Wednesday, December 18, 2013

Lesson 11: Credit Cards

Lesson 11: Credit Cards

Financial Planning for the Recent Graduate



Crapital One.  American Depressed.  Master(to you)Card.  Unfortunately, credit cards have been marketed so well into our culture, we think we can't live without them.  Have you ever noticed that sometimes the first piece of mail you get when you move to a new house or apartment is from a credit card company?  It's become an industry that boasts an $800 billion+ debt amount for Americans, and the problem is it's absolutely crippling our ability to save and invest.  Here's why:

We won't win: As recent graduates, we need to realize that the credit card companies didn't design this system for us to win.  We can't outsmart or beat the credit card company.  They know eventually we will forget to make a payment, or a financial emergency will come up right when it's time to pay the credit card bill.  All of the cash back rewards, airline miles and bonus points are all ways to attract us to go further and further into debt with them.  It's a no-brainer for the credit card company to give us 1-2% cash back when they're making 15%-29% interest off of us when we don't pay the bill on time.

Fees and interest: Do me a favor.  If you're one to have a revolving balance on your credit card (meaning you keep the balance from month to month), look at your next bill and circle the amount of interest and fees you're paying to the credit card company every month.  Enter that number into this calculator with the same interest rate as your credit card to show you how investing that amount can work for you, not against you.  It'll astound you how quickly interest piles up on your card if you don't pay it off every month.


The only time I would ever recommend getting a credit card as a recent graduate would be if you satisfy all of the following: You have to have your emergency fund in place, the card has to have a $0 annual fee, you use the card for specific purchases (gas/grocery), you can never go above 50% of your credit card limit, and you can NEVER, EVER, EVER forget to pay your credit card bill every month.

If you're tired of receiving credit card offers that you'll never use, I recommend going to this website to either opt out for 5 years, or permanently.


Thoughts?


Images courtesy of freedigitalphotos.net by stockimages, image ID: 10081456

Sunday, August 11, 2013

Lesson 10: Couponing

Financial Planning for the Recent Graduate





This lesson, like all of the ones I have written about, requires a commitment and action on your part to make it happen.  Couponing is tedious, takes lots of time, practice, and patience, but is rewarding in the long run, and will save you lots of money if you do it the right way.  It requires a small investment ($3.00 for two Sunday papers every week=$12 a month), but will pay off over time.  ALWAYS check the newspapers you get to make sure the coupons are still in there.  There are people out there that will steal the coupons out of the newspaper, leaving you out in the cold and couponless if you buy the newspapers and walk out of the store.

Like the mail-in rebate lesson, the only way you will win with couponing is if you don’t let it dictate your spending habits.  If you weren’t already going to buy that item, don’t buy it because you have a coupon for it.  You may be saving $3 on something, but unless it’s a free purchase, you’ll be paying money you wouldn’t have if you didn’t see that coupon. 

The best coupons are the ones that are applied to money off of one item.  Ex) Save $1.00 on Colgate toothpaste.  This is why I get two papers.  It’s the absolute sweetest deal when double/triple coupon week is happening, the store is doing a buy one get one free, and you have two coupons to apply to both products.  Here’s what that looks like: Colgate toothpaste is ~3.50 a tube, depending on the size.  BOGO gets you two tubes of toothpaste for $3.50, your two $1.00 coupons double TWICE because you have two coupons, which equates to $4.00 in coupons on a $3.50 purchase, giving you a credit of $.50. 

I tend to avoid the coupons that are the Save $.50 on 2 of something, because you have to buy two of the product just to get a small savings on it.  Not worth it, in my opinion, unless you were already buying that specific brand name product.  (Usually the store brand would be cheaper pre and post-coupon price anyways on coupons like this.  Anyways, let’s get to it.

Step 1: If you’re serious about doing this, sign up for Southern Savers.  I’m a huge fan of this website, and it sends you an email every day with the deals of the day.  The best part about this website is that it matches each coupon with the average price of the item the coupon applies to, showing you how much you will pay for it.  You can find tons of freebies on here, and items that will pay you to take it out of the store (meaning the coupon is worth more than the price of the product, resulting in a credit on your purchase). 

Step 2: Buy a 3-ring binder at the Dollar Tree and find some old baseball card organizers for it (yes, you’re going to look like those crazy people on Extreme Couponing), but you just smile your way on to that register as you watch the total slowly make its way down towards $0 for your purchase.

Step 3: Buy two papers at your local gas station/drug store/grocery store, go home, and begin clipping the coupons that are worth your time.  Organize them in the binder by row to match your local grocery store.  This will save you tons of time weaving in and out of the aisles. 

Step 4: Repeat step 3 until double/triple coupon week is here, or if you see a freebie after coupons on Southern Savers. 

Step 5: You get the email or see that the double/triple week is in a few days.  Game time.  If your grocery store offers electronic coupons to add to the paper coupons, add those to your rewards card and print off a list of the electronic coupons – put it in your binder and bring it with you to the store.  Get. There. Early.  Whatever time the double/triple coupons start, you can guarantee that the couponing crazies will empty the shelves of the items that will be free/credit their purchase before the general public gets there.  I’m talking if the deal starts at 6:00 am, be there at 5:50 and be ready.  It’s like a tame Black Friday with grocery carts when the store opens. 

There’s really no secret to couponing successfully, which is what was so ironic about my friends saying “teach me your ways”. Know your local grocery store’s coupon policy before going in there your first time so you don’t get burned.  Really, this is on you to try, experiment, fail, and if you’re patient enough, succeed. The secrets of couponing can be revealed in two words: Do it.


