Financial advice for graduates

This would be a great thread. I've just graduated and am making my way right now through contract work as a designer. Money is tight and I've not had much success in the past managing it.

Don't live beyond your means and don't borrow money to invest in something that depreciates (such as a car).

Gee, thanks Dad.

However, you're absolutely right.

But beyond that, what about people who've invested share what they've learned.

For instance, at the bank last week I wanted to know what would be the best way to save and use the money I collect as taxes (GST), before I gave it to the government. The banker suggested a money market account, which, I had no idea about.

I'm sure there are folks out there who have tons of experience with these things.

I think this could be a great thread. Plenty of opportunity for all to learn, whether just starting out or, as in my case, just retiring.

#1 Start Saving NOW!

Obviously, parental homilies such as "dont live beyond your means" are OK, but l think folks want more facts than lectures. My dad said that the single best thing that I could do was the following.

"Starting with your 1st paycheck, and for each paycheck until you retire, pull out 10% and put it into some type of savings or mutual fund account." This was the best financial advice I have ever gotten. The key to having something to 'manage' is to get something to manage. Start saving, no matter what excuse you may have for not starting.

If you have a company sponsored 401K, then take advantage of it. Here are my facts for just the last 17 years of my emplyment at GE. I started at a paltry $8 an hour 17 years ago. I joined the 401K at GE and contributed 10% (thanks dad), and the company matched 3%. This 401K was invested in GE stock and when dividends were paid, they were also contributed to the fund. Today that account is worth $250,000 which I could start withdrawing next year.

#2 Own not Rent

In most every case, it is financially sounder to OWN YOUR HOME rather than rent. Renting is for losers. Now, I know, you can't start out by buying a home in most cases, so the advice is as early as possible in your career, to save for that down payment on that first small home. The last home I bought on credit (keep in mind this was 20 yrs ago, but it works the same) cost me $169 per month. Other homes on the same block rented for $300-$350. I was in a sense, saving at least $150 per month. Rather than spend this 'extra', I put it in a mutual fund. In less than 10 years, I paid cash for my next home, and now lease the old one putting about $250 per month in a mutual fund.

Paz

I have some advice for HS grads, dont waist your time and money going into the computer field...

2 points:
1: Buying is only advantagious when A: you plan to live there more than three years, closing, financing selling, hunting, it is a tough process, above and beond moving alone, so if you dont watnt to settle long term, renting may not be bad. B: the market is (atleast appearing to) come to the peak of a bubble; is it realistic for home prices to double or sometimes triple in under 7 years? I would say hold off, when the bubble pops, it will be a buyers market, and when that happens, that $250k may be knocked back down to reality, a price like $150-175.

2: I would pay the whole $300 "rent cost" and have the home paid for in half the time or less.

I've not yet graduated, but I'm always advised to keep my repayments on my student loan to a minimum, as that way I get alot of tax breaks. I don't know if this applies anywhere else...

the OWN don't RENT advice is over-given and not always good advice. Especially if you are living in places where a rental is about 1/3 the monthly price of a mortage. Saving and living within your means is much more important than trying to reach and buy a house that may or may not appreciate that you may or may not be able to afford.

1) generally speaking, there is no long-term evidence that housing values rise faster than inflation.
2) renting isn't throwing your money down the drain. it's paying for a place to live.

Not only that, but you can have a nice luxury apartment that is in many cases nicer than a house for a lot less, considering at least here, power is included in most rent prices

Mooch off your parents for as long as possible. And then 6 months longer.

I wouldn't say that. I think it all depends on what segment of the IT field you go into. Saying don't go into the computer field is like saying don't enter the job segment that deals with people. The IT field is very very very large.

I personally have made a very good living for myself. I am 29 years old and I own my own home. I own property. I have great toys (motorcycle and cars) and make a great living. Its hard work, but I think I choose the right segment of the IT field. IMO (only) the best parts of the IT field are networking (real networking, Im talking CCIE ninja stuff here), server admin, AD admins, email admins and so on.

As far as money advice goes. Here is what I am doing now:


I have regular savings and checking. I also have another savings with ING that comes out of my check. That savings account has no fees and no penalties and I get 4% interest.

Also, I have a viarable life insurance policy that acts as an investment policy when I retire. 3rd I have mutal fund investments that are doing fairly well.

I have a finacial advisor that doesn't charge fees. If I choose to use one of his funds he makes money. IE he only makes money if I make money. So it is in his best interest to make me as much as possible. Hope this helps.

Check out INGDirect.

They have savings accounts that make 4.25%, which is what I have. Its great to see a savings account make money everyday even if its only a couple bucks, plus they have 12 month CD's at 5.25%. Both are a great ways to start a healthy savings and get you into the habit of making your money work for you!

