Ask the Readers: Financial Advice for an 18-Year-Old?
Published on - August 27th, 2010 (Modified on - August 30th, 2010) (by J.D. Roth) Last week, Isaac asked Get Rich Slowly readers for advice on how to handle life after grad school. He’s about to enter the workforce and needed tips on what to do until he gets his first paycheck. Isaac was very pleased with your helpful responses.
This week, we’ve got a chance to help somebody even younger than Isaac. Nico is 18, a sophomore in college, and financially clueless. He needs help! Here’s his story:
I’m pretty young — about to start my sophomore year of college — and I literally have absolutely no knowledge of anything financial. I do have a simple student account with a paltry amount of money in it, and that’s really about it. So yeah, the majority of your site goes over my head and some things are quite intimidating.
I’m going to continue browsing the basics section in order to see if I can glean some information, but are there any other resources you would recommend to a financially clueless 18 year-old? I think it would be a good idea to start this kind of stuff earlier rather than later.
Nico’s right: The time to start learning about finances is now, before he needs to know the information. Fortunately, he’s not as far behind as he thinks he is, even if he does feel clueless. It’s my guess that most young adults feel lost when it comes to money.
So, what resources would I recommend for an 18-year-old kid? As much as I’d love to pitch Get Rich Slowly and Your Money: The Missing Manual, I actually think there are better options, including:
- Michael Mihalik’s Debt is Slavery, which carries the subtitle, “and 9 Other Things I Wish My Dad Had Taught Me About Money”. This slim volume is one of the quiet classics of personal finance, and it’s perfect for college students. My review from three years ago gives a run-down of the book’s contents.
- On the web, CNN Money has a great little site called Money 101, which features a crash course in various financial topics. Nico should bookmark this page and refer to it whenever he has questions about a particular topic.
- Ramit Sethi’s I Will Teach You to Be Rich — both the book and the website — is specifically targeted at young adults, especially the clueless. (One caveat: Ramit downplays the importance of frugality, and that could lead some folks to problems. Frugality is an important part of personal finance.)
Although Nico didn’t ask for specific advice, I’m going to give him some anyhow. I’ll repeat the same advice I give when I speak to other college students. Namely:
- Develop a basic budget. It doesn’t have to be fancy. Whatever Nico chooses to do, he should get in the habit of setting aside 20% for saving and investing. This may sound like a lot, but if he can start the habit young, it’ll be easier — and will yield greater returns — in the long run.
- Learn how to work. I made a lot of mistakes when I was younger, but this is one thing I got right. I knew my parents couldn’t support me when I was in college, so I worked as many jobs as I could. I learned how to work hard, how to deal professionally with all sorts of people, and how to maintain a positive attitude. These skills are tremendously valuable later in life.
- Avoid lifestyle inflation. Even in college, it’s important to watch your spending. As Nico’s income increases, he’ll be tempted to increase his spending in proportion. The more he can resist this urge, the more successful he will be with his money. It’s okay to spend, but be reasonable.
- Do what you love. A low-paying job that leads to future prospects in a career you like is better than a high-paying job in a career that doesn’t move you in the right direction. Never stick with a shitty job. And don’t be afraid to change your major. It’s easier for Nico to change direction now than it will be in five or ten years.
Maybe it’s because of my own experience racking up debt during college, but I think it’s important for young adults to learn the fundamental law of personal finance: To build wealth, you must spend less than you earn. There’s more to it than that, of course. The less you spend, the more flexibility you have.
When I graduated from college, I bought a new car and developed credit card debt. I had to take any job I could find because I was tied to monthly payments. When my friend Sparky graduated, he had a lot of freedom. His debts were minimal. He traveled the U.S., taking whatever job struck his fancy. He spent time in Mexico. He spent five months traveling southeast Asia. He was able to do these things because he didn’t have expensive obligations.
I don’t think Nico should worry about stuff like investing and insurance right now. These are important, but they’re beyond the basics. For now, Nico should focus on learning how to earn and spend money wisely.
What do you think? What do you wish you had known about money when you were 18? What advice do you have for Nico? What books or websites (or other resources) would you recommend for him? What steps can Nico take at 18 to makes sure that Nico at 41 is happy, wealthy, and wise?
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I’d actually recommend Your Money or Your Life as well. It might not be completely relevant to him at this stage. But if he can begin to see that “money = life energy” at this early age, it could have a powerful effect for the rest of his life.
Maybe it’s better for those who are in crisis mode, but I think the concepts of life energy and calculating your true hourly wage can be extremely useful for just about anyone. That book helps to change the way you look at money.
I also agree with you that Nico doesn’t need to think too much about investing and insurance yet – not until he’s got a more solid foundation. But the sooner he can start investing the better. Compound interest will be his great friend since he has so much time ahead of him (hopefully!).
