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The Simple Dollar

Simple, applicable personal finance advice for the modern world

Do Children Really Cause Financial Burdens?January 6

I was recently browsing a comment thread on Lifehacker when one particular comment stood out to me:

Having kids is one of the most expensive poverty-inducing things you can do right now. - kalibar

I understand completely where kalibar is coming from with this comment. Many estimates with regards to the cost of raising a child put that figure at $200,000-$250,000 per child over their lifetime - and that’s a serious chunk of change.

When I read these estimates, however, and I look at our own spending, something doesn’t quite add up. To put it simply, we’re not spending that much, even during these expensive years of the child’s life.

Let’s break down what we’re spending right now on our children.

For 2008, our biggest expense by far for our children was child care while we were working. Combined, we spent about $11,000 on child care for the two children this year. After that, costs went down quickly - we estimate that all other expenses combined (food, health care, toys, clothing, and so on) were roughly $7,000 for both children combined. Add onto that $1,200 per child put away for their college education (and I’ll ignore the tax benefits of this, as we don’t have to pay state taxes on contributions) and you have a total of $20,400 spent on both children this year - or $10,200

Personal Finance 101: On Ponzi Schemes and Other ThingsJanuary 6

One of the biggest financial stories of the last month or so was the revelation that Bernie Madoff, a legendary stock trader if there ever was one, had perpetrated a giant Ponzi scheme on investors, bilking them out of fifty billion dollars.

Personally, I found the story fascinating, and apparently many of you have as well, because I’ve received a ton of questions and comments about Madoff and Ponzi schemes and pyramid schemes. Here are some of my thoughts on the most common questions brought up by readers, especially in terms of understanding what happened and what impact it has on you and your future moves.

What’s a Ponzi scheme?
Most of the descriptions of Ponzi schemes that are floating around out there in articles are really confusing, so I thought I’d start off with a clear example of a Ponzi scheme.

Let’s say I wanted to start a Ponzi scheme to get rich really quickly. I’d put an advertisement out there saying that I had an investment opportunity that would return, say, 25% of your investment each year, guaranteed. Obviously, that’s a claim that I’m not going to be able to back up with any real investment, but it’s a strong enough claim that I’m likely to get a few people who want to invest.

Reader Mailbag #44January 5

Each Monday, The Simple Dollar opens up the reader mailbags and answers ten to twenty simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.

As usual, we’ll start things off with a few links to older articles that directly answer questions I’ve heard recently. Here are some articles that include tips for new homeowners, quite a few of whom have written to me recently with questions.
Reflections On Being A New Homeowner
18 Things a New Homeowner Should Do Immediately to Save Money
Six Maintenance Lessons I’ve Learned During My First Month As A Homeowner

And now for some reader questions!

My question is about savings bonds. Friends and family have purchased federal savings bonds for our little one. Once mature, is it better to “let them ride” and continue earning interest or is it better to cash them in and invest either in more bonds or elsewhere?
- Courtney

It depends real

Review: Making It All WorkJanuary 4

Every other Sunday, The Simple Dollar reviews a personal development, personal productivity, or entrepreneurship book.

As I’ve mentioned many times before, I’m a huge fan of David Allen’s book Getting Things Done. That one simple volume (which I identified as one of the ten books that changed my life) pretty much transformed how I organized my time, moving me from an unorganized slacker who had difficulty managing just a tiny apartment, a job, and a dating relationship into a person who managed a full time job, a house, two young children, and launched The Simple Dollar in his spare time. In short, Getting Things Done was a personal epiphany - and the very first book on time management I recommend to anyone (provided that they have the attention span to get through it - it is fairly dense).

Because of that, I was incredibly excited to receive David Allen’s latest book,

Seven Huge Financial Mistakes I Made During My College CareerJanuary 4

Over the last few weeks, I have been reflecting on how many members of my rather close extended family are either near high school graduation or are in college right now. They have so many great opportunities ahead of them in the next few years - and so many chances to botch things, too. Stephen, Brittany, Robert - these are some of the stupid things I did in college that I wound up regretting financially for years. In some ways, I’m still suffering the repercussions. Don’t do the same.

One of the first major articles I wrote on The Simple Dollar was a ten-part series that amounted to my personal financial biography - if you’re interested, it starts here. Reflecting back on a lifetime of financial mistakes, I always come back to the idea that my college years were when things really went off the rails for me. Those first years of financial independence, where I had no idea what I was doing with money and no sensible guidance to help me out, caused me to