How I Stopped The Debt Cycle In My Life

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It was March of 2002, and my mother was dropping me off at our local community college. It was that point that I realized my life had come to a low point. I had no car, no job, and I was in a ton of debt at the age of 20. I came home from an expensive Christian school where I racked up $12,000 in student loan debt and $4,000 in credit card debt in just a year and a half. I made a big mistake by picking a school that I couldn’t afford. I made a bigger mistake by signing up for a credit card at the age of 18. I had no clue how to manage money, but I stopped the bleeding. I enrolled in an affordable community college, my dad gave me an old family car for free, and I started working two jobs. But, it wasn’t until a year later that I started changing my financial habits.

I was driving around Gainesville, Florida one fall evening and I was flipping through the radio stations. I came across The Dave Ramsey show, a radio show about personal finance. Many of you are familiar with Dave Ramsey and his style of teaching. I listened to the entire three hour show that night, and I realized that I needed to drastically change the way I handle money. I was listening to various callers express their joy about getting out of debt, and I found myself wanting to get out of debt as fast as possible. I stopped the debt bleeding, but I hadn’t stopped the debt cycle. I wasn’t getting into more debt, but I also wasn’t doing anything to prevent myself from getting into more debt.

Here are a few steps that I took to stop the debt cycle.

• I cut up my credit card. It was time to get rid of the vice in my life. I relied too much on my credit card, and it was too tempting to use. I racked up $8,000 in just four years. It was a combination of horrible decisions, emergencies, and numerous small purchases that quickly added up. I put gas, food, eating out, car maintenance, and various other expenses on that card without paying it off at the end of the month. The worst charges were the expenses from a backpacking trip to Europe that I couldn’t afford. You may be responsible with your credit card, but is it really helping you to keep it? Do you think that using a credit card will help you become wealthy? Getting rid of the debt cycle means taking away the things in your life that tempt you to buy something you can’t afford.
• I built up an emergency fund. I built up a huge debt on my credit card, because i had no money saved up for emergencies. When the alternator died in my car, I charged it. When I was evicted from my apartment and lost my security deposit, I took a cash advance from my credit card to pay for another security deposit on an apartment. When i married my wife after college, we always keep at least $1,000 in a separate savings account specifically for unexpected expenses.
• I attended a public university. I left an expensive private college and transferred to the University of Florida, a Florida public school. At the private college, I was taking out $5,000 in loans per semester. At the University of Florida, all of my tuition was paid for the Bright Futures scholarship, and I received a Federal Pell Grant that went in my pocket for living expenses. It was a big financial turnaround in my life, If I would have stayed at Toccoa Falls College, I would have graduated with $40,000 in student loan debt. Instead, I am currently paying off $15,000 in student loan debt.
• The monthly budget became my best friend. I started spending my money on paper before I spent it. I paid all of my monthly expenses and set aside a specific amount for groceries, gas, entertainment, and clothing.
• I educated myself about personal finance. If your parents don’t teach you sound financial principles, no one will. High schools and colleges significantly lack the capacity and the desire to teach young people about personal finance. If you don’t understand compound interest, the stock market, budgeting, and interest rates, you’ll never learn how to make good financial decisions. The fastest growing wealth of free information about personal finance is the blogosphere. There are hundreds of great personal finance blogs out there, including Money Smart Life, dedicated to helping you learn about personal finance and make better decisions.

I’ve paid off $10,000 in debt in the past two years. My wife will start working this August, and we will continue to pay off all of our debt. We plan on being debt free in two years, and we will get the chance to call up the Dave Ramsey Show and yell at the top of our lungs, “We’re debt free!” I stopped the debt cycle in my life, and you can too. But, there must be a point in your life when you tell yourself that you are sick of being in debt. Then, you must take the specific steps necessary to break the debt cycle in your life.

Gift Ideas for College Grads for a Financial Headstart

What gift should you get for a college graduate?  Cash is always the easiest and probably the most coveted present for recent graduates.  The problem, as I remember it, is that cash is a hard thing to hold onto once you’re out of school and thrust int the job hunt or working world.

