Golf, Kids, and Other Things You Should Avoid Until They're Affordable

I've played exactly 36 holes of golf in my life. And the first 18 were played in August, 1996 with Bill Lyons, a friend of the family from Upstate NY. I was 13. As you might guess, my parents weren't golfers, so I looked forward to trying my hand at something I had seen, but never participated in. Any of you golfers out there will probably agree with me and understand when I say that driving a ball with a cheap, borrowed 3-wood is just a little bit more difficult than tapping an orange ball through a windmill at the local mini-golf. You might say that I was, well, awful.

Drive after drive, I sent ball after ball into the woods. None of the hungover men I was with had the patience to chase after them or even to send me on a one-kid search party. I had the notion that the balls were expensive and I felt guilty. I had officially became the golf ball grim reaper, sending several boxes full to shallow graves in the deep dark forest. "How much do these even cost?" I asked sheepishly. And Bill, god bless him, gave me an answer that I still remember more than 12 years later: "If you've got to ask how much the balls cost, you can't afford to play golf."

This is an interesting principal that most of us dismissed with a laugh on that day. Bill's a naturally funny guy, but he had a point. Many of us non-golfers grew up in a house without much of a golf influence. That means no sets of clubs as a Christmas gift, no free lessons, no country club memberships, etc. Golf is an expensive hobby with lots of fixed and variable costs. If you already own your clubs and you or a family member have a paid club membership, then it's probably an activity you can afford. But if you're young, in debt, and without much savings, chances are you'll have to ask how much the balls cost. And you know what that means.

Kids
People all over the world dream of having kids one day, and every day, thousands of those dreams come true. But in America, I see lots of people having children before it's financially feasible. Of course there are many factors that influence our decision about when to have children. Maybe you want to be young so you can play with them and share more years together. Or maybe you're pressured by your parents to give them some grand kids. Many children -- including me and my parents -- are born into a family that is having a tough time getting by financially. And most of the time, everyone turns out just fine.

But tegardless of the reasons we choose to have children, it's less than ideal to have them when you're not on solid ground. If you're struggling to pay down debt, if you don't have family health insurance, or you're having difficulty paying your rent or mortgage, bringing a child into the situation will undoubtedly cause you more stress and financial discomfort. I'm not saying that bringing a child into a middle-class family is a poor decision that will leave everyone hungry and homeless. I am however saying that the financial burdens of a child will be reduced if you wait until you're already in a comfortable place. Think of it this way: if you don't need a new car today, it's better to wait and save your money until you do need one rather than take out a large loan and make payments for several years. The latter option won't necessarily put you in the poor house, but the first is clearly a better financial situation than the other. Simply put: If you have to ask how much doctor's visits, diapers, and formula cost and you have doubts about your ability to pay them, you might not be able to afford to have a child today.

Pets
I adopted my first dog from the County Animal Shelter and immediately took her to the vet to get her shots. Afterward, when I was walking back to my car, a man approached me with his family behind him and asked where I'd gotten my puppy. He and his family were very friendly but clearly poor, with old clothes, a rusty car, and unkempt hair. I told them that if they hurried, they could get to the animal shelter before it closed, and all they had to do was pay a $10 adoption fee and agree to have the dog spayed/neutered within two months. Then he asked, "Do you need to have the $10 today?"

Clearly, it is an extreme situation when a family of five doesn't have ten dollars to spare and are in the market for a furry friend. I felt like telling them that dogs cost a lot more than ten dollars -- the first round of shots alone cost fifty! Thankfully, I didn't have any convincing to do when he realized that he was priced out of dog ownership.

I certainly don't mean to pick on the guy, but the situation inspired some sentiments of improper pet ownership. Though pets have low fixed costs -- often a small adoption fee and a bag of Ol' Roy -- they can quickly turn into a burden. My friends Brian and Christiana once had a cat whose vet bill soared to thousands of dollars. Though it's easy to become attached to a cat, dog, ferret, or fish, remind yourself that if you're struggling to make ends meet, you're better off waiting to get a pet. Pets deserve reasonable care and attention. If you have to ask how much pet food, adoption fees, flea control, and vet visits cost, you probably can't afford to have a pet.

Grad School
This might come as a surprise to you. Unless someone in your family is paying for your education, make sure that you figure out whether or not you can afford grad school before you apply. Many of us want to get it over with right after getting our bachelor's degree just as a matter of habit and sequence. And if you're going to use student loans to pay for your graduate degree, be extra careful.

A friend of mine had well over $100,000 in student loans from his undergradute education before he even started grad school. Now he has over $140,000 in student loan debt. If he had asked me before applying for his advanced degree, I would have recommended that he take a couple of years to work down his balances and get comfortable with his payments before getting over his head.

