Reader call: Money stuff

From the "heck if l know" file:

Shay's Mamala writes:

"I have 2 questions related to money:

1. What do you and the readers think about saving for college? Is it a good idea to have an account set up? What are your opinions about a 529 versus an Education IRA? Is it better for us to concentrate on our own retirement savings? College was not something that people in my family did, let alone saved for. I maxed out grants and loans and worked several part time jobs to pay my way. I don't want my DD to have to juggle work and school and I certainly don't want her to leave college in debt like I did. However, I don't know if saving separately for her college makes sense. We could just use our own savings at that time if she does not get funding from other sources.

2. Related to the above question and thoughts stemming from the posts on digital organization. I wondering if other families use financial software packages and if they are helpful in actually spending less and saving more. Are they time consuming to use or can most information be automatically imported into them from financial institutions. Do they make tax time easier? Not that we have wads of dough to manage, but somehow I think we might do a better job with our money if we were actually tracking it. What's a good system?"

I know there's an answer to both of these questions, and my suspicion is that a separate account is definitely the better choice for tax purposes (here in the US, at least, but I'd love to hear what Canadians, Aussies, people in the UK and other countries say). It sounds like some of this question is cultural, too, though, and that's another interesting discussion.

And, yeah, question 2 is something I have no opinion on, but probably should.

I know you know, though, so please share.

Comments

[JenniferH]

I'm not a financial professional or a financial whiz but I have to make two strong endorsements just from my own experience:
1. Yes, a 529 is an excellent way to save money for a child's education. You don't have to put a lot of money into it for it to pay off in the long-term. For example, $200 saved now will be worth probably/approximately $1000 in 18 years. Spread that $200 over 12 months and you have a reasonable, low monthly contribution. Additionally, in most states, your 529 contribution is also an above-the-line deduction for the account holder. So if you contribute $200 to the 529, you don't get taxed on it.

All that said, if you have no retirement savings at all, it's probably a better idea to save for your retirement first and then for your children's education. You can borrow money for your kid's college expenses, but you won't be able to borrow money for your own retirement.

2. Yes, I think a money management program like MS Money or Quiken are invaluable at tax time. I've been using MS Money for 8 years. It came free with my laptop so I had no upfront cost. It helps my family track everything from spending on groceries vs. dining out to tax deductions. I spend about 10 minutes a day on average entering things into the program and downloading statements from my bank. It's so much easier than hand-reconciling statements or keeping a written register. Since both my husband and I had make some income as freelancers, it's important we keep good track of our business expenses. It's much easier to run a report (very easy to do, promise) in MS Money come tax time than to sift through all of the receipts, etc.

[michaela]

I write about personal finance for a living, so this is right up my alley. If you're gonna save for college, then a 529 is the best way to do that for most American families. That said, saving for your own retirement should typically be your priority -- there are lots of other ways to pay for college, but no other ways to fund your own retirement.

We have a 529 for our daughter, and we basically use it for the monetary gifts she receives from our parents and grandparents. Every once in a while my mom will buy a case of diapers, and refuse to take $$ from me, so I'll write a check for $35 to the 529. Otherwise, we prioritize our retirement savings.

As for financial software, like Microsoft Money or Quicken, I've been using it for years and find it really helpful. I don't utilize the version where you can download your records from your bank, because to me that eliminates the safeguard of balancing the account and finding the occasional error in your own favor. I've been using MS Money for years, because it came free on my PC, but I'm about to switch to Quicken, which interfaces with TurboTax and also has deeper levels of functionality. Does it help me spend less? Usually not. But at least I know where the $$ went afterwards.

[rudyinparis]

Shay's Mamala,

I asked my dad the same question as yours, regarding the 529 accounts. I always trust his financial advice as he was a public schoolteacher who manged to retire early and travel due to wise budgeting. He says the 529s are not a great option due to the fact that the money management within them is not always the best, i.e., the different funds that comprise the account are not always managed as wisely as they should be, and it's possible that the individual investor could do better on their own. That said, I believe that not all of us have the time or inclination to track and aggressively manage our investments as closely as he would. So if using a 529 gets the job done for you versus it not getting done at all, I say go with the account. The tax deferred savings alone make it a pretty good deal, IMO. I SHOULD do this, as I have the option through my work but I also happen to believe--and this relates to your next point--that it is more important at this stage for DH and I to be dumping what we can into retirment funds. I have been putting away for retirement for years but we are just now getting the forms in place for DH who is self-employed. Once we are on track with him, I think in a few years we will start putting a (very modest) amount in a 529. Of course, I believe some parts of Roth accounts can be withdrawn and used for college costs without paying a penalty so you may want to look into that. I fully expect to help my children with continued education after they graduate from high school, whether that be a traditional college setting or a less traditional apprenticeship type setting. I believe we have an obligation to help provide our children with *options*. That said, I know my children will need to work, ideally part-time, while pursuing higher education and that they also will end up with some loans to pay. But I do not want those loans to be a crushing burden and I do not want the necessity of their working for a wage to crush their ability to pursue further education.