Here are a few ideas for graduation gifts that can help them save money or get a leg up on their future finances:

Financial Filing System
The deluge of bills, paystubs, receipts, and tax forms can turn into an ugly mess stuffed into a drawer in a graduate’s tiny new apartment.  A simple system such as the Homefile Financial Planning Organizer Kit should cover all their financial paperwork filing needs.

Free Entertainment
Going to a full time job all week every week can be a real drag after the flexible college lifestyle.  It can be tempting (and also expensive) to blow off a little steam at the end of the workday by meeting up with friends for dinner, drinks, or a movie.  A cheaper alternative for a graduate is bringing friends back to their place to eat and hang out. 

Help them out with a subscription to Blockbuster online video rentals and gift certificates to a cook it yourself pizza place like Papa Murphy’s.  Popping in a DVD and eating an oven cooked pizza on weeknights is much cheaper than heading out on the town after work.

Investment Matching Program
Offer to match all or a portion of money that they invest for the future.  My parents did this for me and I invested the maximum amount that they’d match.  They can invest whatever they can afford each month with automatic investments of small amount if they open a ShareBuilder Account. 

Another option is to open a Roth IRA that has no no minimum balance and no account fees. For example, open an Etrade IRA, they waive minimums and fees if they sign up for online delivery of statements and confirms.

Emergency Fund
Most college grads already have some level of debt when they graduate, they don’t want to add anything else onto their credit cards if the car breaks down or some other emergency arises. Help them setup an emergency fund. Signup for an ING Direct savings account, then send them an invite from within your account.  Both the graduate and you get a signup bonus using this method and you can choose to send your bonus to the graduate as well.

Financial Education
Sign them up for a magazine subscription to Kiplingers or Smart Money magazine.  Sure, they can get it for free online but when they’re on the computer they’re probably catching up with college buddies. Give them them a copy for the coffee table, bus, or bathroom reading : )

Keep them Healthy
If you know where the graduate will be living, get them a gym membership nearby.  Staying healthy will save them countless dollars over the course of their life. Plus, the gym is a great place to socialize, maybe they’ll meet their future spouse there. Two people paying rent makes housing much more affordable : )

Buy Health Insurance
There’s sometimes a gap in health insurance coverage between graduation and finding a first job with benefits.  Especially if they’re avid atheletes with a higher risk of getting injured, make sure they have some type of short term health insurance.  A huge health care bill is the last thing a new graduate wants to worry about.

Financial Advice
Let the graduate know you’re always there if they have any questions on investing, taxes, bills, etc.  You’ve already traveled the financial maze and have many of the answers they’ll be looking for.  Setup an “unofficial meeting”, set some time aside where you just talk finances.  Let them voice their concerns, ask their questions, and tap into your knowlege. 

This post was my take on Gifts to Give Grads a Headstart.

Best Credit Cards for New College Graduates & Young Professionals

The best credit card for you will likely change along with your financial circumstances.  As you graduate from college and get a job, you’ll want to do a review of your finances and your current credit cards to make sure you’re taking advantage of the benefits your new salary might bring. 

Many people unfortunately rely heavily on credit in school because they don’t have much money coming in. However, once you graduate and find a job you’ll finally have a regular income. Not only will this allow you to start paying off the debt you might have accumulated during your college years, it may also mean you’re eligible for cards with better features. Here are some tips to follow as you search for the best credit card for a new college graduate.

Tip 1:  Upgrade your Credit Card

If you have a student credit card, chances are the interest charged on unpaid balances is higher than it needs to be. In order to offset the higher risk of students defaulting on credit card debt, student cards tend to have higher rates and lower credit lines.

If you were able to establish good credit while in school here are some of the best credit cards for you:

Blue from American Express

Blue from American Express has an introductory period of 15 months at 0% interest for purchases.  You can’t get a rate any lower than zero and after the introductory period is over the rate is still one of the lowest around for credit cards. 

The Blue card does offer a rewards option through the Membership Rewards Express program. You could instead opt for the Blue Cash card if you have an excellent credit history.  Blue Cash does pay up to 5% cash back but is better for people spending many thousands of dollars a year on their card.  A new graduate is probably better off sticking with the Blue card instead of the Blue Cash.