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Go to the continuing ED department of a local high school or community college and take a class in economics, specifically on personal finance. This is offered at our high schools for full-time day students (which I will make sure my kids take this class). I wish they offered this when I was there. It starts with savings & checking accounts and goes up to investing.
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A few things:
1. Pay your credit card off each month, if you want to put something on the card but wouldn’t be able to pay it off, don’t buy it
2. I think the above info is right, don’t worry about investing just yet, until you a decent paying full time job it will really colic ate things
3. Establish a small emergency fund in a savings account, probably $2000-$3000 should be sufficient
4. Pay what bills you have ON TIME, this will help you start building good credit now that you can leverage later to buy a car or house
5. This is my personal feeling on this, but never take out a loan for anything except a car or a house, pay in full for everything else. That means staying away from financed items etc
Hope that helps. I don’t really have any resources to reference, anything by Suzy Orman is fairly straightforward and easy to approach.
Edit: Loans are ok for school too
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I hope that he learned enough financially to be selective in his choices for higher education. If anything, he needs to assess his current situation and get out of the habit of “blind indebtiness.” Yes, college may be “good debt,” but making the wrong choice in which institution you attend can be verying crippling to you future choices after college. Too many people are leaving college now with $30 to $60K in loans limiting a lot of their choices after the experience. If Nico is headed into that direction, I strongly encourage him to look more thoroughly at all options including staying home and online campuses and pay close attention to what he is paying per credit for some of these courses that he is taking. I never paid attention when I was his age and though I didn’t get over my head like a few, it would have been good to realize and compare all my options.
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Get a credit card to start building a credit history. Keep the limit low for now to avoid temptation, and pay the card off every month.
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The Wealthy Barber, or Richest Man in Babylon. Both books are told as parables and are easy to digest.
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I’d argue that now’s the perfect time to learn about investing. There’s no reason you can’t open a Roth and get started while in college.
Investing can be complicated, but it doesn’t have to be.
Also, as long as you always spend less than you earn (and you therefore never end up in debt), there isn’t much left to personal finance other than investing and career.
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I am not too far ahead of Nico (24 years old and two years out of college), but there are a few things I wish I had done at 18 that I didn’t even start to think about until after I graduated.
First, put a lot of thought into choosing a major. Some people have this all figured out by the time they enter school, but I certainly did not and chose “General Business” since I naively believed “Business = Money”. I later switched into Marketing, but once again, put little thought into that move. I now work in Finance, but am at a disadvantage for some positions I want because I was not a Finance or Accounting major. So, my advice is to start researching growing industries and sectors, and find one that interests you. Then select a major that will help you obtain the knowledge and skills to work in that industry. This way, there should be a nice job market out there for you in 3-4 years and you can do something you enjoy. Also, specialization is key. Nowadays, competition for jobs is fierce, and those with specialized skills often are the ones ultimately getting those job offers.
Next, do everything you can to build credit and not get into substantial debt. This can be very difficult when young since credit opportunities are getting harder and harder to get. If you weren’t able to get scholarships/grants to pay for everything, don’t be afraid to work. Student loans may sound like the easy way out, but don’t count on a high-paying job to pay them off right out of college. I really wish I had worked instead of taking out loans for the portion of my schooling for which I didn’t get scholarships/grants. My payments now are maneageable, but I’d sure love to have that extra $240 a month.
Finally, I would start learning about investing/finance as early as possible. As a previous comment stated, compound interest is very powerful, and the earlier you start, the better. Get to the point where you can manage your own money and investments when you start collecting those future paychecks. As a licensed stockbroker and financial advisor to a few clients, I can’t believe I am paid to do what I do. With a little research on your part, you will be able to handle it all yourself without paying high commissions and fees to a broker.
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At 18, major and career selection are far more important than any advice about savings accounts.
“A low-paying job that leads to future prospects in a career you like is better than a high-paying job in a career that doesn’t move you in the right direction.”
Nico, take this all-too-common mantra with a grain of salt. You want to find something that you enjoy doing, for sure, but it’s also important to be certain that someone is willing to pay you a decent wage to do it.
This is just a hunch, but I’m willing to be that most 18-year-olds would prefer watching movies to studying electrical engineering fundamentals. That doesn’t mean that majoring in Film Studies is a smart move, even if you plan on being the next Speilberg.
Eventually, work is work. You might as well get paid well to do it. In eight short years (four years out of school) some people your age are going to have steady six-figure incomes and have the opportunity for early financial independence, and others are going to still be begging for minimum-wage internships, making coffee in the hope of “getting their foot in the door.”
You need to be realistic about what you want out of life, and unfortunately, many of the tenured academics who are some of your biggest influencers right now don’t necessarily have that realistic of a picture about the world outside of campus.
