero and you never plan on using credit cards again? I can appreciate that. If you’ve beaten down debt and cut up your cards – leaving the major accounts open (Visa, MasterCard, Amex) isn’t going to hurt. You’re not using them, you’re not going back into debt. I’d close the store cards, they are viewed as lesser quality card on your credit score. And if you have a card with an annual fee, ditch it.
Along with that is the longer your accounts are open the higher your score will be because you have a credit history.
Now back to your questions rockstar nation.
QUESTION: Ken wants to know what a good amount of money to put down on a house. My wife and I just graduated from college. We worked all through school and graduated without any student loans. We’ve been working for six months and are renting a small apartment and own two big dogs. The dogs are inside most of the day and could use some more space. In the next few years we are planning to start a family too. How much should we plan on to put down on a house?
– Banks will let you get a house with less? Should you? No.
– Lower your risk of getting into a bad situation
– You’ll have equity in your home
– Better interest rates
– No PMI
– You’ll sleep better
Save up. 20-30 years ago you didn’t buy a house after you graduated.
Don’t do what I did, do what I say. I’ve made the mistakes so you don’t have to.
But then I would have been smart, and probably not had any good stories to tell for this show.
Thanks for the question Ken.
TOPIC: Kids and the Envelope System
QUESTION: Marie is up next. I want to teach my daughters good financial habits. I have two daughters ages 12 and 13. They do a few chores around the house and I’m thinking about letting them start to babysit to earn some money. How can I teach them about money?
– I learned early on to save. 1/2 sticks in my mind.
– How do you build wealth as an adult? Envelope system
– How would you teach kids about money? Envelope system. Spend, save, give. What works for adults, works for kids. They’ll get it.
– We have envelopes for our kids. I started them when they turned one because some relatives sent money for their birthdays.
– My envelope as a kid was just a bank account. Mom deposited my paper route money, and my paychecks until I could do it myself
– Why give? I didn’t learn giving until adulthood. Time, money, resources, Turning point. More giving = more in return.
– Birthday gifts, Christmas gifts, income, save, spend, give.
– Babysitting – perfect job. Responsibility, trading time for dollars
– Help them shop, set saving goals.
– Cars – most parents give the car.
– You may not have done these things, and you may not be doing them now. That’s ok. Give your kids the benefit of your knowledge you do have now.
– Raise to be money wise.
Welcome back, everyone.
The Words: Where does money come from?
Being broke is usually the result of bad decisions. Sometimes, it’s circumstances in the case of medical issues.
If you invest $1 a day, you don’t have $365 at the end of a year. It’s closer to $400.
But building wealth is nothing more than the accumulation of the simple smart decisions you make each day. Like compound interest, you compound your choices. If you make good choices daily, you don’t get good results, you get great results.
Those are the words.
That’s it for this episode. I’m your host Scott Alan Turner. Rockstar Katie is my producer. All the links mentioned in the show are available in the show notes on ScottAlanTurner.com
Tomorrow on the show an amazing interview with a real rock star. You have to check this one out.
Today’s episode was powered by Ben & Jerry’s ice cream. We won’t quit until we get a flavor named after the show. Or at least some coupons to give away.
Thanks for listening!
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