I was in the middle or writing a post about a theory I came up with about selling my car to take advantage of the crazy deals Detroit is putting out there (See GM and Ford and Jeep), but as I wrote the post I realized how truly happy I am with my car and more importantly the deal I got.
A little history about Evan’s Short Car History
I had one car from the age of 18 (1999) until it died in 2006, and this car was a 1993 with 130,000 miles when I bought it! My friends would joke that it was more or less a dented Sprite can with an engine. This thing made it through senior year of high school, 4 years of college, 3 years of law school and 6 months of work!
Then one day I left work in the cold of New York Winter to find the car wouldn’t start. I called my mechanic friend who had me pop the hood and explain what I saw. “Mechanic Friend, it looks like this large ‘engine looking thing’ has a crack in it.” That’s when I found out it was dead. So a-shopping I went. Luckily, I have a family friend who owns 5 dealerships so there was no B.S. haggling or anything. I just picked the cars I liked. I found 3 great cars that I could see myself buying and driving:
- A late model 2006 Mitsubishi Sedan with 9,000 miles
- An amazing 2006 Cadillac CTS with 15,000 miles or so
- A New Ford Edge
After talking to a few people I heard the usual.
You could afford the CTS or the brand new car
Don’t worry if your payments seem high you’ll be making more, eventually
You need a luxary car – you are a professional
You deserve it
It should be noted that the only person who kind of understood my decision to go with the barely used 2006 Mitsu was the Wife. I say kind of, because she is a leasing kind of gal, but that is a whole different issue.
While the financing terms are LONG, and I am way upside down on the car, this will change when I start attacking this debt when the credit cards are gone. I like the car and can’t find a deal as good, trust me I tried working out the math so it will work in the favor of me getting a new car. Basically I tried to establish an arbitrage between my 8.9% interest auto loan vs. 0% on a new but more expensive car to save money over the short term (monthly) and long term (life of the vehicle).
Why Doesn’t Everyone Make Reasonable Decisions?
With a little history behind us, the questions that run rampant through my mind are,
What makes me different? Why am I able to understand real life and repercussions?
I am not judging anyone, but rather I am trying to learn. I have two friends that decided they needed to lease a $425/month SUV because it was, “a good deal”, despite admitting 5 digit credit card debt and problems paying basic bills. Hell, even my father has an $889/month finance payment and complains about cash flow!
I just want to understand. I am not a psych major, nor do I pretend to be particularly sensitive (the wife calls me an emotional wasteland), but I do want to understand.
Please comment and make me understand.
A co-worker needed information as to financial aid, so I started researching away. It should be noted that beyond my parent’s attempt (it should be noted that they completely failed at navigating this world), and my independent status during law school, I have very little experience in the way of college planning. If there are questions or someone out there needs additional info, I would love to try to work together to determine the answers for everyone out there.
Simple Equation to Determine Financial Aid
Financial Aid is based upon a relatively simple equation:
Cost of Attendance – Expected Family Contribution = Financial Need
There are two ways to determine EFC: the Federal Methodology and the Institutional Methodology. The Federal Methodology (FM) is the formula to determine Federal Financial Aid. The Institutional Method (IM), is the formula to determine college provided aid. The IM is set forth by each institution. Since this is a general post I am going to focus on the issue of (FM). The main issue becomes:
How is Expected Family Contribution calculated?
To figure out the EFC it is best to use one of the many calculators out there online: (http://www.finaid.org/calculators/finaidestimate.phtml).
One explanation I found of the weighted formula is:
- 50% of student’s income, plus;
- 35% of student’s assets, plus;
- 22 – 47% of Parent’s Income (depends on income level)
- 5.6% – Parent’s Assets
As you can tell, it is the child’s income and assets that matter most. However, I want to focus on the parent’s situation right now (since those are usually the clients). In a later post we can discuss the children’s assets and income, and how proper planning may decrease the EFC and thus increase Financial Assistance.
Parent’s Income includes:
- Business Income
- Farm Income
- Pension/Annuity Distributions
- Rental Income
- Royalties and Trust Income
- Untaxed Interest
- Untaxed Dividends
- Social Security Benefits
- Veteran’s Benefits
- Child Support
- Annual Contributions to Tax Deferred Savings
- IRA deductions and payments to SEP
- SIMPLE and Keogh Plans
- Housing/living allowances
- Untaxed portions of pension/annuity distributions
- Worker’s Comp
This amount is offset by Federal income tax, state/local taxes, employment allowances, social security, and living allowance depending on children.