When you consider some of the options that you want to pursue, try to talk openly with people in that industry who have followed that path. Ask them what they recommend and what they would do differently, what they enjoy and what they dislike, and whether or not they think that you’re the kind of person who would enjoy it or not.
You definitely want to be happy and enjoy what you’re doing, but there’s no reason to be poor at the same time.
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I disagree with AC about looking to online classes to complete your degree in an effort to save money — unless you’re taking a handful of online classes from a major university rather than one of these degree mill online-only colleges. Moreover, you won’t get the same personal, in-class experience as you would with a school that requires you to be in a seat which won’t just hinder your education on that particular subject, but it will also hurt your people skills (the most important skills right now). Don’t think that your University of Phoenix degree is going to be worth nearly as much as someone else’s degree from even a state school. Go to the best school you can go to; everybody has a degree these days, you need to set yourself apart.
Speaking of school, I wish I had looked into scholarships more for both undergrad and grad school when I was Nico’s age. Student loans are the biggest burden I have right now and I know, with a little work, I could have gotten most of that taken care of with scholarships. Anybody in college right now, start applying for scholarships! Seriously, very few people actually apply and a lot of money goes unclaimed. Save yourself a lot of trouble down the line.
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The worst financial advice I got was from my mother. It took me a long time to realize that she really wasn’t advising me well and I’m still recovering from that now and I’m in my late 30s. Make sure that the people you are listening to make sense for your particular situation.
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Nico,
I’m only 25, so the poor financial decisions I made when I was your age are memorable (I see them every time I open up a credit card statement!):
1. DO NOT PUT YOUR BAR TABS ON THE CREDIT CARD.
1a. Or clothes, shoes, gym memberships, tech gadgets, etc.
2. The spending on travel–totally worth it. I don’t regret a dime I spent on travel, if it was Spring Break travel to Mexico, or weekend trips around the country. Completely worth it.
3. The student meal plans? They run out quickly. Try to avoid eating at the ‘branded’ eateries you’re sure to find on campus.
4. Greyhound bus travel is not a dirty word. Nor is hostel. Travel cheaply, you won’t mind (2 star hotels in foreign countries are NOT that bad).
5. Don’t worry about the 20% saving thing (I disagree with J.D. here). If you can set aside some money, that’s great, but understand that a lot of the fun things that going to college allows won’t come again in your life.
6. MEET WITH YOUR ADVISOR (especially if you are going to a large school). They’ll be able to help you with scheduling courses, and can also write a better rec letter than most of your professors will.
7. Don’t worry about frugality, either. I’m going to disagree with J.D. again here (sorry J.D.!) and tell you to instead learn as much as you can about income and ways to increase it. Any group of people that gladly drink Vladmir vodka and Natural Light beer ARE already frugal.
8. Remember that entrepreneurship is always an option. When you’re stressed about getting an internship/getting a job/deciding on grad school vs. job, always remember that you can create a job for yourself. Even if you fail, it shows great initiative, and you can start up a company for around $1000.
9. All this talk about investing–investing isn’t just stocks/bonds/funds. Real estate is an option. Creating a business is an option. Don’t just blindly follow the crowd (and that goes for more than just investing).
10. I wish I had a legit #10, but I don’t. Have a blast, and remember that everyone who replies to this is completely jealous and wishes they were in your shoes…even if they are debt free.
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I second LostandFound. I took a personal finance class offered through my local adult education classes after college. I might not have been ready for the class during or before college, but it sounds like Nico is.
I would do my best to avoid getting sucked into either credit or student loan debts if possible.
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Avoid the following mental trap. It got me.
Let’s say you are earning $10/hr and working part time so $200/wk. I thought I would be earning 5x that amount of money very soon so it seemed reasonable to spend more than I made with the assumption that it would be easy to pay back later. This argument is what gets a lot of people in trouble.
I don’t think that saving is important at this phase of life but staying within your means is ALWAYS right.
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Don’t sign up for a credit card just to get a free t-shirt or gift card.
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Try different courses to see what actually appeals to you. What you think you should do, may not be what you should actually do, career wise. There’s a lot of pressure and expectations at that age. And hard to know how you really want to live.
Learn about credit cards and credit scores. Having some safer debt to build up a good credit score is useful, but be careful of credit cards. At 19 I hurt my credit score for years by refusing to pay the annual fee on a card I never used and didn’t particularly want. (Signed up for a chocolate bar.) No one explained to me that I should either pay the bill or cancel the card and the mail all came to my parents house, even, so they should have said something. Eventually my credit recovered and all is good now, but I really wish I’d known how not paying $15 would affect me.
