Five Money Lessons For New Grads That Everyone Should Follow
New graduates are about to walk smack into the Great Recession, and they need every bit of financial advice they can get. The Wall Street Journal has five excellent money tips that should apply not just to new graduates, but to everyone.
1. Savings Matter: Learning to sock away funds not only teaches you to do more with less, a lesson you will carry with you for life, but it gives you the financial cushion to sustain a job loss or emergency without falling into debt.
2. Find And Read The Fine Print: Don't let page-long consent agreements stare you down. Instead of blindly signing on the dotted, take five minutes and read your contracts.
To avoid that headache, look at agreements and contracts as though you were on a scavenger hunt for key facts: How can you end this agreement? How can the other side terminate the deal? What exactly will you be paying and when? And what happens if a payment is late or missed? Knowing the significant details will help you make better decisions and avoid much grief later on.
3. Focus On The Total Cost: Resist the urge to draw out your loan's lifespan in exchange for smaller monthly payments. Remember, companies don't make suggestions out of the goodness of their hearts. They don't even have hearts! Always consider for the full, long-term implications of any financial decision.
4. Debt Is The Great Divide: Debt is a shackle that binds itself to the borrower. Debt can be a powerful tool for financing a home or education, but it drastically limits your financial freedom. Treat it warily, especially with credit cards.
5. There Is A Permanent Record: It's called your credit score, and it will follow you for life. Your credit score serves as an objective measure of your fiscal responsibility. The lower your score, the more expensive credit will be. Higher scores open doors and lower costs, allowing you to finance your future for less.
Five Money Lessons for New College Grads [The Wall Street Journal]
(Photo: CarbonNYC)
Post a comment
Comments:
"take five minutes and read your contracts."
It's really hard for most people to stand there and read a contract while someone's staring at them. So remember that you can always say to the salesperson in question, "I'm going to take five minutes and go sit down to read this so I don't keep you from helping other customers." Don't feel guilty about wanting to take that time, and don't feel pressured to have to read the contract standing at the counter with people in line behind you! Take your contract with you and go get an ice cream if you need to.
The only time I would feel remotely guilty about taking your time would be if you come into a real estate closing having obviously not read the contract and everyone has to sit and stare at you while paying their lawyers by the hour while you read the contract for the very first time. But then you suffer from terminal dumbassery, so I guess it's okay. :)
As a (upcoming new) graduate, I appreciate this. While I knew it, I didn't realize it. Consumerist wins again! --Proud member of the class of Two Thousand and Fine
As a freshman in college I am working on these tasks. Right now I am working on number 5 so I can have a high credit score by the time I graduate. I am also working on number 1 as my parents were nice enough to pay for my college in full. Hopefully I can be in a position to buy a home with %20 down payment by the time I graduate.
@sbcpunkrocker: 5.5- remember that you can buy most things with cash. Saving for something you want (like a new laptop) is also a good exercise in saving period. This works even if you have marks on your permanent record when credit cards were handed out like candy.
@TEW: I did this too- but my working money went to pay for college. As an added bonus, it was easier to find a job after graduating. A lot of entry level positions like to see actual work (not glossy internships) on your resume.
Number 5? Credit reports are not permanent. Aren't all closed accounts required to be removed from your credit report after seven years?
Doesn't your credit score technically only follow you around for seven years?
Don't forget that credit score can matter significantly when looking for a job . . .
@sbcpunkrocker: If your situation is, um, fluid, it might be worth it.
However, you will, in general, pay more for this flexibility. A 30yr mortgage might be 4.875% while a 15yr is 4.500%. On a $200K loan that costs you $62.50 in extra interest the first month.
If you are going to do it (and we are -- we're paying off a 15yr mortgage at on a 10yr schedule because the rate was no different for a 10yr term), I strongly recommend you have the extra auto-deducted or you will always find "something has come up".
Follow this tip to avoid much pain at the end of the month.
When barring/clubbing/whoring, pull out how much cash you've budgeted while you're still sober. Leave your plastic at home, if needed.
When you run out of money, it's a good thing: it's the gods' ways of telling you, "Drink some water. Reprobate!"
