Apr 21, 2011

Saving Money vs. Being Debt-Free

Our public school district is in serious dire straits, so I've been thinking about life five years from now. While I feel reasonably confident our current elementary school will be okay, in five years, our oldest will be heading into sixth grade and off to a middle school. The problem is that I'm finding it difficult to find a really desirable public middle school. I've had my eye on the Sherman Oaks Center for Enriched Studies, which has a great academic reputation and goes from fourth through twelfth grade, but it's incredibly difficult to get into. Even if I did everything possible to maximize priority magnet points, our odds of getting in will still be slim because of the lottery system.

So we would really like to have private school on the table as an option in five years. But that will require money, and a lot of it.

At the beginning of the year, I said that I wouldn't have any financial resolutions for this year and that I just wanted to get used to living on one income. But we seem to have done that, and I couldn't help taking a closer look at our mortgage, which is our only remaining debt.

Ever since we became otherwise debt-free in 2009, I've toyed with the idea of paying off the mortgage. We pay a little extra every month, but only enough to accelerate the payoff by a couple of years. But. We could pay off the mortgage in five years if we save aggressively.

Unfortunately, it's hard to predict the future. Is it better to pay off the mortgage and free up the mortgage payment in our cash flow in five years? Or would we be better off saving the money and having a huge cash cushion that we can use to pay for tuition?

I don't think there's a right answer, at least not at the moment when there are so many unknowns, like how much tuition would be. My projected calculations show that if tuition at the top schools continues to rise at the same rate it has been, it's going to be in the neighborhood of $40,000 per year at the most expensive schools. I'm not sure we would opt for a school like that, even assuming we got in, because it's so expensive. But even a moderately priced school is going to be around $20,000 per year, and we'll have to pay twice that for two kids for five years (and then there's college).

So for now, we're going to play it safe. It'll be like last year, when we were aggressively saving so I could quit my job, only we'll be saving for five years instead of one now. I've got a spreadsheet set up to track our progress, just as I did last year. And just like last year, we'll have to be diligent about doing all of the things I recommend in the Ways to Make & Save Money series. My goal last year was ambitious but we did it - hopefully, we can do it again!


Camille said...

Have you looked in to any "on-line" charter schools? I've been very impressed with K12.com. Our oldest at home will start Kindergarten in 2012 and I am loathe to send her to public school. Private school is not even a possibility. I am fine with homeschooling, but overwhelmed with the idea of organizing it all. The on-line charter school provides all the resources, a teacher to help the child along and it's free.

Rachel said...

These are really good questions. Have you considered submitting as a reader story to the Get Rich Slowly blog? JD (who runs the blog) posts a reader story every Sunday and the comment section there is fantastic. I'm sure the readers would have excellent advice for you. Also, you'd get some great blog traffic.

On a side note, I really enjoy reading your blog and think it offers a distinct voice among all the coupon blogs out there. Thanks for doing it!

Michelle Osborn said...

I was going to ask if you'd thought of homeschooling, too? I used K12 for Kindergarten and 1st grade and absolutely loved it. We recently moved and are in a neighborhood with an awesome elementary school so my kids are there now. But, I plan on pulling them out in the middle/high school years and doing K12. We live in Valencia, CA

Shelby said...

Another thing to think about: as some people have found out, paying off your mortgage with expectations that you could tap it if needed could work against you. Say in a few years you still have the same income and can afford to tap the equity, then you'll most likely be able to qualify for loan against your house. However if in a few years you have income problems (someone has to get a lower paying job, lost a job, etc) and you need to tap the equity for emergency funds, you most likely won't qualify due to the lower level of income.

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Chief Family Officer said...

Wow, lots of homeschoolers! I don't have anything against homeschooling in principle, but for a lot of reasons (not least of which is my own temperament), I don't think it's right for us. I'll definitely keep it in mind as an option in five years, though!

@Rachel - Thanks so much for you "side note"! It made my day, as being a "distinct voice" is exactly what I'm trying to do here :D

@Shelby - That's exactly the problem; if we pay off the mortgage, that money is pretty gone/sunk/unavailable. And it's hard to say right now whether we'll need the cash in five years' time, or whether we'll be fine without it and would be better off paying off the mortgage and freeing up the house payment for our cash flow. That's why I think it's best to save the money for now - and maybe we'll be able to pay off the house in five years :)

Christina D said...

I think even a "bad" school has lots of good teachers and students. You get out what you put in to it. If you're an involved parent, you will make the difference. There are plenty of people who go to "bad" schools and do very well in life. If everyone went with private school or home schooling these public schools could never get better. Sometimes it's just fear that gets us to avoid challenges.

Chief Family Officer said...

@Christina - You make a great point! Among my issues are that you can't cherry pick the good teachers, the enormous size of the schools, and the increasing class size - 45 students per class is too much in my opinion, no matter the quality of the teacher. There aren't even enough desks for each student! So while making a difference is nice in principle, if I can give my child a better experience, I'm going to do that. It's hard enough being an involved parent at the elementary level, and the middle school is probably three times as big - I wouldn't say it's fear at this point, just being realistic!

Jessica said...

I agree with Christina D. that there is good and bad in every school whether public or private. Our daughter never attended a private school but is graduating from college next week with a 4.0 GPA. We always made academics the priority in our home, before any sports or other activities. Paying a huge tuition to a private school will not guarantee your child's success. I would save the money for college, believe me you are going to need it!