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Make the interest payments on your loans each month, even if your loan provider allows you to defer them. It’s sobering to graduate and see that the “principal” on your student loans is 20-25% higher than what you actually borrowed and got to spend.
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1. A few things you absolutely love are much better than a lot of things that are “ok”–this goes for clothing, home furnishings, gadgets, trips–pretty much anything. When you are young, it seems like you’ll never catch up to everyone else, so there’s a big temptation to rush out and buy stuff to fill up your apartment. I can tell you right now that if I were starting over again with a clean slate, I’d be a lot pickier about what I chose to spend money on, bc paying back debt AND clearing out a mountain of clutter is pretty frustrating.
2. When deciding what you want to do for a living, take a look beyond the entry level positions in the want ads. There are a ton of entry level graphic designer positions out there, but depending on where you live, there are very few mid to upper level positions. Also, consider studying a generalized field and then specializing in your interest. For example, in the film & tv industry, the stablest & generally best paying jobs are often the behind the scenes management & money people. A bonus is that if you decide you don’t like your chosen industry, you have skills that easily translate to a wide variety of companies.
3. Investing is generally good. But don’t rush into it based on a feeling that you *should* invest or bc one person starts telling you about some great opportunity that you’d be stupid to miss. First of all, there’s a lot of scams out there looking for neophyte investors. You don’t need to be the person who loses their nest egg to prove this point, even if your cousin SWEARS it’s going to triple it’s value in less than a year. Take your time, do research, and make sure you diversify your investments. That way if one tanks, you haven’t lost everything. Also, make sure you always sign up for the 401K at whatever job you are at, and contribute at least as high a percentage as the company will match.
4. And finally, the best thing you can do for yourself is learn how to budget. It’s really simple at this point in your life because you have your income and you have your expenses. If your income is not greater than your expenses, you have a bad situation that needs to be fixed. A really good thing to do is to write down those unexpected expenses that crop up each year–for example I just had to pay $20 to get my car’s emissions testing. After a year or two, you should have a sense of when you need to buy birthday gifts, when you need to renew membership fees, etc, and then you can include those costs in your budget. You will want to include money for an emergency fund in your monthly budget, and if possible, a separate amount for savings.
Good luck! I wish I’d been as aware as you are at your age!
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Great post, and comments. I agree with those who say major and career choice are fundamental to future financial security. There’s something to be said for doing what you love, but if what you love doesn’t pay the bills, you’re going to be hurting. I found that out the hard way, and have drilled it into my 16 year old daughter so she doesn’t have to. Work to live, don’t live to work.
Also – my daughter’s school offers Economics of Living as an elective, but I made it mandatory for her. I was completely clueless about money as a young adult, and have had a hard row to how as a result. I am determined that she will at least be equipped with the tools she needs to avoid the same trap. I wish every high school offered such a class, and that it was mandatory for graduation!
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I would strongly advise any young reader to get some ‘business experience’ on the side.
Fortunately, with the internet, that is SO easy these days:
1. Start a ‘for money’ blog. Stuck for a topic? Try this: write a blog aimed at other high school / college kids chronicling your attempts to improve your own financial situation … worst case, it could read as comedy.
2. Sell stuff on eBay; even better, find stuff in China and then sell it on eBay. Try not to get ripped off AND make a profit. Write about it on your blog … it will DEFINITELY be funny!
3. Start a web-site selling anything; OK it may not make money (or, it COULD become the next Facebook), but you will learn heaps.
Better yet; try all three!
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These things may not be explicitly financial skills in the stocks-bonds-savings manner, but they will have an impact in the long run.
A resource that many overlook: professors in your major. Now, I’m not saying that you should go and chat with them about financial stuff. In general, professors will be references for applications, and may have contacts with industry folks that they can give you to help find an internship, and later, a job. Or, in certain fields, a professor may hire you to go grunt work or research for them. Start by making good impressions. Don’t suck up, but try to be on time and be engaged in class (intelligently, not just to hear your own voice).
If you’re looking for an internship (hard to get in this climate, it’s true) go to the career services center (or equivalent) now, since recruiting for summer can be starting already. Being a sophomore, there are fewer opportunities, but at the very least you’ll get the chance to develop your resume writing and interviewing skills.
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If he’s on his university’s health care plan, I’d argue the time to learn about insurance is now. The plans range from pretty okay to truly terrible, and way, way overpriced. (The one I was looking at participating in limited coverage to $200,000 per condition and would not cover any injuries obtained in intermural sports- among other things). Cheaper, better coverage is often available on the individual market if you have no chronic health issues.
If he’s on his parent’s plan, he still needs to know what’s covered, what’s not, and what the impact might be should he have a health emergency while in school. Emergency health care doesn’t come cheap- out of network coverage even less so.
A basic understanding of the right levels of liability, etc. to carry for car insurance (should he have a car) is also better learned sooner rather than later.
