Out here in the fields…
…I fight for my meals.
I could probably write a book quite effective at helping people prevent making the same mistakes that I have made in the past 8 years or so. This is especially true for financial mistakes. Considering a book deal is pretty much out of the question, I’ll drop a few tips here.
Many of these are common sense. To many you’ll reply “duh, Bryan.” But even if you’ve considered every one previously, it may help to see someone vouch for their validity. These should be especially helpful for those of you just graduating from college. Many of you have student loan debt. Many of you have something worse: leftover debt from the last couple years of college when you said to yourself “Oh, I’ll have a job soon to pay this off.” Many of you now have a job that pays you twice (or more) what your parents made when they graduated. This described me well. And after making plenty of mistakes, I can tell you how to deal with it.
What not to do…
- Don’t act like you’re rich, think like you’re rich. - You aren’t rich. Your offer letter may seem to be a gold mine relative to your old college retail job, or even your posh internship but the real world is expensive. You’ll soon see that if you don’t consider every dollar you spend, it will be all gone and you’ll rely on Citibank to buy your groceries.
- Don’t go buy a new car. - Overheard at college graduations everywhere: “Dude, my starting salary will pay for a Boxter!” Dude, no it won’t. It’s all too easy to forget that you have to pay taxes, buy groceries, and have somewhere to live. If you absolutely need a new car, go buy a reputably reliable car off of lease, program, fleet, or whatever else you can find. A year-old car has already taken its near 40% depreciation hit. Buying new basically puts you upside down on your financing instantly.
- Don’t fully fund your retirement account. - This happens to by my biggest regret. Read carefully: if your employer matches money into a tax deferred savings plan of some sort (401k, etc.) then you’d better be contributing up to that matching amount. It’s free money! However, if you’ve still got debt (I know you do - remember student loans, auto loans, mortgage, credit cards, store cards, etc.) then the measly return on a 401k that you’ll see in thirty-five years is far outweighed by your annual finance charges. Fully funding your retirement is important, but only after you’re debt free.
What to do…
- Pay for what you need in cash. - If you can’t afford it, then you don’t need it.
- Eliminate debt, and then save. - Saving and building wealth through assets is very important. However, there are very few invesments that will outgrow your debt, and those are very risky. Pay it off, smallest first. If you maintain a list of your debt (liabilities) it’ll be empowering to check those demons off the list. The old saying “money makes money” is true, but mathematically, if money in the black makes more money in the black, money in the red makes more money in the red.
- Educate yourself. - Rich Dad, Poor Dad by Robert Kiyosaki and Financial Peace by Dave Ramsey are two wonderful books that will inspire you to buckle down now, and enjoy a wealthy life later.
June 22nd, 2005 at 12:46 pm
Good entry. I am new to the real world, but i don’t necessarily think the cash thing is the best idea, at least not for me… whenever i have cash i spend it on things i don’t need, and they’re never written down or accounted for… it’s just like “i had $50, now it’s gone”… i like my credit card and checkbook better b/c there’s a record of where my money is going… and if i was excessive one month i can see exactly where i need to cutback extraneous spending…
June 22nd, 2005 at 1:32 pm
Cash doesn’t necessarily mean bills in this case. I definitely do it that way because it’s easier to see when I’ve expended my budget. But as long as you have the funds to back your transactions, and you only spend what you actually have - that’s my point. Just don’t say “oh, i can put this new television on credit and pay it off later.”
June 22nd, 2005 at 3:34 pm
> But as long as you have the funds to back your transactions…
> Just don’t say “oh, i can put this new television on credit and pay it off later.�
Ah, but what about: “I’ll put this new television on credit (ye olde 0% interest for x months) because I actually have the funds, but would rather invest them and have my returns help pay for the TV”?
Granted, there’s some slipperiness on that slope, but it tends to be less slippery in practice than in theory, imho.
June 22nd, 2005 at 3:48 pm
JV,
Take Bryan’s advice (it’s mine, too): Read Dave Ramsey’s Financial Peace! To answer you question…yes, putting a tv on a 0% for six months credit plan can be a good idea, but ONLY if you actually pay it off in those six months (we bought our refrigerator this way). The vast majority of people who buy things this way don’t pay them off, and pay dearly for this mistake.
