Are you joining the fun Monday at the Money Smart Middle Schoolers’ event? Did you know we have a Money Smart Hot Topic? That’s right! It’s full of information on money management and it has a fun page just for students. Play the games and take the quizzes to see just how Money Smart you are!
Whether you’re using your credit card to buy a laptop or laundry soap, you have rights and responsibilities under the law. The Federal Trade Commission, the nation’s consumer protection agency, says getting a good grip on the safe use of credit cards can help you avoid a credit calamity. Using a Credit Card: Your Rights and Responsibilities
Additional Recommended Resources:
- Hot Topic: Identity Theft and Fraud
- CQ Researcher – Credit
- Can I pay my credit card bill with a credit card?
- Be Thrifty
- How Credit Cards Work
- Generation Debt
- HowStuffWorks – Credit Cards
- A Must-do list for people on Debt Management Plans
- Smart Money: Debt Strategies
- FTC- Credit and loans
Investing Tip of the Month
What would you tell a new college graduate if you could? Would you espouse the virtues of starting a career in the plastics industry, wearing sunscreen, or having the courage to follow your heart?
We recently asked Morningstar users to weigh in with their best financial advice for new college graduates, and they were eager to share their wisdom. A few key themes quickly emerged: Live frugally, start saving–even if it means starting small, and do what you love. And when it comes to your investments, stick with the basics.
Driving an Old Honda Now Means Peace of Mind Later On
One of the key pieces of advice readers imparted falls into the category of what not to do: Don’t let those first paychecks slip through your hot little hands. Users shared firsthand experience, noting that driving older cars and bunking with Mom and Dad had paid great dividends in the form of peace of mind later on.
VALUEINVESTOR wrote, “One of my finance professors told our class ‘Buy a used Honda, and save as much as you can in your retirement account in an index fund.’ I have never forgotten this advice. I think one of the most common things graduates do when beginning their careers is acquire all the trappings of success before they are successful. I see most of them buying new cars, nice clothes, fancy apartments, or the biggest house they can afford. At the same time, they put little emphasis on building an emergency fund and saving for retirement. I would repeat the advice I received: Don’t waste money on material things, and save as much as possible, as early as possible. Most grads are accustomed to living on a small budget, so keep it that way for a while. It could save years of misery ahead.”
The virtues of debt avoidance was a recurrent theme, with posters noting that taking on debt isn’t only financially crippling, but can also limit one’s life choices.
MarginofSafety stated plainly, “‘Stuff’ will accumulate over time. Do not accumulate debt to pay for ‘stuff.'”
Allenjam also advised discipline on the debt front. “Pay cash or at least pay off your single credit card every month. That kind of discipline will pay off handsomely by preventing unneeded purchases and avoiding usurious credit charges by the card companies.”
Finally, Bill1234, ever the romantic, wrote, “Bag that big, lavish wedding when the day comes. You are not a prince or princess. The day is not made special by how much you spend. Take the money that would have been spent on your special day to pay off debt. Go into marriage with a clean slate.”
Have a Backup Plan
Several users noted that the key way to stay out of debt is to make sure you have ready cash on hand to pay for unanticipated expenses.
Scott123 laid the groundwork. He wrote, “Set up an emergency fund of at least three months of living expenses in a high-interest online bank account. If you’re self-employed or work on commission, you will want to have more cash liquid regardless.”
MarginofSafety noted that having an emergency fund can have spillover benefits for other parts of a person’s financial life. “Learn that by having an emergency fund, you can save a large amount on insurance costs of all types (vehicle, home, and health insurance) by having a larger deductible. A basic principle of insurance is to exchange a certain small and known cost for an uncertain and unknown large cost. I see a large number of otherwise intelligent people of all ages paying huge insurance costs to have first-dollar coverage–this is a waste. An emergency fund also helps you not have ’emergencies’ that require debt to fund them, especially credit card debt.”
Just Do It
For other users, their key advice to new grads was to get started with saving and investing, even if it means starting small.
FidlStix spoke from experience about the virtues of not tarrying when it comes to saving and investing. “Coming out of a famous West Coast college in the mid-60s, idealistic, and very much into the hippie scene, I was totally impervious to financial advice or anything to do with saving money. Now, these older, wiser eyes see my world quite differently. I’d tell a new grad to save, save, save, and learn the basics of investing your money, so you have a shot at being financially independent when you’re no longer working. I waited almost too long to take hold of the notion of saving and investing.”
Winstondunn urged new grads/new investors not to be deterred if they make a few mistakes along the way. “As soon as you have a job and stable income, invest in stocks every month. Put aside the money that you need for living that month, put aside an emergency fund (for example, three months of living [expenses]), then invest in stock. You will be clueless in the beginning and make a few mistakes, but you will lose little money because you don’t have much money at the beginning. You will gain experience from your mistakes. In a few years, you will have more money to invest, with more experience.”
Cutthroat pointed out that you don’t even need to have cash to start the learning process. “Even if you don’t have the cash to do it, create a phantom portfolio and watch it. Learn how the markets move and how to balance the portfolio regularly.”
Recognizing that personal finances are deeply intertwined with a person’s priorities and values, some posters offered advice on life matters as well as financial ones.
In addition to providing some financial pointers, Larry3 advised, “Work hard and have fun” and “do something good for someone every day.” Can’t argue with that.
Scott123 wrote that squirreling away money isn’t the only worthwhile way to deploy cash. “Make investing/saving a priority, but don’t forget to set aside some funds for your quality of life, like going to sporting or entertainment events, taking vacations, particularly to see family (why haven’t you called?), or giving to charity.”
Finally, RetiredinFL spoke for all of us with this evergreen life advice, “Be yourself, not what somebody else wants. Set short- and long-range goals. You will achieve what you really want. Help others who are in need.”
A version of this article appeared on Morningstar.com on May 22, 2011.