Discover More Card

The Discover More card is similar to the Blue card in that it only requires “Good credit”. It doesn’t have the introductory 0% interest on purchases but it does have a better rewards program than the Blue card.  The More card can earn you up to 5% cash back in certain categories of spending.

Although student lines of credit are excellent to have during school to help to establish a credit history, now that you have a salary coming in, you’re likely eligible for a new card that offers more benefits.  Things to look for are a lower interest rate and a rewards program.  Of course the quality of card you’re eligible for will depend on your credit score.

Tip 2: Don’t Close Your Student Line of Credit

Many people make the mistake of closing their student line of credit because they have a better line of credit opened.  Ironically, this is a move that could actually cause your credit score to drop.  The problem is that lenders look for long term credit history on your credit report since a credit history helps establish your ability to repay on time and makes companies more willing to extend you credit. 

You can check your current report for free once a year with AnnualCreditReport.com.  You can also check out your FICO score in addition to your credit report at myFICO.com.  There is a fee for the service but they do offer a free trial.

Tip 3: Watch Out For Balance Transfers

With your lower interest rate on a new credit card, you may be tempted to move your existing student credit card balance to a new line.  This may not be a bad idea but watch out for the high balance transfer fees often in place.  You also want to look for a card that offers a low APR on balance transfers (even a 0 percent APR) so you save money.

One of the cards discussed earlier, the Discover More card, will give you 0% interest for 12 months on balance transfers as an introductory rate.  They do have a balance transfer fee, 3% for each balance transfer made under this offer, with a minimum of $10 and a maximum of $75. 

How you could take advantage of this is to move your balance on an existing student card over to the Discover More card when you signup.  You’d have 12 months of no interest payments so the money you paid each month would go toward paying down the balance instead of towards interest.

Tip 4: Use Credit Responsibly

Now that you have a better credit card in your hand use it wisely.  Don’t create more debt for yourself with irresponsible spending.  As a new college graduate, you are likely looking for a home, furnishings, a car, or even to start your own business.  You’ll have plenty of opportunity to spend money, if you charge things on your card make sure you have the cash to cover them.  Pay off your credit card each month to continue to build a credit history and to avoid interest charges.

If you haven’t had a chance to build your credit history yet or have bad credit there are a few options for you. The downside is that you’ll have to pay an annual fee due to your bad credit.  The upside is you may still qualify for a credit card and if use it wisely you can rebuild your credit.

For the worst credit, apply for the Orchard Bank Classic Mastercard. The annual fee will vary depending on how bad your credit is but at least you may be able to qualify for a card.  They also offer the Orchard Bank Platinum MasterCard which is a step up from the Classic.  The Platinum has a lower interest rate and can also have a lower annual fee depending on your credit history.  Remember, if you do qualify for one of these cards, be thankful for the second chance and use it to repair your bad credit by paying your bills on time and not carrying a balance.

Tip 5:  Research Your Credit Card Options

There are many different cards available with a wide array of different card features.  Make sure you research your options before applying for a new card. You can call up your current card provider, explain your situation, and ask what cards you’re eligible for now that you have a regular income.

There are many sites online that you can use to review and compare different credit cards.  Some of the things to look for are:

• Low APR on purchases
• Low APR on balance transfers
• Low Balance transfer fees
• No Annual fees
• Cash Back options
• Travel rewards
• Gas rewards
• High Rewards earning limits
• 0% APR deals on card purchases and balance transfers

College Graduate Finance Guide
This article wraps up the personal finance tips for college graduate series.  Here is a summary of all the financial topics we covered:

• Investing for College Graduates
• Health Insurance for College Graduates
• Student Loan Tips
• Spending & Budgeting for College Graduates

Money Tips for New College Graduates - Spending, Saving, & Budgeting Advice

What college student do you know that isn’t cheap?  When you’re in school every penny counts and you learn to manage your money on a very tight budget. Saving money simply becomes second nature to you. I was so cheap in college I used to:

-Wear every last piece of clothing to delay paying for the laundry

-Ride my bike everywhere so I wouldn’t have to pay for gas

-Keep the heat turned as low as possible

-Eat breakfast in the dark to save on the electric bill

-Use water on my cereal so I wouldn’t have to buy milk

–Buy the cheapest beer possible, no matter the taste

-Eat the cheapest food possible, rice & beans almost every night

Any of those sound familiar?  I’m sure you could give many more examples of ways students save money.   The question is, now that you’re finished with school do you still have to live like a broke college student?

