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« 10 Retirement Pitfalls, Pitfall #7: Neglecting Insurance | Main | Top Athletes Make a Boatload of Money »

June 14, 2007

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1) Don't buy a home with a mortgage based on the ammount an agent or an online calculator says you can "afford". These max ammounts can cripple your expendable income.

2) Make a budget BEFORE making any significant changes in your monthly expenditures.

3) Keep lifestyle inflation in check

LOL. That last one hit a little close to home, but it's so true. Thanks for the list.

I like the list, with a few exceptions.

Rather than "Do not use your home as a piggy bank if home prices are flat or going down or if interest rates are rising" I would say "Do not use your home as a piggy bank."

Also, rather than "And, I’m sorry, I’m really serious about this last one: make your own coffee," I would say, "And, I’m sorry, I’m really serious about this last one: don't drink coffee, drink water." Healthier and cheaper.

Do recent grads even need cable? I would also add "Avoid picking up expensive hobbies and entertainment", which I think is a real struggle for a lot of recent grads.

Don't buy used Toothbrushes

Four things you need when you graduate:
1) A reliable mechanic you can trust
2) A good Doctor
3) A good dentist
4) No Fee Banking

You don't need
1) A Latte Machine
2) Cable
3) DEBT

hmmm... I am lucky to have a financial genius for a dad, so I got some good financial advice that I'd like to pass on. I was also fortunate enough to meet a girl in high school who I would end up marrying 7 years later. Our household income is above the national average, but is probably average given that we are both college grads and both work full time.

Here is the best of the advice that I would pass on:
(1) Have no debt that has interest rates higher than the interest rate on your savings account (tax adjusted).
(2) Save at least 10% of your income from day one. Don't think it will be easier to start saving later, it only gets harder. People aren't happy because of their absolute standard of living, but because of their relative standard of living -- how much their SOL increased or decreased from what they're used to. Start at a low "base" SOL and you can be just as happy while spending less money for your entire life.
(3) Make your car payments before you buy your car. Let's say that "Joe" plans to spend $250/month, inflation adjusted, every month for the rest of his life to make car payments. If he starts by buying a car on day one, he'll have a car loan for the rest of his life, and that money will buy him the use of a decent car for the rest of his life. If he delays his first car purchase by 3 years, he can spend the same amount of money each month forever, never be in auto-related debt, and drive a significantly nicer car forever. This principle also applies to other purchases -- delay your spending for even a year or two and you can get much more for your money. Also applies to child-related expenses -- start "paying" for them before you start trying to get pregnant.
(4) For the rest of your life, increase your SOL by less than you increase your income each year.

I like the list EXCEPT: Consolidate your cable, phone and Internet service to get the best deal. No , no! This gives you no bargaining power. I keep these very much seperate and find the best deals out there. The cable company in my area would love to have you combine these services all in one bill (they even have a famous sports person selling it). I have watched how slowly but surely my cable company attempts to increase the amount they bill me month by month. I will not let that happen nor will I geive them the opportunity to rate hike all 3 services. Sorry, I just don't agree with this idea.

*"Watch infomercials for their entertainment value only."

You're watching too much TV if this is entertaining!

*"Consolidate your cable, phone and Internet service to get the best deal."

No! You can get better deals by keeping them separate and negotiating the prices down. Plus my phone/net/cable is nowhere near the flat $99 they would be charging me (but I have basic cable).

*"Do not use your home as a piggy bank if home prices are flat or going down or if interest rates are rising."

No, don't use it at all. Equity loans are just a big fat low interest loan from your bank. Remodeling jobs need to be saved for, you get SO much more for your money and with a thing like a house, a pricey remodel is never urgent. It can wait 5 years. Own your home.

*"Postpone buying high-tech products like PCs, digital cameras and high-definition TVs for as long as possible. And then buy after the selling season or buy older technology just as a new technology comes along."

I say buy them all used. I have a 70" projection home theater with surround sound in my house that took me months to buy using Craigslist. People dump their perfectly good electronics just because they are a few years old. Retail all of my equipment was over $2,000 and I got it all for $500 just because they were a few years old and no one wanted it anymore!