And if he has anything at all valuable with him at school (and is not living with his parents,) now might also be a good time to learn about renters insurance…Mine, at least, covers things (like my laptop) even when they are not actually in my residence. And given petty theft rates at your average campus- let’s just say it’s nice to have that kind of coverage…
The best part about all of this is that he can (hopefully) learn a lot simply by talking with his parents about these issues- and not necessarily have to try to teach himself.
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Honestly, at 18, I wish I had known that debt is okay sometimes. I worked close to full time all through college so I wouldn’t have to take out loans (which was fine) and turned down a semester abroad (which I regret) because I couldn’t imagine borrowing the money to do it.
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I’d like to reiterate J.D’s point to get used to working. I worked during school and every summer which allowed me to pay off my limited students loans shortly after graduation.
I also agree with AC about alternative education. I went into college with some credits from Advanced Placement Courses which whet my appetite for graduating early. During the summer, I took required courses (not in my major) at a local community college for much less. I graduated a semester early and took my last three credits by taking classes while traveling in Europe. Believe it or not, that was cheaper than taking the same 3 credits at my regular school.
When you’re 26 and trying to buy a house, you’ll be in a much better place if you’re not drowning in student loan and other debt.
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Check out your school’s financial aid office, or school of business, especially in the next few weeks. Many colleges (such as mine) have a lot of free intro to finance workshops in the first few weeks of the year to help incoming freshmen (and other students) figure out what to do with their money.
Second, get involved with paying for school, especially if your parents are taking care of it. The reason I learned so much was because I had to be the one to take care of it every semester, since my parents don’t speak enough English to help and don’t know much about the U.S. system of education. The WORST thing you can do is just “let your parents take care of it”– help them find loans if you need them, read the terms, offer to take care of just $1000 a year of tuition yourself. Taking some responsibility will help you learn the system. You can always ask for help if you get stuck.
Third, other than just reading all the websites and books others have suggested, try looking up information on anything you encounter but don’t understand. Keep a laptop with you (if possible) when you watch t.v., and if a commercial for a specific type of financial product comes on, google the terms you don’t understand. Read a little about what it is. This will help you build a vocabulary so that when you read an article about a company now offering “roth 401Ks”, you can put it all together.
And lastly, be proud of yourself for taking the time to learn about your finances. The most difficult part is starting.
Edit: I also agree about graduating early. With three classes of AP credits, a summer abroad, and overloading (which is free for me) the next 3 semesters, I am on track to graduate a full year early. Even the 7k that I spent on the summer abroad was worth it– unforgettable experience that ties into my career hopes (travel and art/architecture) and helps to save me about 25k that I would have to pay for a 4th year.
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I’m in my *cough* late 30s now and went to HS in the 80s. We got NO personal finance education from school whatsoever. My parents did what they could, but I think most of it just never occured to them. I wish someone had told me then that credit cards are not necessary for a college student. As other commenters have said, some sort of personal finance ed should be mandatory for HS and college students. There’s just too much to know and too much at stake for society to just assume these kids will figure it out somehow.
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1.) Take a junior year abroad if you possibly can. Living and studying in another country is something you may never so easily be able to do again. The cultural experience and linguistic ability may help you in your career, too.
2.) Go to the school with the best optimal value (balancing school’s rep against the debt you would have to carry to pay tuition.) Don’t pick the best without regard to cost, don’t pick the cheapest without regard to reputation.
3.) Read Your Money or Your Life and take its lessons to heart.
4.) Set up an IRA and start putting money in it now. Aim for 15% of all income. The habit of saving is so important!
5.) Be mindful that a good used car is better than a new car, because you won’t be tied to a car loan. Taking a car loan out of college was the worst financial mistake I ever made, i think.
6.) Never cosign a loan or get a joint credit card with a significant other, until SO has proven beyond a shadow of a doubt they are financially responsible.
Good luck!
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If your university has a Personal Financial Planning department (some do, some don’t), see if they offer a course for non-majors. The university where I work does, and it is really a generalized financial literacy course. If there is one and it will fill a requirement for an elective or something, that would be a good way to move forward.
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Second the CNN Money 101 site. I think the Motley fool site may also have a book geared towards young people. DON’T get Suze Orman’s Young, Fabulous and Broke. It has some really terrible advice in it that has gotten my friends in trouble in the past (particularly the spend on credit until you make it).
Use your career counseling office whatever major you choose.
I do disagree with a previous poster. If you’re really into film studies, then sure, major in film studies. Transfer to a top film studies school if you can. Get film studies internships. And so on. If you’re in a directional school in the midwest, film studies may not be as viable a major as if you’re in a top school in Southern California.