Making Money
Once you start your first job you may feel like you’re rolling in the dough.  You go from making zero money to earning a regular income every payday.  Although it may not be much, it’s a lot more money than you’re used to having.  As my parents used to say, your money may be “burning a hole in your pocket”.  You’ve been scraping by for years and now you may be eager to buy the things you’ve needed or wanted but couldn’t afford.  Before you go out and blow your new income on a shopping spree think about the following story.

Starving for Money
A man is rescued from a desert island after four years of surviving on nothing but coconuts and fish.  He’s taken to an all you can eat buffet and gorges himself on the food he’s dreamed about for the last 48 months. His body goes into shock at the massive amount of food he’s taken in. He becomes very ill, his bodily systems shut down, and he almost dies from the health repercussions.

See any parallel there between that guy and a new college graduate who finally earns money after 4 years of being broke and goes on a spending spree?  Of course you won’t die from overspending but you can literally kill your financial future for years to come if you go on a buying binge.

One of the greatest assets you have as a recent college graduate for building your financial future is the value of compound growth over the next several decades.  How you choose to spend, save, and budget your money now can determine whether you struggle with money for the rest of your life or have the financial freedom that many people only dream about.

Your Financial Future
If you’re a single adult earning a salary your options for building wealth are pretty promising. You don’t have to support anyone else. Your money doesn’t have to pay for diapers, engagement rings, or your spouse’s credit card bills.  You don’t have to discuss with anyone how you’re going to spend your money or why. 

Your money is all yours to do what you wish, just don’t blow it.  You likely won’t always have this kind of financial freedom so spend your money wisely now.  Here are some tips on how you can maximize the amount of money you keep in your pocket.

Avoid buying that brand new, flashy car.  If you believe it is a good investment, realize that just driving it off the car lot decreases it’s value tremendously.  Additionally, use an auto loan calculator to show you just how much you are paying for the car with interest included.

Avoid expensive rent.  Do you need to live downtown in that luxury apartment?  The fact is, that’s cash you are spending that you may not need to.  Look for a lower end apartment that fits your needs and pocket the rest of your money.

Do think about cheap real estate options.  With the real estate market so affordable right now, chances are good you’ll be well on your way to making a sizable investment long term if you buy now.

Look for a roommate.  Sharing the expenses of owning a home or renting an apartment is a great way to save plenty of money.

Avoid credit card debt.  While credit cards can be a good financial tool if used properly, they can also get you into a lot of trouble financially if you abuse them.  In a later article we’ll cover some of the best credit cards for college graduates.

Managing Your Money
In addition to saving money on your biggest expenses like cars and rent and avoiding credit card bills, there are a few other key points to managing your money.  You’ll want to simplify things by following a system to plan and track your spending. You’ll also want to protect yourself also unforeseen events with an emergency fund and insurance.  Here are some details on these money tips:

Create a monthly budget and stick to it.  Figure out how much you’d like to spend, how much you need to spend, then find a happy medium.  Be realistic, don’t create a budget you won’t follow. Use your mobile device to record your spending and use software like Quicken, or even a simple spreadsheet, to track and analyze it.  Watch out for things like eating out, bar tabs, and buying gadgets those add up faster than you realize.

Build an emergency fund available to you in an easy to access savings account.  Use these funds instead of a credit card when you need money. Open an online savings account with ING Direct or Washington Mutual.  Setup a direct deposit to start building up your fund right away.

Use online banking to stay on top of all of your balances and to know where your money is really being spent.  You can download your transactions into your financial software to make tracking your spending easier.

Buy health insurance to protect you from catastrophic expenses and medical debt in the event of a major health issue.  Make sure you have adequate auto insurance to cover your liability in the event of an accident.

College Graduate Finances
Leaving university for a job in the real world is a pretty exciting time.  The money that comes with a job is nice after being a poor student for years.  If you can combine the frugal tricks and habits you learned in college with the spending, saving, and budgeting tips we’ve covered you’ll be able to have fun with your newfound cash and still build a financial future for yourself.