It's also a good way to insure that freeloaders take their turn to buy the freaken' round instead of leeching off your drunken good graces.
Also, open doors for ladies and call women older than your mom "Ma'am". Tuck in your shirt. And for Heaven's sake, if you sing while in your car, do it with the windows rolled up!
@ecwis: I was thinking the same thing. I mean, after all, it was here that I read that they MUST drop closed accounts after 7 years if you've been paying on them or not...
@djyox: I don't think they can go after you for the debt any longer, but the fact you didn't pay the bill remains against your credit score.
But I could be wrong.
"Your credit score serves as an objective measure of your fiscal responsibility"
Well, that's just wrong-minded. Not borrowing AT ALL is the sign of fiscal responsibility. I hate people who thing that well-managed debt is somehow superior to well-managed savings. No one NEEDS a credit card, mortgage, et al.
SHUT UP HERBAL REMEDIES!!!! Your comments stink! Are you a bot or just someone who can't compose a rational paragraph?
We don't want ads in the comments. No one here is buying unless you can provide reputable research from a 3rd party that your products actually work. We're smarter than the average bear!
@Stephen Schenck:
Sure... you don't need a mortgage like you need food, but if you spend 15 years saving to buy a home, while paying rent instead, then buy the home... you are likely to be in a much worse financial situation than if you'd purchased a home and appreciates on credit and paid for it responsibly. It is not necessarily a sign of irresponsibility to borrow, nor is it always bad for your financial well-being. A borrower is subject to the lender, but if the terms are acceptable to both it may be mutually beneficial, and still fiscally responsible.
Pay your bills, but don't be ruled by the credit scores. They will only change the rules on you anyway.
@HRHKingFridayXX: Really wondering how true that is....?
I've been having the idea of those "glossy internships" crammed down my throat since before starting college. So I'm of the exact OPPOSITE opinion.
That said, I've spent my time working ACTUAL jobs throughout school that on top of things would apply to the career path I'm interested in... so if what you say is reality, that would be a serious load off my shoulders :)
So as you can see... wondering where you came up with that tidbit if information.
@dragonfire81: "When negative information in your report is accurate, only the passage of time can assure its removal. A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years."
[www.ftc.gov]
Can we disemvowel the above commercial spam ASAP? Otherwise, it'll grow like weeds...
@Eyebrows McGee (on Twitter: LPetelle): Oooh, that intrigues me. Part of me would love to do something like that! Contracts are just silly and hard to read. I'd award myself bonus points for asking THEIR lawyers what the big words meant!
@Trai_Dep:
Just out of curiosity, where are you from? I grew up in New Jersey and have NEVER heard someone address another as "sir" or "ma'am" there. It really weirded me out when I moved to Texas and the cashiers started calling me "sir" and I'm only 25.
But living under a mortgage is living with something you haven't yet earned. It's a matter of principle - save, then buy. If anything, living below your means for years while saving for a house is more of a sign of responsibility than thinking you deserve something you can't yet afford, so long as a usurer makes up the difference. Smart finance is more than getting the most you can, as soon as you can.
@ryohazuki222: Well I suppose some of it has to do with the industry you are going in to. My "actual" jobs included work study, so it was office work but paid. They liked me enough to hire me as a staff assistant over the summer as well. I also had paid internships that were the equivalent of the real job (paralegal). During the interview process, I was showered with praises about doing actual work in college as opposed to taking internships that are basically just getting coffee.
I think in your case, the job market has just changed. I'm sure there are plenty of hiring managers that would love someone with your experience, there just isn't the money for it these days.
@Stephen Schenck: Amen. I'm aiming for putting 50pc down (or more, if the market keeps this up). I live in a cramped apartment but I will say that it can be done.
@TEW: Why do you feel that you want to own a home when you graduate? Even if I had the money upon graduating, owning a home would be a big mistake because after two years of working about 30 minutes from my home, I was laid off and found a job deep in the city - which stretched my commute out to about 3 hours round trip. If I owned a home, I wouldn't be able to move...as it is, I'm able to move much closer to my workplace and save myself about an hour of travel time.
