As many of you are college students, this message is for you. As we get close to graduating, graduate, and begin our lives there are many important steps that should be taken to ensure that you start off right. The following are a few things that could help to give you solid ground in your changing lives.
1) Credit Cards
Credit cards have become one of the most dangerous things that Americans can own. The buy it now, pay it later mentality is literally burying people in their possessions. Some have accumulated over $30,000 in debt on top of house payments and every day expenses. College kids generally do not have a lot of cash at their disposal and credit cards are the perfect way to get by. But there are smart ways to use your credit card. A tank of gas a month on the card is an easy way to build credit and to stay within your means. Buying lunch or dinner at McDonald’s on your Capital One card is not the best idea. Large purchases such as a computer can be a good use of the card because it allows you to slowly pay for the purchase. Before making a large purchase though, have a time frame for when you want to pay off the card. Using credit cards to pay off other debts is dangerous and should always be avoided. Be sure to watch your credit limit as well. If your card has a limit of say $1000 you shouldn’t exceed $500 on the card. Why is this? If you go over half of your limit, your debt ratio increases significantly and hurts your credit scores. Work on getting good credit now while you don’t have as much going on in your life. A good credit score will make it easier to get a house or car, and your payments should be cheaper.
2) A New Car
When college graduates are offered a job, many go out and by a new car with their new income. On top of their school loans they now have a car loan and still have to buy gas for the new car; even if the new car is more fuel efficient you are still going to be paying a lot for gas. Consider this: As the price of oil continually rises more and more companies are seeking to innovate to come out with zero gas vehicles. I caught wind of a story the other day which indicated that Nissan would be coming out with a fully electric car that goes 100 miles on a full battery charge. Nissan says that this new vehicle would not cost more than a regular car or SUV. Expected release date: 2011. That’s just a year or two after many of us get out of college. If you are looking for a new car, wait. Give the new electric cars a year or two before you rush out to buy them. If you are currently making car payments, the day is so approaching when you will never need to visit a gas station again. Also, consider this. Just because a car is significantly more fuel efficient than your own car, you will be spending more money in the new car payments on top of rising gas prices. One sentence summary? Wait to buy a car for several years after college; buy an electric; and don’t take on the additional debt until you can easily manage it.
3) Increase Your Financial Knowledge
It’s absolute inexcusable to be financially illiterate. You need to understand how your personal finances work and what it takes to be financially free. One book I suggest for everyone is Rich Dad, Poor Dad. This book is phenomenal and should change your thinking on work and where you want to be financially. I’ll give you a quick run down on what it says. Hard work is important, but you should be letting your money work for you. How can you let your money work for you? Well, there are several ways to do this. One way could be to invest in stocks and bonds. These are risky and can be shaky at times, but still a tried and true way to make money. A second way to make money is to purchase real estate. You could get a tax break and the price of real estate can rise dramatically in a short time. Another plus to real estate is that it won’t lose value as quickly or at all as some investments. When I refer to real estate I mean raw land without any buildings. A third way is to purchase homes or duplexes and rent them out to people. On top of making money at work, you could be bringing in several thousand dollars extra each month without actually “working” for it. The last that I’ll mention is investing in a franchise or another person’s business. Franchising can be incredibly lucrative, just ask your local McDonald’s. The whole thing about this is to be smart with your money. Don’t just spend it, make it work for you. This is a concept that many people don’t understand or employ until much later in their life.
4) Your Health
Stay healthy and fit for the rest of your life. College is a great time to work on this because of your access to a gym. You don’t necessarily have to lift weights or become a marathon runner, but staying fit can save you tons of money and give you a greater quality of life. Health care costs are on the rise and often times you are cut some slack from employers or insurance company depending on your current health.
5) Your Home
A home can be a good investment, but much of the conventional wisdom and understanding of home as assets has gone out the window with the latest financial crisis. It’s a good investment in the sense that a home can appreciate in value and it will give you a tax break. You should buy a home if you are going to be in one location for three years or more. Be sure not to buy too much home. You need to be able to make the payments and with energy costs on the rise, the bigger the house the more it will cost to maintain it.
This whole post was a bit long, but many of you can barely stand looking at a newspaper let alone sifting through financial advice. I encourage you to prepare yourself ahead of time for your approaching debut to the real world.