I know absolutely nothing about financial software but have often wondered if they would be useful for us--especially considering DH's situation and how his income flucuates pretty dramatically throughout the year. Thanks for asking the question, I look forward to the responses!

[Christiana]

My DH has been doing all sorts of research into the question of how to help save for our daughter's (35.5 weeks pregnant) and we've determined that the state pre-paid college plans are not ideal and we'd be better off doing a standard savings plan. What we have discussed is to save money toward her college fund and, if she gets a scolarship of some sort, she can use the money for living expenses or a car or whatever at that time. We would really like to encourage her to NOT take out student loans, as that has been our biggest debt problem lately, so whatever we can do to contribute to that is what we will do. We also plan to "force" savings as she gets money for birthdays and christmas and chores, etc.

We don't use financial software - we do the Dave Ramsey system and it's very low-tech, but since I let my husband handle all the tax stuff (and we have an accountant), I don't know what sort of benefits the software would help with.

[JenniferH]

RudyinParis brings up a good point about 529s and their management. Do some research!! Money magazine recently ranked all the 529s that are available. In some cases, you can contribute to a 529 that is not in your state but managed in another state. Some are definitely better than others as far as fees/management are concerned.

[aimee]

We started a 529 for our son as his first birthday present. While you can choose any one you like, our state (Maryland) gives you a state tax deduction for the amount you contribute each year and it is highly rated so that was a no-brainer. We have a smallish amount of automatically put into it each month so I don't even have to think about it. I've always heard that you should prioritize your retirement, which we do, but it feels good to be putting some money into this every month, too. Plus we started at age 1 so it should build up pretty nicely by 18. Good luck!

[Allison]

I am certainly no expert, but someone who is just out of college less than 3 years ago and very actively dealing with student loans.

I think a lot of the saving for college questions depend on two things (both of which you can't always answer for the future).

1) Where will you kid go to college? (ie public vs private)
2) How much $ will you make when said kid is in college?

If my parents had saved for my colleges at all, I would not have qualified for the financial aid that I did (both grants and loans). Any savings would have put us in to a higher income/asset bracket, and I would have had to take out private loans for college (I only had to take out low-interest fed loans).

That being said, I went to a relatively affordable state college. My twin sister on the other hand, went to a private college. With a lot of private colleges, financial aid is different. They tend to give out more $, as it is more expensive to go there. But, it is more expensive, so my parents had to take out some loans to help my sister out once her loans were maxed out.

But each case is different, so I'd say check with an financial planner if possible!

The only other thing that pops into my head is make sure to save the money in YOUR name, and not your kids. When the government looks at your income/assets to determin financial aid, they figure a much higher percentage of your kid's assets can be used for college than yours. And the more income/assets you all have, the less federal aid a kid gets.

So if your kid has $10,000 dollars in a savings account, the will say that nearly all of that can be used for college, and give the kid less aid. If you, the parent, has $10,000 in a savings, only a little will be able to be used for college, they figure, as you have to pay for rent/food/utilities, etc.

[Sidney]

education question- We purchased a 529 plan (each state is different) for my eldest daughter, I think they are great, I used to work for a large securities/borkerage firm and I was highly advised about them. We live in Florida and it will give her a public education in the state at little or no cost. We used my husband's 529 plan a few years ago putting him thru college at 32! If your child doesn't use it, you can use it, or pass it on.
Financial software- I tried using several different packages, in the end I found they were a waste of my time. I now pay all my bills online thru my bank, so everything is all in one place. We have been fairly poor (we just put my husband thru school) and never really had a lot extra to watch. I have found the best thing is to put your money is your 401K, or 403B at work and watch that. It is much easier managing your money when it is in one place.

