Changes in college financing rules

President Obama worked with Congress to approve changes to the Stafford loan rates. As I noted earlier, due to the delay in this deal being worked out, the college rate loans have doubled from 3.4% last year to 6.8% this year. However, due to the deal now reached with congress, college financing became affordable again.
Luckily the new student loan fixes the issue once and for all as this bill has no expiration date. However, it has become more complex than before.
The interest rate is now pegged to the 10 year treasury. This means as the US economy does well, the treasury interest rates will raise and so will the interest rates charged on student loans. However, there is cap on the increase. Here are the details:
Undergrad, subsidized loans – 3.86%
Graduate, subsidized loans – 5.4%
Parent direct PLUS loans – 6.4%

The interest rates will be adjusted 1st day of month of June every year with max cap of
8.5% for undergrad, 9.5% for grad and 10.5% for PLUS loans. The details of how the rates are determined, the caps etc. are in this bill.

Do you have the audacity to think you can understand and plan your finances? LetMofinto help you.

Is financial planning only for the wealthy?

That’s a good question. If you look at the top financial advisors they charge hefty fees and also only take as clients who are high net worth individuals usually above $1M. However, everyone needs basic planning.

Young graduates who just started making money, but carry college loans, newly weds who have extra expenses to deal with, those that have credit card debt need advice and planning but can’t afford to find it.

It also starts with education and understanding of money management. Also a really good knowledge of risk vs reward dynamics will help avoid pitfalls in investing.

Basic planning involves understanding money flow. Cash you earn is positive cash flow. Cash you spend is negative cash flow. Usually positive cash flow is what you make in your job. If you have investments like stock, fixed deposits, or bonds the interest or dividend they generate year over year also adds to the cash flow.

Most problems arise because we spend more than we earn. This may seem like a simple problem but in reality it’s more complex. What you take home from your pay check is usually much less than what you are paid. This is because of income tax, pay  roll deductions etc. Also if you have credit card debt, car loan or mortgage on the house, all of these need to be considered before you figure out what your take home pay is.

Life is pretty good at throwing curve balls at us. Your car may unexpectedly give up on you and needs attention. In my case, I experienced sudden expense only last week. My son lost his glasses and we had to rush to the eye doctor to get a new pair of glasses. The whole thing with deductibles etc. cost me $250. Something a good plan should expect to have happen from time to time.

Also you work hard for the money and you deserve to have fun. So if you are planning on that vacation to Hawaii or want to take your kids to Disney World, you need to save up for that trip. How much do you expect to spend and when?

If you plan ahead for regular expenses as well as irregular ones, you will realize that it’s easy to get out of debt and/or stay debt free.

If you can afford a financial advisor that’s great for you. If not, use a tool like Mofinto that walks you through your goals, expenses, income, investments etc. Mofinto automatically calculates the taxes etc. so that you have a good idea of your cash flow for several years to come. It will also predict how much of a chance you have of making your goals.
Using a tool like Mofinto, makes you realize planning is not a chore but rather interesting. You can try different scenarios to see which plan works best.
Best of all you can’t beat the price. It’s totally free. Sign up and give it a try.

College education loans have just become more expensive

Due to a stalemate between congress and senate, starting July 1, the Stafford college loan interest rates have doubled from 3.4% to 6.8%. Average student graduates with $30,000 debt. With employment situation not looking much better than it did last couple years, the increase in interest rate means students need to think harder.
When senate comes back into session, they are most likely going to discuss paring down the interest rates back, but as it stands it’s become pretty hard for parents and children to plan for college.
There are several questions that need to be thought through before embarking on college education. If things work out in favor of going to college, by all means, you should do it right away. If not, postpone it for a few years and revisit the decision when things are a little easier.

1. Is the high cost of college degree going to be offset by the income you are going to make when you get a job? The answer depends on the college and the degree you are seeking.
2. Can you borrow from your parents at a lower interest rate? There are ways to make this official.
3. If you are currently employed and would waiting for a couple years help you save up enough for college?
4. Are there alternative financial institutions that give the same or similar degree at much lower cost? Some colleges are more expensive than the others.

and many more…
You don’t know the answers until you actually model what happens using a tool like Mofinto. You might actually find that you can afford the loan if you cut down expenses, able to secure a good job after the college education etc.
With a college degree you are investing for the long term and it’s a very important decision. It’s critical that you educate yourself about all the options and clearly map out the alternatives by trying out ‘what-if’ scenarios.
Hopefully, politicians in Washington, will reverse the increase and bring the interest rates back down to 3.4% or below. Good luck!

Do you know where you money is going?

If you are just starting in your new job, just got married or starting a family, you are probably overwhelmed with various expenses. There are many times you wonder where the money is going?

It’s surely important to work hard to get promotions at work, bring home bigger pay check. But if you don’t get a handle on the expenses, they will expand to fill the income.Start keeping track of all the expenses

• Car loan
• Mortgage
• Credit card bills
• how often you eat out
• monthly grocery bills
• Entertainment
• Auto Insurance
• Utilities
• Rent

and many more
Go through old receipts to see if there are extraordinary or special one time expenses. A sudden auto repair means you will have to rent a car or get it done. Planning for these unexpected expenses is important. The rule of thumb I use is to reserve about 10% of the yearly expenses for the unexpected category.
Use Mofinto. Add yearly expenses but be sure to itemize these. It will automatically calculate the yearly expenses and also keeps track of inflation effect on the expenses over next several years.
Once you have a good idea of all the expenses, make sure your income is more than expenses. If the cash flow is positive, meaning income is more than what you spend, congratulate yourself on a job well done. You are ahead of the game. All you need to do is invest the savings wisely.
If on the other hand, you are seeing negative cash flow, it’s time to start by reducing expenses. Start cutting down on discretionary expenses like travel, entertainment etc. Reduce your frequency of eating out.
You will be surprised how easy it is to fix the budget problems once you do realize there is a budget problem.
Planning is simple if you are disciplined.