 Images courtesy of freedigitalphotos.net by Ambro, Image ID 10039145

Sunday, July 21, 2013

Lesson 9: Grocery Mail-in-Rebates

Financial Planning for the Recent Graduate



I absolutely love mail-in rebates.  This is a quick lesson and an easy lesson to pick up and implement into your life.  Part of why this series was started was because I would come home with lots of food and groceries and hardly pay anything for them.  When you can combine mail-in rebates with coupons (next lesson), you'll see how you can start saving today.  It takes a little effort and patience, but pays off in the long run and really adds up over time.

From now on, every time you go to the grocery store (Lowe's Foods, Harris Teeter, Kroger), head over to the beer section, and by the big beer displays, you'll see stacks of mail-in rebates like the ones in the picture above.  Whether it's Coors, Miller, Dos Equis, Budweiser, Sam Adams, Guinness, etc., each of these companies are paying to get your attention by pairing their beer with common purchases so you will associate their beer to that particular food.  Ex) $5 off frozen pizza when you buy Budweiser...$3 off chips and salsa when you buy Dos Equis, $5 off oranges when you buy Blue Moon.  Here's the cool part: If you're living in North Carolina or Kentucky, you don't have to buy the beer.  You can simply enjoy the savings without the beer purchase.  

Here's the kicker, and something that I can't stress enough: don't let the mail-in rebates dictate your purchasing habits.  If you have never purchased chips and salsa in your entire life, DON'T buy chips and salsa just because you're saving $3.  Chips and salsa costs more than $3 anyways so you're spending that extra money that you wouldn't have, if you hadn't seen that rebate.  Same goes for when you see a $5 rebate off of a minimum purchase of $10.  If you weren't already going to spend $10 on that thing, DON'T. 

When you're looking for mail-in rebates, you'll find some good ones and some bad ones.  Some of the good ones I've gotten are $5 off of $5 in deli meat, $10 off of $10 of oranges...the rebates that will eventually give you the items for free (minus a few cents in sales tax). 

Also, you don't have to use mail-in rebates in that store you got it from.  I find that the best place to use these mail-in rebates are in grocery stores like Aldi, or minimalist grocery stores where your dollar is worth more.  So take them with you! 

Step 1: Make a "receipt box" and keep all of your grocery receipts in them, just in case you run across a mail-in rebate that will give you money back on a past purchase.  Mail-in rebates have a date range, often many weeks, so if you bought chicken a month ago, the next rebate you find might save you $$ on chicken.  

Step 2: Start collecting rebates.

Step 3: After you shop for groceries, make sure you get a copy of your receipt before you leave the store (rebate companies will only accept original store receipts).

Step 4: Fill out the back of the rebate form with your information, attach the receipt to it, circle the purchase that satisfies the rebate, stick them in an envelope, address it, stamp it, and send them off.  

Step 5: Wait.  It takes anywhere from 4-6 weeks for rebates to come in (it's my favorite thing that comes in the mail).  When you get your check, take whatever money you receive and apply it to whatever step you are currently in (see my first 5 lessons).

Questions?  Leave a comment below.

Sunday, June 2, 2013

Lesson 8: Internships

Financial Planning for the Recent Graduate



Does anyone else get frustrated with the paradox we’re faced with when recent graduates are applying for a job that requires experience?  The position you really want requires 2-5 years of experience in that field, and you’re just graduating.  Of course you don’t have that much experience in your field yet.  You’re probably going to be faced with an entry level position or an internship to kick off your professional career.

If you haven’t landed your dream job yet, internships are a great way to get your foot in the door with the company, industry, or to get experience with the line of work you want to work in.  Paid internships are ideal, but some are unpaid.  It’s important before you take an unpaid internship to consider the outcome of all of the time that you will spend at this company.  Will this unpaid internship ultimately lead to paid employment with this company, or do they have enough influence in their industry (connections with competitors, clients, the community, name recognition), to list on your resume when the time comes to leave for someone else who will pay you for your time and talent? 

Personally, I work for a nonprofit in a development (fundraising) role.  I volunteered part-time for this organization for 3 years and was blessed to receive a job offer my senior year working for this organization.  The volunteer work that I performed helped me to realize how much I love doing what I do, and I was also able to meet the staff and create valuable connections with their volunteers and supporters in the community.  By volunteering there part-time, I knew it was something I wanted to do full-time if I was ever offered the position.  The message I was sending was, "I love doing this job so much that I'm willing to do it for free", and that's the message you send when you take an unpaid internship.  

Whether you’re offered a paid or unpaid internship (temporary, or long term), it’s now your job to impress and meet as many people you can at your place of employment.  Come to work early, leave late.  Dress for the job.  Work as hard as you can, and volunteer for as many projects and opportunities that have to be completed.  This is your opportunity to show your stuff.  This is why you went to college, to expand your education and land a skilled job that you love doing.  Employers are looking for you to create value for their business, so don’t be afraid to step up, ask questions, eat lunch with the employees, and attend staff parties. 


Tip 1: Update your resume constantly.  If your school has a Career Services department, it’s usually FREE.  Set up an appointment and get another set of eyes on it.  They have professional experience helping students and recent graduates with making a resume, specifically designed for your industry. 

Tip 2: You never have a second chance to make a first impression.  Gain your employers’ trust early on, and you’ll be moving up from photocopying, faxing, and data entry in no time. 

Tip 3: Ask for honest feedback.  Request a meeting with your supervisor (or supervisor’s boss), to evaluate your work after a few months.  This shows initiative, that you care about the work that you’re doing, and that you value their opinion of the work you are doing.  Oh, and be prepared for the unexpected with feedback.  You may not like what you hear, but remember: this is a growing opportunity.


Tip 4: Dress for the job you want, not the job you have, but that doesn’t mean you have to go to Jos A Bank or J. Crew to look good.  90% of my closet is from Goodwill (The other 10% is $19.99 shirt and matching tie combo's).  You can find some incredible clothes at Goodwill, and you can’t beat the price.  If you do go to one of the large department stores, before you check out, look up coupons on your phone at Retailmenot.com that the cashier can scan to get you a discount.  If you can’t find any, ask the cashier “What coupons do you currently have that apply to my order?” **hint** they’ve got a copy hiding under the cash register.  For more on young professional wear, Deryle Daniels, a good friend of mine, has an incredible blog on professional men’s wear.  Check him out! Ladies, I’ve got your back too.


