Issue Date: May 25, 2003
14 thing$ I wish I'd known before I left home
Today's college grads carry an average of $17,000 in student loan debt and $2,000 on credit cards, and now it takes the average graduate six to nine months to land a job. Ouch and double ouch!
Think twice before buying those jeans you don't really need.
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With that in mind, I've put together a list of things I wish I'd known before I set out on my own. Whether you're a college student heading into the workforce or a high schooler bound for college, these are personal finance lessons it's never too early to learn:
Pay yourself first. It's trite, I know, but it's also the most important piece of advice on this list. Start with $25 every week and work your way up, moving that money into a savings or investment account where you can't touch it. Years from now, you'll be glad you did.
Beware easy credit. Just because someone is willing to extend credit to you doesn't mean that you can afford it.
Not paying 18% is the same as earning it. Say you received $1,000 in graduation gifts and had two choices: a) invest the money, or b) pay off your Visa. If you chose b), you're right. Paying down a high-rate credit card guarantees you a double-digit return. Try finding that in the stock market these days.
Know you have a credit score. As soon as you received your first credit card, you started leaving behind a trail of crumbs, which has earned you a credit score. It's a number (it looks a lot like an SAT score; the closer you get to 800, the better) based on whether you pay your bills on time, how indebted you are in relation to your income and how much credit is available to you. Car dealers, insurers, mortgage lenders, employers and landlords use it to decide whether you're a responsible human being. So protect your score by paying bills by the due date, borrowing no more than 50% of the money available to you and not playing roulette with your credit cards.
Debit cards are better than credit cards. You do need a credit card to build a credit rating and rent a car (eventually). But for day-to-day living, debit cards are better. Why? They won't let you spend money you don't have.
ATMs can get expensive. If you've used your ATM card at a machine not affiliated with your bank, you've probably been asked to pay a $2 fee to the owner of said machine to make a withdrawal. These fees add up, so be sure to bank with a firm that has lots of machines convenient to work and home so you can avoid those fees entirely.
You don't need that pair of jeans. You might want it, or a new dirt bike, a week in Cancun or concert tickets. The question is: Do you really, really want it? Knowing the answer will help you reach your most important goals. A corollary: A hold is better than a buy. Rather than spring for that new pair of shoes, put them on hold. Then leave the store for 24 hours. If you still can't resist (and can afford it), then buy. Otherwise, you've just "saved" money.
Follow the money. It's easy to lose track of where your money goes: $5 on lunch, $3 on a cappuccino, $12 on dry cleaning. Suddenly you need to visit the ATM. Again. But if you save your receipts and chart your expenses weekly, you can start to control and plan what you spend.
Start building a cash cushion. Two reasons you need three to six months of living expenses to fall back on if you ever lose your job: Mom and Dad. Without enough money to pay your rent, you'll have to move back in with them. (Note: Any cash gifts you get for graduation can make the start of a nice kitty.)
Start-up costs are a killer. Between cleaning supplies, security deposits, and phone and utility deposits, moving out on your own can get very expensive. It's important to know those expenses are coming.
Shop around. When it comes to basic monthly services -- cellphone rates, long distance, Internet access -- spending a little time making a smart choice can save you hundreds of dollars a year.
Health insurance is absolutely mandatory. If you're not getting it at work (or haven't found work yet), see whether you can extend your coverage under your parents' plan. Another option is to buy it on the Web at a site like ehealthinsurance.com. If it's simply out of your budget, buy a cheaper hospitalization policy that will cover you if you get seriously ill or injured.
You need renters' insurance. That's to protect the things you're accumulating. It's so inexpensive ($150 to $300 a year), it's a crime not to have it.
Roll over, Beethoven. People change jobs an average of 12 times over their careers. If you have a 401(k) or other retirement plan at work, each time you'll be given two choices: Roll the money over (into an IRA or your new employer's plan) or pull the money out, pay taxes and penalties, and pocket a nice little check. Sixty percent of people do the latter. Don't. Robbing the bank today sabotages your future tomorrow.
Contributing Editor Jean Sherman Chatzky is the author of "Talking Money" (Warner Books, $24.95).
Additional reporting by Amy Wilson.
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