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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How Much Do You ‘Live It Up’ With Spending on Vacations?

beachAs a follow up on my post last week about spending while vacationing in Spain, I wanted to reflect a bit more on how I spend money on vacations, especially big trips to places like Europe.

The quote that I’ve heard before and always think about when I’m on a trip is “You’re on vacation, so it’s okay to splurge.”  To some extent I would agree.  Yes, I am on vacation in an exotic location.  There are lots of special things to do and they cost money and can’t be done anywhere else.  If you have a full-time job, your vacation time, no matter where it’s spent, is limited, too.  Still, I think there’s a lot to be said for what you can get out of a trip without spending a lot.  Here’s what I will and won’t spend money on.

What I will spend on:

Trying new foods I can’t back home.  Obviously, paella was at the top of my list for Spain, and I was excited to try it.  I also enjoyed eating tortilla, bread with tomato, and other seafood.  The wine was great, too.

Museums and historic sites.  Some things you just can’t see elsewhere, like Velazquez’s Las Meninas or Gaudi’s Sagrada Famila.  These are truly extraordinary sites to check out, and I wouldn’t miss them.  Admission is usually affordable, so there’s really not much to debate here.

Transportation that’s convenient.  In Spain, we flew from Barcelona to Madrid and then took the high-speed train from Madrid to Sevilla.  These were probably not the cheapest ways to get around, but they were fast. We simply didn’t have a lot of time in Spain, so it wasn’t worth it to try to save a few bucks but lose a lot of time to sight-see.

Just about anything that a local would do.  I’m always really curious what people do for fun in the places that I visit.  If it’s something that is off the beaten path of tourists, that definitely gets me interested.

What’s not worth my money:

Expensive hotels. To me, if you’ve planned your trip right, you’ll be at your hotel (or hostel) as little as possible.  More than likely, you’ve already spent hundreds or thousands on airfare.  Why tack on hundreds more simply for a fancy bed to sleep on?

Lame, tourist-trap attractions.  No, I’m not gonna cruise around on a boat or ride the hop-on, hop-off bus.

Mediocre food. It’s one thing to seek out good places to eat for a nice dinner.  But when you’re hungry, it’s easy to pick any restaurant that’s around.  This usually results in less-than-stellar quality food, and it might not be a bargain either.

Most souvenirs.  I’m happy to send postcards or buy something else small to remember the trip by (my girlfriend bought a scarf for less than $10).  But Barcelona t-shirts are totally out.  There’s a lot of knick-knacks that are cheaply made that I don’t know what to do with once I get home.  If I want to remember a trip, photos are by far the best way to do this.

Anything else that’s marked up in price for tourists.  This can encompass a lot of things.  But, generally, if you’re hanging out in touristy areas (i.e. Times Square), prices will be higher while quality may actually be lower.  I try to avoid these areas, but often there are things worth seeing nearby.

Doing anything that I could back home.  Please don’t try to take me to an Chinese restaurant in Spain. There’s plenty of those in New Haven (and I don’t like them here, either).

Overall, I’d much rather extend the length of my trip, if at all possible, rather than pay for anything on the “not worth it” list.

What’s your vacationing style? Do you try to get the most for your money? Or do you prefer to live it up, no matter what your vacation destination?

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photo by: www.jordiarmengol.net (Xip)

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

What’s My Minimum Wage?: Getting By On $13k a Year

I’m living on about $13k (or about $1,100 a month), which is just slightly above poverty level.  Before that, I lived on about $22k/year for my two years of graduate school (2008-2010), and I lived fairly comfortably yet still cheaply.  Having lived on a stipend for the last 3 years, I feel like I have a great sense on how much the minimum is that I can live on without major sacrifices.  The whole experience has been difficult, but I’ve been able to do it without amassing credit card debt and still maintaining a happy and enjoyable life.

Living on about $1,100 a month is no easy feat and certainly requires some sacrifice.  Here are some things that I know I can’t afford to do:

– Eat out for dinner more than once a week (and I never eat out for lunch).

– Buy “things” like DVDs, iPhones, or other gadgets.  I’ve basically eliminated these things from my budget, and only make one or two purchases of “things” a month (and sometimes I make none).

– Do just about any sort of traveling.  Weekend camping trips can fit into the budget here and there.  Flying to Europe definitely can’t.

– Implement any significant savings or investment plan.  I still have automated savings accounts, but they aren’t funded at the levels I would like them to be.

– Live alone or in an expensive apartment.  Right now I pay $400/month for a modest apartment with 2 roommates, but I can’t imagine affording more than that.

– Try to get by without a budget or without tracking my spending.  I know I need to be very aware of my spending and where I’m at with my monthly budget.  I work with this for at least a few minutes on a daily basis.

– Not fall back on my savings here and there.  Car ownership is virtually impossible, especially with unexpected costs. I’ve had to rescue myself with savings a few times.  I hate having to do it, so I avoid it at all costs.

Yikes! Looking at that list, you must be thinking “that kinda sucks!” But I can honestly say that I don’t notice it much in my day-to-day life, and I’m genuinely happy.  Is it sustainable long-term? Absolutely not, and I don’t plan to try to make it so, either.

What I do think like about this level of income is that it’s forced me to be really frugal and has given me real life experience of what my minimum income level is (and what living in poverty is like, too).  I would say my realistic minimum wage is probably more like $17k, but clearly I could get by on a little less if I absolutely needed to.

After my service work ends in August, I’ll undoubtedly be earning more than $1,100 a month.  Envisioning what things will be like then, I feel like just about everything I earn above that sounds like a bonus to me.  For example, say I double my earnings with my next job and earn a still-modest $26k a year. That kind of salary sounds like the high life to me right now!

Despite the fact that I really can’t save much currently, I’ve had time to plan for the future when I will earn more.  Let’s take a look at where I would put my money if I’m earning a “great” salary of $26k:

1) Donate 10% of what I earn ($2,600)

2) Long term savings 10% ($2,600)

3) Invest 15% ($3,900)

Remainder = $16,900

So even with these better-than-average financial goals (at least in terms of % of earnings), I would still have $16,900 ($1400/month), which is about 27% more than what I earn right now! Even at those numbers, I think I could live a very good life.  Can I drive around in Mercedes? No. Can I go out for fancy dinners several times a week? Doubtful.  But that isn’t the point.  I don’t want to do those things anyway.

Just to be clear: I’m definitely not striving to make $26k a year for the rest of my life or even next year.  I’m really just looking at these calculations because:

a) This should be an easy level of income for me to obtain no matter what money earning path I choose,

b) I could live at this level of income for short periods (a year or two more), if needed,

c) I plan to maintain a degree of frugality similar to where I do now, and

d) I don’t have to panic about going out and getting a high-paying ($50k+) job if I don’t want to.

If somehow my life goes terribly wrong, and I end up back at $1,100 a month, I know I’ll be able to handle it.  That is a very reassuring feeling.

What’s the minimum you could live on? Can you survive on $13k?

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photo by: Casey Serin