I went to a top liberal arts college and had friends majoring in all sorts of “useless” stuff, but with internships and career flexibility, they’re all making money in jobs, even if not jobs related to their majors. Don’t go into electrical engineering unless you *like* electrical engineering. Businesses hire people from different majors because of the way they’re trained to think, not for specific skills, except for certain majors. If you care more about job stability etc., then take that into account when you choose a major you like, but a humanities major isn’t the kiss of death if that’s something you love.
If you can, work for at least a year before going to graduate school if you decide to go to graduate school.
For graduate school, unless you are independently wealthy, be sure to research and think hard about the career prospects when you finish. A good heuristic is for non-professional school to only go places that give you full funding and a stipend. That is often correlated with career prospects once you get out. For professional schools (JD, MD, MBA, etc.), make sure your debt load is no more than the average starting salary once you get out.
Don’t work so much that it jeopardizes your learning. Most students can handle 10 hrs/week; most cannot handle more than 20. What you learn in school is more important than minimum wage.
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I agree with much that has already been said. I just wanted to emphasize the two things that were the most important to me:
1) Pay off your credit card every month. Pay with credit because it’s easier than cash, not because you don’t have the cash.
2) Student loans are ok as long as your major will let you pay them back in a reasonable amount of time. A philosophy major can afford less debit than an engineer.
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I believe that reading the examples here and following such a blog gets an IMMENSE amount of first hand experience out for a Youth to take in. ALOT won’t be relevant until you go thru it. Then *blink* a little light will go on and you’ll remember reading about that situation. You’ll have a better handle on situations when they DO occur. There is alot of good suggestions above.
You’ll want to talk to a professor BEFORE commiting to any Economoics/Finance classes. Most in my area are basic Economics (supply vs demand) and micro- “Marketing” classes. They did NOTHING for teaching responisible Personal Finance.
Don’t be afraid to try things and make mistakes. That’s how we learn. Many of us are looking back thru rose colored glasses, and while we WISH we had done these things…. realistically it’s not always possible to “Save 20%”, “travel”, etc… that doesn’t mean you can’t try.
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I have an 11…and a 12! Here goes:
11. Totally agree with Nancy L.’s #3-sign up for any 401(k) plan any place you may work offers. I’d be surprised if you were offered one at jobs I would assume you would hold at this age, but it’s free money. You won’t miss it.
12. Get the idea of ‘budget’ out of your head. There is no way you’re going to ‘budget’ (for many different reasons, none of which I will get into here). Instead of budgeting, focus on figuring out what you value spending money on. Spend $100 going out one weekend night…buy ridiculously expensive clothes…but only if these are things that you value. As you can see from my above post, I quickly figured out how much I value travel, and adjusted my spending accordingly…but I never ‘budgeted’.
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Nico should make sure he finds a credit union to use — it will be cheaper for the basics like checking. Many colleges are served by credit unions and if not, he should see if there is one in the community that he can belong to.
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Nico is already on the right track – self-aware, asking questions and eager to learn. Oh, if I had only been so wise when I was 18!
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Choose your friends wisely. It’s so much easier to fall into debt yourself when your friends are all putting bar tabs and iPhones on their credit cards.
Invest in people whose values include curiosity about the world, good cheap fun, kindness to one another, and giving back to the community, and you’re well on your way to living a happy and responsible life.
It’s easier to have a healthy relationship with money when your relationships with people are healthy too. I’m not talking about shunning people who have financial problems, of course; I’m just saying that we are molded by our friends as much as by our families — so choose to be close to people you admire.
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1. A dollar invested now is worth 10 or 20 dollars invested in your 30s.
Google “compound interest” to see why.
Whatever you are earning, put *something* away in savings every month. It can be just 5 percent of your monthly income – but do it.
2. Your “income” is NOT what you earn – it’s what you have left over at the end of the month. If most of your salary goes to pay for expenses and indulgences – that is not “your” money, you have given it to others – and you may wind up very “poor” indeed at the end of the month.
“Take home pay” is what stays with you – in your savings. Use this mindset to keep money from running through your fingers.
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Go to a college you can afford and borrow within reason-no more than your anticipated first years income seems reasonable. Don’t borrow 100% of an expensive private education-especially in a low paying field.
There may be exceptions, but if you are really that smart, then scholarships may allow you to go to an expensive private college for about the same cost as a public university. I see too many college kids financing 100% of their educations. We help our kids with tuition (and remind them we budgeted to allow for this) and expect them to work to pay for their room and board. They can borrow the federal loans with the lowest interest rate and no cosigners of $5,500 a year if they chose not to work and self fund.
We explain that just as we save and pay cash for our cars, there is value in not going deeply into debt for undergraduate education. If they borrow to finance the medical degree after, that seems reasonable.