[lucy]

I'm an Australian mum living in the States. Universities in Australia are public institutions and the government only introduced fees for tertiary education in the mid 1990s. Before then it had been free. The fees are nowhere near as expensive as here, and they can either be paid up front or you can pay them off rather like a loan when you graduate and enter the workforce. The more money you make, the greater your contribution from your pay check, and the faster you pay your fees. If you are unemployed for a period, or earning less money the percentage that goes to your fees or Higher Education Contribution as it is called, is regulated accordingly and automatically. The idea of saving for your child's college education in Australia is more or less an anomaly. Moreover , when you have a baby in Australia, you get a check for $5,000, and it increases with each child!

[Jill]

My only comment on this is that it is more important to be set up for retirement than to save for college. For college, your child can get grants, loans, scholarships, work study, etc... for retirement, you're on your own. So make sure you are prepared for retirement. If you can swing it, it is good to save for college starting now, due to the magic of compound interest. But not if that means that you won't be able to pay the rent when you're retired.

[paola]

Fortunately one of the only cheap things here in Italy is education, if you go public that is. My kids will go public all the way, simply because our taxes go to pay for it so, why would I also fork out money on top of what I'm paying in tax. Having said that, private education isn't as good ( results of a recent survey), and international schools ridiculously expensive. Education is means tested, but even if you are in the highest bracket, quite affordable. No one saves for their kids education here.

As an example, my 3 year old has just started Italian pre-school/kindergarten. We will pay €50 a month full time(9-3.30). The tuition itself is free, canteen ( a first course, second course, fruit and vegetable)is what costs. If you go home for lunch, you pay zero.

ON the other hand Australian education has gone thru the roof recently. I read education till university level can cost up to $A500,000 per child, but am not sure if that is at a public or private school. We have no plans to go back home simply because we just couldn't afford to send our kids to school, let alone university there.

[Shelley]

You do not have to live in a state to take advantage of that state's 529 plan (there can be some advantages to using your state's, such as deductions on state income tax, but if your state's plan isn't that great then you might be better off looking elsewhere). So it's worth it to compare various states' plans before picking one.

[Nola]

1. I had always been a snob about 2-year colleges...until I became a teacher at one. And now I wish I had started at one. Please don't dismiss a 2-year college; it's a good option. Plus, there are special scholarships for transfer students.
2. My husband uses Quicken, downloads from the bank, pays bills this way too, and files taxes online. Sadly, I don't know how any of this works, but my husband seems happy with the system. (Confession: I have never balanced a checkbook or reconciled a bank statement, it's beyond me. To quote Beavis and Butthead, "I hate numbers, there's like too many of them and stuff.")

[Jill]

someone above said "state pre-paid college plans are not ideal"... that's true. But most 529 plans are not the same as those pre-paid college plans. Very few states do it that way. And you don't have to invest in your own state's plan. You can buy from other states. and just like researching funds in your 401(k), research the 529 plan funds to see how they've performed, what their costs are, etc.. Here's a good little "at a glance" comparison of 529 plans. Note that not all plans are available to purchase on your own. Some are only sold through brokers.

[Shelley]

Also -- the $$ in a 529 can be used for living expenses while in college as well as tuition... important for us, as my daughter is a dual citizen and may attend college in her father's country where tuition is free.

[Ewokmama]

Well, it's a good idea to save for college now if you think your kids are going to go, if you can afford it, and if you choose to do that for them. The costs are going to keep inflating. There is an especially great savings plan wherein you choose a college and buy the tuition at today's prices. Sure, your kid doesn't get to choose where s/he is going to college but they also don't have to pay for it.

I believe with the 529 your family members can also contribute (grandparents).

I personally think it's great to save for your kids because under the current system schools are basing aid on how much a student's parents make, regardless of whether the parents are helping to pay.

As for question #2 - I use MS Money and I love it. We live paycheck to paycheck and I can't tell you how many times this has saved us from getting overdrafts. Being able to plan expenses and not have to remember when bills are due is fabulous! I know a lot of people schedule their bill payments online but I've never been able to do this because it's iffy whether the money will be there at the right time and balancing a checkbook is too much work! It doesn't take a lot of time to use, and you can import your bank activity right into it. You can categorize expenses, which is fabulous when it comes time to figure out how much you spent on daycare for the year. With projections out over the year, you can plan vacations, as well.

[Julie]

I hate managing money. In fact I hate money. Well, I like getting it, and I like spending it, but I don't like missing it when it's gone.

We really need to figure some stuff out. This is a timely post. My husband is a realtor, so his income fluctuates drastically throughout the year and makes budgeting nearly impossible. Add in the fact that we pay for his marketing expenses out of our own pocket....well, it's been difficult and the economy right now is not so great so ya, we're worried.

