April 11, 2011

After Graduation: Spending Your Newly-Pocketed Money Wisely

After graduationThis post is part of an “after college” series for the launch of my upcoming free ebook “Money After College.”  You can sign up for my email list to receive your free copy when it’s released in early May.

After graduation is an exciting time, emotionally and financially.  You (hopefully) already have a job lined up where you’ll earn more than you ever have in your life.  Perhaps you’ll also receive cash gifts as a graduation present from friends and family, too.  Life is great as you embark on a whole new journey in life. But, let’s come back to earth a bit before you go out right away and grab all the stuff you’ve worked your way through four years of college to get.  After all, you haven’t hit the big time yet.

I’ll admit that I’ve been guilty of going out and spending right after finishing my first four years of college.  I bought a new HDTV and PlayStation 3, which cost me over $1,000 combined.  I also bought some new clothes and other things to “reward” myself.  Before I knew it, most of my graduation gift was gone.  Here’s some tips to avoid the same mistakes that I made.

Resisting big spending mistakes

– Don’t spend money just because you can.  This little blip of income in your life is going to disappear quickly, especially if you start spending money before you’ve earned it.  Before you start spending wildly, realize that just because you’re earning a few hundred bucks a week doesn’t mean that’s all fun money.

– Ask yourself “Would this purchase make sense if I was still in college?” If you were like most college students out there, you probably didn’t have too much money to go around.  You might have eaten ramen or drank Natty Ice (or both, simultaneously) and hope to never have to go down that path again.  Even though you might not want to live like like a pauper any more, you should try to maintain that lifestyle for as long as you can.  It will help greatly in your ability to pay down college debt and save for retirement.

– Plan your purchases wisely. Don’t buy on impulse. I enjoyed my PlayStation for about a year before I got tired of it and ended up selling it (for about half of what I paid originally).  I regret that purchase and would much prefer to have that cash in my savings account right now instead.  If you are planning on making any large purchases (> $100), think about it for at least a few days before buying.

– Don’t go out and buy the brand-new fancy car. Yep, this one gets it’s own section.  I’ve seen it so many times.  If you’re trying to recover from four years of loans (and potentially credit card debt), buying a new car is one of the worst decisions you can make.  If you do need a car, purchase something a few years older that will cost a lot less.  There are lots of benefits of owning a used car.  If you’re living in a metro area where there’s public transportation, Zipcar, or bike access, you might not need to own a car at all.

– Allow yourself a few nice things that you’ve been waiting to buy.  I think all life victories deserve celebration.  Graduating college is probably your biggest accomplishment at age 22, so it’s certainly no exception.  Treat yourself to a nice night out for dinner, a DVD or two, and a book to further help you plan your finances (I recommend Ramit’s I Will Teach You To Be Rich).

– Save some money and start paying down any debt.  Trust me, loan payments are coming at you fast and you’re not going to enjoy it.  If you don’t have loans, there’s going to be a time in the future when you need this money and can use it on something better. Save as much as you can, and you’re making a great decision.

3 Easy Steps to Start

In 3 steps, here’s what I’d do with the first $1,000 after graduation (gifted from family/friends or earned at a job):

1. Have fun with $200.  Do whatever you want with this.

2. Put $300 in the bank in an ING Savings account.  Save this for an emergency or some other important expense in the future.

3. Open a Roth IRA and deposit the final $500 in this account. Research index funds and start investing.

This is a fantastic foundation, which you can build on with a more sophisticated savings and investing strategy.

If you’re about to graduate, how do you plan to spend?  If you’re past graduation (like me), do you have any advice?

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photo by: Werwin15

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February 21, 2011

Four Reasons Why I Don’t Like ‘Nice’ Things

I own a crappy car that’s certainly not looking any nicer as I rack up the miles.  In fact, I’m responsible for beating it up even more.  Yesterday, I had a few issues on a road trip back from Massachusetts.  First, I backed in a snowbank and scraped my bumper.  Then, someone parked next to me swung their door open, hitting my car.  To top it all off, a plastic piece under my engine came loose and started dragging on the road, forcing us to pull over on the highway to fix it. I could go on with the perpetual problems that my car has, but I think you get it.