We believe in a public university education where many of the brightest students and professors are. If they want more expensive private schools, then scholarships may offset. I think under grad is important, but save your borrowing for grad school. Working while in school offers experience. Get a degree, but within reasonable debt levels.
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The one thing I am surprised no one mentions here: Make sure you get all the money you can from the government. This means filling out those nasty financial aid forms. Even well off people usually qualify for something.
Some other items:
If you get loans, make sure they are subsidized. That is, the government is paying the interest while you are in school. Some you avoid the issue Tom spoke of.
At this point, school is more important than work. I’m not saying avoid work; I’m saying that your work schedule should not impact your grades. Odds are good that you can not work full time AND go to school full time. This is, of course, job and class dependent. I had a great job where I could study on the clock. Didn’t pay much but I got a check for studying
Have fun. Never forget this. Have fun. This is one of the best times of your life. Have fun.
Look for opportunities. There are many and most are only available right now, in your situation.
Did I mention have fun?
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I was very fortunate at Nico’s age because my parents and my scholarships covered my college expenses. However, I took a part time job which provided me with beer money and, more importantly, laid a foundation for post-graduation savings. So my advice for Nico is to try to find a paying job for at least part of your week. Also, try to take the courses you enjoy. Follow your passions, maintain connections (you’ll need them forever), and work hard.
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I wish I knew that credit card debt wasn’t required to become an adult. I honesty figured that if you had bills to pay, you became an adult. That was an expensive mistake, to be sure.
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@Dink Not all online options are from degree mill universities. Alot of private colleges that are brick and mortar are focusing more online in order to stay competitive with public universities by gaining a wider base. It is important to set yourself apart, but unless you graduated from Harvard or West Point; the major plus supplemental certifications matter more than the actual institution.
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With kids in college and graduated, I think the most important thing is to remember that it’s not a race and nothing horrible will happen if you don’t graduate in 4 years. If you have internship/coop opportunities, TAKE THEM. Not only will you be earning money for school/living expenses/savings, but you’ll gain valuable experience that will put you one more step ahead of the competition when it’s time to search for a “real job”. Sort of goes along with JD’s learn to work. And as far as the “never stick with a shitty job”, I couldn’t agree more, but you need to give it a good chance (like a couple of weeks unless it’s really heinous)
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I would advise Nico to open a Roth IRA as soon as he starts working, even during college with part-time gigs. Time really is on his side, and with the low earnings he will probably be making, getting the tax deduction one would have with a traditional IRA probably won’t make too much of a difference. If he doesn’t want to make too many decisions about his portfolio, he could always just select a target-date IRA through one of the big brokerages, then just “set it and forget it.”
I only WISH someone had advised me about this stuff at Nico’s age!
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ONCE YOU HAVE YOUR 1st job: START PUTTING AS MUCH MONEY INTO YOUR 401k AS POSSIBle!!! Don’t say “I’ll wait til I”m earning more.” DO IT NOW SO IT will grow into a million dollars by the time you retire. I SO regret NOT taking advantage of EMPLOYEE MATCHING when I was young. I put the max in now, but I wouldn’t have to do that so much now if I’d started earlier and let the magic of interest and growth increase that money’s value.
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I’m actually not too far off from Nico – I’m a senior in college. Here’s some things I’ve learned the last few years:
1. Get an on-campus job. It is some of the easiest money you could hope for and they tend to be much more understanding when it comes to class obligations than another job. You won’t get as many hours, but it is worth it.
2. Watch the stupid spending. I’d see my money dwindle away because I went to Steak ‘N Shake or did something fun but unnecessary with my friends a few times. Don’t be afraid to use coupons when you go out or say no to little expenses. Try to do free things with people. Also, budget for major expenses, like expensive hobbies (mine is videogames). And PRIORITIZE spending. For me, 10 coffees is not worth a new game.
3. This might sounds weird, but ask someone to get you a coin jar as a gift. For me, there’s not a lot of big money going around (except that I pay my own tuition), but you will be shocked at how much change accumulates. My boyfriend and I started collecting our change for about 6 months and we ended up using it to pay for over half of a used Playstation 3.
4. Always look for government loans (if there aren’t grants around). They are more flexible and have smaller interest.
5. Don’t compare your spending to other people. My aformentioned boyfriend doesn’t pay his own tuition, his parent do, and so he has so much more spending and saving money than I do. Even though he’s responsible about money, whenever he spends I have to squelch a little pang of jealousy.
6. One of the best things I did to cut down on spending was to mark with a sticker every book, game, movie, piece of entertainment I had that I hadn’t read, seen, or played through completely. Seriously, if you’re like me, you can find plenty to do with what you have.
7. Also, get a high-yield savings account. Even if you only can put in a little, it will help.
8. Last, learn to start looking for deals. Especially if you are in the market for something major like a new computer. Don’t walk into a Target or something, do your homework.
