It’s another edition of Molly’s Money! This is a series I have been writing on this blog for almost TWO years where I talk about all things personal finance. Check out my previous posts in the series here.
If you’ve been following my money series for the past two years, you know I’ve been pretty honest and upfront about some of the mistakes I made in college and right after college when it came to how I handled my money.
Name a financial mistake and I probably have made it at one point or another.
A lot of you email me asking about some of those mistakes and a lot of you email me asking me what I wish I would have known sooner in life. And that got me thinking… there are certainly A LOT of things I wish I had known earlier and I don’t necessarily regret all those things I didn’t know because they wouldn’t have gotten me to where I am today.
I’ve learned SO much over the past 10 years and I’ve learned SO much since I started my journey to becoming debt free in 2008 and I’ve learned SO much since I became debt free in 2012. It was a hard road, but I came out stronger on the other side.
And part of what I’m so passionate about is SHARING my experience and my mistakes with others in the hopes that they don’t make the same mistakes I did and in the hopes that they can learn from my experiences.
So I compiled a little list of 10 things that I wish I’d known about money and personal finance in college (and, well, 10 years ago). This is certainly not an end all be all list and certainly not EVERYTHING that I’d wish I’d known, but for now, it’s a good start.
And this list is in no particular order at all.
Most college students graduate with either no credit or bad credit. Neither one of these scenarios is ideal. Use the time you have in college to build up a decent credit score, using scoresense or other credit monitoring programs so that when the time comes after college to buy a house, you’ve got something to back you up.
But how do you build credit the right way? No, you don’t need to finance a car or have 10 credit cards to build credit. And I am really hesitant to say you need a credit card, because you don’t… but to build good credit the right way, see #2.
Credit card companies LOVE to prey on college students and young adults. They woo you with free gifts and free t-shirts and entries to win a trip to Cabo. Don’t fall for that stuff.
If you’re gonna have a credit card (and this goes for any time you decide to get a credit card) find one with a decent rewards system and TREAT IT LIKE A DEBIT CARD. I repeat: treat your credit card like a debit card. I could do a whole post on this topic alone (which I probably will), but if you want to build good credit, only spend on your credit card what you know you can pay off at the end of the month.
Do not, I repeat, DO NOT carry over a balance on your credit card month to month.
DO NOT DO NOT DO NOT DO NOT DO NOT.
I made this mistake. Twice. Okay, three times. I went on a trip (or three) and put basically the whole thing on my credit card. Foolish, foolish decision on my part.
I’m not saying don’t go on vacation. I’m not saying don’t take some time for yourself. I’m not saying don’t get away every once in awhile. I AM saying save up for it. I AM saying pay cash for it.
Again, this sounds like something that should be a no-brainer, but for many people just isn’t. In college and in my young adult years, it was just so easy to bring in money and spend it the next day. Living pay check to pay check is not a way to live. For anyone.
Have a plan for your money every time you bring in another dollar. Set a budget. Don’t know how? Try my template!
This is another one that I did a really poor job of doing early in my “adult” life. Checking my bank account statements and my account balances was a huge stressor for me because I was so broke. So, I just avoided it like the plague.
Well, I’d avoid checking my statements and unbeknownst to me I’d get charged a bank fee, or a check would bounce, or I’d overdraft my account, or a mysterious charge would appear and I’d rack up fee after fee after fee and by the time I’d realize it – it was too late to fix.
Check your account balance every morning. Make it part of your routine. Know what’s coming in and know what’s going out and then if anything looks amiss, you’ll know right away what to fix.
I know it’s hard to imagine saving for retirement when you’re 18 years old, but trust me… START SAVING EARLY.
Let’s look at an example… if you had a job while you’re in college and you put $1,000 a year into a Roth IRA JUST during the four years that you are in college, if you looked at the WORST possible stock market return scenarios, that $4,000 would end up being about $35,000 when you retire. Even if you never contributed another penny to it.
Now, let’s say that you KEPT contributing $1,000 a year to that same Roth IRA after college, now you’ve contributed $40,000 over the course of your life, and it’s worth $200,000 when you retire.
Now, picture later in life you’re able to contribute $5,000 a year… and obviously you see what happens to that money. That’s more money for you to play with when you’re done working.
When I went from making little NO money in college (you know, other than waiting tables and odd jobs here and there) to making $30,000K a year as a high school teacher (with benefits and all that) my first year out of college, I felt like a MILLIONAIRE. I was like “WOOOOO YEAH LOOK AT ALL THIS MONEY COMING IN!!” And then I’d go spend it. And spend some more. And go out to dinner. And go shopping.
Sure, I’d pay my rent and utilities and whatnot, but I just started racking up debt because I thought, “Oh, well I make $1,200 a MONTH, I can pay that off in no time.” And eventually, no time showed up and I couldn’t pay it off.
I bought a brand new car my senior year of college.
And then I bought another brand new car (after selling the first brand new car because I realized that first brand new car was a mistake) at the end of my senior year of college.
A brand new car depreciates in value the SECOND you drive it off the lot.
Buy a used car. Pay cash for it. Don’t take out a loan on a car.
Buy a crappy car. Drive it into the ground. When you can afford the nice car, buy it. Pay cash for it. Make sure it’s used.
And for the love of all things good, DO NOT lease a car.
I will also write a whole post on this topic, but in short, don’t buy a brand new car. HUGE waste of money.
Sit down and honestly think about where you want to be financially in 5 years, 10 years, 15 years, and 40 years. Come up with a plan. Set action steps. Decide how you are going to get there.
By coming up with a strategic plan for your finances, you’re setting yourself up much earlier for making smarter decisions with your money. If you have no plan, then you really have no care for how your dollars get spent. Make sense?
Put enough money in savings to get yourself out of trouble if trouble comes a knockin’. In college? Make sure you have enough money to cover getting your car fixed if it breaks down or your laptop replaced if it crashes during exam week (this happened to me). Have money saved up so that you’re not scrounging when you graduate and can’t find a job. Out of college? Have AT LEAST 3-6 months of bare minimum expenses saved up in case you lose your job or can’t work.
Prepare for the unexpected and you won’t feel overwhelmed when the unexpected happens to you.