Images courtesy of freedigitalphotos.net by stockimages, image ID: 10092745, and by Stuart Miles, image ID: 10055252

Sunday, May 19, 2013

Lesson 7: New Cars vs. Used Cars

Financial Planning for the Recent Graduate





If your financial advisor told you to invest $30,000 in a stock that lost 9% as soon as you bought it, lost 20% in the first year, and would be worth less than $15,000 (half of its original value) by the 5th year, would you buy it?  Of course you wouldn't, but this scenario happens every time we buy a new car.  As soon as you drive it off the lot, your $30,000 new car is now worth $27,314.  You just threw away $2,559.  Is that new car smell really that worth it?  

It's time to get emotionally mature with our purchases.  You don't need that new car.  Here's why:

#1: Depreciation.  A new car is not an investment.  Anything that loses half of its value in 5 years is not an investment.  I love this infographic from Edmunds.com, which gives a good visual on a car's average depreciation.  

#2: Monthly payments.  Now there's something you don't want more of: another bill.  Another company who stakes a claim in your paycheck every month.  Oh, and every month that you're paying the car payment, they're tacking on interest, and hoping you'll miss a payment so they can tag you with a late payment fee.  The most profitable person at a car dealership isn't the car salesman, it's the financing representative.  Always remember: Most people ask, "How much per month?", but smart people ask, "How much?"

#3: Higher car insurance: A car that's worth more is a higher risk to insure for your insurance company, so count on higher insurance premiums that you'll be paying every month.

#4: Impressing strangers at a stoplight: Sorry, it has to be said.  You're trying to impress people you'll never meet.  What's the point?

#5: Opportunity cost: Instead of buying that $30,000 car, let's invest that $30,000 in your Roth IRA and don't touch it for 40 years.  With a 9% yearly rate of return, that $30,000 you invested will be worth $1,083,299.07 TAX-FREE.  I hope you enjoy the car!  

I currently own a 1995 Honda Accord with 261,000 miles on it, haven't had A/C in it for about 4 years now, and I plan to drive it until it won't drive any more.  The best part about my car is that I own my car.  My car doesn't own me.  Keep your A to B car as long as you can.  While you're driving your car into the ground, put aside what you would be paying for a car payment into a savings account.  When your car's time has come, don't buy a new car.  Pay cash for a new-to-you car.  There are some great cars out there for $3,000-$4,000.  All you just have to look.  Oh, and if you pay cash for a used car, you've got some serious negotiating power for lowering the purchase price.  Be sure to get the vehicle's history report, so you know what maintenance has (and has not) been done to it, and check out this 10 steps to buying a used car article.  

I want to hear about your A to B car (clunker) in the comments below.  What's your story?

Image courtesy of freedigitalphotos.net bDavid Castillo Dominici, image ID: 100148394

Sunday, April 21, 2013

Lesson 6: Insurance


Financial Planning for the Recent Graduate




You’ve heard the phrase, “offense wins games, but defense wins championships”.  Whether you’re on a football field, dribbling down the court, or talking about your finances, every good offense needs a good defense.  You need a way to protect your offense (cash, savings, investments), with a good defensive strategy (insurance).  After all, your #1 asset is yourself, so we’ll explore the best options to protect you.  There are a lot of insurance plans out there, so we’ll make sure to cover the essentials. 



Insurance, in general, is simply a way to transfer the risk off of you and onto the insurance company.  Most all insurance plans have a deductible, which is what you pay when filing a claim.  Generally, the higher the deductible, the lower the monthly payment.  The lower the deductible, the higher the monthly payment.  That’s because if your deductible (what you pay) is lower, they are taking a greater risk of paying more if you utilize the insurance, so the insurance company raises the monthly payment to protect themselves. So for example, if you have a $5,000 deductible on your health insurance and you get sick, you will pay up to $5,000 out of pocket before the insurance company has to pay anything.  I also recommend working with an independent insurance agent who can shop many different insurance companies to give you the best price for the best product.  


Health Insurance:

Often, your company will have a plan for the employees to take advantage of.  Be sure to review the details of the plan, including the deductible, how much they will cover above the deductible, and if you can find a plan on your own with the same conditions for cheaper.  Group plans are great, but you may be paying more to your group plan because someone in your office uses tobacco. 

Check out ehealthinsurance.com. They have a wide variety of health and life insurance options and it shops around for the best price for you.


Car Insurance:

I love this article from SmartMoney that explains how to shop for car insurance:

I also like CheapCarInsurance123.org, which will match you up with the car insurance providers in your state so you can shop around for the cheapest option.  In many cases, Liberty Mutual is the cheapest option.  No matter what you go with, make sure to ask for discounts you may be eligible for (military service, fraternity/sorority involvement, driving fuel-efficient vehicles, anti-theft features on the car, university discounts).

Life Insurance

Life insurance is another benefit that most employers will provide for their employees, but if they don’t, it’s another important insurance to cover.  The more you acquire in your life (car, house, significant other, kid(s), etc.), the more life insurance you will need.  I recommend term life insurance (no matter how hard the insurance agents push, stay away from whole life/cash value insurance), and I’ll let my friend Dave Ramsey explain why in this article

I like shopping Zander Insurance Group and ehealthinsurance.com to find great term life insurance policies.

