You’ve spent a lot of time in school, and, chances are strong, you’ve learned a fair number of things you’ll never need. (Geometric proofs? Really?) Still, financial education is valuable for everyone. Get yourself in student mode, because you’ll use these lessons every day of your life.
1. Keep Afloat: Don’t Drown in Student Loan Debt
As you’re slogging through high school, college represents hope, possibilities, change, reinvention, advancement and, for many people, crushing student loan debt. You pick a major, research potential schools and make a decision that changes your life. Make sure it’s for the better. Graduating while owing tens or even hundreds of thousands of dollars in loans is scary and avoidable.
Many college students assume it’ll be easy to pay off debt after graduation. It’s often not that simple, and they’re saddled with loans for years and years. One common rule of thumb: limit loans to your anticipated first-year earnings. That narrows school choices, but it also lessens regrets once you’re out in the world.
2. More Than A Handshake: Loans Are Written Contracts
If someone asks for a substantial amount of money, decide upfront if it will be a gift or a loan. If it’s the latter, be sure to put all aspects of the loan in writing and have everyone sign. Otherwise, it could easily turn into an unintended gift. Getting loan conditions down on paper benefits everyone:
- All participants’ expectations and responsibilities are clear.
- Nothing gets forgotten in the future.
- If something happens to you, there’s a record for your heirs.
3. Early, Often and Wisely: Investment Basics
If you’re looking for great returns, it’s best to start investing early and be consistent. However, be careful where you put your money. Investments that seem too good to be true probably are. Guidelines to follow include:
- Don’t invest with complete strangers.
- Get references.
- Research the investment opportunity yourself. Don’t take anyone’s word for it.
- Read and understand companies’ Securities and Exchange Commission filings of financial statements and disclosures.
- Accept that investments come with risks.
4. Admire From a Distance: Buy the Car You Can Afford
A shiny exterior. Plush, heated seats. A smooth ride. Lots and lots of dials and buttons. Who wouldn’t want a high-end car? It’s fine to wish you have that ride, but don’t take the plunge and buy unless you’re sure it won’t impact your other financial concerns. If you’re in love with a vehicular beauty and tempted to take out a loan that’s a little too steep, think again.
Monthly payments are just the start. Don’t forget insurance, upkeep and fuel. That tight payment could soon become suffocating. You can put yourself in danger of a car repossession and seriously damage your credit for years to come.
5. No Exceptions: Always Shop Around
More than three-quarters of Americans believe they’re savvy shoppers in their daily lives. They hunt for the best deals, often online and check prices at several stores before making purchases. Ironically, that dedication is missing for the biggest life investments, such as vehicle and home loans. Consumers are almost five times more likely to comparison shop for new speakers than for mortgages.
Research your purchases, especially those with recurring payments, such as car insurance and cable and Internet services. You saved $50 on your vacation flight? Awesome! Are you paying too much for your cell phone every month? Don’t be pennywise and pound-foolish.
6. Why Are They Being So Nice? “Easy Financing” Woes
Businesses are out to make money. That’s kinda the definition of “business.” So when you hear about a great buy with easy financing, pause and wonder, “Why would they make such a low, low offer?” The business has to benefit somehow. Read the fine print and make sure you understand all the terms.
Maybe those small monthly payments skyrocket after a year. When do finance charges start, and are they retroactive? Though it’s a cliché, it’s often true: the devil’s in the details.
7. There’s No Rush: Save for a Down Payment
A home purchase is probably the largest single investment you’ll make in your life. It requires research, planning and careful budget deliberation. Most people make a significant down payment. Twenty percent is typical.
Without that front money, your mortgage could put you in a financial squeeze every month. Your dream home then becomes a nightmare. Hold off until the purchase makes sense economically. You’ll sleep better.
8. Where Does It All Go? Use a Budget
When you get a well-paying job, it’s easy to start spending. You’ve been living frugally, so you want to splurge. That’s OK — within limits. Before you start eating out all the time, allocate your earnings. “Budget” is not a dirty word. It’s a plan for both now and the future.
One standard budgeting method divides your earnings into three categories:
- 50 percent goes toward living expenses such as housing, food, basic clothing and utilities.
- Set aside 20 percent for financial goals, including debt payment, retirement plan contributions and investments
- The rest (that’s 30 percent, if you’re keeping track) is for whatever you want: entertainment, eating out or that pair of hot shoes in the store window.
Make sure the basics are covered first, and you won’t have to sweat every little latte.
9. When Will It End? Heavy Debt Doesn’t Disappear
Any kind of heavy debt, such as student loans or credit cards, affects every other financial aspect of your life: savings, investment, home purchase, vacations and even having kids. Without a plan, paying off these obligations seems overwhelming. Credit cards are especially insidious, because minimum payments keep you on the hook.
Before you start borrowing, remember that significant debt will be with you every day for years. If you’ve already pulled the trigger, now’s the time to take that 20 percent of your budget and start making serious payments.
10. Rainy Days Are Coming: Keep an Emergency Fund
Emergencies come out of nowhere. That’s their nature. A new brake job. A furnace replacement. Sudden medical care. Whatever. Something’s come up, and you have to deal with it. An emergency fund is a necessity, simply because “you never know.”
If you lack a fallback plan, you can find yourself in debt without warning. A comfy and realistic cushion provides enough savings to cover expenses for three to six months. That’s a lot, but you’ll be grateful for the forethought. Better get busy.
Hopefully you’ve learned these lessons, but it helps to review them over and over again. Commit to being a financial student your whole life.