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’m only 21, and just a few years ago I was in a similar situation, with the exception that I ran out of money trying to live on my own and joined the Army.
One of the things I did shortly after leaving basic training however was start reading PF blogs. I started with Wisebread on the recommendation of a friend and branched out from there, eventually finding Get Rich Slowly and others, like The Simple Dollar and Lazy Man and Money.
My advice is to absorb as much information as you can about finances and put it into action. I started investing as soon as I understood what it was and how it worked, and I kept my expenses low by only rarely going out with friend and spending most of my time in my room and eating at the chow hall.
Scrimp and save as much as you can now, so you can spend it on what really matters later. To me, that’s early retirement. To you it might be something completely different but just as awesome.
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As a father of kids about this age, I agree with and appreciate the advice given. However, as a prof and pre-med/pre-dent advisor at a univ, I do have a concern. I can’t speak for other professional programs, but the initial cut for students applying to medical or dental schools is generally based on a student’s grades in their first 3 yrs of college and test (MCAT, DAT) scores – other wonderful accomplishments (inc high grades in grad school) are not considered at the initial cut. My caution to students is to keep grades up! If having a job (or playing athletics or having LOTS of fun, etc) compromises their grades, students may find they can’t get into the type of professional program that opens the doors to a rewarding career they’d love. One of my advisees told me that she’s certain her GPA would have been at least a 3.5, rather than 3.24, if it weren’t for her 25 hr/wk job – she didn’t make it into med school. It’s not easy but students need to keep their long term goals in mind and that includes keeping grades up.
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As savvy as I think I am about finance now, there’s not much advice I wish I had given my 18 year old self a decade ago. I lived frugally, worked several jobs and got a good education. The only big mistake I see is that I shied away from taking on any debt, including government-subsidized interest free loans. I did some quick math on my blog, I would have graduated $2723 richer at no risk had I done that. The details and math are at http://hkiadvisors.blogspot.com/2010/08/good-debt.html if you’re interested. Of course we’re in a different interest rate environment today but an interest free loan is an interest free loan and a rare opportunity. Don’t pass it up if you can.
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Two mistakes I made:
1) I got and used a credit card: I agree that it’s important to start building credit, but it’s not so difficult that it can’t wait until after you’ve graduated (and find a job). I would avoid them entirely, if possible.
2) I assumed I would get the job I wanted right out of school: I majored in accounting and thought that my slightly above average grades and complete lack of experience would land me a 40k+ public accounting position right out of the gate (this was in ’05). I was wrong. Rather than interning or volunteering for jobs that would give me some experience (however little) in my intended career field, I took unrelated jobs so that I would have enough spending money. Granted, I always had enough for pizza and beer, but when it came time for interviews senior year, my slightly-less-well-fed peers, who had, for example, volunteered their time to help others file their taxes, had a distinct competitive advantage. In the end, I had to take less pay in an unrelated field to gain some experience before I was ready to apply for the jobs that my college peers were already being promoted from. It set me back about two years. Lesson learned: time, like money, should be invested with both short and long term horizons in mind. Invest wisely.
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Looks like most of the big stuff has been covered, but I’d like to share a few more resources/tips that are particularly helpful when starting from square one–
1) PBS recently put together a “Your Life Your Money” website targeted at young adults in the 18-22 age range. The site includes videos, games, and online tools/resources to help you learn the basics
2) I second learning how to cook. My cooking Bible when I left college was “Help! My Apartment has a Kitchen!” — the authors literally walk you through everything you need to cook basic (but tasty!) meals (including “Mom Tips”!).
3) BUY USED BOOKS — talk to upperclassmen, check out Amazon.com, figure out if copying the material is cheaper than buying the books, etc. You can save a couple hundred bucks each quarter/semester this way.
4) Apply for on-campus jobs / summer internships that give you the opportunity to gain transferable skills: e.g. leadership, working with others, independent research, writing, etc. Those kinds of positions will keep you competitive for full-time positions post-graduation.
5) BUILD YOUR NETWORK: Particularly when looking at internships, consider how it will help you build your network. Your fellow interns won’t be college students forever and, thanks to fb, it’s much easier to stay in touch with them later on. While not all of my internships were high-paying, my internship alumni networks have helped me think through graduate school applications, provided job leads, etc. So consider the people factor — and build a reputation as an intelligent, reliable, and hardworking person so that your network people are willing to recommend you to their friends/colleagues!
6) Check out the psychology department to see if they are running any short trials that you qualify for. It’s a really easy way to pick up $15-$20 here and there for 30-60 minutes of your time.
Good luck and kudos for getting on track early!