Disability Insurance



Remember when I mentioned protecting your #1 asset earlier?  What did I mean by that?  You are the source of your income.  If you are unable to work, whether you get very sick or disabled, you won’t be able to work and generate income.  This is where disability insurance comes to the rescue.  Disability insurance will pay you for the time period you are out of work due to an illness or injury. With disability insurance enters in terms such as elimination period and benefit period.  Elimination period (waiting period) is the period of time you have to be disabled before you start receiving a check, and benefit period is the length of time you’ll receive your checks.  A longer elimination period means less cost on your monthly payment (vice versa).  A longer benefit period, however, means higher monthly payments.  For a more detailed explanation, here’s a great article to read: 

Typical short-term disability plans pay for 2-6 months, depending on your plan.  Long-term disability plans can pay for a very long time, usually up to the age you determine on your plan.  When shopping around for a STD plan, remember: you have an emergency fund in place, so if you have the cash, you can often afford to have a higher elimination period to lower your monthly payment.  When you’re shopping for your LTD plan, make sure your short-term doesn’t overlap with your long term, and make sure there is no lapse in insurance during that time either.  So do the math:  Elimination period for your LTD plan = elimination period of your STD plan + benefit period of your STD plan.

I like both Zander Insurance and edisabilityquotes.com to shop for short-term disability and long-term disability plans.

Disability happens all the time.  For 30 year-olds, disability is 4 times more likely than death.  As recent graduates, it’s even higher.  Here’s a chart to show you how much more likely you are to become disabled than to die.

Homeowners/Renters Insurance

When buying homeowner’s insurance, it’s important to ask the right questions.  Here’s a great .pdf from Bankrate.com, which will help you shop for the right homeowner’s insurance policy.

If you’re renting, I highly recommend renter’s insurance.  It’s cheap, and it gives you peace of mind if your apartment is broken into and all of your valuables are stolen, you’ll be able to replace your stuff.  Often your landlord or apartment staff will know who is the cheapest, but when shopping for renter’s insurance, here are a few things to keep in mind to save you some money.  Also, be sure to check with your landlord to make sure your renter's insurance complements the insurance your landlord has.  Here's a list of what renter's insurance does and does not cover.

Again, I would recommend an independent insurance agent to provide you with an unbiased opinion on your homeowner’s or renter’s insurance.  Here’s a great way to find local independent insurance agents in your area from Trusted Choice (enter in your zip code at the bottom of the page by "Find an Agent").


Have a headache yet?  Thank goodness I only covered five types of insurance.  There are even more insurance plans out there that are important to have (vision, dental), but some are a total waste of money (cancer insurance, private mortgage insurance, car rental damage insurance, flight insurance, credit card insurance, I mean the list goes on and on), and anything outside of the scope of these 5 that I recommend should be discussed with a trustworthy financial advisor who will teach you, not sell you. Getting the right insurance is like wearing a seatbelt in your car.  Fastening your seatbelt after a crash doesn't do you any good.  Buckle your seatbelt before the unexpected happens.

Questions/suggestions?  Leave a comment below or email me at finance4therecentgrad@gmail.com.

Images courtesy of freedigitalphotos.net by Vichaya Kiatying-Angsulee, image ID: 10071483, bdigitalartimage ID: 10044866, bKittisakimage ID: 10094648, and bJeroen van Oostromimage ID: 10036075

Sunday, April 7, 2013

Lesson 5: Investing


Financial Planning for the Recent Graduate 




Well this one is a packed lesson, so get ready.  Investing is overwhelming. Currently there are more than 7,000 different mutual funds, more than 8,500 stocks listed just on the New York Stock Exchange, and those investments are just barely scratching the surface.  Where do I invest?  Stocks, bonds, mutual funds, ETFs, iShares, what’s a 401(k)?

The three most important things you can learn from investing is immediacy, consistency and diversification.  After you’ve completed the first four steps, start investing immediately (personally, I combined step 4 and step 5, but focused more heavily on completing step 4 first).  Consistently put money away (15% of your paycheck) into your retirement account every month.  Diversity your portfolio, meaning spread your investment to many different styles of investments (different industries, big companies, small companies, mutual funds, stocks, bonds, cash), and you’ll really set yourself up for success when you’re ready to retire. This Investopedia article does a great job of explaining the different types of investments.



The best part about this lesson is that we’re young.  We have an incredibly unfair advantage of retiring wealthy compared to people older than us.  Why?  Compounding interest.  The younger you start investing, the less you have to invest, and the more you end up with in the end.  How cool is that?! This website by Dave Ramsey shows just how much of an impact starting early has on your chances of becoming wealthy.  For example, if you only put 100 dollars a month into a retirement account and it has a 10% return every year from now until the time you retire (assuming monthly compounding), after 40 years, you’ll have $637,675.96!!  If you double that, and do $200 a month, you’ll end up with $1,275,355.58.  Wow! 


A lot of people contend that you should start investing before you pay off your debt, to which I kindly coach them: have you ever heard of a stock that earns 6.8% every year, consistently, without ever losing value?  I haven’t either, but a student loan sure does a good job of consistently charging you 6.8% interest every month without fail, doesn’t it?  Let's not even talk about how much you're paying the credit card company if you're paying late fees and interest on your credit card (ahem, 15-25%).  Crapital One, American Depressed...man, I can't wait to get to that lesson...“But I can deduct my student loan interest on my taxes, right?”  Yes, but let me give you a better scenario: Do you know what else you can deduct 100% on your taxes?  Pre-tax 401(k) contributions.  Plus, in 2013, filing single, you can deduct up to $5,500 in IRA contributions, whereas you can only up to $2,500 in interest for your student loans.  Solution: target getting debt free, get your savings built up, then you can really focus on investing.  

401(k) vs. Roth IRA


A 401(k) is funded with pre-tax dollars (meaning you’re taking money out of your paycheck before taxes are taken out and reducing your income) to fund your 401(k).  This lowers your taxes for the year, but down the road when you retire (after 59 and ½ years old), you have to pay the current tax rate at the time when you withdraw your cash.  Let’s be honest, taxes are going to have to go up in the future, so:

I highly recommend Roth IRAs.  You contribute to a Roth IRA with take-home pay (after tax) dollars.  The cool thing about a Roth IRA is a Roth grows tax-free.  That means if your Roth IRA kicks butt and you have millions of dollars in your Roth IRA, you don’t have to pay the government anything when you withdraw at retirement.

