Financial advice for graduates
Quote:
Originally posted by Aquatic
Nick, great thread, let's even expand the scope more. I don't know where to begin, with managing money. And I graduated two weeks ago and soon I'll land a full-time job, hopefully. Currently since I only have like 1000 bucks to my name, I have a Citizen's bank account that doesn't even have interest. Like I said I kind of don't know what I'm doing. Any insight would be great...I'll also be researching in the coming weeks in to money management...I want to set up my money in Quicken or something like that too once I land a job. Also any thoughts on that? Any better software?
Originally posted by Aquatic
Nick, great thread, let's even expand the scope more. I don't know where to begin, with managing money. And I graduated two weeks ago and soon I'll land a full-time job, hopefully. Currently since I only have like 1000 bucks to my name, I have a Citizen's bank account that doesn't even have interest. Like I said I kind of don't know what I'm doing. Any insight would be great...I'll also be researching in the coming weeks in to money management...I want to set up my money in Quicken or something like that too once I land a job. Also any thoughts on that? Any better software?
I PM'ed Aquatic on this and he said, if necessary he would be comfortable providing the type of information (annual income, amount of savings, debt, etc.) Necessary to get very specific advice. However before that, I thought I would toss it out there for everyone in a very generalized way.
There are plenty of folks on here who have moved on beyond high school or college graduation. What sort of financial advice would you give to a new graduate?
Nick
Comments
Originally posted by skatman
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.
#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
Originally posted by rufusswan
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
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.
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.
Originally posted by progmac
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
Originally posted by a_greer
I have some advice for HS grads, dont waist your time and money going into the computer field...
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!
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.
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
Originally posted by BRussell
[B]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...
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?
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.
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.
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.
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.
Originally posted by gdconway
[B]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.
Very risky... the odds of success are against you.
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.
Requires sizable starting capital these days.
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.
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.
8. Never buy a brand new car. It loses 10% of its value as soon as you drive home. That's just not smart.
Not always true, but generally that's a very good point... especially with the car prices these days.
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.)
Even better find a very rich spouse! :-)
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.
Hmm... yeah, but when was the last time you saw a "young cop that works out"??
My one caveat, is this:
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.
Yup... completely agreed. :-)