Learning Aspects of Personal Finance from a Young Age

Grasping an understanding of personal finance at a young age might be the best chance a person has to eventually reach some semblance of success in life. Yes, it’s boring and tedious, but you know what makes the world go ‘round, and it isn’t love. There’s a good chance you will be financially clueless when you graduate high school – since personal finance isn’t a required subject – and prepare to strike out in the world on your own. If you’re lucky there was a parent, grandparent, or gruff uncle who gave you a good book on the topic and badgered you into reading it. For the rest of you, there’s this article you’re about to read. Pay attention! It’s more important than you think.

Delay That Gratification

Too many people get themselves into serious financial trouble because they lack self control. What’s the sense in delaying gratification when you can whip a credit card out and buy almost anything you want? That’s how people end up paying interest on a box of cereal 10 years after purchase. Don’t laugh. It happens. The only way you should allow yourself to put everyday items on a credit card is if you pay the entire bill every month. Let it slip once, and roll over into the second month, and the credit card company has you right where they want you.

Manage Your Own Money

There are always plenty of other people who will be glad to (mis)manage your money for you. Learn to do it yourself and you’re ahead of the game. This means you must be able to balance your checkbook, pay your bills, and look after your own investments. None of this is rocket science, despite what professional financial planners would have you believe. Any time you pay someone else a commission to do something you could easily do yourself, there’s a good chance some of your hard-earned money is slipping into their pocket. Well-intentioned or not, trust no one but yourself with the keys to your personal treasury.

Track Your Money

Radio host and popular financial expert, Dave Ramsey, suggests that you should know where every dollar you earn goes. Guess what this means? You need a budget. A personal budget alerts you when expenses exceed income. It also lets you know that you’re spending nearly one hundred dollars a month on frothy morning drinks from Starbucks. Imagine if you put even half that amount into a safe mutual fund for the rest of your life? There’s a good chance you’d be a millionaire by the time you retire. A budget lets you know what you can afford and where you can tighten it up a little.

Create an Emergency Fund

Another piece of Ramsey’s advice to young people is to create a $1,000 emergency fund before anything else. After that, work towards a fund that holds enough to pay all your living expenses for six months. The “baby” fund insures your life doesn’t explode the next time you have a surprise medical or auto repair bill. It’s the bare minimum meant to keep on surviving. By the time you have created a “full” emergency fund you’ll be able to withstand more long term issues like losing a job or having to care for a sick relative. Consider the monthly expense of building an emergency fund non-negotiable.

Build a Credit History

While living a life constructed completely on credit spending is not a good idea, the reality of today’s world is that you can’t even rent a hotel room or car without having a credit card. Larger purchases like a house or new car require good personal credit. Considering the reality that it’s hard to build credit when no one will give you credit, younger people might have to go a non-traditional route like finding a lender that specializes in title loans. Making your payments on time every month will eventually build the credit you need to function in the modern world.

Save for Retirement Now

It’s amazing how little you have to put regularly into an interest-bearing investment in order to retire wealthy. The miracle of compounding interest is your greatest ally in wealth creation. The younger you are when you learn this lesson, the better. Even $50 dollars a month invested over a 40-50 year working career – with just modest annual rates – will turn you into Scrooge McDuck swimming in piles of money by the time you’re ready to buy that RV and wheel off into the wild blue yonder. A tax-deferred company retirement plan, or even an individual IRA should be your secret weapons.

The last thing we’d like to talk to you about is taxes and health insurance. You simply must understand taxes and how big of a bite it will take from your salary, depending upon where you live. For example, a $35,000 job in New York state will only yield about $26,000 in annual salary – or a little over $2,000 a month. It’s critical to understand the concept of marginal tax rates when it comes to evaluating salary increases and possible relocation.

As far as health insurance, we’ll make this one fast. You absolutely cannot risk to go another day without it. With medical costs now completely out of control, a single car wreck or broken bone could result in a bill several thousand dollars in size? This can derail your finances in the blink of an eye. You may be young but we’re pretty sure you’re not invincible. Whatever you have to pay, whatever you have to do – get health insurance now.