If you have an employer that matches 401(k) contributions, TAKE ADVANTAGE OF IT. There is no excuse for you not to contribute something so your employee can match it or add to it.  Every company is different, so ask your employer about all of the details of your company’s program so you can make the best decision about your 401(k).  



Tip 1: If you're confused about investments, seek investment advice from a professional financial advisor.  Make sure you find someone you feel good about and has your best interests at heart, and can teach you, rather than sell you.  If you ever feel over pressured or uneasy about a financial planner, it's probably for a good reason.  Don't do business with them.  You won't hurt their feelings.  As soon as they get off the phone with you, they're probably calling the next person down on their spreadsheet to say the same thing anyways.  You can always check on their credentials for free and check to see if they've had any complaints about their business from customers, felonies, etc. http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Tip 2: Don't ever buy anything you don't completely understand.  If you're personally investing without an advisor, make sure you check on the track record and history of the stock/fund you are buying, and read into the company that you're going to invest in.  

Tip 3: Use other's research to guide your investment strategies.  Websites like Zacks.com, Morningstar.com, Seeking Alpha and Investopedia.com are great resources to utilize.  


Tip 4: Slow and steady wins the race.  The tortoise beats the hare every time I read the book.  No trick or hot stock is going to get you further ahead in the long run.  Don't try to beat the market.  Stay consistent with your investing month after month, whether the market is up or down.  The only people that don't finish the race are the ones that stop running.  

Thanks for reading.  Lots of material covered, so please leave a comment below if you have any questions.

Images courtesy of freedigitalphotos.net
By Ambro: Stock photo - image ID: 10066523 and image ID: 100103866, bStuart Miles: image ID: 100146099 and image ID: 100123071, and bdigitalart, published on 10 June 2011
Stock illustration - image ID: 10045513

Sunday, March 24, 2013

Lesson 4: 3-6 Months in Expenses

Financial Planning for the Recent Graduate

 


When applying for a job, no one ever expects to be laid off or fired one day.  The reality is, it happens more often than not.  Plus, you’re young.  Do you plan on staying employed at your job for 40 years?  You’ll probably move to another city, state, or country in your lifetime, change careers at least once, maybe you’re planning on having kids one day, or heaven forbid, you have an life-altering medical situation.  One day, you’re going to have a period of unemployment.  During this time, you’re going to need money to keep afloat. 



I recommend saving at least 3 months, preferably 6 months of expenses in a separate savings account.  You can use the same account as your emergency fund.  This account is your safety net for when the unexpected happens.  Set aside money every month for this account.  As it builds up in value, you may have a friend, family member, or someone call you from your bank and recommend putting it in a brokerage account or investing in stocks.  DON’T DO IT.  This is your personal insurance, not an investment.  I'll say it again.  This is NOT an investment.  Yes, you could make lots of money on this account by investing it into something more financially efficient.  However, all investments have the risk of falling to $0, and it doesn’t matter how much you have invested.  

The purpose of this account is to be a liquid (easily converted to cash), accessible savings account.  There’s a huge difference in your mind and your spirit when you’re laid off with 6 months of cash protecting you and your expenses vs. having nothing.  It’s an incredibly important part of your financial plan.  It’s your financial foundation.  Before building a house, you have to pour the foundation.  The 3-6 months in expenses is the base, the foundation of your finances.   Without it, your finances will crumble one day.  You’ve got to pour, so one day you’re not poor




Once you’re out of debt, this should be a much easier step to accomplish.  Instead of paying the loan company every month, you’ll realize the incredible feeling of paying yourself first.  Don’t delay this step, and again, before you start investing, get your  3-6 months of expenses in place.  The Bible says, “Four things on earth are small, yet they are extremely wise: Ants are creatures of little strength, yet they store up their food in the summer” (Proverbs 30:24-25).  Like the ants in the summer, you’re at a season in your life when you’re employed and healthy.  Use this time to save for the seasons of your life when income is scarce, like when you are unemployed or unable to work.  

Tip 1: Find a savings/checking account that pays high interest.  That way, while you’re saving, you’ll at least earn something.  Again, make sure you’re able to transfer the money easily, in case of an emergency (usually 2-3 business days is the standard). 

Tip 2: How much do you have to save?  Calculate how much you need to save, and how long it’ll take you to get there.  This Google Doc will help with that.  Are you really allocating enough money to this savings account?  Choose to save.  How long will it take you?

Tip 3: Don’t get discouraged.  This is the longest step to complete, but it’s more than worth it.   

Tip 4: Remember the steps, and do them in order!  
#1: Get on a budget.  
#2: Save $1,000 for an emergency fund.  
#3: Pay off your debt with intensity, and then 
#4: 3-6 Months in expenses.  

Have you ever seen someone eating while driving, sipping a soda, and texting/talking on the phone?  You probably saw that same car a few miles down wrecked on the side of the road (or pulled over).  Don't try to do too much at once.  It's the same way with your finances.  Stick to the plan.  Focus on one step at a time, or else you won't get anywhere.  

Questions?  Leave a comment below or email me at finance4therecentgrad@gmail.com.


