impulse

After Graduation: Spending Your Newly-Pocketed Money Wisely

This 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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The Secrets of Maximixing Fulfillment From Your Purchases

Buying things doesn’t always lead to the feelings that I hoped they would. Often times, I feel the excitement of a purchase is the high point, with interest in a new gadget or toy in a steady state of decline the time afterward. I recently thought about this after reading a chapter in Your Money or Your Life, which instructed you to look at your purchases and determine if it gave you adequate fulfillment. I really like this concept, but I thought I would take it a step further: evaluate fulfillment potential before buying in the first place.

I always want to get the most out of my purchases. Sometimes it becomes a bit of an obsession for me. I’ll often spend 30 minutes on Yelp to figure out the best option for a Saturday night meal or heavily research customer reviews on Amazon.com. But this would be a total waste of time if I evaluated every dollar I spent in this fashion.

At the opposite end of the spectrum, there’s impulse buying, where almost no time or thought goes into the purchase. Impulse spending is more problematic since 1) a greater proportion of money is probably spent in this way and 2) what is spent is usually on things that garner less reward.

Regardless of your plan to a acquire a new knick-knack, here are questions to ask yourself before you make any purchases, especially pricey ones:

“Will this purchase really change my life?” Obviously if you’re dead set on buying something already, you’re going to be biased. But if you’re willing to be objective and open-minded, you may think differently. There are a lot of expensive purchases made under the assumption that it’s somehow going to revolutionize our life for the better. Often, the effects aren’t long lasting. I really like my MacBook Pro, but I’m not certain it’s value to me is worth a whole lot more than a cheaper computer. Many small purchases like an DVD or a cup of coffee probably won’t ever change someone’s life (again, being objective here), but that’s not to say you shouldn’t buy these things. However, I think it does raise some questions as to its importance in your life relative to other things, which leads to the next question.

“Is there something better I could do with this money?” I use this every time when I refuse to buy lunch. There are tons of other things I’d rather spend that money on: drinks out with friends, dinner with my girlfriend, or even just buying fancier food (like gourmet cheese!) from the grocery store. There are plenty of places to put the money. If you don’t have an automated savings plan, this is the perfect time to find ways to fund savings accounts. Instead of spending $70 on a pair of shoes, save it for emergencies, vacations, or other adventures down the road. You’ll be happier when you’ve saved yourself from three different $70 shoe purchases and suddenly have $210 to spend towards a trip to Europe.

“Have I purchased something similar in the past? How did I feel about it then?” I recently made my third car purchase in my life. Looking back to when I financed my second car, a brand-new Hyundai, I felt great about it at first. New car smell and all, it was great! But I eventually got sick of the car payments. With the most recent car, I knew that I didn’t want to make monthly payments again. I sought out to buy the cheapest car possible this time around, and I paid $1,000 cash for a 1997 Nissan. While I still don’t love owning a car, I feel much better about spending $1,000 rather than $10,000, and I knew I would feel even better than sinking a lot of money into this purchase.

“Can I really afford this? Will affording this be stressful?” This is a question I find coming up a lot when my monthly budget starts to get tight. If I’m being peer-pressured into an expensive night out, but I’ve already eaten up all of my fun budget, I know it’s going to take serious sacrifice to make ends meet. I’m all about fun times, but it’s not helpful later when I realized I’ve spent too much. That creates stress, and sometimes it’s simply better to say “no” when it’s not affordable.

Looking back at my purchases now, I wish I had asked some of these questions. I’ve learned several (expensive) lessons, but it’s taught me how to maximize fulfillment and happiness from my purchases.

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photo by: Jason Cartwright

After Graduation: Spending Your Newly-Pocketed Money Wisely

Resisting big spending mistakes

3 Easy Steps to Start

The Secrets of Maximixing Fulfillment From Your Purchases

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