"And, I’m sorry, I’m really serious about this last one: make your own coffee."

Agreed!

I've always been amazed at all the stories about how much money people can save by making their own coffee. I've luckily never developed that habit at all, so I haven't fallen into the trap. But when I asked around, I do know several people spending $5-$10 per day on coffee. That's quite a habit.

$2,000 a pound chocolate can be yummy, though. =)

What do you mean I don't need DEBT when I graduate? I needed the debt in order to take the classes I needed in order to graduate!

(Now what do I do?)

Who wrote this thing? I can't get logged in with Firefox, so I can't read the thing and wouldn't even know how to find it with IE.

Dear recent grad: Please ask your dad how to save at least 10% of your income if you earn minimum wage and have student loan debt. If he can pull that off, he should write a book.

MW --

Maybe you can write a book, "How I am More Pessimistic than Eeyore."

Seriously, you need to get off the "woe is me" trip and start taking some positive action to make your life better. Otherwise, you're going to be in the same spot in ten years as you are now. Is that what you want?

Well, let's explore that (heh)...I'd love to go back to school to get (a) marketable skill(s), but I have no money and cannot get financial aid, so I don't know how to make that happen. (Then there's also the risk that even if I acquired a marketable skill, at my age and with my lack of "career", employers wouldn't be interested in hiring me.) But that wouldn't be a barrier to self-employment, other than the lack of startup capital. So I think I'd like to be a financial advisor or planner for low-wage people like myself - people who desperately need the help but aren't getting it today because they're not getting it from their employers and the financial planning community isn't interested in a market sector with low incomes and low net worth. So there's an untapped market I'd like to go after.

Consolidate your cable, phone and Internet service to get the best deal.

No, no no! Look at satellite, pre-paid cell phones, long-distance phone cards and your phone co.'s DSL....

My experience in the past has been that bundling phone, cable, and internet service does not save money, but I did some current comparisons to double check and wrote up my results. Long story short, I can save anywhere from $20-$72 a month by staying unbundled.

MW --

I find it ironic that you want to be a financial advisor when you're having such a tough time motivating yourself to make a lifestyle change.

I understand that there are difficulties. All I'm saying is that unless you start looking at what you can do and not dwelling on what you can't, you're going to be stuck in the dead end mess you're in now. I suggest finding a friend, relative or counselor who can encourage you and give you some options, then working hard to get out of the mw life.

If you have a college degree, as MW implies he does, and you are making minimum wage, you have major issues.

Quite frankly, McDonald's pays more than minimum wage even in poorer states in the South. Get a job at McDonald's and work your way up. If your English and math skills are halfway decent you'll be up around $10.00/hr in no time.

I did the Hamburger Flipping gig one summer and hated it, and left (to return to college in the fall) with a low opinion of the lowlifes on the evening shift. (The responsible employees worked the day shift, which included an intense lunch rush of office workers, while the slackers got the low-volume evening shift. I was an opener and had only a handful of "opportunities" to work with people on the evening shift, but it was enough to convince me I didn't want it.) I totally cannot see myself working today with such people, let alone "managing" them.

Where I work we have four college graduates, all earning minimum wage. There are quite a few underemployed liberal arts majors out there, and once you get to a certain age without a "real" job, you're stuck in the mcjob ghetto.

MW --

If you have a college degree and you're making minimum wage, it is purely by your own choice. In fact, you already mentioned a better-paying job that you quit because you considered it beneath you. People with LESS ability, LESS education, and LESS skills are doing a job that you used to have, and they're making MORE money than you. If you chose to do so, you could make more money.

There are other quality of life concerns to take into account, so don't assume I'm advising you to go ask for your mcdonalds' job back. I am, however, saying that you should lose the victim mentality and self pity, because your financial circumstances could be rapidly improved if you simply did a job that you're qualified for and able to get which would pay you more money.

What are you doing with these 4 other college grads that all make minimum wage?

With regards to my inital comment, obviously you won't be able to save 10% of your income if you're on an extremely low income. If I were you, I would focus on avoiding any additions to my debt burden by living within my limited means, but just as importantly I would be doing everything I could to improve my income. If you follow that advice, things are likely to go much better for you.

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