After being involved in several business organizations and hearing countless presentations, I have been told over and over again what I need to do to put myself in a better financial position. I have heard presentations from investment brokers, financial planners and accountants, and they all seem to give similar advice.
The fact is, it’s not too early to start planning for our financial future. Regarding our futures, there are five basic financial mistakes graduates make when entering the real world.
Loans and retirement
The first mistake graduates make is paying off their student loans too early. To be honest, we will never be able to borrow money at such a low interest rate again in our lives. The mistake is made when the loan collectors start calling after we are gainfully employed and we feel the need to pay off the entire balance as soon as we can.
After all, if we can get out of debt, shouldn’t we? The answer isn’t that simple. Yes, it would be nice to be completely debt-free but there may be other ways to handle our money that will benefit us later in life.
For example, say we have an opportunity to invest in some sort of retirement account that earns 8 percent, or we could pay off our student loans that we took out at 3 percent. If we invest in the retirement account, we would net 5 percent.
Over the life of that retirement account, this could be a very substantial amount. Think about what would happen if an unexpected expense came up and you just got done spending your money paying off your student loans. Now you will need to take out a loan from the bank, and the interest rate will not be as low as the student loans. In this scenario, paying off your loans would actually cost you more money than putting it in the bank.
Another mistake a lot of people make is not saving enough for retirement. The early years of employment can make or break your retirement savings. By now, most of us have heard the wonders of compounding interest. If we hold off on that big purchase when we graduate and put that money in either a 401k or a Roth IRA, the results are astounding.
The mistake a lot of people make is thinking that they cannot afford to put money away. In all actuality, they can but they just don’t see how. Look for alternatives. Perhaps you could hold off on an expensive vacation and go camping instead. Maybe you could ride around in the old, but trusty, college car instead of getting a new sports car. Anything to put more money in the retirement account will benefit you later in life.
What is a fast way to lose $3,000 of your new investment? The answer is buying a new car. New cars are perhaps one of the very few investments I can think of that will never make you money. Driving a new car off the lot immediately decreases the value of the car. Take a drive through a car dealership and cruise through the used car section. I am willing to bet you can find a quality used car with low mileage that is probably still under warranty.
What does this mean?
You would essentially be purchasing a nearly new car, but pay less than the price of a new car. Honestly, after you drive off the lot, would anyone really know that you bought a used car? Buying a used car can save thousands of dollars.
We all know the housing market is in shambles right now. Foreclosures are increasing, more and more people are trying to sell their houses, and the price of real estate in general is decreasing. This sounds like one industry you don’t want to be in, right? Well, not necessarily. Many houses that were once unaffordable are now becoming affordable because of the poor market. I’ve personally never met a businessperson who told me that building assets and building equity are bad things.
Financially speaking, the ideal situation would be to live at home rent-free, but for one reason or another, that may not be the desirable option.
Now you should still know and understand what you can and can’t afford, but that doesn’t mean you can’t buy a house.
Don’t feel pressured to rent because it is the cheapest solution. Look for a quality house at a price you can afford because eventually the market will rebound and the prices will go back up. So waiting to buy a house may actually cost you in the long run.
Don’t sit back and feel bad for the condition of the housing market. We are in a position to take advantage of it and get a quality house at a low price.
Finally, the most important thing someone can do is develop short-term and long- term financial goals. Where do you see yourself in five years, 10 years or even 50 years? I know it’s a question that has been asked so many times, but think of it in
Depending on where you want to be financially will determine how you should invest your money. Consult with a financial advisor. I’m sure that you could do a fine job managing your funds, however, a financial advisor is a trained professional who can help you attain your goals. It may be worth the money to see what they have to say.
Financial planning takes time and patience. The key to success is starting off right. Following these suggestions will ensure you a financially successful future.
Ritchay is a junior accounting major and guest columnist for The Spectator