You said you like your credit card and checkbook better because there is a record of where your money went. Here’s a novel idea:
Know where your money is going before it goes there!
It’s only when you have this mastered that you have control over your money. The way you are doing it, your money is doing what it wants and then you get to see what it did at the end of the month. Again, read Financial Peace and do what it says. I actually took the 13 week seminar that goes with it and it was the best decision that I have ever made (other than marrying my wife!).
June 22nd, 2005 at 5:19 pm
The part about paying it off on time goes without saying (or at least it should). If I’m going to go that route, I set myself at least three reminders so I make sure the balance is going to be paid off on time or early.
Something else that should be a no-brainer is to make sure that the interest rate is zero and that the minimum payments are never late. Some of those deals have stipulations that charge you the full interest amount the first time your payment is late. Ouch.
You probably just left out the name by accident, but it was Karen who commented on the checkbook/credit card thing, not me.
Still, good point about knowing where your money is going at the START of the month, not the END.
June 22nd, 2005 at 7:56 pm
I do know where my money goes at the START of the month, but if there is some sort of slip up (over minutes on my cell phone plan) or break in budget (from some stupid splurge), I can back track and figure out what went wrong. I don’t put anything on a credit card that I won’t be able to pay back IN FULL by the month’s end. Besides, establishing credit history is essential in life and something that high school and college students should start doing AS SOON AS POSSIBLE.
June 22nd, 2005 at 9:28 pm
Karen:
That’s sort of the idea behind setting up specific buckets for every aspect of your budget. Then, you don’t have to worry about where things go wrong–because you’ve only paid for things that you actually had the hard cash for. So if you’ve forgotten about some splurge or something, you’ll see that the cash bucket is empty. Credit cards are the same weight, extended or not.
I think the whole “credit history is essential” thing is a scam created by the credit card industry to try and get people to start spending early so the finance charges can stack up. If you make the proper decisions about where your money goes, you shouldn’t ever really need credit.
June 22nd, 2005 at 10:45 pm
Okay, so this is the first time I have ever commented on Bryan’s website (or any website for that matter), but this is something I feel very strongly about.
First off, Bryan, I completely agree with your latest entry about the “essential” credit history being somewhat a scam. Most of our parents can remember a time when credit cards didn’t exist & the only items most people “borrowed money” for were a house & possibly a car. Wow, how times have changed! Credit drives the world, and all those profitting from it keep teaching us that it is neccessary to build our own or we will never be able to afford anything. Personally, I have never had a “typical” credit card, with the exception of 1 or 2 store cards (they sucked me in with the “open today & you’ll save 10%”) that I closed soon after. Despite what society has taught me, I was approved to get a house & 2 cars within a year. Not to shabby for a little girl with little to no actual “credit history”. Another important factor is just paying your bills on time. This says just as much as keeping up credit card payments and shows dependability.
My next comment is in response to Seth & Bryan about the cash use & budget comments. I completely agree with Dave Ramsey’s Financial Peace plan! I believe in it because I have seen it work for us (fyi: I’m Seth’s self-proclaimed first “best decision”). I feel that Seth sounded a little harsh in his reply he posted, but I think it’s just that he really believes in the plan. We are all adults & we can each make our own decisions, but we might as well consider helpful hints & suggestions from people who have lived and learned. Seth & I learned a ton from Financial Peace University & we were able to start the financial aspect of our marriage on the same page. (statistics show that money related issues cause up to 50% of divorces) In the past 2 years we have been able to pay cash for our honeymoon, other vacations, a new mattress, and those things that you might not plan on like emergency dental work or a new transmission! Dave taught us to prepare for these situations with an emergency fund instead of a credit card. We have also paid off old debts (no names mentioned but I already fessed up to having no cards myself) quickly. Since we started using this plan paychecks go farther & seem to come much more quickly! It’s just great & it works for us. And that’s what it boils down to is finding out what works for you…and sticking to it!
June 22nd, 2005 at 11:14 pm
So, I guess I should apologize for sounding a bit harsh in my previous reply…I’m sorry. But Jo Leigh is right, this is something I believe very strongly in.
