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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January 17, 2011

6 Ways to Get Impulse Buying Out of Your Life Right Now!

As a recovering impulse buyer, I’d had to say this can be one tough habit to kick. With modern conveniences like credit cards and online shopping, it’s certainly a battle for me. It can be so bad that I’ve made purchases before allowing any sort of buying rationalization takes place in my mind.

There are many ways that you can get rid of impulse buys from your life: The Simple Dollar has a great article (10 Simple Ways to Beat Impulse Buying).  With inspiration from this article, here are some of my personal favorites:

1. Get rid of credit cards. If you’ve got a serious problem, this is definitely the most effective solution. Credit cards go hand in hand with impulse buying; you don’t even need to figure out if you have the money to purchase something, you just pull out the card.  Online shopping is borderline impossible without a credit card, so if you tend to buy online a lot, removing credit cards from the equation will definitely cut down or eliminate these purchases.

You don’t have to close your credit accounts to make this work.  Leave the credit card at home when shopping in a store and don’t save credit card information in your account on sites like Amazon.com.

2. Avoid abusing free shipping deals or subscriptions. My biggest downfall was my Amazon Prime subscription. I  paid $70 a year for the privilege of free two-day shipping on anything from Amazon.com. My approach to this quickly turned into getting onto Amazon as fast as I could after thinking of something I “needed”. After two years of Amazon Prime, I dropped the $70 service and my purchases on the site fell dramatically.

3. Require a mandatory waiting period for any large purchases. While I’m not convinced this works in the gun control world, it’s saved me from impulse buy casualties many times. My simple rule: if something costs more than $50, I have to wait at 2 days to buy it. This inevitably forces me to think more about the consequences of the purchase and often results in not buying at all. Considering that the idea to purchase just occurred probably means that I don’t need it right away and can just as easily purchase it a few days from now. I haven’t kept any stats on this, but I would say more than half the time I don’t end up making a large purchase that goes through my waiting period.

4. Research the purchase first. This prevents a lot of in-store impulse buys for me, as I’ve become a customer review junkie and review products rating before virtually any purchase I make. The idea that I may not be selecting the item of the best price, quality, and value is enough to stop me in my tracks. While this does not always stop me from buying in the end, I automatically revert to tip #3.

5. Don’t make emotional buys. In Your Money or Your Life, the authors point out the urge of many people is to buy something to cheer them up when they’re down. Yet we also buy to reward ourselves for a hard week of work or finishing a semester of classes. We even just buy things when we’re bored. It seems that virtually any mood can result in buying for one reason or another. I would also add “don’t make purchases under the influence of alcohol” here, too. All purchases should be made with a clear mind and free from outside influence.

6. Think about how you will feel about your new purchase when it isn’t “new” anymore. The allure of simply owning something shiny and new may be what drives a lot of purchases. I remember this succinctly when I purchased a new car at age 17. Wow! It was great to have a shiny new car! It was clearly a big improvement over my old beater. It was hard to find anything I didn’t like about it for the first several weeks. But after a few months, it wasn’t “my new car” anymore. It was just “my car”, complete with hefty monthly payments, higher insurance, and increased taxes. I  could’ve settled for less of a car and been happier without having to make payments.

One final note: I would recommend that the larger the purchase, the more seriously these tips should be taken and the more scrutiny is needed before buying.

The idea isn’t “never buy anything.” It’s about buying slower and smarter and realizing that purchasing with care can go along way to keeping spending down.

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