For more financial advice for college graduates see the articles below:

• Paying off student loans
• Investing tips
• Buying health insurance

 

Student Loan Tips for New College Graduates

How are you ever going to pay off your student loans?  Is your college debt going to follow you around for the rest of your life?

Investing in Your Future
Although it may seem daunting, if you approach your college loans as an investment rather than a burden it could help you get rid of your debt.  If you think about it, you’re not much different than a business that borrowed thousands of dollars in startup money.  You took out student loans to fund your professional training, now that you have the needed skills you can earn the money to pay back the debt.  First we’ll take a look at making your payments while managing your cash flow.

Student Loan Consolidation
Many small businesses use a variety of funding sources when getting started such as credit cards, personal loans, and money borrowed from friends and family. Once they begin earning a steady income, one of the things they might do to lower payments and simplify the expense is to consolidate their debt into one payment. 

Since college students in search of school money will also frequently use an assortment of funding sources, student loan consolidation may help simplify your college debt repayments.  Consolidation can also reduce your monthly payments, for example you could go from owing $200 a month on three different loans to owing $200 on one.  Obviously, you still have the same amount of debt and you’ll actually pay more interest over the long term. Another reason to consider loan consolidation is if you have loans at several different interest rates, you might be able to role them all into one loan with a better rate.

Lowering Your Payments
Of course, not all college graduates get a job right away, just like not all businesses are profitable right away.  There may be a period of time after graduation when little or no money is coming in. Even though cash flow may be tight, you still have to pay back the money you borrowed.  One thing you might look into is lengthening your student loan term, which should reduce your monthly payments.  Of course this will actually increase the amount of interest you pay over the life of the loan but can help your cash flow in the short term.

Delaying Your Payments?
One advantage that college graduates in debt have over small businesses trying to pay back startup loans is that repayment rules are a little more flexible for students.  If you haven’t landed a job yet and run into trouble making your monthly payments you can sometimes work with the lender to get a deferment, which allows you to hold off regular payments.  If you don’t qualify for the defermentthere’s also something known as a forbearance which lets you temporarily postpone regular payments, typically for a shorter period of time than the deferment.  Although these methods allow you to put off payments the interest on your loan will still be accruing.

Paying Off Your Loans
So far we’ve looked at cases where money is tight right out of school and you need help repaying your debt.  If, on the other hand, you do find a job and have money you can put towards making extra payments on your student loan then go for it.  The money you borrowed to go to school was an investment in your future earnings power.  If you see the results of that investment right out of school and start paying down your loans then your break even point on the money you borrowed will come sooner.

Don’t be discouraged if you can’t afford to accelerate your loan payments, your degree should pay for itself eventually.  Many students wouldn’t have been able to afford a college degree without borrowing money. You’re basically using leverage, borrowing money from the government at relatively low rates, to invest in an education.  You then use those skills to earn a higher salary and pay off the money you owe over an extended period. 

Student Loan Summary
You can use methods such as student loan consolidation, deferments, and forbearance to help manage the amount you pay for student loans as you’re getting on your feet.  Once you have an established salary, paying down your loans will reduce the amount of total interest you pay and help pay off the debt faster.

For more financial coverage for college graduates here is information about health insurance and investing tips for people just out of school.  Check back for the next article on spending and budgeting tips.

Health Insurance for New College Graduates - Shopping Around for Affordable Coverage

Buying health insurance is probably the last thing a new college graduate wants to research as they deal with the multitude of changes that accompany their sudden leap into the real world.

Unfortunately, your change in status from student to regular person will also mean changes in your health insurance coverage. For the last several years you may have been on your parent’s insurance plan or covered by student insurance but after graduation, you are likely on your own.  As a result many college graduates simply go without, which can be one of the worst decisions you can make for your health and your wallet. 

Risks of Going Without Health Insurance
If you don’t have health insurance you’re more likely to avoid needed treatment or preventive care due to the costs involved. In the event you’re faced with major health issues that demand treatment you could find yourself deep in debt if you don’t have any type of catastrophic coverage.  Even if health insurance seems like something you can’t afford right out of school it’s worth taking the time to research the options and see what form of coverage you can squeeze into your budget.

