Investments... in not just Stocks

A lot of students have approached me asking for hot stock picks, investing ideas and questions about finance. While I am always happy to talk about stocks (reading my blog investing:decoded is a good first step) college students probably should not be investing in stocks, here's three reasons why:

1. Look at your cash reserves, do you have enough cash to live for 3 months without income? It is not wise to invest money in stocks when you don't have the funds for an emergency or if you are relying on your parents for emergency money.

2. Have you paid off all of your student loans? According to The Wall Street Journal. student loan debt is now more than credit card debt.

3. Have you saved up enough cash to get you through one tuition payment? It would be a shame if you say yes to questions one and two, invest money in stocks and fall short of your next tuition payment and be forced to take out student loans.

You often heard your parents say blanket statements such as "you should be investing in your education right now" or "your focus should be on school." I'm going to bring this one level higher, you should be investing in your future right now. That means that the best investments for college students are most likely books like The Tipping Point By Malcom Gladwell or a book on the financial crisis like On the brink By Hank Paulson, House of Cards By William D Cohan or Too Big to Fail By Andrew Ross Sorkin.

These books will be a real investment now, because they will give you the tools to deal with the problems our would is going to face in the future by looking at the leaders who solved our problems in the past.

ROTH Ira's, do's and dont's...

So your a 20 year old college student, you're fortunate enough to be on a full scholarship to college or your parents are picking up the tab for college. Congratulations, your a part of the small population of college students without a pile of debt.

Being in this situation certainly entitles you to some nice benefits while you are in college, but how can you get these benefits to pay off in the long term?

The answer is the ROTH IRA. Often you see a group of 60 year old's talking about how they manage their 401(k)'s, 403(b)'s, IRA's and ROTH IRA's, it can often be a confusing jumble of information for someone that is not studying finance. All of the acronym's mentioned previously are different retirement plans.

401(k)'s are retirement contributions taken out of you paycheck before you pay your taxes. 401(k) stands for a section of the tax code that allows your employer to do this. 401(k) accounts are TAX DEFFERED, meaning withdrawals from them when you get old and gray are taxed (although usually at a low tax rate because you will be retired).

403(b)'s are the same as 401(k) plan's only they are for government employees such as teachers, policeman and firemen.

IRA(standing for Individual retirement account) are similar to 401(k) plans because they are taken out of your paycheck before taxes, but are not matched by your employer.

ROTH IRA's (standing for the Senator William Roth who created them) are the same as IRA's, only the money you use is after you pay your taxes and the money your earn in the account grows tax free.

College students that are working a minimum wage job likely are paying little to nothing for taxes, with everyone earning under $9,350/year paying no income taxes(at 20 hours/week and $8.99/ hour your pre-income will be $9,350)and if you are earning under $34,000/year you will be taxed at just 15%.

Since your tax liability is so low in college, it makes a lot of sense to contribute to a ROTH IRA. This would extend the benefits you have right now (with school paid for) extend into your retirement.

Textbooks, not so painful financially

Millions of college students nationally get frustrated every September from bookstores across the nation that charge $50, $100, $200 for textbooks, having long lines, poor customer service and brutal return policies. This leads students to go to drastic measures to save a buck on textbooks. Be it looking for fliers littering the hallways of colleges, millions of books on amazon or even textbook rental services.

It is in our human nature to go out seeking low-cost alternatives to the high-priced bookstores, however it may be fruitless because of a little known tax credit for textbooks.

You may claim a tax credit of up to $2,500 for "education expenses." Included in this are college textbooks and other school related expenses. I am sure that any college student at this day in age any college students will be able to come up with these kind of expenses fairly easily.

Make sure you save your receipt!

For More info on the tax credit you can go to http://www.textbookaid.org/

Long-Term planning

As a young college student our most important priority is having $20 to go out this weekend or the money for our tuition, groceries and textbooks. While these expenses are important to pay we must also budget for some long term expenses like our first house, our kids going to college and (believe it or not) our retirement. These expenses are huge when we incur them, but planning for them now can make them more bearable.
For the expense of your first house it’s smart to plan on making a generous down payment on the house. During the subprime credit crisis some lenders where allowing homeowners to get loans with little or no down payments. You should plan on not falling into this trap (if they ever allow it again) and plan on making a 20% down payment on your home. For a $260,000 home (the price of the average listing currently in Kew Gardens, Queens, NY) that’s a $52,000 down payment. While $52K sounds like a daunting number, if you plan now it can be an achievable number.
I can plan on making that $52,000 down payment in five years by paying $859.76 a month an placing it into a “Growth Money Market Savings” account with Bank of America which as of today pays 0.4% interest if you have the money directly transferred from you bank of America checking account.
If you want to make that down payment on the house in only two years, you can make a monthly contribution of $2,162.34. Paying this higher amount will prepare you to make payments when you get the house. The mortgage payments (with a 30 year term) when you get the house at 5% interest will be $1,127.56 (plus taxes and insurance) so paying the higher amount will allow you to prepare financially for the costs associated with home ownership.
Remember, planning make everything better, the earlier the better. Stay tuned for subsequent posts on saving for your children to go to college and saving for retirement.