Despite all the issues my car has, I love the fact that I don’t have to constantly worry about my car and I don’t have to put in a lot of effort to care for it.  It’s old and it’s never going to be perfect.  But as long as the engine runs and there’s no serious damage, I can revel in the fact that it’s stress free to own. I think the same concept applies to lots of things that you and I own.  Here are four reasons why I don’t like to always have the latest and greatest stuff out there:

1. I don’t have to worry about blemishing or breaking.  I like to call this the “plastic couch cover” syndrome. Personally, I think it’s crazy to own things and not use them (or excessively protect them) because they might get wrecked if it’s used in the way that’s intended.  I don’t really believe in buying things, like a couch or fancy convertible, simply because they will look nice while unused in my living room or stored in my garage.  I want to sprawl out on the couch without having to worry about if my feet are dirtying it.

2. I don’t have to worry stuff will get stolen or lost. If it isn’t worth much in the first place, I can’t be out too much money if I lose it or if it gets stolen.  This is why I like owning a two-year-old, not-smart phone instead of an iPhone. It’s really unlikely that it would be targeted in any kind of mugging or heist, whereas iPhone thefts seem to be much more likely.  If I lose my phone, it’s probably $50 max to replace it, instead of costing hundreds.  Mine’s not a piece of junk (in fact, it works great), but it’s not in any way expensive, either.

3. I don’t have to spend as much to buy my stuff.  Fancy things cost more.  While there is something to be said for quality, there is also something to be said for paying $3,000 for a set of knives when a $30 set may work just as well.  While I can’t say I’ve ever even touched a $3,000 set of knives, I have a hard time believing they are 100 times better than the cheaper ones.

4. I don’t have to spend as much to maintain my stuff.  My car virtually never goes to the car wash and definitely never gets waxed.  I don’t fix every little ding or make any nonessential repairs on it.  If I spill coffee on the upholstery, it’s not a big deal, either.  On the flip side, I’ve seen others freak out over any little ding or small spill.  As soon as their car makes a “strange noise,” they have to bring it in the the shop to have it checked out (yes, mine is always making strange noises).  I have enough other things to worry about, so my car isn’t about to be one of them. It’s is still reasonably clean and good looking (at least enough so that it wouldn’t stand out in a group of cars).  If it gets scratched, then it’s just acquired a bit more personality.  I’m definitely not about to spend more money than what I need to simply keep it running.

I’m not (universally) against high quality, but I’m against underutilized quality.  I’m not advocating going out and wrecking your “nice” things, either, by using them carelessly.  The ideal is enjoy what you have and be reasonable about maintaining it’s quality, too.

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photo by: Garrette

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February 4, 2011

New Money Challenges: Testing My Financial Willpower

I’ve always liked setting challenges for myself.  Perhaps it’s a strange obsession that I have with self-improvement, but I find it interesting to see how I do when I’m truly testing myself.  Many of the challenges I’ve come up with in the past have been a bit informal.  I’ve told myself I needed to lose weight and have succeeded in doing so many times.  I forced myself to quit spending so much time reading Yahoo news stories and the Facebook news feed.  I even convinced myself to go without eating meat for a week, which turned into 6 years (and counting).

I’ve gotten a little bored with finances lately, so I’ve decided to spice things up with some new ideas.  Here are a few challenges I created for myself for the next month (until March 4):

I will only drive a maximum of once per week.  Excessive driving is one of the things that I truly dislike about car ownership.  Once I had a car around again, but biking and walking trips plummet.  It’s so easy to jump in the car when it’s cold outside or my destination is just a little too far for easy biking or walking.  But, in reality, a lot of people get by in New Haven without a car. It’s tough at times, but if I really want to get somewhere, I’ll find a way, car or not.  Allowing myself to drive once a week will ensure that I plan out my one trip really well and grocery shop or whatever on just that one trip.  In case you were wondering, if I ride in someone else’s car, that counts as my one trip.

I will not check email from 6 to 10 pm. Okay so this isn’t a direct financial goal, but email is a time waster that impedes financial goals.  I’ve been trying really hard to find a better system for reducing email since reading The 4-Hour Workweek.  This period is my prime time for working on my personal and professional development, along with writing.  If I wasted less time dealing with email, I’d have more time to work on these things instead.

I will plan out my time and what I need to get done each day. This goes along with my post on my job and scheduling around my 9-5 workday.  I’m still amazed at how much I get done when I come home from work contrasted to how little I seem to get done on days off.  Having a structure in place is what drives me to work the most.  In order to accomplish this goal, I’m going to use an idea from David Risley.  I’ll plan out each day the night before so that I make sure to manage my free time well and get everything I need done.