I try to think of it this way: every thing I save I have for later, whether its to save for my post-grad future or spend on things I will really love.
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I think one thing to consider is your job. A lot of my friends worked as servers and made good money. However, when it came time to look for jobs after graduation, they didn’t have any real experience to put on their resumes. As a result, they had a lot of difficulty finding a job in their field. I worked different jobs as an editor (I was an English major) while in college. Sometimes I made $7 an hour and other times I worked for free. I graduated in 2008 and had several job offers in a pretty bad economy while a lot of my friends struggled for months and months (And once again, I was an English major! haha). While things were tight while I was in college and I sometimes had to work other jobs to pay for everything, the experience I got was worth way more than a higher hourly wage for four years.
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I am 26 and recently out of college, but I feel like I have gained a lot of insight about personal finances in the few years I have been in the “real world.”
1. Sign up for Mint.com. Even though you only have one bank account now, as you get more accounts and credit cards, you can add them to Mint.com and see all of your accounts and their balances in one place. It shows all of the transactions, which you can categorize to see where you spend your money. You can also set budgets, so as you categorize the transactions you can see where you went over your budget.
2. Get a part-time job during college, even if it is only a few hours a week. Check with your school to see what they offer for work-study jobs. They don’t pay much, but at least it’s some sort of income. My senior year of college I worked two part-time jobs around my class schedule. Yes, my days were busy, but it left money in my pocket and my nights/weekends free to still have fun with my friends and enjoy the college life.
3. Open a savings account. Sign up for online banking (and with your checking account too, if you don’t have it already).
4. Always do direct deposit with your paychecks. Most employers offer the option to deposit to more than one account, so have a set amount from each paycheck go into your savings and the remainder go into your checking for spending money.
5. DO NOT SPEND THE MONEY IN YOUR SAVINGS ACCOUNT.
6. Re: credit cards – I waited until my junior year of college to open a credit card (when I was working, so I had income to pay the balance). Many credit card companies offer cards geared to college students that have a low limit so you can’t get too crazy with overspending. Mine was with Chase, and my first card only allowed me a $500 credit limit.
7. ALWAYS PAY YOUR BILLS ON TIME.
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good on Nico for starting to think about this now. I think that’s one of the best things my parents taught me–I started saving for retirement etc. EARLY, around that age, and it means I’m accustomed to it, in the habit of it, and it doesn’t stress me out. Just take $20 or whatever every time you get paid and put it away. I kept mine in a pickle jar for a long time, haha.
I third/fourth/fifth the Money 101 site, it has cleared a lot of things up for me (and I was lucky enough to have parents who taught me a thing or two or seven about money).
Another big thing is, do what’s right for YOU, and don’t feel pressured by what other kids your age are doing. A lot of college kids are stupid and/or lucky–they blow their student loans on stuff they don’t need, their parents help to bail them out, or they buy into all the credit card offers that get thrown at you when you enter college. I worked 2 jobs all through college and got scholarships; my friends used to rag on me because they’d be flying off to Vegas on the weekends or going on cruises while I was at work. But I got through college and grad school with zero debt, no student loans, and now I’m 26, multiple job offers, making perfectly reasonable amounts of money in my absolute dream job and I get to go on vacation whenever I darn well feel like it AND get paid in the meantime!
(not saying you should be 100% boring like me, of course, but think about your own personal priorities–for me, being debt free and living a less exciting life was way more satisfying to me than anything else.)
A lot of my friends are $80k or more in debt now, and some of them are just miserable–some are getting multiple grad degrees because they can’t make enough money to pay off their debts, so they just keep going back to school and getting more student loans. Some of my grad school friends spent so much loan money on having a fancy apartment or new laptops or whatever that once their parents stopped footing the bills, they then were stuck with literally NOTHING. I mean, my best friend has four computers, a really nice apartment, and no food. She is relying on her boyfriend, who makes $25k a year, to pay her $1000+ per month rent until her loans come through. It is a seriously vicious cycle.
Do have fun, natch, because it’ll keep you sane, but don’t get sucked into keeping up with the Joneses–remember that just because the people around you are spending money doesn’t mean they HAVE it.
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Don’t get a car. A lot of students work very hard at minimum wage jobs, thinking that they are working their way through college, when actually they are supporting their car and its maintenance. Get a job on campus, where you can walk to work, rather than a job in town, where you will need a car to get to it.
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I highly recommend J. Steve Miller’s “Enjoy Your Money” as incredible overview of financial principles. I’m going through it right now with my teenager and one of his friends and they are really enjoying it. It’s a very easy read in a conversational format and a perfect intro into finances for “kids” starting out and handling their own money for the first time.
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