| story by Brittany Timmons 
photos by Erin Pyles | 
It’s the beginning of fall quarter. You’ve worked your butt off all summer saving up so you could focus on school in the fall. However, as the weeks fly by you notice your account dropping faster than the temperature in January. Before you know it, you’re half way through the quarter and half way through your savings; a stash that was supposed to supply you for the entire school year. With a little bit of planning this scenario could have been avoided. Just as it takes months of working out and dieting to mold your body into shape for swimsuit season it take time and effort to fix your financial dilemmas. When trying to alleviate your financial crisis remember the healthy dieter’s rule of thumb: Crash diets do not work. There are no “quick fixes” in the world of finance. However, it isn't difficult to learn the basics of finance and get a jump-start on your future. Read on as POISE and experts of personal finance explain how easy it is to save, invest, and plan for the future! What to do:
“I work all summer and I still have nothing by the end of the quarter. It’s stressful having two jobs but I don’t really have a choice,” Maria Ceddia, Ohio University sophomore, said of her financial woes. The truth is you do have a choice.
Live below your means
As college students, we sometimes think that these will be the most expensive years of our lives. We believe that no matter how much money we have, we will have more once we graduate and get a job. Unfortunately, this is only an illusion.
“This is not the time of shortages it’s the beginning of the time of shortages,” Sheryl Garrett, personal finance specialist whose commentary has appeared in Time, Forbes, Money, and Glamour, said.
Garrett points out that one of college students’ biggest financial obstacles is their optimistic attitude. She describes the typical student’s outlook as “euphoric but not real because you’re in between being a dependent and being an independent responsible adult. You’re in a middle ground no mans land where mom and dad will bail you out if they have to.”
Although we may stress about our finances and worry about making rent now and then, ultimately most of us believe there will always be another financial solution. Many students spend their student loan money on much more than its intended use knowing in the back of their minds if they ever run out of money they can turn to credit cards and more loans.
“It’s the first time you’re without your mom and dad and that gives us the freedom to screw ourselves up financially,” Garrett said.
The only way to avoid this problem is to start taking a realistic approach to your finances. If there is something that you cannot afford to pay for in cash you shouldn’t buy it. As a student you should always be looking for ways to save money.
“We’ve got needs, wants and luxury items… Too many college students define their self and worth on the quality of luxury items they have,” Garrett said.
Students shouldn’t see a realistic attitude about finances as a restriction but as a way to provide themselves with ample opportunities for the future. We need to take advantage of this time in our lives when our responsibilities are much fewer than they will be ten years from now when we have demanding careers, families, or both. Being conscious about what we choose to spend our money on now will help us greatly in the future.
If you are spending too much on luxury items “you just sold your future to look good,” Garrett summed it up.
Use Cash
Debit cards-the college student’s best friend. Or are they? On a typical weekend we put food, drinks, and whatever else on our card, happily swiping away and probably not paying much attention to how much we’re spending.
After speaking at a university Garrett went out for pizza with some college students. She was surprised to find that she was the only one who paid for her meal in cash.
“Use cash!” Garrett urged, “Its makes the act of parting with money very tangible…we spend more if we put it on plastic.”
It’s a lot harder to part with a crisp twenty than to swipe a card. We whip out cards and don’t even think twice. Test it out for yourself. Try to purchase everything with cash for a week and see how much less you spend. Your checking account will thank you. Invest
“Even better [than a savings account] is to invest,” Jordan Goodman, personal finance expert who wrote for Money magazine for 18 years, and has appeared on CNN, MSNBC and The Today Show, advised.
Investing is something that seems scary to a lot of people, especially college students. You may be thinking it’s too complicated, and it takes too much time. True, it may take a little time but it isn’t complicated and it’s definitely worth it.
For the beginner, both Goodman and Garrett suggest low cost mutual funds. It’s important to look for ones that don’t require a certain amount of money be invested. If there is a minimum it shouldn’t be more than $25-50. All fees will be included a prospectus, which by law must be provided to prospective investors. This prospectus is an official document that provides possible investors with information pertaining to the mutual fund including fees, fund objectives, and a history of past performance. It is very important to do your homework and read this document carefully before investing in mutual funds. Mutual funds charge fees and you want to make sure you aren’t being charged more than necessary. Garrett suggests looking into mutual funds at folioFN.com.
“If you put $25 a month into a mutual fund you’ll be successful. You don’t need a lot to do well for yourself,” Goodman said.
“The key is to do it on an automatic bases or it doesn’t happen,” Garrett said, emphasizing the importance of having an investing system in which money is automatically withdrawn from your account.