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I think the most important thing for somebody that is just starting out in life to understand is to keep your expenses low. I mean rock bottom low. I mean consider alternatives to renting an apartment, or buying a new car. Decisions that you make now, will definitely “compound” for good or bad down the road.
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Although I agree that learning a good work ethic is valuable, I also think that it’s best to go easy on the part-time jobs while in college. Therefore, my most pertinent advice for Nico is to learn how to study most effectively. (The website Study Hacks is very helpful!). Learning to study = getting good grades = scholarship money. Student debt can be a millstone around your neck – best to avoid it. On the same note, apply for every scholarship you qualify for. Lots of people are lazy and don’t bother, and if you can write a reasonably convincing application and have good grades, there’s tons of money out there for you.
In addition to the basics section of this website, there are several great personal finance books aimed at young people – I liked Suze Orman’s “For The Young, Fabulous and Broke” and Ramit Sethi’s “I Will Teach You To Be Rich“, both which focus on beginning your financial life on the right foot.
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I’m kinda late to this discussion, but here is the one thing I did right financially in college:
Get a credit card with a really low balance. Mine was $500. Use sparingly, and never miss a payment. By the time you graduate you’ll have a credit record and you won’t have enough rope to hang yourself with along the way.
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1. read The Wealthy Barber – easy to read and easy to follow
2. live like a smart student for as long as possible – it leads to an excellent entrance into your 3rd decade and keeps your priorities clear
3. open up a ROTH IRA and make it happen – it is insane (!!) how quickly those small monthly payment build up
4. have one credit card and pay it off EVERY single month – good credit history = discipline and fabulous interest rates later in life
GOOD LUCK!
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For every person who has recommended a book, my advice is that the book is probably available in your library. If you read it and love it and want to keep it to reread and mark it up, then you can go out and buy a copy.
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Many of you expressed regrets for not having financial education in high school. If your local school has an interest in offering this but needs materials, I’d suggest the curriculum developed for a course called Dollars and Sense. It covers everything and is aligned with the national personal finance standards. The materials are for the teacher and give many strategies and resources. You can view an outline of the course at http://ccfcs.tizrapublisher.com. It is available through a subscription; it isn’t free, but it’s close to it considering what the teacher gets. Contact information is on the Web site. How did I know about this posting on Get Rich Slowly? One of the lessons encourages students to sign up for this blog to help get them started on the path to get rich slowly.
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1. Balance institution cost with the career field. Getting an undergrad philosophy degree from an ivy league school probably isn’t an investment – you will never earn that money back in a field like philosophy. I LOVE the liberal arts; I have two degrees in the humanities, but I chose schools that paid me to get those degrees (through scholarships and assistantships). There are some fields in which a “big name” will do you a world of good as far as making connections and launching your career and may be worth the price of a premier institution. If your passion lies in a less lucrative field, consider a quality institution that may not have the name recognition – and price tag – as some popular universities.
2. Internships, internships, internships! Washing cars at your local dealership may put more cash in your pocket, but interning with a business or government organization can provide you with experience and connections that will make your transition into the career world much easier.
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Try to always live on the same amount of money as you did the year before- put raises right into savings. I definitely did not do this and it is much harder to start living more frugally than to just live frugally to begin with!
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Firstly, thank you Nico and the owner of the site( my first time coming accross this site) for bringing up the question and the plentifull answers.
I’m 19 and currently travelling in s.america before going to university september 2012 – I’m from London.Nico, I would say try to travel outside of western countries or if youre on a budget(like i am), spend time with people who have different ideas about money to yourself.
Okay so Nico being a similar age to yourself I’ll recommend the following books which I’ve read to help me forms ideas about using money successfully up until this point(still improving, everyday), so here goes:
1.’rich dad poor dad’( general finance management and also briefly touches on the idea of how to sort of avoid and even escape a financial trap most adults seem to fall into or be in)
2.the book of someone who you think is a success with money i.e. i have lots of british business peoples’ books like richard branson, alan sugar etc – I know americas big on business not just like any other country but also the idea which ties in with ‘the american dream’, which I think is really cool btw, so that should be easy.
I will only say one more thing because I feel the respones have been so brilliant and v.informative – and that is, its that although I’ve recommended you books and others in this thread have also too, I will say the cost of whatever book you buy might be expensive(though amazon and ebay offer) bargains, mostly anyway lol)and if you despise reading – its worth it in the long run and no I’m not talking about when we get to 30 with a wife and kids but that may be 24hrs/ a week later/ a month later etc.
So yeah thats it -again thanks so much to everyone who has posted stuff!
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