I would love to use Quicken, but don't have the self-discipline to do it every day. But I'm thinking we might have to because we have no idea (other than generalities) where our money is going. And I think it would be helpful for my HUSBAND to see where his money is going and how much he's really spending. I know you are all rolling your eyes, but I'm still one of those people who will only take $20 out at the ATM and somehow it will sit in my wallet for weeks. Not sure how. Hubby? $100 at a time. Gone. Poof.

So ya, I'm anxiously looking for tips to make managing receipts and quicken a lot easier - especially for a couple who HATES talking about money and will avoid it at all costs.

Ugh. Thanks Moxie for doing this, but UGH.

[Marie]

I don't know how true this is, but I remember hearing that there's a penalty for using 529 funds for non-educational purposes. Possibly that varies according to which fund you're signed up with, or maybe I'm completely wrong on this. But what if your kid doesn't go to college? What if he decides to be a plumber? What happens to that money you saved? I think it's best (and simplest) to save the money in your own name in your own way. That way your kids can spend it on college, a home down payment, or some other big-ticket purchase.

Like a pp, we're too poor to have to manage a lot of money. We have online access to our accounts and keep a handle on them pretty well there. My bank offers the download to MS MOney, but I haven't set that up yet -- it's one of my new year's to do items though!!

[Nutmeg]

I think the penalty is related to taxes. If you use the money for non-educational purposes (for yourself, for instance) then you have to pay taxes on it... in the same way IRA distributions are taxable income.

[Slim]

Also, at the moment, 529 plans don't hurt your chances of financial aid, because they are considered the parents' assets.

If your own state's 529 plan isn't good, you probably want Utah's.

But yes, save for retirement first. If you have a choice, pick a Roth 401(k) rather than a regular one -- it will pay off in the end.

Good calculators at dinkytown.com

[cheryl]

In Canada we have RESPs - registered education savings plans. All the banks and independent financial institutions carry them in some form or another. I don't think there is a huge tax benefit to them, but if you put in a certain amount on money a year the government will give you a grant of $500. Likewise, in the province I live in the provincial government will give you money when you have a baby, but it has to go into an RESP. It's hard to turn down free money. And most places let you choose what the money gets invested in within the RESPs.

Like Michaela, we put in any monetary gifts, as well as the $100/month child care allowance the federal government gives. Anything we can do to help.

Otherwise, when the kids decide to go to post-secondary, if they decide, they will be on their own (Other than the RESPs). Both hubby and I paid for our own educations. As much as it was awful to be saddled with the debt afterwards, we valued our efforts at the time and now. School is expensive and we believe that if it is one more thing that mommy and daddy take care of it won't be utilised or appreciated. That being said, we plan to have money put away (on our own) to help them with any debt once they've completed any schooling. That way they will have gone through it on their own, but we recognize the drain student loans can have.

[z]

Being the CFO of our house I have recently been trying to figure out the answer to the 1st question for us. ANd this is what my research has taught me.
As Rudyinparis says yes 529 management is iffy but if you don't know how to get started for now then its worth it. We live in VA and so we get a tax deduction for contributions up to $2000 so we decided that that is our goal for each year. Birthday money, holiday money etc all go into that account for now.
Also, in VA only one person is the account owner so in our case my husband is the account owner. When i return to work/have more money to save we may open another account with me as the owner and get another tax break. Oh and 529 savings used for qualified educational expenses do not count against financial aid.
As for the retirement vs. college savings just like others mentioned retirement should come first and yes you can use Roth IRA contributions for educational expenses without incurring penalties. Earnings do incur some taxation but no penalty (i think).

As for the 2nd question one i have tried using MS money but I am not very good at maintaining it and until recently (with baby and home purchase) our taxes were gloriously uncomplicated and so we just did them ourself with minimal need for tracking. But now we have a CPA do them and its much easier to hand the paperwork to them and figure it out. But i must add that it is a CPA who we trust and has been doing stuff for various family members for years and so we know that she is putting in the effort to get us as much as we possibly can get in benefits.

[Elizabeth]

Aren't education IRAs and 529s the same thing? Anyhow, there's a great book that explains how 529s work (and tells a bit about each state's) called "The Best Way to Save for College." It also talks about other education savings plans a bit. I've always heard that you shouldn't save for your children's college at the expense of saving for your retirement, since there are so many ways to pay for college, but you don't have to put that much in the college accounts for it to add up enough to really help out. It's where we put money that family members give us for the baby.

I use MS Money. It's pretty easy to use, and I download bank and credit card statements to it directly. It's good for seeing how different categories of spending are turning out.