Parent’s Assets include:
- Savings and checking
- Real estate (not included is the home in which you live)
- Trust Funds
- Education IRAs
- College savings plans
- Prepaid tuition plans
- Installment and land sale contracts
- Business/farm net worth
HOME EQUITY IS INCLUDED IN IM FOR CALCULATING EFC.
What is not included in parent’s assets for Financial Aid?
- Cash value of LI
- Retirement accounts
- Personal items (cars, furniture, etc.)
- House (IM vs. FM discussed above)
A direct conflict should be noted – Retirement accounts don’t count, but what you put in the year before Jr. heads to college does count! Yet another reason to start your retirement accounts early.
It seems to me the moral of the story is to keep assets out of child’s name!
Like a lot of people out there, today (Friday) was pay day, who-ooo (Simpson’s reference – anyone? anyone?). But as I looked at my bank balance, I started to think…Why is my take home so low!? Like 85% of my generation, I utilize my employer’s direct deposit option, so I rarely even look at my stub. But today was different; considering the money wasn’t in my bank account, I decided today we were actually going to review my paycheck to determine where it all went!
I am somewhat satisfied with my gross salary, however one has to ponder whether any salaried employee is ever fully satisfied. Regardless of my satisfaction with my gross income, my net income (i.e. take home) seems WAY too low.
A little simple math proved that over 42% of my paycheck fails to make it to my bank account every other Friday. So I opened up Excel and started figuring things out. I have no idea if my situation is the “norm” but it bothers the hell out of me. For every $100 I make:
- $5.16 goes to FICA
- $1.21 goes to Medicare
- $11.98 to Federal Withholding
- $4.10 New York State Withholding
- $.04 to NYSDI
Simply put, over 22% goes to taxes. While this sounds like a lot, it seems awfully low in terms of taxes paid. The other 20% that “disappears” is made up of items that I have chosen to participate in:
- $16.11 taken out for medical
- $.72 taken out for dental
- $3.64 taken out for my 401(k) – matched fully by employer
Leading to grand total of $42.96 which is gone for every $100 I earn.
When viewed as absolute numbers it upsets me, but when broken down it seems actually reasonable.
- 22% in taxes doesn’t seem horrible. I am not sure how this is going to work out towards the end of the year. It seems like a low amount but I also have a full year of mortgage payments to deduct.
- Medical is 16%. This one upsets me, but I chose to have the best plan my employer offers, in case the new Wife gets pregnant. It should also be noted that she is fully covered under me, which obviously increases this amount.
- Less than 1% for dental! That is a-ok with me, especially since I would have spent the full amount 3 weeks ago when I had a root canal if I didn’t have this insurance.
- 3.64% seems a little low for my 401(k) but that is set up so I get the full match by my employer.
I would recommend everyone do this exercise. For me, it gave perspective as to where my money goes/went prior to hitting the bank account.
Just wanted to share that I passed a few tests that my employer required (one was last week, one was last night). I passed the Series 6 which Wikipedia defines as,
The Investment Company Products/Variable Life Contracts Representative Exam, commonly referred to as the Series 6, is a multiple choice exam that registers an individual to transact a limited set of securities:
- Mutual Funds
- Closed-end funds on the initial offering only
- Unit Investment Trust
- Variable Annuities
- Variable Life Insurance
- Municipal Fund Securities
I also passed the Series 63 which Wikipedia defines as covering,
…the principles of state securities regulation reflected in the Uniform Securities Act (with the amendments adopted by NASAA and rules prohibiting dishonest and unethical business practices). The examination is intended to provide a basis for state securities administrators to determine an applicant’s knowledge and understanding of state law and regulations.
I took them mostly to appease the powers that be, but it is nice to have them in case I ever want to get in to a role where I have clients of my own, rather than just directing the planners here and helping them with their clients.
They weren’t too difficult, and about 90% shorter than the New York State Bar Exam. Interesting random thought about licensing exams in general – they never tell you what you did wrong…don’t you think if I get even one ethics question incorrect they should make me review that question and the right answer?
Regardless of my registration, anything on this site should be not be construed as legal or financial advice and please review the full disclaimer.