How I’m Paying My Student Loans While in College

Lauren Davidson is a Junior at the University of Pennsylvania. She is majoring in Finance and is working to set herself up for success in repaying her student loan debt after graduation.

Yes, I hear you right now. You are screaming over there because I said those two words – “student loans.” Okay, okay, calm down. I will use the word as sparingly as I can as I tell you my story.

Just like you, I used to be afraid of those two words and when anyone would bring the topic up I would just head for the door and that was the end of it. I knew at some point I needed to get a grip and stop being afraid of the word.

I am a college student at the University of Pennsylvania. I already have student loan debt and, unfortunately, way more of it than most of my peers. I used to be ashamed of it, but now I use it as a stepping stone to help others and propel myself forward.

To be fully open, I already owe $32,000 in student loan debt and I still am just beginning my Junior year. Ugh! It stinks, it really does. But, I have owned the mistakes I made when borrowing and now I want to share with you just how I am paying down my student loans and what I plan to do in the future to pave my pathway to success.

I hope you find this information useful and you are able to apply it to your own situation, if you do have student loans or student loan debt. Ready to learn more about me and my plans? Okay, great!

I Make Interest Only Payments While in School

Did you know you can choose to make interest payments while you are in school or you can opt out and allow the interest to accrue while you go to school?

It is true and this is one of the toughest decisions that I had to face, but I knew which option was the best once I sat down and evaluated them.

I chose to make my interest payments while I am in school. Why? Because by making interest payments while in school, I am preventing my (already huge) amount of debt from growing more than it has to.

Okay, you are probably not even sure what I am talking about right now, especially if this is your first time in college. If you do NOT make your interest payments while in school, it will accrue and be added to your principal balance once you graduate.

Therefore, if you owe, for example, $50,000 and you accrued a total interest amount of $6,000, your total loan balance will be $56,000 and this is the amount that the interest grows on. In short, if you don’t pay your accrued interest, it will be added to your total balance, and your next interest charge will be even higher.

I Apply ALL of My Money to My Student Loans

The next thing that I do is I apply ALL of my money to my student loans. Any money that I receive, no matter the reason, it goes straight to my student loan provider.

You may be wondering just how I live right now, right? I actually found a cheap apartment that is pretty far off-campus compared to my other options. I do have to pay rent, but it isn’t nearly as much as some of my peers.

Another tactic I use is that whenever I have a birthday or gift-giving holiday approaching, I ask for the money anyone was going to give me to be sent to pay off my student loans. I apply any bonuses from work, my tax returns, and all forms of additional money to my student loans.

You may be thinking, well, you are not even out of college yet and you do not have to make payments yet. Yes, this is true, but when you pay your student loans off as I am, you do not end up owing as much and you do not get charged interest on the original amount, but the new amount that is generated after you make payments.

I Participate in the Work Study Program to Reduce the Amount I Need to Borrow

I do participate in the work study program and this means I do not have to depend on student loans any more. I can borrow the bare minimum needed and continue to work on paying them off.

The work-study program allows me to be self-sufficient and it provides me with a job where I can earn a wage to help support myself while in school. I do work at the school, specifically in the library, but I love it. I meet new students, have fun, and it does not even feel like work.

Have you considered the work study program? If not, you definitely should!

I Have a Ridiculously Tight Budget That I Stick To

Okay, I mentioned that I still live at home and I do. I am fortunate enough not to have to pay rent, but I do have to pay for my food and half of the other bills in the home. Bummer, yes, but hey, at least I am not out there trying to do it on my own. I would really be up a creek without a paddle then!

I have a budget I stick to and it includes only spending $50 per week on groceries and then about $100 in the split bill payments. The rest of the money goes straight to my loans. I may keep a few bucks here and there, but I do not keep much money for myself. Yes, it is difficult, but I know it will pay off in the end.