[Laura]

I rely on The Motley Fool for questions like this. Here is what they say about College Savings (http://www.fool.com/college/college.htm), and here is what they say about Retirement (http://www.fool.com/Retirement.htm).

The rule of thumb tends to be savings in this order: Emergency Fund/Short term (3-7 years) Savings, Retirement Savings, College Savings.

I have relied on a plain old Excel spreadsheet for keeping track of finances for years. This year I'm tossing around the idea of a software program. I'm looking at Cha-Ching (http://www.midnightapps.com/). We have an accountant so I don't need to worry about filing my taxes with the software. I just like to budget that way.

Hope this helps.

[shirky]

it is really important to save for retirement. saving for college is also responsible and giving your child a great advantage, But if you can only do 1, I say retirement. retirement accounts will not be counted as available assets by the feds when FAFSA time comes. (that's IRAs, 401ks etc). It's a gift you are giving your adult children, not having to worry about you when you are elderly. I feel the same about life insurance.
also if money freaks you out (it does me), maybe ask a professional?

a coverdell is an option if you don't like the way your 529 is managed.

[Elizabeth]

I'm all link-y today.

Check out www.savingforcollege.com for tons of info on 529's, including an analysis of the best ones.

For general financial book-keeping, www.mint.com is a brand-new online quicken/money-like site that will automate a lot of the penny-tracking for you. It's got a Yodlee backbone, so it's super safe.

And for a little help with the college savings, look into www.Upromise.com. It's a loyalty rewards program, but totally free and totally safe. It's not a lot, but free money is free moneey!

[paola]

Sorry, exchange rates are the following:

€50 = $US70
$A500,000 = $US430,000

[Amy M]

My 401K is maxed out and we plan to increase my husband's contribution this year. Once I feel like we are 'set' for retirement and we get a little more in the emergency fund, we will open a 529 account for the peanut. I want her to have *something* to minimize the amount of debt she needs to go into and the amount she needs to work while she's in school. But I also know that saving for emergencies and retirement is more critical.

She'll be going to college just a few years before my husband hits retirement age and if she gets a sibling the timing will be even closer. Retirement savings is critical if we don't want to be working until we're 80. ;-)

[cloud]

We have a 529 for Pumpkin, and have also set up a UPromise account to feed pennies into the 529 (done at the request of the grandparents). It is a pain to set up, but depending on your habits, can feed some money in.

We take care of our retirement first, for the reasons listed by the PPs.

I had a scholarship in college, so got off w/o much in the way of loans. My sister had big loans and paying them off is a big burden on her finances. I'd like to help Pumpkin avoid that if I can.

We use a book by Suze Orman called "The Road to Wealth" as a reference to help us sort out what all of these various accounts are. It is actually a pretty good reference on all things financial (we used it to help us understand the home buying process, too). There may be more up to date books, though, and not everyone likes Suze Orman. I think having some sort of financial reference book is very helpful, though.

[electriclady]

I use Quicken and have since before I was married. I started using it when I was a freelancer and needed to keep close track of invoices I billed and when cash was coming in, since my inflows and outflows varied so widely from month to month. I don't use the automatic downloads from my bank because (a) they charge you a fee and (b) I like, as an above commenter said, checking things over myself and being able to catch the rare error. It made organizing my tax info for my accountant (multiple sources of income, lots of job-related expenses) so much easier.

In order to track our spending, instead of futzing with receipts every day, we put almost everything we spend (including as many bills as we can--cell phone, etc.) on our American Express card. (This only works well if you pay off the card in question every month!) Not only do we get the maximum points that way, when I pay the Amex each month I go through and categorize every purchase in Quicken. At tax time it's easy to print out a report (or, if my computer crashes like a few years ago, to print out the Amex annual spending report) and hand it to the accountant.

[electriclady]

PS Savingforcollege.com is a good source for information on 529 plans and other ways of saving for college (education IRAs etc.). And I second the recommendation to check out Money magazine's review of 529 plans.

[Briana]

In Canada, our registered education savings plan is the way to go because the government kicks in money depending on how much you contribute. Also, the interest is taxed at withdrawal, and if it's in a child's name they are unlikely to pay tax as they probably won't have a high enough income. The personal finance writers here say the best bet is to do a self-directed RESP and put the money in index funds. TD Bank's e-funds are very low-fee funds, I think all or mostly index funds, and so that's one way to go.

