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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April 7, 2011

What To Do At 22: Life Lessons For College Grads

Jumping off a cliffAt the time of year where many 22-year-olds will graduate college, I fittingly stumbled upon a post called “8 Things I Wish I Knew When I was 22” on almostfearless.com.  It’s written by Christine Gilbert who, at age 31, quit her Fortune 500 job to travel full-time and start a new career. Her story is fascinating and probably a bit of a fantasy for most of us.  But she did it, which leads me to question: How did she do it, and can I (still) do it, too?

At age 25 1/2, I’m about halfway from 22 to 31 now.  I’m not about to cry over getting old, but I have important career/life decisions to make this year.  I was interested in exploring Christine’s advice.  At first glance, she is definitely a lot more fearless than I am!  Here are some of the highlights from her post.

Don’t give in to the pressure to be practical

My favorite “thing” on the list: “Pick a career you love; you don’t have to give into the pressure to be practical.” I’ve always felt the pressure to follow a practical path, both at age 22 and today.  While I’m always hearing advice like “do what you love” and “follow your dreams,”I don’t think those people who say it really mean it or live by it. If I told them “Okay, my dreams are to travel the world and work remotely from wherever I’d like,” most of my advice-givers would be severely skeptical of that plan.

Others have told me that I should at least try to get a “real, 9 to 5 job” and see what it’s like before I dismiss it.  But if I’m already adverse to having a job that I’m nearly certain I won’t like, should I even bother going down that path? Will I just be wasting my time taking that job in the first place? I’m guessing Christine would say “yes.”

I would definitely encourage any graduate to at least try something you love that’s not necessarily practical and do it for a year.  Age 22 is the best time to try things out.  I’m not saying be ridiculous and rack up credit card debt.  Take a chance on something that pays little but has a huge upside for your life if you end up loving it. You have almost nothing to lose, and later in life may be too late.

Loans, debts, and safety nets

From a personal finance perspective, Christine’s points that “your student loans can be deferred practically indefinitely” and “you don’t need a safety net” are enough to make my stomach churn as I’m sitting here.  But maybe she does have a point.  Sure, your student loan debt interest will accrue, and it’s a bit scary to think about what would happen if you ran out of money and didn’t have a backup plan.  But what’s the worst that can really happen? The worst, realistic scenario I can imagine now (or at age 22) is moving back with my parents and maybe working a crappy job until I can straighten things out.

The big question in my mind: Is the worst thing that could happen worse than any regrets later in life? In my eyes, no, it’s not.  Yes, you could “fail,” which is something a lot of us are afraid of (or, as Seth Godin points out, we’re not really afraid of failure as much as we are afraid of criticism).  But one of my biggest fears is potentially regretting what I could’ve done with my life.  Playing it safe is overrated.

Adding to the list

I’m not too far removed from age 22 yet, but I’ll contribute a few things to the list:

1. Consider what you’ll do with a post-graduate education before earning an advanced degree. I may have chosen a different path given the job options in my field.

2. Do what you think is best for you. Don’t be afraid of what others will think of you for doing it. If you mess up, dust yourself off, learn from your mistakes, and continue on with life.

Do you have anything on your list for what you wish you knew when you were 22?  What advice would you give to someone about to graduate college? Post it below!

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photo by: Micah & Erin

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February 23, 2011

Living In the Present With Your Finances

I’ve always aspired to “live in the present” since reading Eckhart Tolle’s The Power of Now. The basic premise is that one should not dwell on the past or the future but simply enjoy the present moment without worry or anxious anticipation of what is to come.  The concept that  stood out to me the most was that one should only concentrate on the problems that can be dealt with at that very moment.  Money-related issues are just as applicable as anything else to these principles.  Here’s my take on the past, the future, and how those impact decisions made in the present.

Learn from the past

We’ve all done things we regret.  That’s perfectly fine, just do your best not to repeat.  My initial thought (and maybe yours, too): where do I begin?!  I’ve made some foolish money-earning decisions in the past.  One summer, during college, I was unemployed and broke.  It was the worst summer I can remember (even worse than when I worked 6 days a week, starting at 5:30 am).  But I learned this from it: I always need to have “work” to do, not just for income, but also to keep motivated and feeling as though I have a purpose.

I’ve gone through credit card debt problems, but I’ve vowed never to go down that road again. I’m actually glad that this happened earlier in life.  I learned quickly how frustrating and difficult dealing with credit card debt can be. Now that I know what it’s like, I’m much more careful with how I manage and use credit.

But definitely repeat the good decisions you’ve made.  Buying a used car (apologies for writing about cars so much lately) tops my list.  It’s been cheaper to own, and my quality of life hasn’t suffered one bit versus buying a new car.  I’m also thankful that I avoided loan debt through college, and I hope to stay out of debt of all kinds whenever I reasonably can.