@Powerlurker: Agreed. Politeness is great and all, but "ma'am" kind of creeps me out. I can handle it from small children, but from adults - even those younger than me - it's really odd. Of course, I'm 29 now, maybe I'll change my mind when I'm 50.
It doesn't help that I'm a north-to-south transplant, either.
@sbcpunkrocker: #3 is fine. If you do go with that 60-month loan instead of the 36-month loan that you could also handle, do you really think you will be making those extra payments? Experience tells me no.
@HRHKingFridayXX: That's fine and all if you're not an engineer. I knew people who had terrific GPAs and real work (one guy worked at Target for 6 years, even during college), and they had very hard times getting jobs out of college b/c of their lack of experience with their fields. Having an internship in your field will help you get a job a lot easier. Especially if your internship is where you apply for your full-time position. Don't discount the importance of internships.
@Eyebrows McGee (on Twitter: LPetelle): If you haven't been provided with a copy of the real estate contract beforehand, there's nothing wrong with reading it at the closing. In fact, even if I had been provided with a "copy" I would still be going over the actual contract to make sure everything was the same. It's too easy for someone to change something important between giving you a copy to read and having you sign the actual contract.
@rorschachex: Absolutely true- I worked through a lot of college and graduated in '05- I had a very difficult time finding my first job and the few interviews I had before I received my first offer all questioned why I didn't do electrical engineering internships.
@morganlh85: 7 years is approximately equal to forever from the perspective of a 21-yr-old college grad. ;)
@Powerlurker: I was born in Texas, and have lived here most of my life... with the notable periods living outside Texas having been in New Orleans and Italy. It seems to be both a Southern and Texan (NOT the same thing) custom to do the sir/ma'am thing both in dealing with your elders and in "business transaction" mode such as cashiers, salespeople, etc. dealing with their customers. I found that this experience served me well in Italy, as I was told that many Americans seem to have problems getting the hang of when to use the formal vs. informal style and it maps pretty well to when a well-raised Texan would use sir/ma'am or not.
Note to those thinking of living overseas: Loans and credit cards you have outside of the US will not show up on your credit report. This can be good or bad. It does mean that when you return to the US, you will have a blank credit report and no proven credit history, except maybe your student loan.
@HurtsSoGood:
Maybe not right away. But a lower school loan payment can help you put extra on higher-interest debts like credit cards and car loans. When those are paid off (faster), then you have even more every month to pay extra on the school loans.
All assuming you put a little planning into it. And don't blow $200 at the bar every Friday night.
@Stephen Schenck: And not all transactions are equal. When I bought my first house, with a fairly minimal down payment on an FHA loan, my net monthly expense (after my income tax deduction for the property tax and mortgage interest) was about what it would have cost me to rent an apartment smaller than my house with no garage. I put a lot of work and a bit of money into improving the house over the 9 years I lived in it, and sold it for 1.95x the original purchase price.
Had I spent that same time giving my hard-earned money to a landlord instead of paying for my modest home, I would not likely have ended up in an equally-good financial position at the end. Not everyone is buying overpriced houses with 0-down interest-only ARMs, sometimes buying is the financially sound decision, and landlords are no better than "usurers".
@HurtsSoGood: Apparently my modified version of #3 would not apply to undisciplined people such as yourself
@Eyebrows McGee (on Twitter: LPetelle): In real estate I'd feel even more entitled to taking that time, if not more, if not hours to go over the paperwork and record the conversation with the lawyer.
Be nice to hold them accountable for what they tell me and it's such an investment...
@HRHKingFridayXX: I had a "glossy internship" and haven't wanted for work in 8 years. My internship was with the company I got hired to, and I've moved jobs twice doubling my salary in 4 years. It's important to have the right internship, for sure, but what's the point in getting an internship if it's not in the field you plan on going into?
#5 is something most grads need to know. A night out with friends, racking up $300 in drinks isn't good, even worse if you finance it.
#3 might need to be modified. Extending the life of the loan may be good. You could pay the lower payment, but then pay additional on top of the payments towards the principal. The lower payment obligations allow you more flexibility if your situation changes or if something comes up.