As for personal finance software, I started out with a spreadsheet I made in Google Documents to track my spending. I have since upgraded to AceMoney, which is a very cheap program that adds some useful bells & whistles. I have found that tracking your spending is the best way to really get a handle on your finances, even better than a formal budget. If you categorize your expenses as you track them, you can get a gut check on whether you're spending too much in a given category. I used our spending tracker info to create a budget afterwards - I had a really good handle on how much we actually spent on things like groceries, and where we spent too much. If you do a little bit every day or every few days it doesn't take much time at all. I have been doing it for a year now, though I did find that it became more difficult to find time after the baby came. That's where AceMoney came in - you can import data from your bank to add a bunch of transactions at once.

I recommend reading getrichslowly.org/blog and thesimpledollar.com for good, practical personal finance advice. Search the archives for their advice on education savings - I remember that they've both posted on it, but because the advice was more US-centric it didn't apply directly to me.

For Canadians, a blog called Canadian Capitalist has a series of really useful posts on RESPs, including how much to invest and when to maximize the government's contributions: http://www.canadiancapitalist.com/category/resp/

[clara]

Whether it's MSMoney or any other system, collecting data on spending patterns does seem to help us keep it under control (or at least understand what our weaknesses are). It does require upkeep -- which is why I took it over from DH who would do it once every 6 weeks at which point it's a pain in the butt, whereas I'm more inclined to check in with it every couple days (I am a geek who enjoys spreadsheets and the like) so it's relatively painless and only takes a few minutes.

It can cut down on stress and arguing too, since the "evidence" of spending patterns is right there in a nice report. I try not to stress month to month, but run reports quarterly to spot trends and discuss them with DH.

Other advice for people not used to saving -- have your savings come out of your account automatically monthly on a pay day. Less likely to feel the pain that way than writing a check, and what you don't ever see in your checking account you are unlikely to spend!

Good luck to you.

[cloud]

On the second question- we use Quicken. In grad school, when I lived painfully small paycheck to painfully small paycheck, it was a lifesaver. As a PP has said, it saved me from overdrafts. Now that we have more money, it helps us figure out where it goes and helped us figure out what sort of monthly mortgage payment we could afford. We don't update it every day- we aim for once per week. Unless you're in the paycheck to paycheck mode, that will probably be sufficient.

Another bonus I noticed is that it helps me remember whether we've paid certain bills or not. When I'm in a sleep deprived fog, that is very, very helpful. I didn't notice this benefit so much pre-Pumpkin, when I still had a memory.

[Andromeda]

Not a financial expert, but I think this is misleading:

"I don't know how true this is, but I remember hearing that there's a penalty for using 529 funds for non-educational purposes. Possibly that varies according to which fund you're signed up with, or maybe I'm completely wrong on this. But what if your kid doesn't go to college?"

1) Yeah, there's a penalty for using 529s for non-educational purposes. BUT, there is a huge tax advantage to 529s if you use them for education. If you are just saving money in a bank account or mutual fund or whatever, there's a tax penalty every year on the interest/capital gains. So -- guaranteed penalty for regular savings vs. penalty for 529 only if you don't use it the intended way? 529 for the win.

2) If the intended beneficiary doesn't go to college, 529s can be transferred without penalty to any of a number of relatives. So as long as a parent or hild or sibling or SOMEone like that is going to college or grad school sometime, the money wasn't wasted.

[Brown_Eyed_Girl]

I've used Quicken for several years, and I enjoy not keeping a check register manually. In fact, I rarely write a check anymore.

Several posters said they don't use the automatic download feature b/c they can't check for errors. In the version of Quicken that I have, I can download transactions from my bank and review each transaction. My husband and I save our receipts and I check them against the downloaded transactions (sometimes every day, usually once or twice a week). I can also enter transactions manually (like if I have the receipt and the bank hasn't posted it yet), and Quicken will usually match these to the downloaded transactions.

I also use the Reconcile feature in Quicken to reconcile to the bank's paper statement every month. Sometimes I find an error this way (or once discovered we had accidentally enrolled in an online service without realizing it).

I basically use Quicken like a paper check register, except I don't have to add or subtract anything myself.

I also use my bank's bill pay feature because Quicken charges and my bank doesn't. I entered the information for every company one time, and now I just select which companies I want to pay and how much I want to send them each month.

Use Quicken and online bill paying saves me so much time in managing my family's finances!

[Danika]

Yes, a 529 is a good idea. Retirement is more important, though, as others have said.