This is an issue where I think we all basically know what to do already - don't get into debt unless it's for a good reason, don't spend too much, and save. But we're all looking for some fancy techniques, just like we look for some fancy diet to keep our weight down rather than doing the obvious - exercising and not overeating.

I personally rented for quite some time (about 5 years after I got my first job) because I had a cheap place, and saved a lot for a house. I was then able to afford a 20% down payment and therefore avoid extra charges on my mortgage. But that opportunity may not present itself to everyone.

Diversification is obvious, but I think it applies to more than just stock choices. For example, I think it's a good idea to diversify one's retirement plans. Save in both a Roth and a traditional 401k/IRA, for example. No one knows what will happen to the laws governing those options in the future, so use both. Whenever there's uncertainty, diversify.

Don't save by putting what's leftover into saving, make it a monthly payment just like your other bills. I personally use Vanguard to make an automatic withdrawal out of my bank account into a conservative stock/bond fund. I don't have to do anything, I don't have to think about it. If I hadn't done that, I don't think I ever would have saved anything. It's too tempting to buy stuff in our consumer culture.

And that's another thing - you don't have to buy a brand-new SUV every three years or the newest Mac every year. You'll be happier if you don't jump into the hyper-consumeristic culture than if you do. That's probably the most important thing in personal finance, much more important than which stock you pick or deciding whether to pay off your 4.75% loan vs. investing in a 4.80% bond.

Women, alcohol, drugs. College aint over if u dont want it to be.

Excellent thread!

a_greer makes a good point.

When considering a home loan, be sure to calculate the difference between 15, 20, and 30 year notes. The note in my example was 15 yrs. If my memory is correct, a 30 yr note means you pay 3 times as much money for the note by end of term compared to 15.

As to IT being good or bad, I cannot say. My field is/was IT but I came in on the programming side and ended up being IT leader of the 3 largest GE Motors plants in the Americas. Anyone going into IT should not only be good at their craft, but you must also be VERY PEOPLE ORIENTED. Ya can't hide behind your CRT's, ya gotta yank out old systems and force people to use new and untested stuff. This is very stressful on users. Confidence, courtesy, and calmness are the order of the day.

Paz

If this was so obvious, credit card companies, and debt counseling would be out of business. All of these require forethought and discipline to sustain such habits over long term. Out all of the people you know... how many don't have any debts at all?


Fancy techniques require 2 things:

1. Sizable starting capital
2. Lots of time or a good financial advisor

Not many people who are just graduating have even 1 of those 2... in fact most people are in debt when they graduate.

No one factors in the hidden cost of home ownership:

A pipe breaks:
Owner: calls plumber, pays ~$150 Renter calls landloard pays $0

lawn needs work, trees need trimmed, gutters need cleaned
Home Owner: $hundreds for ladder, trimmers, mower, edger, fertalizer...and loads of hours lost OR $thousands over the life of the house for a crew to do it for ya: Renter:$included and no hours of labor

owning a home isnt bad at all, but renting can be a great lifestyle desicion for younger folks: I can spend say $700 on rent and dump $400 into a CD every month in lew of a $1200 mortgage, and if I move in 5 years I could come out ahead, considering the interest and fees are pretty much allyou pay for the first few years of a mortgage.

Some things I've learned:

1. Go into business for yourself as soon as you are competent. Its easier to starve young and single than it is when you've got a spouse and kids. And going into business for yourself will be worth it in the long haul.

2. Before you go into business, find yourself a good accountant.

3. Buy property and rent out a portion of it to cover part of your mortgage. Buy a duplex or find a roommate. (If you live in a big city, you might be better off renting). I bought a house (parents co-signed), rented to 2 roommates, and lived rent free through most of law school. Then sold it for a nice profit.

4. Carry a debit card. Leave the credit card at home and only use it when absolutely necessary. Sounds obvious, but I have to mention it. And don't be late on the payments. Late fees will make it tougher to pay them off and will wreck your credit. Also, stay away from the cash advances.

5. Don't stress about student loans. Lock in the low rates now.

6. If you work for someone else, traditional advice is to dump as much as you can into the 401(k) or at least enough to maximize any employer match.

7. If you're going to buy individual stocks, although "buy low and sell high" seems obvious, most people seem to do the opposite.

8. Never buy a brand new car. It loses 10% of its value as soon as you drive home. That's just not smart.

9. Find a spouse with similar financial ideas. Or, if she's irresponsible with money, wait until they shut off your cable, the one bill she is responsible for paying, then insist on taking control of all the finances. (Trust me, it can work.)

10. Forget about paying top dollar for clothes. Only buy the nicest brands if you can get them really cheap. Clothes do not make the man. I see lawyers in $2,000 suits and cops in $100 suit every day. The young cops that work out still look better than the old, fat, alcoholic lawyers. That being said, don't dress like you just pulled your clothes off your bedroom floor if you want the respect of your co-workers or clients.