Images Courtesy of freedigitalphotos.net bStuart Miles, published on 11 April 2012 Stock illustration - image ID: 10079600, bBoaz Yiftach, published on 08 September 2010 Stock photo - image ID: 10020252, and bSweetCrisis, published on 11 May 2012 Stock photo - image ID: 10082748

Sunday, March 10, 2013

Lesson 3: Student Loans

Financial Planning for the Recent Graduate




I remember sitting alone in my dorm room late one night, during the last semester of my senior year when I decided to grow up and face the reality of how much I borrowed to finance my education.  I remember the sinking feeling in my gut when I saw my computer screen show me all of my student loans together for the first time, and when I realized how deep in debt I was.  This is a tough lesson to learn.  It's time to face reality and talk about your student loans.  The average college graduate today has more than $27,000 in student loan debt. In December 2012, outstanding student loans amounted to $956 billion. In 2012, student loans officially surpassed credit card debt in the United States.  This is an increasingly unsustainable problem that needs to be solved.  How is this happening?  Well, the cost of higher education is rising, but the ease of going to your financial aid office and getting a new loan to add to your debt is another part of the problem.  The bigger problem is, you kept going back every semester, signing your name, promising you’d pay it later, and then forgetting about it.  Now it’s time to pay back all of that debt.  The first step is to figure out where in the world it all went.  Student loans are sold to other loan providers every day, whether they are private companies, publicly traded companies, or the government.  Here’s where you need to go to track all of them down: http://www.nslds.ed.gov/nslds_SA/

Go to Financial aid review -> Accept -> Accept -> fill out all of your information, and click Submit.  If you forgot your pin, follow the instructions on this website to get your pin back. 



Once you’re logged in, you’ll probably see lots of student loans, some of which may surprise you.  They certainly didn't forget about the loan you took out way back in your freshman year, did they?  I had some of my loans sold to two different companies and was never even notified.  Next step is making online accounts for all of the different loan providers that service your loan.  Nelnet, Sallie Mae, Great Lakes, CitiBank, and on and on.  Every day, these companies are making money off of you, on your unsubsidized loans, and they have been ever since you signed that document.  6.8% for an unsubsidized loan, as a matter of fact (which is likely to be higher in the future).  If you took out a $10,000 loan, they make $680 off of you every year, almost $2 every day that you’re handing over to them, and that compounds (gets worse and worse every year if you don’t pay the interest).  It’s a snowball effect that catches and rolls over current students and recent graduates every day.

Hopefully I’ve opened your eyes a little bit.  I know I’ve made you mad.  You may have a “fair bone” in your body like I do, and you’re sitting there thinking “That’s not fair!” and want to get rid of this debt as fast as possible.  That’s what I did.  I was able to pay off my $20,000+ student loan debt in 14 months.  How’d I do it?  Don't miss this next paragraph.



Get angry at your student loans.  They’re officially your enemy.  Attack your student loans with a passion.  They’re keeping you from becoming wealthy, and you’re not going to get out of paying these loans unless you are fierce in your intentions.  Proverbs 22:7 says, “the borrower is slave to the lender”.  As long as you are in debt, you are forced to pay money out of your pocket every month until you have satisfied your loan.  When you owe someone a debt, that creditor has complete power and leverage over the money that you owe to them.  Don’t believe me?  Watch what happens if you ever miss a payment.  Those collection calls start pouring in and they push every emotional button they can push to get you to pay your debt.  

It's time to start paying your loans off.   I’m sure you have both unsubsidized loans and subsidized loans.  Unsubsidized loans run you 6.8% since the date the loan was released, and subsidized loans haven’t been accruing any interest…yet.  From the date of graduation, you have 6 months to keep your subsidized loans at bay, but after 6 months, they will begin earning interest.  My recommendation?  Start with the lowest balance unsubsidized loan first.  They are killing you with interest.  So how are we going to start paying these loans off?  We’re going to start a snowball in your favor this time.  Let me illustrate:




Remember when it snowed you were a kid and you couldn't wait to make a snowman?  How'd you do it?  You started gathering a little bit of snow and packing it down, rolling that and packing it, and rolling some more.  The more you rolled the snowball across the snow, the bigger it got, the easier it was to pick up snow, the faster it grew.  You’re required to pay a certain amount from each loan you have every month.  When you pay off your first loan, take the monthly payment you’d normally pay on that 1st  loan and add it to the payment on your next loan.  Once you pay off that next loan, take both of those loan payments and add it to the amount you are paying on your third loan.  You’re getting it!  Pretty soon, you’ll be sitting there with no payments.  What can you do with your money when you don’t have payments every month?  Whatever you want.  It’s an incredible feeling.  Here’s a Google Doc to help you with your student loan repayment, and I've included a tutorial below on how to fill it out.  



Have a question?  Want to leave a tip for how you're going to pay off your loans?  Leave a comment below or email me at finance4therecentgrad@gmail.com.





Tip 1: Host a graduation party.  Ask if your mom or dad would mind hosting, and send out some letters to your family and friends and invite them to your party.  In the letter, mention your student loan amount and that 100% of contributions will go to your loan.  Tip 1a – make good food for your guests.  Tip 1b – be true to your word and actually apply the funds to your debt.  Personally, I ended up with close to $2,000 from family and friends, which paid off one of my loans almost entirely. 

Tip 2: Get going.  You’ve waited long enough, so start paying your loans off now, even if they’re not in “repayment” yet.  At first, it may feel like you’re getting nowhere, but how do you eat an elephant?  One bite at a time.  Don’t just pay the interest, pay off some of the principal too.  Always pay more than the minimum payment so you can start to get some traction. 


Tip 3: Stop taking out more loans.  Don’t reconsolidate, don’t take out a personal loan to help you pay these off, and don’t you dare put it on a credit card.  You can’t get out of debt by getting deeper into it.  You can’t get out of this ocean of debt by swimming further down.  Start swimming up, one stroke, one payment at a time until you're debt free and back above water.

Tip 4: Be weird with your money.  Try to live on less and less every month.  Say no to going out with your friends a few more times.  Oh and when your broke friends start making fun of you for being frugal (and they will), you’re right on track.  