As far as financial software, I use Quickbooks. It's actually small biz software but I got it for free, so that's what I went with. I've been doing it for years and it is INVALUABLE to us. It really helps us see where our money is going and plan for savings, etc. Also, as I've been doing it for so long, we can track expenses from month to month, year to year, etc. and evaluate there too. I only update about once/week and it really doesn't take too long. You don't want to do it too infrequently, though, or it will seem like a HUGE task.

[Erin]

We use an Excel workbook that my husband developed for budgeting and tracking our finances. We use TurboTax for our taxes and find it works quite well for us.

Anyway, back to the budget . . . We decide on the budget allocations together, and we each have certain areas we're responsible for. For example, food/groceries is my responsibility because my husband is a frivolous food spender despite being very frugal in other areas.

We have an overall annual budget spreadsheet that includes sections for salary, charitable contributions, gifts, medical expenses, travel, tuition, cleaning service, etc. Then we have separate spreadsheets for each month that has categories such as food, social outings, gas, and miscellaneous expenditures. Every individual expense is a line-item in the budget. It's a pain sometimes to record things, but I think it's an important exercise to force us to think about what we've spent. We're both happy enough with our system that we haven't felt the need to use software.

It's been a challenge to work out our spending differences. I'm someone who is happiest when we come in under budget, while my husband has more of the attitude that we've allocated the money so it's fine to go ahead and spend it.

I also used to get so annoyed because I would try very hard to minimize my spending on eating lunch out, coffee, etc., while my husband would think nothing of eating out while running errands. We solved this problem by giving ourselves a monthly "allowance." We each get a certain amount each month that we can spend however we want without having to be accountable for it. (It's $25 now, but it used to be higher before we had children and had to tighten our belts some.) It's given me freedom to spend a bit of money "frivolously" and at the same time reigned in my husband's spending.

[pnuts mama]

another vote for focusing on retirement savings before college savings! and if you have the option for matched funds from work, doing that type of plan first (IRA or 401plan) then RothIRA (money put in has already been taxed, can never be taxed again) then whatever form of CD's, savings and financial portfolio you are comfortable with.

we just started looking into to the 529, and for now, we'll stick with saving the bits of $ she gets as gifts til they are in a round # and keep adding to the CD with a good interest rate we got for her after she was born. this is something we can do with kid #2, etc. these CD's are in our names in trust for the child- as allison 11:30am wisely wrote, *if* our children go to college, any money in their own name is used against them for financial aid, whereas money in parents name is viewed differently. my parents did this for me and i was able to use the money to pay off my loans after i graduated. if any of her grandparents were wealthy enough, and wanted to, i would encourage them to do the same and have those CD's in trust for her as well.

i think this is also a personal values issue- my husband and i come from working class families and neither one of us had a nest egg to rely on when we went to college- but we did qualify for plenty of federal and state financial aid because of it. i also busted my ass applying for tons of private scholarships and ones based on academic achievement. we also both worked through college- there is no shame in that and IMO certainly it isn't an unrealistic expectation to ask your children to help pay their way for their own education. i think you are teaching a child value for their money and satisfaction from hard work at the same time. i also agree with the PP who values the foundation of a 2 year school first- it's amazing what we as a society have to say about college in general, i think.

we both took out loans through the gov't and have learned a lot about managing our money because of that debt- it ALSO has impacted how we approached going back to school tremendously- when you are paying your own way, believe me, you are not only less likely to blow off class and read the books you buy, but far more likely to hold your profs/admin accountable when they want to cancel class- or aren't holding up their end of the deal in said class. at 550 bucks a credit, i see my education at this stage of the game a lot more of a "paying for a service" than ever before. that said, by the time my kids are getting into high school please god i'll have tenure at some accredited university that they will be eligible to attend for a reduced cost. we'll see what happens.

[Helen]

I recommend reading Jane Bryant Quinn, Smart and Simple Financial Strategies for Busy People. She lays out pretty much everything you need to do to be financially secure -- paying off debt, buying a home, creating an emergency fund, retirement savings, making sure you have enough insurance (especially life insurance, absolutely critical once you have children), saving for your children's education.

It's really worth becoming savvy on money issues. Teaching your kids how to effectively manage money is a great gift to them. And I have to agree with everyone who has said put retirement savings first, before saving for your children's education -- that's absolutely right.