The health care bill’s impact on college student personal finance

As a part of the much-hyped health care bill that President Obama signed into law three key of relief measures where given to students that will make a big impact on your personal finances while in college and immediately after college. These measures are changes in eligibility for health insurance; changes of the way student loans are administered and a change for students receiving Pell Grants.

A provision in the health care plan made changes in eligibility for health insurance. This included a provision that allows children to be covered under their parents health insurance until age 26.

Currently you are not allowed to be under your parents if you are over the age of 18, but most health insurance companies allow you to be covered if you are a full-time student (hence why most undergraduate and graduate students are still under their parents plan)

The change in age will be implemented immediately and will help graduating seniors who are in between graduation and obtaining a job.

This will also help increase the number of employers that are hiring recent college grads, since some students will opt to be under their parents plan, saving employers for paying health benefits for the first 4-5 years.

Also buried under the massive health care bill are two provisions about the way student loans are administered.

The first provision eliminates a middle man in the loan process by getting the government to directly administer loans rather than subsidize a third party to issue the loans.

Although the interest rates for student loans will be unchanged (at 6.8% for the unsubsidized Stafford loan) the rate for PLUS(parent) loans will be lowered from 8.5% to 7.9% as a result of this provision.

The second provision (titled the income provision) will affect a student that will be entering school starting in 2014.

As a part of the income provision the government caps student debt repayments, by adjusting for the income of your family and the size of your family.

This provision caps repayments to 10% of your take-home (after-tax) pay and it will forgive your debt if you do not pay after 20 years. There are also adjustments if your family is larger or smaller.

The Final provision buried in the healthcare bill is an increase in funding for Pell Grants. Students are eligible for pell grants if your family makes $50,000 a year or less. It will increase the funding base for these grants.

Students seeking more information on financial aid and student aid can check out the resources from St. John’s (http://www.stjohns.edu/services/financial) or the free website FinAid (http://www.finaid.org)

Analyzing Bank fees

Hello and welcome to my new blog focusing on ways a college can improve their finances currently and ways they can improve their finances after graduation. This week I am going to focus on watching fees ranging from overdraft fees to atm fees that banks charge which most of the time are fairly easy to avoid.

First I am going to look at overdraft charges on Debit cards. Most banks allow (as of today) for customers to overdraw on their account charging a substantial fee.

For example, Bank of America will charge a $35 overdraft fee if you overdraw your account over $10 at the end of the business day (as a courtesy BofA does not charge the overdraft fee for ammounts under $10). Bank of America does give you a one time pass, called "stuff happens", on the overdraft fee. Also for every 5 consecutive days that your account is overdrawn BofA charges a $35 fee (on top of the inital fee). Overdrawing on your BofA account can be avoided by using their free overdraft protection that will tap a credit card if you overdraw, avoiding any fees.

As harsh as BofA sounds, it is not as bad as the competition. JPMorgan Chase for example charges what seems to be a low $25 overdraft fee, but it is applied if you even go $0.01 over, unlike the $10 buffer BofA gives you. After you overdraw once the fee goes up to $32, and after five times it goes right up to $35. In addition JPMorgan Chase allows you to tap a credit card for overdraft protection, but they charge a $10 fee for this service (compared to no fee for BofA) and JPMorgan Chase does not give you a "stuff happens" pass like BofA. Overall the $10 buffer zone that BofA offers and the "stuff happens" pass leads me to favor BofA over JPMorgan Chase based on overdraft fees.

Looking at ATM fees its important to realize that their are almost always multiple fees when you use an ATM other than your bank's. For exapmle if you walk into mcdonalds, odds are they have one of the 99 cent Select-A-Branch ATM's, the 99 cent promotion is somewhat true, but mostly false. When you withdraw $20 from a Select-A-Branch ATM, Select-A-Branch goes and withdraws $21 (in this case) from your bank account for the $20 + $1 fee. However Bank of America sees that you used an ATM other than their own and they charge a $2 fee ($5 if international), so you are in effect paying a $3 fee in this case.

Now if you are banking with JPMorgan Chase they charge a $2 fee just like BofA. So in the category of ATM fees, BofA and Chase are a tie in my book since both of them have the same fees.

Ways of getting around some of these fees (espescially the ATM fee) is downloading (if you have a blackberry or iphone)the respective smart phone apps that the banks put out. These apps allow you to click and see exactley where in the area the bank's ATM's are (and for BofA no need to enter an address, since it uses your phone's gps).

Overall be cognescent of you banks fees, considering they are 99% of the time easy to avoid and can save you a good deal of money over the long term.