Employer Health Insurance
If you’ve landed a job, chances are you have some decent options for health insurance coverage. Group health insurance provided by many employers is often the most affordable type of insurance available to you.  Unfortunately, the rising cost of insuring workers is causing some employers to reduce the benefits the plan offers or drop health benefits all together.  You could be faced with increased deductibles, higher premiums, or both but it’s still often better than having to find insurance on your own. 

Make an appointment with your human resources representative to make sure you understand and are taking advantage of the health benefits available to you.  If you’re still looking for a job, make sure you take the benefits package into account as you’re weighing your options.  A good health insurance plan, along with things like dental, disability, and life insurance can be worth a lot of money.

Short Term Insurance
If you don’t have a job yet or won’t be starting one for several months you may want to look into short term health insurance.  You can often buy insurance a month at a time for up to 6–12 month terms.  A quick quote from eHealthInsurance.com shows plans ranging from $30–$80 a month.  In some cases if you pay up front you might be able lower the premiums.

This insurance coverage is designed as a safety net against enormous medical costs.  It generally does not include physical checkups, prescription medication plans, or other types of preventative care needs.  Short term insurance gives you coverage in the event of emergency situations or catastrophic events.  The main point of buying this insurance is so that you don’t end up with huge medical bills if you end up in the hospital with some major health issue.

Long Term Insurance 
If you don’t anticipate having a job for quite a while or your employer doesn’t offer health insurance than a more permanent plan may what you need.  The good news is that unlike short term insurance, regular insurance plans will include things like preventative care, prescriptions, and sometimes even dental care.  The bad news is that they are also more expensive. Journalist Steven Rosen found the following quotes when searching for insurance for college graduates:

“A healthy 22-year-old male nonsmoker, for example, would pay a premium of $113 a month for a Humana individual policy with a $2,500 deductible, a prescription drug benefit and dental coverage. Three other policies I checked — from Blue Cross and Blue Shield, Aetna and Coventry — had premiums in the range of $105 to $115 a month.”

Compare those prices to the short term insurance options and you’ll see they’re considerably higher. Of course one way to reduce the premiums is to go with a higher deductible.  If that’s a new term for you, the deductible is the amount of money you will need to pay for covered health care needs before your insurance company starts putting money in.  In general the higher your deductible, the lower your monthly payments. 

Insurance Choices
As you can tell from the various options we’ve covered, the best insurance for a college graduate depends on your individual situation.  Factors such as whether you have any employer provided insurance, the length of time you’ll be without insurance, any pre-existing medical conditions, and how high a deductible you’re willing to pay all go into picking the right coverage for you.

Of course, you always have the option of not getting any health insurance at all but just be aware of the risk you’re running should you run into medical complications.  Chances are you already have some kind of school loans to pay off.  Do you want to run the risk of incurring high medical bills to add even more debt to the amount you owe?

Your best bet is to research all of the available options and determine which one you can afford.  I mentioned eHealthInsurance.com earlier, sites like those allow you to search and compare the various health insurance plans available and determine which is going to best fit with your overall lifestyle, budget, and needs. 

College Graduate Finance Tips
Unfortunately buying health insurance isn’t the only financial decision you’ll have to make as you leave the college life.  Check out this cheatsheet of financial tips for college graduates and learn a little more about topics such as investing advice for new college graduates.

Investing Advice for New College Graduates - The Secret to Decades of Growth

What investing advantage do you have that thousands of other people only dream about? As a recent college graduate this advantage puts you in a position where you could make thousands, or even hundreds of thousands of dollars, from investing over the course of your life.

The sad thing is that many people in your shoes ignore this advantage and squander away this opportunity until much later in life.  Would you like to know what this enormous advantage is?  If I tell you, do you promise to make use of it? 

This advantage is no big secret.  It’s one of those things that the older you get, the more you realize it’s benefits.  The thing is, that by the time you really understand it’s value most people have already lost years of valuable time.  Oops, I let it slip.  Somewhere hidden in that last sentence is your huge advantage, can you guess what it is?  Okay, I’ll say it again, this time there’ll be no mistaking it:

“TIME”

You have time on your side.  Money you invest right now will have decades of compounded growth.  As a recent college graduate you’ll probably enjoy the most financial flexibility you’ll have of any period in your life. Although you likely have student loans to contend with, you’re limited financial responsibilities will probably give you enough disposable income to get your investments rolling. 