I will not purchase any “things”. I’m trembling and pondering this one nervously as I write it.  Will there be something I desperately need?  What if something breaks? I’m going on a trip to Spain in March.  What if I need to buy something for that? Despite my reservations, I feel slightly reassured because I actually completed this challenge accidentally back in October. I just didn’t realize it until I looked back at my spending for that month.  But I want to see if I can do it again, consciously this time.  So, no buying anything non-consumable: no books, CDs, DVDs, computer equipment, or other toys.  I’ll have to rely on borrowing or just get along without it until March 4.

I’m normally not big on attempting multiple challenges at the same time.  I feel that lowers the chances of success, as some goals distract from one another.  But I feel like these challenges are separate enough that I can attempt them without interference from one another. So on we go.  I’ll provide updates throughout the month, and I’ll (hopefully) be reporting successes instead of failures.

Here are some other challenges I’m thinking of for future months:

– Purchase everything with cash only

– Read news for less than 5 minutes a day

– Don’t make excuses for anything I know I should do but don’t due to laziness

Do you have any challenges you think I should attempt? How about some goals for yourself?

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Photo by: Global Jet

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January 26, 2011

Beg, Borrow, (But Don’t) Steal: Cutting Down On Buying to Own

A cordless drill. A printer. A tennis racket.

These are all things hanging around in my room right now that I use once a month or less frequently.  Why do I own them? Well, I’m not really sure anymore.  I acquired them all at one time or another because I either needed them for a specific project (drill) or I thought it would be convenient to own (printer) or I used it much more frequently in a previous life of mine (tennis racket).  They’re all relatively expensive items, and they’re most definitely worth something to someone.  I just feel like they’re not worth a whole lot to me.

Having items like these around, and purchasing new things that assume a similar, infrequently-used role, made me think that I could easily get away with not owning but borrowing these types of things instead.  Here are some reasons why I would choose not to buy these types of things in the future:

1) I don’t have to pay. There’s no cost if I don’t buy.  Simple as that.

2) I won’t need to waste space storing it. Owning stuff requires a place to put it.  Borrowing doesn’t. Let someone else who already owns the item keep it at their place.  I can borrow it when I need it and simply give it right back when I’m done.

3) I don’t need to keep track of where it is. I like this point because it becomes a more and more relevant factor when I own less and borrow more, resulting in less things I own.  Owning a lot of stuff creates a problem itself for things getting lost in the shuffle.  But I would argue that the less frequently I use an item, the more likely it is to get buried and lost somewhere.  It’s fairly unlikely that I’ll lose my toothbrush, but I guarantee it’ll be harder for me to find that one-quarter inch drill bit.

4) I don’t have to care for and maintain it. This can work for a lot of delicate or expensive things, but in my mind, this fits best with car ownership.  I don’t like owning a car, and I lived almost two years without owning one.  Instead, I used Zipcar, which I found to be easy, relatively inexpensive, and almost stress-free.  I can reserve cars online quickly and easily.  It costs $8-10 per hour.  Best of all, I don’t have to pay for maintenance , gas, or insurance, which represent the majority of the cost to own a car.  At $8 an hour, I would need to use a Zipcar for about 25 hours a month to roughly break even on what I’m paying to own my car.  I typically only use my car for 2-3 short trips a week, so it’s unlikely I hit 25 hours in any given month.

As for items other than cars, they tend to deteriorate or become outdated with time.  I don’t want to own something just so it can collect dust while simultaneously becoming obsolete after a new and improved widget is invented.

The three items I listed at the beginning of the article are things that I could either readily borrow from others or find a way to use it somewhere else.  While it may cost you some money to rent or bribe a friend to use a tool only occasionally, you’d be surprised how much money this can really save.  There’s most definitely the tendency for the mind to create the idea that an item is used much more frequently than it really is.

Some might say “What if I need it right away? Borrowing or renting is a pain!”  Sure, I can see that argument.  But I still don’t agree there are enough instances of this for me to justify owning my drill, printer, or racket.

While we may all use the things we own at a different frequency, the main idea is to eliminate ownership of what’s not used often.  You may use your tennis racket every day, and it makes total sense to own one if that’s the case.  But if it’s been so long since you used it that you forgot that you owned it, maybe consider how often you plan to use whatever you are going to purchase before you make the decision to buy next time.

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photo by rudlavibizon

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