My one caveat, is this:

My father died at age 45. My parents were divorced. He was making double payments on his mortgage at the time and generally a real cheapskate. Obviously, it didn't really pay off for him. I try to plan for tomorrow, but not necessarily for when I'm 80. So figure out what you enjoy and don't be afraid to spend money doing it. Just don't blow money on things you don't even really care about. I've blown too much on dinners out, booze, and cars. But I've never regretted what I've spent on travel, books, macs, etc.

Consolidate your student loans into a fixed rate! i am glad I did this a couple years ago when the rates were so low. Come July 1, the rate is jumping again.

Very risky... the odds of success are against you.


Requires sizable starting capital these days.


I would never do that! Credit card protects you from mistakes and faud much better than debit card does. Also, many credit cards these days offer a very good chunk of cash back on a lot of purchases and other perks which come in very handy. Just be smart about it and use it like a debit card and ALWAYS pay the due amount in full each month.


Not always true, but generally that's a very good point... especially with the car prices these days.


Even better find a very rich spouse! :-)


Hmm... yeah, but when was the last time you saw a "young cop that works out"??

My one caveat, is this:


Yup... completely agreed. :-)

I could have been responsible, but alas I could not deny the appeal of wine, women and song. My only real advice is that credit card debt is evil. Only buy what you can pay cash for excluding real estate and cars.

Somehow I think that the root of the evil in your case was not the credit card, but rather wine, women and song. ;-)

I'd have been happy with the wine, women and song if it wasn't at 18% interest!

Well I'll finally make an entrance in to this thread. I think this can be one of AI's seminal threads. I'll dive in to my life:

I am engaged. We are getting married, that is not a question. 3 years down the road most likely. She will be in Pharmacy school at URI for another 3 years. She worked throughout highschool like a dog, enough to make me feel incredibly lazy, and made 30,000 just during high school, and has about that amount in a savings account. I have about 2,000 to my name, most in a Citizens account which does not accrue interest. So we're living in an apartment for the next two years, sharing it with a roommate and of course we are splitting a room ourselves, so it's economical. So what I am thinking is that if I get a job, at least 30-40k a year, potentially more if I snag a state (RI) job, and work for a few years, in 3 years we'll buy a house. gdconway makes a good point, that my fiancee always makes, that real estate is a good investment. Yes we'll take on a roommate. Actually my fiancee's sister's boyfriend, they live together, he has bought *3* houses and he is only 25, selling them and buying another, always for profit, and they also have a roommate. So she convinced me. That's what we'll save up for. Hopefully I'll get a job within the next month or two, and if not, then an internship that will lead to a job after a few months of the all-important "experience."

gdconway I'm also thinking about going to law school in 3 or 4 years. I'm 22 now. I majored in Environmental Science and I may do a JD and perhaps joint M.S. in environmental science or public policy, then practice environmental law at an agency like DoJ, Corps of Engineers, or an environmental agency, for 5-10 years, and then go in to a high-level policy position at an environmental agency. Then, after another 5-10 I plan to get in to politics, perhaps state or even US Rep. Or some sort of political position, part or full-time.

Finances now, are low-ish. My fiancee doesn't want to combine our money so we can have a Citizen's checking account with interest. Currently, she doesn't have a checking with interest either because her 30k is spread out between multiple banks. Yeah, she likes to "diversify" too. That was a good point. I really have to research money management. Even if I make 30,000 a year it's more than I know what to do with, let alone 50 or more if I get a state job. Yeah, state jobs pay more! You just have to get in somehow...and be in a union...that's another matter though. And gdconway if you can shed any light on entering law, perhaps in that ShawnJ law school thread in AppleOutsider that'd be great.


So, as for cars. We both have Toyota corollas, of course, a few years old. So, don't buy new? I think perhaps her mom made a good point, if you can afford it, just keep getting new toyota corollas, because time is money, and you don't have to worry about them. Just buy them new, and run them in to the ground at 150,000 or even 200,000 miles. As far as I've seen nothing beats Toyotas. So that was my plan, run these in to the ground and then get new Corollas.

So: specific advice:


FICO:
-I have 2,5000 line of credit on my credit card. Is there any reason NOT to up it to 3,500? I can if I want to. Wouldn't that help my FICO score? Does anyone have any other advice on how to help my FICO?

Houses/real estate:
-any advice on buying houses? Is my plan a good one? I don't know if my fiancee will do another two years of school after she graduates in three years, maybe, maybe not. (She's already done 6 by then!) But if not, or let's say after that next two years, shouldn't we immediately buy a house, as soon as we have enough for a downpayment? And rent out a room? Any house buying advice in general? I'm sure a good FICO score helps with that mortgage payment, right?

