My daughter is 7, my son is 3, and my wife and I, we are both 32. So, in the next 25 years, I need to be ready to fund two college educations and two retirements, while paying cash for all purchases, including major purchases like automobiles, furniture, appliances, and even a home! So, here’s my “current” plan to meet the future, with confidence, and without fear.

Education:

Daughter: My Daughter’s ESA currently has a balance of $4,742. I plan to contribute (at least) $2000 to her ESA for the next 12 years. At 6% APR, she’ll have almost $46,000 for college. At 8%, she’ll have almost %54,000. At 10%, she’ll have $65,000. Of course, once she begins college, there will be ongoing expenses. I’ll write more about that, below.

Son: I have just opened an ESA for my son, so his balance is $0. I plan to contribute (at least) $2000 to his ESA for the next 16 years. At 6%, he’ll have almost $68,000 for college. At 8%, he’ll have almost $84,500. At 10%, he’ll have $106,500. Again, once he begins college, he will have ongoing expenses.

Retirement:

My wife: My wife contributes 5% of her pretax income to her pension plan. She can retire in about 21 more years. Her pension plan will provide 60% of her final year’s annual salary. We also plan to fully-fund her Roth IRA every year for the next 25plus years.

Me: I contribute $12,000 annually to my 403b. I also plan to fully-fund my Roth IRA every year for the next 25plus years.

Major Purchases

Currently, we plan to save a minimum of $10,000, per year, in a non-retirement investment account. I realize that I will have to pay some taxes on the gains in this account, but living without borrowing money requires a pretty substantial amount of non-retirement savings.

Additionally, we plan to buy a house, at some time in the distant future. (Currently my employer provides a house for my family, as part of my compensation package.) I have yet to decide which type of account we should use to save for our future home purchase. Our next major purchases will be two “newer” automobiles which we plan to purchase in 2009-2010. After making those purchases I’ll reevaluate our situation and our plans.

So, NCN, why in the world would you go to the time to write about all of these different plans? How do you know how much interest you will earn? What if you have another child? What happens if one your automobiles “dies” and you have to replace your automobile sooner than you had planned?

Frankly, I mention these plans so that you can see how much I am thinking about the future. I realize that my plans may have to change, shift, and be modified over time, but I am THINKING about these things. How many people do you know who are just “floating” through life without THINKING about the future? I refuse to live without a plan and without a purpose!

Resource:

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CLICK HERE TO WATCH MY SEGMENT ON CHANNEL 2 WSB ATLANTA WITH CLARK HOWARD

(This is part 2 of a 2 part series. Click here to read part 1)

Edit: I added these lines a few hours after writing this post: I live in Georgia and our state offers a “Hope Scholarship”. Basically, it is state-funded tuition, paid for by proceeds from the Georgia Lottery. I’m not a big fan of the lottery, and I have doubts as to whether the Hope Scholarship will still be around in 10 years. If it is, my children may or may not qualify for it. But, if it is there, and they receive it, we can use their “college savings” for room and board. As for “where” we plan for them to go… we are planning on saving enough for them to attend a state university, like UGA, GSU, or VSU. But, my kids are 7 and 3 and a LOT can change between now and 2017!

As I have stated before, I did not attend college, so I have never had to deal with the expenses associated with college (or college-life). Thankfully, I was able to find a job that I love which does not require a college degree. But, I fully expect that my children will attend college (or some type of trade-school, technical school, etc.) So, in an effort to provide for their college education and prepare them for financial prosperity, here’s what I am doing (or will do) to help my children.

1. I will (and do) talk to my children about money. I find it fascinating that we live in a day and age where our children are exposed to SO much information about SO many topics, and yet many teenagers graduate high-school (or college!) without a basic understanding about personal finance management.

2. I have created a “system” for teaching my kids how to handle “their” money. (If you’d like to read about how we handle “allowance” click here.)

3. I plan to save enough for my kids to ATTEND a quality college. (Currently, I am saving for college in Education Savings Accounts.) I have two kids, ages 7 and 3, and I plan to save $2000 per year, per child. If I save $2000 per child for, say, 12 years, and I get an average return of 8% on my money, that would equal about $40,000 saved, per child. ($2000 is the CURRENT maximum ESA annual contribution limit, but this amount will go UP, year after year. I will, of course, adjust my annual investment amounts, accordingly.) I hope to save enough so that my kids can START school, and if there is a “shortfall” in my savings, I will simply add “COLLEGE” to my monthly budget and help them as they go along.

4. I also plan to talk to my kids about the VALUE of education. One thing that I would NEVER do is make my kids feel like they are “financial burdens”! Seriously, I would sooner die than have my kids feel as if I regretted helping them, providing for them, having them, or “taking care of” them. So, I will never, ever, say “Don’t you know how much this is costing me?!?”. I will, however, stress how VALUABLE the education itself really is to their FUTURES. Already, at age 7, my daughter is learning the VALUE of a dollar, but she NEVER has to deal with a “guilt trip” from me about how much something costs. If she wants something, she either pays for it or receives it as a GIFT, no strings attached. The same will apply to her college education. I will GLADLY pay for her education and hope that my parenting skills (and the grace of God) have prepared her for LIFE.