You’re fortunate because time is one of the most important ingredients in anyone’s investing forecast and you have a lot of it.  The more time you have to save money, the more it can grow and that can mean significant returns on your investment for the future.

Investing Example
Assume you don’t start saving now, believing you have plenty of time later in life to save.  You need a big chunk of money at age 50, and start saving at 40, so you have ten years to save.  Let’s say you invest $100 a month for that 10 years earning a 6.5% return (here’s hoping that you do much more than this…)  At 6.5 percent, with no initial deposit, in ten years time, you’ll have $16,840 in your savings account. 

Now consider a different scenario, instead of waiting, you start investing now so you have 25 years worth of investment time.  With the same $100 a month, no initial deposit and a 6.5 percent interest rate, you’ll have well over $75,800 in your account by the time you’re 50.  Hopefully you’ll be saving more than $100 a month and be earning higher rate of return but you have to admit, the difference between $16,840 and $75,800 is pretty big.

Reasons to Start Investing Right Now
Pensions and Social Security won’t be there to help you.  Social Security may not be around at all, and if it is, it likely won’t provide the amount of money you need to live on in retirement.

A 401k, especially one that has employee matching, is invested before taxes.  Your invested income has years to grow and compound before taking a tax hit.  Taken together with money contributed by employee matching programs, a 401k is one of the best ways to save for your future.  You can tap into it later for your first down payment on a home or as a safety measure for hardships.

You can be more aggressive when you are younger.  Since you have a longer time frame for your money to grow, you can afford higher risk investments that should yield higher returns.  If they end up losing you money, there are still plenty of years to make up for the loss.

Investing Summary
The most important piece of investing advice I can give to new graduates is to start right away. The Internet has made enormous amounts of information available about the principles of investing and the different opportunities available.  Take advantage of it and learn how to evaluate and choose where to invest your money.

Today’s investing technology allows almost anyone to start investing with minimal amounts of cash.  You can open an IRA for as little as $250 if you setup up regular deposits with multiple mutual fund companies. You can even invest as little as $4 at a time in stocks through programs like ShareBuilder.

Take a piece of advice from thousands of people in older generations who wish they could turn back the clock and start saving and investing earlier in their life.  Of course, hindsight is 20/20, but wishing something won’t make them any money.  The good news is you don’t have to wish for the opportunity, it’s sitting right in front of you.  Take advantage of it!

Financial Tips for New College Graduates - A Cheatsheet for Managing Your Money

Were you in class the day they handed out the financial tip sheet?  You know, the one that covered how to buy insurance, invest your money, pay off your student loans, manage your credit cards, and budget out your new salary?  I think most of us missed that day so here’s another copy you can use to make your money work for you.

They say it’s pretty easy for college students to manage money. When you’re in school, you’re usually so broke that there’s no money to manage!  The thing about college is that everyone pretty much expects you to have no cash, to scrape by on a part time job and student loans.

Suddenly, after graduation society instantly wants you to become financially responsible:

• No more sleeping through class, now you have to get up and go to work. 
• No more borrowing thousands of dollars a year, now you have to start paying back your student loans.
• No more student tax credits, now you’re earning real money and the government wants their cut.

These realities can be a rude awakening, some mornings you’ll think about adding another major and going back to school for a few more years, just to get away from all that responsibility.

Making Your Money Work for You
Of course, the good news is that now the money’s rolling in.  You spent all those years learning a profession and now you’re hard work pays off each month when you get a paycheck.  If you have to get up and go to work every day, why not make the money you earn go as far as it can?

This financial cheat sheet series can help you with that.  We’ll cover some things you may not have picked up in school or maybe tips you already know but could use a refresher.  The good news is that a lot of personal finance just boils down to understanding the key concepts and using common sense.  Below are the topics we’ll take a look at, stay tuned for the financial coverage:

• Investing Tips
• Health Insurance Tips
• Student Loan Tips
• Spending & Budgeting Tips
• Credit Card Tips

College Sells Alumni Information to Credit Card Companies

I’ve written in the past how I’ve recieved applications from credit card companies for a card that’s branded with my college name and logo.  I can only assume that someone in the university finance department is looking for ways to bring in more money and decided to cash in on their alumni database.  I’m not sure if they’re paid for each name & address they give the credit card company or maybe it’s only for people that actually sign up.