Karen, I applaud you for not charging anything on your credit card that you cannot afford to pay off at the end of the month. However, most people do not have the same level of restraint. Given a $5000 limit, most will spend $5500.
I also agree with Bryan’s theory that “credit history is essential” is a scam. It is NOT essential. Do you honestly believe that when you get ready to buy a house or a car they’ll throw you out the door because you don’t have established credit, even though you have $10000 in cash and a steady job? I think not!! I believe that having cash is MUCH more powerful than having credit. Good luck getting a discount while buying a big ticket item with your good credit, but take in a wad of cash and salesmen will fall at your feet!! I am getting to a point in my life where I have very little debt (at least relative to the general population) and I can tell you that that fact alone is empowering!
Finally, regarding your comment:
establishing credit history is something that high school and college students should start doing AS SOON AS POSSIBLE.
Shame on you! You have just added Robert Kiyosaki’s Rich Dad, Poor Dad to your required reading. High school and college students should start INVESTING IN ASSETS AS SOON AS POSSIBLE!!
June 22nd, 2005 at 11:53 pm
First of all, if people don’t have restraint, they most likely can not make any financial plan work for them.
I have investments and I don’t have debts, which is quite empowering to me, personally. I totally agree that students should start investing in assest as soon as possible. I also agree they should work to pay off debts as soon as possible.
As far as the ‘credit history is essential thing’ I do realize you want DIE if you do not have it. But, I have come across multiple fees when I didn’t have credit established. Now that I have had credit cards and used them wisely, those fees are reduced. My cards have no annual fees and I don’t let ANY interest build up on them. Therefore, I’ve saved. I also must add that I have family members who struggled to “get started” (buy a house etc.) b/c they didn’t establish credit before they graduated college or got married.
I also know I am currently unable to rent an apartment even though I do have ‘cash in hand’, money in the bank, money in mutual funds, parents willing to cosign, perfect credit history, etc… all because I am no longer a fulltime student and I have not yet secured a fulltime job. Therefore, cash to me is not as powerful as you say.
I’m not trying to doubt or challenge this “plan” or book or anybody’s personal financial strategies, I am just saying that in MY EXPERIENCES credit has proved helpful and cash has proved quite worthless. But then again, I’m new to the ‘real world’.
Next time I’ll keep my comments to myself.
June 22nd, 2005 at 11:55 pm
ps- I did mean “assests” and “won’t DIE”. Please excuse my typos. I’m tired.
June 23rd, 2005 at 6:27 am
Alright–let us back up just a few steps and clear up two small details.
1. No one is being flamed here. Remember that your internet voice is not nearly as transparent in conveying tone as your actual voice. It’s easy to make things sound like you’re offended or offending.
2. I’m just trying to help. This is a forum for me to express ideas about how people can make life better for themselves. No one HAS to take my advice–no one even really has to believe me. I have the utmost confidence in the things I profess, or I wouldn’t say them.
So–everyone take about 30 seconds to breathe deep and we’ll all look at things with a little bit of
June 23rd, 2005 at 5:30 pm
levity.
August 19th, 2005 at 10:21 am
I’m working on financial peace myself and am encouraged to see someone I actually know find it useful. I think I take a middle road on this one, because I am a skeptic at heart. However, for those who may be completely amiss when it comes to the first big paycheck, this all seems to be great advice and a really good starting point. I just had my first review and should find out if I got a big raise today. I was offered one raise already but I countered. Even if I only get what I was already offered the difference between the new net and the current net has been slated for 13 months of hard work on some credit cards and one very unreasonable line of credit from the demon called Wachovia. The worst part of all is that all this credit debt was made years ago in Columbia in the name of a better life. Sheesh was I wrong about that. It’s amazing how a $25 meal at Outback can become a $500 meal over a couple of years. I should have invested that steak into a mutual fund with a fat return…by now I’d have a 500 ounce beautifully marbled ribeye.
February 21st, 2006 at 10:51 pm
Terrific Blog you have. Peace Out.
TreeFrog
March 9th, 2010 at 9:47 pm
Great comment, love the design of the site too.