5. This one may come as a surprise, but I plan on helping my daughter apply for, use, and make a payment towards, her first credit card. Why? Because, whether I like them or not, credit cards are here to stay and I want my daughter to know the “do’s and don’ts” associated with credit cards. That being said, I will also warn her of the risks associated with credit card mismanagement. Again, the whole “no credit needed thing” is about ME and how I plan to live my life. Only a fool would be so naive as to send his 18 year old daughter off to college, having never taught her about credit cards and credit card companies.  Edit:  After reading a few comments and emails, I am thinking about this particular point.  I’m glad that I have 10 years to decide how to handle this issue!

6. I plan to purchase automobiles for my children. (I may, at some point, use Dave Ramsey’s idea of “matching” the amount of money his kids could save, and then buying them a car.) My daughter will not need a car for nine more years, and I have no idea what our lives will be like at that point. But, I have to assume that I will have a quality, used car for her to drive. The same goes for my son. Whether my kids “work” outside the home will be based on how involved they are with school, school projects, athletics, music, gymnastics, etc. I am teaching my children to be responsible, by giving them various “jobs” around the house, but I want my kids to enjoy being “kids”.

7. I plan to help both of my kids open checking accounts, create budgets, and balance their checkbooks. In fact, in the months before my daughter goes to college, I plan to hand her MY checkbook, and allow her to “run” our families finances. Of course, I’ll be right there to help her and assist her, but I want her to get the “feeling” of “managing a home”. I will do the same with my son. (Of course, I realize that this is “easy to say” while my kids are so young, but I hope to be able to do this with my kids when they get older.)

8. I tell my kids, everyday, dozens and dozens of times, how special they are, how bright they are, how smart they are, how gifted they are, how creative they are, and how loved they are. I also do my best to discipline them fairly, consistently, patiently, and responsibly. In other words, I am doing, all that I know to do, to raise responsible, confident, loving kids. I am sure that I fail more than I succeed, but I believe in my kids and their futures.

9. I take my kids to church and I teach them to give. We give to our church, people in need, family members, friends and strangers. The BEST way to understand grace is to GIVE it.

If you have ideas or suggestions about raising kids who are responsible with money, prepared to face college, and wise about debt, please, feel free to leave a comment! Raising kids is HARD work, and, so far, no one has perfected it. I would NEVER claim to be an expert, but I the above 9 points represent “the best that I can think of for now…”

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CLICK HERE TO WATCH MY SEGMENT ON CHANNEL 2 WSB ATLANTA WITH CLARK HOWARD

These posts are inspired by a comment left by Living Almost Large.

(This is part 1 of a 2 part series)

I’d like to know how to start out life without any debt at all? And no parental help.

Wow, this is a very interesting question. First, a few thoughts about my situation, and then some thoughts about what I plan to do to help my own kids avoid the credit trap.

My parents worked very hard to provide for me and my sister. They purchased automobiles for us when we were in school. As for college and college loans, I never had any and I never needed any. Why? I didn’t GO to college. So, that’s ONE way of avoiding student loan debt. (I say this, of course, tongue-in-cheek. Most modern jobs require a college degree (or technical degree) of some kind. I am planning for my children’s education expenses, and I fully expect them to attend college.)

If I were a student, here’s what I’d do to avoid going into debt.

1. I’d work. Simply put, if I were a single guy in college, I’d go to class, do my school work, and then have as many “part-time” jobs as I could find.
2. I’d focus on getting my education, not on the “college experience”.
3. I’d live a spartan, frugal lifestyle.
4. I’d try to find roommates who were just as “focused” as I am.
5. I’d refuse to sign up for a credit card, just to get a silly hat!
6. I’d find successful people in my career field, talk to them, and take notes!
7. I’d prioritize my life, giving myself time for school, work, church, and friends.
8. I’d only pay for college with money that I had earned or with grants or scholarships.
9. I’d realize that I did not “have” to finish school in 4 years. I could take 6. I could take 3. I would work at the pace which allowed me to PAY for my college without taking out school loans.
10. I’d apply for every scholarship, grant, or fellowship known to man.

As for purchasing an automobile, that’s a “tough one”. I have an old truck that, if I were to sell it, might bring me $2000? I am sure that there are working, not-so-awesome-but-gets-me-where-I-need-to-go automobiles out there. (In fact, in our local paper, there are 4 cars listed under $2500!) So, it starts to be about the “choices” that we make.

If you DO decide to borrow money for school or for college (as most people do) then I strongly encourage you to PAY OFF THAT DEBT as soon as possible. I find that, for most people, if they would focus on paying off their debts, they could be debt-free and then begin to plan for future purchases. The people who let their debt “hang around” for years, like I did, are the ones who can get into trouble.

Again, these are just a few “ideas” from the mind of a 32 year old father of two. I realize that my priorities (now) are completely different from the priorities that I had when I was 19 years old. At 19, I had no idea that living “debt-free” was possible, so I borrowed money, over-used my credit cards, and figured that “this was what you had to do”. It took me 10 years to figure out that I could live without borrowing money. Is it more difficult to live without borrowing money? From time to time, YES! But, to quote my man Dave, “I choose to live like no one else, so that, one day, I can live like no one else!”