Garrett empathizes with the college students’ urges to spend money that’s “just lying around” in a saving account. But, if you know that the money you’re saving is being invested, you’re much less likely to touch it.
“We have to trick ourselves into doing what’s in our best interest,” Garrett said.
If you’re not sure how much to start investing consider the age old 10% rule of saving. Garrett believes there is logic to this ancient rule. Aim for investing 10% of your gross income for your long-term savings and stay with that goal as your income increases.
If you’re worried about sacrificing those new pumps you’ve been dying to buy in order to invest, think again. How much worth will those shoes have in the long run? True, the first few months you’ll notice the difference in your spending money but over time
you’ll become accustomed to living on a little less. Plus, just think how much money you’ll be accumulating!
Another good investment is a Roth IRA. This IRA is unique because it allows your money to compound tax free over time. Also, there is no minimum contribution for a Roth IRA, meaning you can contribute as little as you want. It is an investment that will doubtlessly help you out long term.
“It’s the biggest gift from congress that the American population doesn’t know about,” Garrett said.
There are some restrictions when opening a Roth IRA. For example, you must have a source of earned income and although there is no minimum contribution there is a maximum. The maximum yearly contribution for 2007 was $4,000 and is adjusted each year for inflation. Also, you may not put more than you earn into a Roth IRA. Another restriction concurrent with all IRAs is that you cannot withdraw money from your IRA until age 59 ½ without facing penalties and/or taxes. As is true with long term investments, it is wise to let your money mature to before withdrawing it. It may seem unnecessary to start planning so far in advance but you will be thoroughly glad for it in the future.
“If an 18 year old put in $2,000 a year [into a Roth IRA] and did it for eight years they would still end up with more money than a 26 year old who put in $2,000 a year until they were 65,” Garrett illustrated the importance of starting early. “The smartest thing they [college students] can do is open a Roth IRA,” Garrett went on. “Put in whatever you can and you will be sending me thank you notes when you retire.” What Not To Do:
“My dad does my financial stuff. I feel like I don’t need to worry about it yet. It seems like it would take too much time to learn,” Anne Geise, Ohio University sophomore, said. Get into Credit Card Debt
U.S. credit card debt totaled $801 billion for 2004 and a projected $962 billion for 2009 according to the U.S. Census Bureau. Unfortunately, credit card debt is something that many college students acquire quickly while at school and end up paying off decades after they graduate.
“They [college students] get into too much debt and get behind before they even have a job,” Goodman said, citing credit card debt as being the major financial problem for college students.
Credit card companies know that students are easy targets. That’s why they try to  tempt us with freebees and 0% offers. But, they aren’t doing us a favor.
“Don’t fall for the sucker offer of credit cards!” Garrett warned. “[Credit card companies] are the enemy. They want to part you from your money. We need to wake up and realize the only healthy reason to borrow is for investment purposes such as education. Clothes, dinner, and gas are not good reasons. If you can’t afford to pay for it in cash you can’t afford it.”
In addition to providing us with unnecessary financial stress, credit card debt poses another problem. Debt decreases your credit score, something that is easily lowered but takes a very long time to bring back up.
“You need to have a beautiful credit report.” Garrett said.
A high credit score will actually save you money. Auto insurance rates are based on credit scores. Also, it’s harder to get loans with bad credit. Even employers are starting to look at credit scores. A bad credit score could cost you a job, especially in the
financial industry, keeping books, or any other job where you could possibly access money.
Garrett compares irresponsible use of credit cards with “selling our financial freedom,” something no one should do.
Wait
“Time is absolutely the biggest asset that college students have” Garret said.
By starting to invest and taking control of your finances you could be easing the financial stress of your future. Investing takes time; there are rarely any quick solutions. The more time you give your investments to grow the better off you will be in the future and the closer you will be to independence.
This independence is yours the moment you are completely free of financial support from someone else. We may like to pretend that we are independent in college but, as long as our parents are still paying the bills, or we are accumulating debt we are not truly independent. The goal is to be totally and completely self sufficient.
“Wouldn’t THAT be liberating?” Garrett asks.
Indeed. Sheryl Garrett is the founder of The Garrett Planning Network, Inc. For four consecutive years Garrett was named one of the Top 25 Most Influential People in the Financial Planning industry by Investment Advisor magazine. Garrett is the author of numerous personal finance books including Just give me the Answer$: Expert Advisors Address Your Most Pressing Financial Questions. In addition to working on the editorial staff of Money Magazine for 18 years, Jordan E. Goodman is the author/co-author of many personal finance books including Everyone’s Money Book. He has written six special editions of Everyone’s Money Book that focus on specific topics, such as college, credit, and stocks bonds and mutual funds. |