However it works, I’m not happy that they’re selling my information to credit card companies.  Just yesterday I got the email below asking me to update my alumni information. (Obviously the caps and bold words have been changed to protect the innocent.) 

There’s no way I’m updating my information with them so they can just turn around and sell it to someone else.  If I had more time on my hands and was feeling devious, I could look up the address of the head of the college finance department and update my record with their information so they’d start getting the junk mail instead of me.

Verification of
XYZ UNIVERSITY
Alumni Information

Please click here in the next 10 days to verify alumni information for:
Ben ALUM

Dear Ben ALUM,

I asked our manager of alumni records to assemble your Alumni Data by cross-referencing the most recent information in your XYZ UNIVERSITY file.

But now I need your help.

Please take 30 seconds to look over the information currently reflected in your streamlined Data Verification Form. (This convenient online form is fully-encrypted using state-of-the-art technology to protect your personal information.)

XYZ UNIVERSITY analyzed the records of more than 26,200 alumni to separate outdated contact and alumni information from the most current data in our files.

Now I need your confirmation of the information listed in this file.

Please review your online Verification Form in the next 10 days. Thank you in advance for your assistance in this important matter.

Sincerely,

GREEDY COLLEGE FINANCE OFFICE

Federal Financial Aid for College Students - A FAFSA Primer

As the cost of a college education continues to rise, more and more people are becoming familiar with the Free Application for Federal Student Aid (FAFSA).  There are many things to consider when applying for federal financial aid, below are some key points the FAFSA.

Planning Ahead
It makes sense to learn about the FAFSA now, even if your child isn’t going to college for at least a year. The FAFSA assesses the student and parents’ income, investments, and other financial resources, and arrives at a number called the EFC, short for Expected Family Contribution. This is the amount the family is expected to pay before becoming eligible for need-based aid. 

The online version allows you to test those numbers in advance. Some financial planners have specific training in college planning that can help you at any stage of the savings game, you can find planners that specialize in college planning at Planner Search. 

Applying for Aid
It’s important to know that the U.S. Department of Education is phasing out the paper version of the FAFSA, so you’ll have to apply online, here is the information you’ll need to complete the form:

1. The student’s Social Security number
2. Driver’s license number
3. The student’s recent tax information
4. The parents’ most recent federal and state tax returns (for students registering as dependents)
5. Bank account and investment information
6. Documentation forms for resident aliens.

Applicants also need to indicate their school choices so the government can forward financial data to those schools.   It is important for both the student and parent to apply for PIN numbers even before starting the FAFSA application.  PINs allow you to “digitally sign” the form, significantly speeding up the process. But they take several weeks to arrive, so apply early.

Recurring Applications
Students who have already applied for financial aid with a FAFSA don’t have to redo the form from scratch each year. The Renewal FAFSA retains much of the data in the original form (demographics, mainly) and allows updates for financial data like adjusted gross income, taxes paid and asset information.  Students must file the renewal FAFSA each year if they want to be considered for aid.

FAFSA Deadlines
2007-08 school year:
• FAFSA on the Web applications must be submitted by midnight Central Daylight Time, June 30, 2008.
• Corrections on the Web forms must be submitted by midnight Central Daylight Time, September 22, 2008.

2008-2009 school year:
• FAFSA on the Web applications must be submitted by midnight Central Daylight Time, June 30, 2009.
• Corrections on the Web forms must be submitted by midnight Central Daylight Time, September 15, 2009.

It’s also time to check your own chosen state and schools’ financial aid deadlines, which typically arrive sooner than the FAFSA deadline and have a separate application process. Some states start as early as this month, and they’ll want a completed FAFSA with any additional materials they require, state overview. Keep in mind that many private schools also require something called the CSS/Profile to determine financial aid eligibility at that level.

This post is produced in association with the Financial Planning Association (FPA), the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning.

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