[pnuts mama]

oh- was just reading the last comments and yes, depending on your tax bracket, it would definitely influence which type of savings you would choose for yourself, your retirement, and for your kids if you are saving for them. i would encourage anyone who is serious about their finances to meet with a financial advisor and discuss their options.

chances are, if you are in a high enough tax bracket that the hit from interest from a savings acct/CD/etc. is going to effect your bottom line vs. all of your write-offs, then you probably don't have too much to worry about in terms of being able to afford sending your kids to college and beyond. but for folks in a lower tax bracket, you can often get more write-offs (like tuition payment) vs. interest on cashing in a savings bond or whatever your CD accrued last year. and a good financial advisor will help you balance your capital gains and losses throughout the year and give you options even for buying stock that pay dividends that are tax-free, or municipal bonds, etc.

[Elizabeth]

Hi, I want to jump on the "it's not bad for kids to work during college" bandwagon with pnuts mama and others. My parents did not have a lot of money for me for college but I went to a two year -- fraction of the cost of colleges, then transferred to a 4-year and by that time I was old enough that I could apply for loans and grants from the FED as an independent and I got enough in Pell grants to cover almost all my expenses -- I also worked part time, but I enjoy that. All this to agree with others that retirement first, then college for kids is the best way to go. I don't know about the 529, except that ever since I started going into my bank with the baby, the account managers there are like barracudas trying to get me and my husband to open one. we probably will and put monetary gifts from grandparents into it.

To say something to Julie, who's husband is a realtor, I've also read and am somewhat a follower of Dave Ramsey's financial peace system and in one of his books (I think it's the financial peace planner workbook) he has a system for figuring out how to budget when your income fluctuates or you get paid sporadically (like say you're a freelance writer, which I am) so it might help you to check that out to get a handle on finances.

My husband and I use a spreadsheet to make our budget, but our taxes are so complicated right now that we have a guy do the taxes for us.

[Florabora]

Hah. Our secret is to have one of us working as faculty at a university that has free tuition for your kids. Just slightly kidding, but seriously - if you do work for a college or university - take a look at what's offered as benefits. Some systems offer free or reduced tuition to family members of all employees - from the janitorial staff to the provost. Others, just offer it to faculty member's kids, others just to the employees alone.

It's kinda hard to start saving for your one-year old's education when your own student loans from undergrad/grad school won't be paid off until 5 years before you yourself can retire...

[Rosemary]

I use YNAB PRO (You need a budget). It is only 40 dollars and I am hooked. It is simple and enforces some good budgeting discipline. We have been very good savers before it but it was a real eyeopener when we started budgeting properly.

www.ynab.com has all the details.

MS Money and Quicken are too complex for most people. YNAB is just some really smart spreadsheets and the YNAB Pro also tracks account balances etc.

[Robin]

This is to timely for me! Moxie does it again! I've been wondering about starting to save for my 8 mo son's college education and had no clue where to start. I've always been fearful of money and an emotional spender so having my son really has put that into perspective and made me want to clean up my act. Plus, I just turned 30 and in my twenties I always told myself I'd pony up and get responsible in my thirties and now I have to make good on that promise to myself.
I use my bank's website to handle all of my banking. I contribute 10% of my pretax income to my 401K through work but that is pretty much the only money I'm currently saving. I feel like I should be doing more, but I don't know where to start. I think I should see a financial advisor but I am afraid of "the sell." Granted I haven't done a ton of research to find one but my impression of the industry is that most advisors work through investment firms and ar first and foremost interested in selling that company's products/services. Also, to be honest, I have this perhaps ill-begotten impression that everyone in the world makes more money than me and that a financial advisor will just laugh me out of his/her office. It's at this point in my thinking about seeking outside advice that I stick my head back in the sand and tell myself I'll think about it later.

[michaela]

@Robin, you can go to a fee-only financial planner to avoid the hard sell. They don't make any money on commissions. You can find one thru www.napfa.com.

[Helen]

Also to Robin -- pick up Jane Bryant Quinn's book. She makes some great arguments for not using a financial planner, and really explains in laypersons terms how to get on a good financial footing on your own.

But if you do use a financial planner, Michaela is right, you need a fee-only planner. There's no reason to use someone who gets paid by commission.

[Helen]

Also to Robin -- pick up Jane Bryant Quinn's book. She makes some great arguments for not using a financial planner, and really explains in laypersons terms how to get on a good financial footing on your own.

But if you do use a financial planner, Michaela is right, you need a fee-only planner. There's no reason to use someone who gets paid by commission.

[Helen]

Also to Robin -- pick up Jane Bryant Quinn's book. She makes some great arguments for not using a financial planner, and really explains in laypersons terms how to get on a good financial footing on your own.

But if you do use a financial planner, Michaela is right, you need a fee-only planner. There's no reason to use someone who gets paid by commission.

[Helen]

Gah! Sorry for the multiple posts!