One more note: What I write here at No Credit Needed is a mixture of what I did (or do) and my general ideas about personal finance. I realize, now more than ever, how blessed I have been in my life. I have never gone to bed hungry, or afraid, or worried that the roof over my head “might not be there when I wake up”. For those of you who are deeply in debt, or struggling with your finances, I encourage you to be strong and to press forward, examining EVERY avenue that might be available to you.

I’ll be back with “Part 2″ in a little while…

To read Living Almost Large’s entire comment, please click here and scroll down.

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My original goal for 2007 is to save 60% ($48,000) of my gross income in retirement or education savings accounts. One of my mini-goals, inside of my main-goal, was to contribute $2000 to my son’s ESA for fiscal year 2006. I have made the decision NOT to fund his ESA for 2006. I have already fully-funded an ESA for my daughter for 2006 and 2007, but my son is 4 years younger than she is, and I am busy exploring other investment opportunities. To be honest, I will probably wait until 2008 to begin funding his ESA. Right now, I am focused on fully funding our Roth IRAs and saving money in our car-replacement fund. (My son is only three, so it’s not like I am neglecting him. My daughter is 7, and we began to save for her college education when she was 6.) I will still aim to save $48,000 this year, but I shall allocate the funds that were going to go into his ESA into other accounts. (Saving for college is a MAJOR priority. We plan to pay for our children to attend quality schools. We are planning to save for a majority of their college expenses and then budget for the rest when they actually enter school.)

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I don’t talk a lot about my investments. Why? I don’t really know all that much about investing. Remember, for the first 31 years of my life, I was broke and in debt. Now, I’m debt free, saving some money, and I’m learning as much as I can about investing. I am funding my 403b (at work), a Roth IRA for myself, a Roth IRA for my wife, and an ESA for my daughter. (If you ever want to know about my retirement and education savings, simply click the category labeled “$48,000“. $48,000 represents 60% of our combined gross income and is the total amount that I am trying to save and invest in 2007. All categories are all listed on the left-hand side of this page.) I have been contributing to my 403b for the past ten years, but the annual amounts that I contributed were very, very small (usually less than $1000). Now, I am aggressively funding my 403b and my other accounts. Here’s a breakdown of my current investments.

403b

30% REIT, 40% Small Cap Growth, 30% International Growth

–My 403b funds are aggressively invested. I know this, I acknowledge this, and I am FINE with this. Why? My wife’s job provides her with a pension fund and will be our “safety” net. I have decided to be aggressive with my 403b in an effort to maximize my returns. (NCN “personal prediction sure to be wrong”: I think that the areas for growth in the next 5 years will be in international stocks and small cap stocks. I’m probably wrong, but this is what I “think”. Please note, I would NEVER, EVER suggest that ANYONE mistake my prediction for advice. The FASTEST way for you to go broke is to listen to what I have to say about investing! If you are looking for blogs by people who KNOW what they are talking about when they talk about investing, check out some of my personal finance blogging pals: Five Cent Nickel, My Money Blog, All Financial Matters, and Free Money Finance. Getting out of debt or trying to save for emergencies? I’m your man. Learning how to invest? Read those other blogs!)

My Roth / My Wife’s Roth

100% in RFG, an ETF which tracks the growth stocks in the S&P Mid-cap 400.

–I do not practice “dollar-cost-averaging”. I save up an entire year’s worth of contributions, send a check for that amount ($4000 for 2006) to my brokerage and then purchase a single ETF. Again, this ETF is more aggressive than an ETF which tracked the total market or the S&P 500. I use ETF’s (instead of mutual funds) because I like to make ONE purchase per year.

Daughter’s ESA

90% in RSP, a weighted ETF which tracks the S&P500 Equal Weight Index. 10% in CLX, my only single-stock investment.

–RSP in an interesting ETF. It is an “equal-weight” ETF. What does that mean? Most ETF’s invest in a multitude of stocks, and the amount of stocks owned PER company is determined by company SIZE. An “equal-weight” ETF (at least I ‘think’ this is right) purchases all of the stocks in an Index, but purchases the same amount of stocks PER company, regardless of company size. Benefits of this approach include the fact that the smaller, faster-growing companies in an index make more of an impact on an ETF’s price. As for CLX (Clorox), I just wanted to own a solid, dividend paying company. I purchased this stock two years ago when I opened my daughter’s ESA and I’ve just continued to hold onto it. The percentage of my portfolio dedicated to CLX stock will decrease as I make additional contributions to the ESA, but I plan to simply hold the stocks that I already own.

Again, please do not “copy or emulate” my investing strategies. I am in the very, very early stages of learning about investing. I’m POSITIVE that there are TONS of blogs, sites, and television shows from which you can get good, solid, dependable, investing advice. No Credit Needed is NOT an advice site! I just share with your WHAT I AM DOING!

The final breakdown looks like this:

Small Cap, REIT, International, Mid-Cap, Large-Cap, Single Stock.

(By the way, here’s how my retirement account performed in 2006.)

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