Cars:
-IS buying new good? Bad? Toyota? I'll be in the Northeast, it needs to be rugged.

Retirement:
-if I work somewhere for a few years, then do law school or whatever, what happens to my 401k/IRA or whatever the heck those are? Can I cash out or transfer it? Yeesh I really need to research that stuff, if anyone has a good book or site to recommend that'd be great.

Investing/money:
-from what I've seen, CDs are a great way to save some cash long term. Perhaps I'll diversify, and have some CDs, some in a conservative mutual fund or two, and put maybe a bit in AAPL, only a few thou, as a gamble, and then a bit more in a traditional savings, or if we have enough capital, keep it in a checking acct. with interest. And hopefully she'll finally give in and we'll have a joint account.

Sorry for the autobiography folks! Post yours, I'll try to respond if I can help. This thread will be great. Let's keep it up. Any accountants in the house??

And if you made it through that, I thought I'd share some sagely advice from my dad:

"Getting a job is a full-time job."

And from yours truly, I realized last week "There is no such thing as an entry-level job." I haven't been able to get an entry-level job yet. I didn't think it would be this hard. I thought I'd have a job by graduation. Now I think if I land one by the end of the summer then I'll be happy.

Hey I didn't know you were a teacher. What is your subject and class?

Anyway, that's a good point/concept: opportunity cost. That's why I want to invest in real estate maybe stocks (big maybe, I won't jump in with more than a thous or two any time soon) because I feel like every year that I don't own a house or stocks, which both grow a lot of money, if done right, I'm losing out on opportunity.

Anyhow also good to note about debt management. I did manage to consolidate all my student loans right before interest went up, locked around 3%. I own my car. But like I said, as of now my capital is zilch, 2k in the bank. I won't do anything of course until I find out what is happening with my career: until I get an apprenticeship or job. Oh and I upped my credit to 3,500. Not like at this point I'd need it, but I figured, why not? It must improve my score, as long as I keep paying things on time, which I do.

Thanks for the advice and let's keep this thread rolling.

edit: I have 17,000 in student loans. The exact figures will come in soon. It's locked in at 3.5%. It's through the Feds.

Great random link. So what you're saying is I should start buying lotto tickets regularly?

Nah, that's something I try to stay away from: gambling literally. I'll bide my time for some capital and hopefully make money, with money, via real estate and conservative investing like mutual funds and CDs. Of course as the old adage goes, it takes money to make money. That's why I'll be frequenting here a bit less as time goes on, hopefully. I really have to stop hanging out here and work even harder on getting a job! I keep telling myself that at least.

Re: real estate.

I've made a little money in real estate. Not a fortune by any means. But a friend of mine is making a killing. We graduated law school together and started out making $50k in a fairly small town. He started buying cheap rental property after he found out I was making a little money on one piece of property. He'd put maybe 5% down. Rent each property for at least 20% more than the morgage payment. Hustle, hustle, hustle, and squeeze out every last dime out of each property. After 5 years he owns about a dozen properties other than his home, most of them duplexes. Its not easy money, and its probably not possible in every market, but its very doable in a small town, particularly a college town. The key is to making real money is "leverage". Basically, if you can get a 7% return on money borrowd at 6%, you need to borrow/invest as much as possible. That's an oversimplification that doesn't factor in your own work and opportunity cost, but you get the picture.

As for law school, I had a pretty good experience. I made decent grades and had a decent LSAT, so I had no trouble getting into the only school to which I applied, the state school. So I don't really have any advice about getting into law school. I originally applied for several reasons. Like most law students, I didn't know what else to do with a liberal arts degree. But I was also genuinely interested in civl liberties-related issues. That motivation got lost somewhere along the line and I ended up working a job that I hated. I eventually opened my own office and am now much happier.

If you're interested in specifics, feel free to email me at glenconway@verizon.net.

Debt is not always bad. That's ridiculous.

Consumer debt is almost always bad. But almost every successful business on earth has been financed with debt. I'm pretty sure Bill Gates borrowed money from friends/family when he started Microsoft. That turned out to be a pretty good move.

Using debt to finance cars, booze, plasma tvs, and skit trips doesn't usuall pay off so well.

Yes, that's a good article. I firmly believe that "keeping up with the Joneses" and their McMansions and new SUVs is the single biggest reason for poor financial situations. All the advice about which stock to pick, Roth vs. regular IRA, etc. doesn't amount to much in comparison to the basic fact of our hyper-consumeristic culture.

That's if you're businessman... but what if you're not?

Nick that link How to Live Rich was great. It inspired me to get off my ass and go check the oil in my car. Damnit I've been meaning to do that for like two weeks, but I just never did. Thanks!

Here's another one like it. What I like about especially is that it focuses on how trying to stop one's consumerism is not just good for one's finances, but one's life in general. (Now if only I could learn that lesson.)