Worth it or not Worth it?

Good article with short answers about common financial questions.

Jack Otter, Executive Editor of CBS Money Watch, tackles these issues in his book, Worth It… Not Worth It? In an easy-to-digest format, he sheds light on some of the most complicated personal finance decisions.

 1. Borrow for college or don’t go?

“As financially painful as college can be, not going to college is even worse,” Otter writes. So before you sign that loan, a better question might be: How much college can I afford? He suggests considering the earning potential in the student’s chosen field, and emphasizing quality of education over prestige. And if you do borrow, stick to subsidized loans.

2. Use a credit union or a bank?
“Credit unions can do just about everything a bank does, and in almost every instance, they will charge you less and pay you more,” says Otter. On average, credit unions charge lower fees on ATM withdrawals, lower rates on home equity loans and auto loans, and pay higher rates on savings accounts, CDs, and money markets.

3. Date a co-worker or date just about anyone else?

Otter emphasizes that when you’re first starting out, you just shouldn’t go there. There’s too much at stake. But if you’re over 30, it’s a safer bet to at least consider. After all, he says, he met his wife at the office and adds, “a relationship built on common professional interests can be a marvelous thing.”

4. Buy or rent a house?

If you’re ready to settle down, now’s a good time to buy.

5. Fixed rate or adjustable mortgage?
Go with a fixed rate mortgage. With rates this low, Otter says you should lock it in without looking back. “While rates probably won’t rise immediately, we’ve probably seen the lows. Locking in with a fixed rate now could be one of the best financial decisions you ever make.”

6. Buy or lease a car?

Buy a car. Otter’s take on leasing: It’s “like always going to the more expensive restaurant, or making sure you never, ever, pick up an item at the sale prices.” He says you’re essentially paying for the vehicle to depreciate. “To put it bluntly, most people who lease are paying lower monthly payments so they can drive a car they could otherwise not afford. And if they aren’t setting money aside, and insist on a new car every three years, they’re going to get stuck in a leasing cycle because their budget and lifestyle won’t allow them to ever afford to buy one.”
7. Hot mutual fund or a cheap fund?
“Here’s a secret that the financial industry really doesn’t want you to know: The cheaper the mutual fund, the better it is,” writes Otter. He says the lower a mutual fund’s fees are, the better your returns.

8. Cash-back or rewards credit cards?

Generally speaking, Otter says cash-back is the way to go – these cards usually pay back about 1 percent of your purchases. You’ll especially want to avoid rewards cards if you carry a balance. Rewards cards “charge higher interest rates, and you’ll pay far more in interest than you’ll ever get in rewards.”

9. Give kids allowance or pay for chores?

Should you give kids an allowance just for being your children, or have them earn the money through chores? Otter recommends giving a small allowance – between half and twice a child’s age in dollars. You can also consider dividing the allowance up into thirds: one for spending, one for saving, and one for charity. Then, pay for bigger chores – like weeding the garden.