Images courtesy of freedigitalphotos.net by Stuart Miles, stock illustration - image ID: 10069388 and image ID: 10096038, bworradmu,stock photo - image ID: 10032599, bTina Phillips, stock photo - image ID: 10072039, brenjith krishnan, stock illustration - image ID: 10034353 and bkoratmember, stock photo - image ID: 10062848


Sunday, March 3, 2013

Lesson 2: Emergency Fund


Financial Planning for the Recent Graduate





Has anything unexpected ever happened to you?  Has your car ever broken down and you didn’t have any money to fix it? What did you do?  Put it on a credit card, where you get charged 20-25% if you don’t pay it off at the end of the month?  I’m here to tell you that those days are over.  Credit cards aren’t for emergencies any more.  In the last lesson, we talked about putting money away into a savings account. Now we’re going to define it.  This savings account is called your emergency fund.   This is going to be your first savings account that is not linked to your primary spending account.  What do I mean by that?  For the first time, we’re going to put space between you and your money.  You're a graduate now, a mature adult in the real world, so it's time to start making mature decisions with your finances.  

Did you ever have a blanket when you were little?  When I was a toddler, I had a blanket that I called my “white mine”.  It had boogers, snot, drool, tears, dirt and dust all over it.  It started as a white blanket, but turned a different color very quickly.  It was mine, and I wouldn’t give it up.  I never switched to a new, clean blanket.  Fast forward 20 years and we’re doing the same thing with our finances.  We don’t want to change our behavior because it’s ours, and the worst part is, we defend it!  I need a new car with a car payment…I deserve to go out because it was a hard week…I have to live in this nice place that I can’t afford. This is the lesson that we start to change your behavior, and what you’re used to doing with your money.  Step 1 was getting you on a budget.  Step 2 before you do anything else is to save $1,000 for your emergency fund. 



There are tons of great options for a savings account for your emergency fund.  Make sure there is no minimum balance requirement and no annual fees on the bank account that you open.  You don’t want the bank to eat away the hard earned cash you’ve saved.  There are great no-fee online banks that pay up to .9% interest just to save your money with them, and there are also great local community banks that won’t pay as high of interest, so it depends on your preferences.  I personally use Ally Bank for my emergency fund, and they are my #1 choice for an online bank.  

Now I’ll tell you what an emergency fund is NOT.  An emergency fund is not rescuing your butt at the end of the month if you didn’t budget enough money for food.  It is not  money you use for an occasion you forgot to save up for, like Christmas, or an anniversary.  If you have a savings account linked to your checking account, and you overspend on your checking account, your bank probably moves your money from your savings account to your checking account to make up the difference.  That is NOT a savings account.  That’s just an extension of your primary spending account.  An emergency fund is NOT money for that cute dress at Banana Republic, or that nice suit you have to have.  Your emergency fund is for emergencies.  If it's not an emergency, don't touch it!

I recommend attaching a checking account to your new savings account, because if you’re really in a pinch (you’re out of money in your main checking account) and you have an emergency, you don’t want to wait 2-3 business days for your money to transfer to your main checking account.  When you open your checking account, they’ll usually give you free checks, so just put those in a safe place until something unexpected happens and you need the cash.



The most important thing to understand is that emergencies do happen, all the time.  Grandma and grandpa had it right all along with their rainy day fund.  Unexpected things will happen to you, and when you have an emergency fund in place, it puts a big buffer between you and life’s curveballs.  Murphy’s Law takes a whole new meaning when you have the money saved up.  When you have an emergency fund in place, it’s your Murphy repellant, and you can stop worrying and stressing out when your car won’t start, because you can fix it.  Don’t let life happen to you.  Let you happen to life.



Tip 1: GO!  Start now.  Don’t wait.  This is the easiest step to complete, but it’s also the hardest one.  If you commit to the emergency fund, you’ve committed to turning your life around.  Get it done quickly!  Squeeze your budget, and whatever’s left at the end of the month, roll it right into your emergency fund.

Tip 2: Get a part-time job to add to your income.  Do some contract work.  Start monetizing your skills.  If you craft, set up an Etsy.  You’ll get some serious momentum if you’ll take a few hours per week working part-time somewhere.  You can’t save money if you don’t have any coming in, or if it’s all going out the door.



Tip 3: Sell stuff you don’t need!  I know you have some stuff around that you never use that someone else may want.  Amazon, eBay, Craigslist, get to it. 

Tip 4: If you have room in the budget, set up an auto draft into your emergency fund at the beginning of the month.  You might miss it the first month, but you’ll get used to it soon!  If you haven't made yours yet, here's the monthly paycheck budget, bi-monthly paycheck budget, and weekly paycheck budget.

Tip 5: Start a mini-emergency fund.  Discipline yourself by starting a checking account buffer in your primary spending account.  Set an amount that you refuse to go below, and increase that amount every month.  This way, you won't have to pay overdraft fees if your account hits $0 (when I was first starting out, I overdrafted all the time, and it's an easy way for that Wendy's double cheeseburger to cost $37, instead of $2.)  According to Dailyfinance.com, banks make over $30 billion a year off of our overdraft fees.  Make yourself believe that $500 in your account is actually $0, and don't go below it!

Check out this week's supplemental YouTube video:
http://youtu.be/J_R1wmPdNNE

What are you going to do to save up $1,000 for your emergency fund?  Leave a comment below.  Your tips may give someone else a great idea on how to save.



Images courtesy of freedigitalphotos.net

By Naypongimage ID: 10077125, by Stuart Miles, image ID: 100142024 and image 10055016, by m_bartoschimage ID: 10012082, and by Ambro, image ID: 1066149

Sunday, February 24, 2013

Lesson 1: Budgeting

Financial Planning for the Recent Graduate


Before I teach you anything else, I have to get you to create and get on the dreaded “b” word.  That’s right, a budget.  About half of you reading this blog will love this lesson, and half of you might feel the urge to skip it entirely.  DON’T SKIP IT.  This is the most important lesson, hands down.  If you get nothing else from this series, GET ON A BUDGET.