I Am Building Credit to Set Myself Up for Success in the Future

Many of my college buddies are afraid to use a credit card. They immediately associate credit cards with debt, as silly as it sounds. The truth is, credit cards are a great way to set yourself up for financial success in the future. As long as you make payments on time, are smart with your credit utilization, and don’t take out too many credit cards in a short period of time, you can start building up your credit score.

I personally am especially in building my credit so I can refinance my student loans after graduation—assuming I can land a decent paying job! Because I don’t plan on going into a public service field (that would make me eligible for forgiveness) or am too worried about the income-driven repayment plans, I can save tons of money by refinancing with a private lender. After I refinance, I will receive a lower interest rate and can even change the repayment length of my loan to something that fits my personal situation.

Have You Thought about Your Plans for the Future?

I know my finances are a bit tight right now, but I would rather it be this way than to head out into the real world and live paycheck-to-paycheck. If you work hard at it, you can pay off your student loan debt just like I am working to do.

6 Quick and Easy Credit Fixes

6 Quick and Easy Credit FixesIt has never been easier to get a credit card, and most are widely accepted wherever people shop. However, it is just as easy to max out a card, and end up owing creditors a ton of money. Making slow or no payments can put a dent in your credit score. When that happens, you may run out of options for buying a new refrigerator when the old one finally gives out. If your credit history stands in the way of building a stellar financial reputation or making a major purchase, don’t worry. There are several steps you can take to raise your credit rating to an impressive level.

Review Your Credit History

Request a free copy of your credit report from each of the three major U.S. credit reporting agencies: Equifax, TransUnion, and Experian. Consumers are entitled to one free report per year, and it is important to request a copy and review it carefully for mistakes. Sometimes one or more of the reporting agencies include wrong information about your name, address, and credit accounts. Contact each organization that contains faulty information to make corrections. After a few weeks, request an updated copy of your report, which should be provided at no cost. Ensure that each organization made the corrections and no new problems have surfaced.

Work With Creditors

Contact all stores and companies to whom you owe money. Apologize for any missed or late payments, and explain that you plan to submit payments on time by the due date from now on. If you are unable to afford the entire payment each month, request a revised payment plan that allows you to make smaller payments on the balance. Many creditors willingly work with customers to get the outstanding balance paid in full.

Limit Credit Charges

Look over monthly credit card statements to see where you can cut costs. Avoid paying for nonessentials with credit, such as entertainment, clothing, and snacks. Instead, pay for those things with cash, which is often a deterrent in helping people avoid spontaneous spending. Charge only essential items, like a doctor’s visit or a broken appliance that you cannot otherwise afford and that you are reasonably sure you can pay off by the end of the month or within a short period of time.

Pay Off Credit Accounts

Start with your smallest credit balance, and work on paying it off as quickly as you can. You may be able to expedite payoff by adding extra to the payment beyond the minimum amount due each month. Use funds from overtime, tax returns, or windfalls to pay down the balance more rapidly. When it has been paid in full, apply that monthly payment that is no longer needed for the first account to a second credit balance, along with the regular payment due each month until it also is paid in full. By eliminating your credit balances, your credit score will clear up fast.

Pay Bills on Time

Review monthly expenses for an idea of when they come due. Make sure you pay each on time so that nothing is late. This is one of the main criteria that credit organizations assess when determining your credit score. If you must be late with the payment, call the creditor to make other arrangements, such as skipping a month or making a double payment the following month.

Live Within Your Means

Establish a monthly budget that allows you to balance income with expenses. This means that you will have a pretty good idea of what your monthly income will be and how to spend no more than what you earn. A savings account is important for short-term emergencies and long-term goals like college or a vacation. Sticking to your budget will make finances easier to manage and help to protect your credit rating.

The credit ranking score for the three main reporting agencies ranges between 300 and 900. Generally, a credit score of 750 is considered strong, while over 800 is excellent. Factors like credit type, recent credit, and debt-to-credit ratio play a role in determining a person’s credit rating. Maintaining a high credit score is important for access to credit when needed.

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