A strategy that I've seen some employ is to take out a loan to pay for a small portion of grad school, say, the first year, and to work during the program. I've also seen husbands and wives take turns, with one working while the other goes to school. Another option might be to get a job with a company that offers tuition reimbursement. Even if it means taking more time to get your degree, there's a good chance an MBA or an MFA could be paid 100% by your employer!

Don't get ahead of yourself with grad school; it's very expensive. An advanced degree is an investment that you should vet thoroughly before commiting, just like any other.

A House
This last one is pretty simple. Unless you want to follow suit with many other Americans that are in foreclosure today, don't buy a house unless you're in a good position to do so. Don't try and convince yourself that it's affordable. Don't try to convince yourself that it's a good idea. Don't try to convince yourself that you're entitled to own a home just because you're married or because you earn a certain salary. Instead of trying to convince youself, prove it to yourself. In the end, it's going to come down to dollars and cents. Click here to figure out how much home you can afford. Remember to be honest. If you're not, you're only cheating yourself :-)

For some people, owning will never make sense. Take my friend Quang, for example. He's single, works long hours, and rents a room in a house in northern Virginia. He's close to work, he likes the location, and rent is dirt cheap. In my opinion (and his, too), it will never make sense for him to buy a place because of the outrageous price of real estate in his area and the headaches that come along with homeownership. Because his rent is so cheap, he can afford to save an incredible portion of his income that he would otherwise have tied up in an expensive home. Let's not forget that he doesn't pay for any home maintenance or repairs.

Many of us feel entitled to have children, own a pet, buy a home, go to grad school, or play the back nine because they're very American things to do. But unfortunately, those are all very expensive undertakings. Our culture, our national heritage, and social pressures can sometimes take precedence over our own financial wellbeing. And though these purchases and activities are very important to some of us, it's important to recognize that for the working majority, these things come with time and patience. So before you take that first step toward the maternity ward or the country club, get your ducks in a row and make sure that it's not going to break the bank in the long run.

Paying for college as an adult

I'm getting married in a few weeks to my college sweetheart, Michelle. Currently, she's working for NPR, teaching a film class, and going to grad school. I work for a government contractor doing various types of IT consulting, project management, and technical writing. We're trying to make decisions about how to pay for her grad school that won't put us in the poor house, which is easier said than done, considering the interest on student loans for our generation is sometimes more than double the rate that my GenX friends are paying.

Michelle took out loans to pay for her first year of grad school because that was her only option at the time. But now, a year later, we're both a bit more settled and have stable careers and a little extra income each month. She's in a three-year program, so we've got a bit more financing to do, giving us a few options to churn about. Should we:

1. Take all of our extra income and pay it toward her current loans?
2. Put it into a savings account and pay cash in August when her next tuition bill comes due?
3. Save our money, continue to take out loans, and hope we have enough cash when she graduates to pay off a substantial portion?
4. Utilize a more creative strategy?

We chose number four. After doing some research online, we decided to do two things with the disposable income we're able to dedicate to her education expenses:

1. Save enough in a high-yield savings account (E*Trade is what we use) to pay the accrued interest on her current student loans
2. Put the rest of our dedicated $$$ into North Carolina's 529 plan

Here's our logic:
Since interest rates on graduate loans are in the 8% range, we certainly don't want to increase the principal on which we pay interest if at all possible. I mean, the interest alone on a year's worth of student loan debt comes to over $100 per month. While she's in school, payments are deferred, but interest still accrues. We get our quarterly interest statements and are damn sure to pay every penny of it. Albert Einstein once said, "The most powerful force in the universe is compound interest." You certainly want the most powerful force working for you, not against you! By letting that interest build up over the years she stays in school, the total cost of her college would increase significantly.

After paying her student loan interest each quarter (which is usually a few hundred bucks, never more than $500 I don't think), we figured out how much more we could contribute toward her college expenses (around $250 per month). All of that money has been placed into a 529 plan. Here's why:

The account's funds, which may only be used to to pay only for the named beneficiary's college tuition and related expenses, has tax benefits which are two-fold (depending on which state you're in). In the state of North Carolina, contributors may write off up to $2,500 in contributions from their state taxes. Additionally, the investments in the plan grow tax free, as long as the money in the plan pays for qualified college expenses (sorry, beer and pizza aren't qualified).

529 plans are to college as Roth IRA plans are to retirement. Only after-tax money is contributed, but as long as it's used for its intended purpose, that money is never taxed again. The risk that you run with 529s is that the beneficiary never goes to college. With Roth IRAs, you run less risk because you're only betting that you're part of the human circle of life and will reach the qualified retirement age before you die (and if you die young, who cares about the money?). The nice thing about putting money into a 529 plan for someone that is about to start college or has already begun is that the risk of them not attending is significantly mitigated.

To recap the benefits of our college financing strategy, consider this:

1. All of the money we have saved for Michelle's college is growing tax free
2. Up to $2,500 of her out-of-pocket college expenses are tax-deductible (again, this depends on your state)

To read more about 529 plans, click here