Imagine you are the captain of a ship.  The S.S. your name here.  You're in the middle of the ocean by yourself and all of a sudden the indicator light goes off that you've run into something and sprung a leak. At first you ignore it because it's a small leak, but minutes pass by and more and more lights come on, indicating something more serious.  You run to the hull of the ship and find many small holes on the bottom of the ship where the water is coming through.  If these aren't patched up soon, your ship is going to sink.  Luckily, you planned ahead and brought several patches and sealant to stop the leak.  I don't know where you are with your finances, but I'd imagine there is money leaking out and slipping through the cracks every month.  This lesson is about tracking down those dollars and patching up your finances so you can cruise off comfortably into the sunset and get back on track with making your money behave.

The weird thing about money is it’s amoral.  Money doesn't have emotions, principles, values, and it certainly doesn't spend itself.  It won’t do anything if you don’t tell it to.  If you tell it to do nothing, it will do nothing.  If you tell it to buy drinks at a bar, that’s exactly what it’ll do.  If you tell it to buy groceries, it will.  If you tell it to support someone going on a mission trip to educate underprivileged children, it will do that too.  You are in control (and you always have been, though you may not have realized it until now).  I’m writing this right around the time where taxes are due, and you may be sitting there bewildered with the huge difference in what your W-2 says you were paid and the money that’s actually in your bank account.  Where did it go??  Budget to the rescue.  This time next year, we’re not going to sit there wondering where everything went.  This time, we’re going to be in charge of our money.  We’re going to tell our money where to go.  Each dollar we bring in is going to have a purpose.  We’re going to write every dollar down and designate it to something, and I’m going to make it easy on you.  Here’s how:

I’ve created a free Google Doc for people with a monthly paycheck, and you can access it here.  If you receive a bi-weekly paycheck, meaning you get paid twice a month, I’ve included that budget for you here.  (If you don't have a Google account and don't want one, send an email to finance4therecentgrad@gmail.com with "Budget" in the subject line and I'll personally attach the Excel spreadsheet and send it to you.) You can view, but not edit this spreadsheet, so simply go to File -> Download As, and choose the option best suitable for your computer.  Take a few minutes to look at your bank statements from the past few months and calculate the average of what you spent for food, gas, and maybe some of the extraneous purchases you shouldn’t have made.  Your bank account and your budget will tell you the kind of life you live.  The Bible says in Matthew 6:21 “For where your treasure is, there your heart will be also.”  When you are financially invested in something, your heart tends to follow it.  While you’re looking at your bank statements, pay special attention to how much it costs to go to a restaurant vs. eating at home.  We'll get into that in another lesson.

If you need an idea of how much you spend on each category each month, take the average of all of your payments over the last few months and start to fill out the budget that I included.  Our mission is a zero-based budget.  We want to end up with a zero at the bottom of the budget (inflow minus outflow equals zero) so every dollar that came in has gone to something.  For an instructional and help with filling out your budget, I've included a YouTube video here.



Tip 1: Live below your means. You’ve always heard it, but why?  Because you don’t want to live paycheck to paycheck, that’s why.  How many times have you been stuck with no money at the end of the month?  You need to tell your money what to do.  If you’re spending all of your money on restaurants or shopping, you’re losing the opportunity to save or invest.  Get on the RBR diet.  Rice, beans, and Ramen (I'm over exaggerating, but you get the point).  




Tip 2: Keep room in the budget to start saving.  We’re going to get into the importance of an emergency fund in the next lesson, but go ahead and start putting money in a savings account.  It doesn’t matter how much money you make, it’s how much you keep.  You work too hard for your money to give it all to someone else.  If all of your money is going out, you’re not gaining traction.  You’re going to learn to pay yourself first during this series.




Tip 3: Ask for help.  If you’re not embarrassed to ask, another set of eyes on the budget might help you see something you overlooked.  Find someone that you trust and that you know will give you honest feedback.





Tip 4: Try an envelope system.  You can buy one at the Dollar Tree (it's called a coupon organizer and it looks like a mini file folder), and carry around cash for your purchases for the month. At the beginning of the month, withdraw and separate your cash into different envelopes (one for food, one for gas, one for fun, etc), and that's your spending money for the month for that expense category.  Keep the cash in a safe place at home, but carry around enough cash to get you through the week.  It sounds crazy, but it works.  My fiancĂ© uses the envelope system for everything she spends money on.  Food, gas, beauty products, fun money, anything that isn’t going into a savings account.  Here’s the catch: you can’t take money from one envelope to “help” or replenish another envelope.  In other words, if you run out of money from your food budget because you went out to eat too much, tough luck.  Also, just because you didn’t use as much gas as you usually do that month doesn’t mean you get to use the money in your gas envelope to go to a movie.  This is really going to force you to be accountable for your spending, and you're going to hate me for it at first, but you'll thank me later.  Oh, and whatever you have left in each envelope at the end of the month, put it in your savings account.  That way you’re always saving something.




Tip 5: It takes time.  This is your first budget.  Give yourself some credit – you won’t be perfect the first month, probably not even the second month, maybe not even the third month, but DON’T GIVE UP. Eventually, you’ll find your balance, and you’ll finally start having the feeling of being in control of your money.  

Check out this week's supplemental video:

http://www.youtube.com/watch?v=UqWOXUCLV4E

And my YouTube Channel below:

http://www.youtube.com/user/OfficialEricDurham?feature=mhee

Questions?  Leave a comment below.


Image Courtesy of www.freedigitalphotos.net, Stock illustration - image ID: 10063484 by worradmu, image ID: 10053900, 10095094, 10088178 by Stuart Miles, image ID: 10087086 by TeddyBear[Picnic], image ID: 10068488 by Vichaya Kiatying-Angsulee, image ID: 10065994 by  David Castillo Dominici