Look to (but don’t live in) the future

Live on what’s in your bank account, not what you’re expecting to be there. Be cautious with credit cards and spending money you haven’t been paid yet. While I do not carry a balance on my credit cards month-to-month, I’ve run into times where I spend on my credit card before I receive my direct deposit.  This is the wrong approach.  I should be making the money first and then spending it.  Fortunately, I receive a salary for my job, so there’s never any doubt of if I will get paid or not. But it’s definitely a tough cycle to break.

Don’t spend based on future fortunes you think you’re going to make.  This is an easy pitfall for anyone but especially those still in college.  The attitude is “I’ll live it up now and pay for it when I make that fat paycheck later.”  There’s a few problems with this.  First off, you don’t make the big bucks yet.  You can dream all you want, but until you are actually pulling in that amount of money, you shouldn’t be spending it.  Secondly, paying back the debt won’t be fun.  With crazy high interest rates, your debt will increase at a rapid pace.  While you may look back on that time of spending fondly, you’ll surely wish at some point that you hadn’t racked up all that debt.

But do save for the days to come.  This goes with the last point.  It’s actually the exact opposite.  Instead of spending more than what you have at the present moment, you should be spending less than what you have and saving for the future.  The last point involves living in the future, which I don’t condone.  But smart planning is always okay.  You should be prepared for the unexpected with emergency funds and for retirement with investment accounts that are funded regularly and adequately.

There are a lot of emotions tied to our past experiences of money and our anticipation of a better financial future. But the most importance lies in the decisions that we make right now, in the present, since those are the only decisions that can truly shape our future.

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photo by: iamliam

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February 9, 2011

6 Reasons to Avoid the Wrong (and Expensive) Education

Growing up and working through high school, there was never any doubt about going to college.  99% of my high school class headed college immediately after graduation.  At the time, that seemed to be an astoundingly awesome stat, with all of us on track for guaranteed prosperity. But now I wonder: should everyone aim for more and more formal education?

According to a recent Harvard study, college isn’t for everyone.  One-third of jobs now and in the near future don’t require a college degree, like electricians or plumbers.  These types of jobs are here to stay, and not everyone is cut out to be lawyer or a doctor.  Many of my high school classmates have moved on to other jobs and careers that either weren’t what they studied for or jobs that don’t require a degree at all.

Here are reasons I’ve realized that a college education isn’t what everyone needs:

1. Education is expensive.  Regardless of your earning prospects after college, earning a four-year degree will set you back a few bucks.  Roughly $140,000 bucks, in fact, for an average, private four-year university.  Most students and their families clearly can’t throw down cash for that. Even financing just half the cost with loans will leave a large financial burden at graduation. Personally, I dislike college loan debt because it creates pressure  to immediately find a job and paycheck for loan payments. Job satisfaction and lower-paying yet rewarding job opportunities are shoved aside due to a necessity to earn a big enough paycheck.

2. More education and more degrees won’t always help you.  Think a law degree is a way to guaranteed riches? This article could make you think differently.  Still swayed by the admissions department’s employment statistics?  Those might be a lie, as schools may count “server at Applebee’s” as being “employed after nine months” even though a law degree isn’t needed for that. There are simply no guarantees anymore in this economy.  More than just a degree is required.

3. Experience can be much more important.  I’ve seen lots of graduates’ employment prospects get crushed due to a lack of any relevant past jobs on their resumes.  Many positions have an expected minimum amount of experience to qualify candidates and simply having a college degree simply isn’t a substitute for what is learned in the workplace.

4. There’s more to learn beyond the limits of college majors.  There are some skills that you just won’t get with a degree.  There are career and lifestyle options that aren’t taught in schools.  I’ve been (slowly) discovering where else I can learn without taking up formal education again.

5. Something I’ve already learned in my limited work experience: people-skills are more important than technical knowledge in some cases. Being super smart but terrible at communicating is an awful combination in a job or business where you need to interact with coworkers and customers regularly.

6. After earning a degree, you might want to do something else.  This is where I fit in (or, I guess, don’t fit in).  I’ve completed six years of college and earned two degrees (with almost no debt or loans).  My career in engineering hasn’t even begun yet, but I’m already unsure what direction I will head.  I can see myself with an engineering career, but I’m interested in other things, too.  I don’t feel pressured to get a job against my will, and I’m glad that I have options.  This is 2011, where almost no one is a lifetime employee at a single company anymore or even stays in the same field for their entire career.

If you really want to try out college or work towards another degree, consider a state university or other public institution until you’re certain what path to take.  If you’re unsure about the field you think you want to enter (which is perfectly fine; a lot of people are), test the waters at a more reasonably priced venue first.  There’s always the ability to transfer later.

I’m not trying to discourage anyone from following their dreams here; I’m merely suggesting that all options be considered.  Before investing a lot of time and money, make sure you’re doing it for the right reasons, and always do what makes you happiest.

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photo by: sidewalk flying

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