“Every generation imagines itself to be more intelligent than the one that went before it, and wiser than the one that comes after it.”
“Adulting” can be unforgiving work. You would think that our “institutions of higher learning” would be more aware of the common sense rules of life. Of the myriad reasons folks spend money on college, they’re two that top the list. First is the love of and quest for knowledge for its own sake. Second is the money and respect that can be earned by having a degree. Face it; after your first job, your degree matters a lot less, but for that first one, it is a really big deal.
For institutions so focused on knowledge and money you’d think most people who earn their coveted degree would have a more solid grasp of this being financially responsible stuff. That being my wish, I am reminded of my mother’s saying, “if wishes were fishes, we could all grab a line.” Many things are taught, but not these common sense basics.
I once took a licensing test for life insurance sales and was just flabbergasted at the simple things I had never been taught about money, financial security, and the risk of ignoring either. Only about a third of the states in the U.S. require a personal finance class in high school. About half the students couldn’t even name the difference between a debit card and credit card!
It matters not whether you are trying to build a Wall Street fortune or just living a tight, frugal life; there are some things that you simply need to know to get along in the world.
1) It’s Never Too Early to Save
You can’t say the reason it takes you so long to pay off your student debt is because of how large it is. It is because you are living in the now, focusing on what you want today rather than what is coming in the future. Most young people have no experience in paying attention to what they need in the future because they were raised in a culture of now.
Life results from the choices we make; if you choose well, and early, you will be on your way to financial security. Of course, between your current needs and the economic situation, it’s easy to see how tempting it is to put off saving for retirement. It’s hard to undervalue how grateful you will be to your younger self when you look back and see how $15 a week looks 50 years later. Actually, anything you put away at your age will, years from now, aid significantly to your security.
There are sexier ways to grow wealth, but for now, do what you can and know that just because no one bothered to teach this to you in high school or college doesn’t mean that you shouldn’t take fiscal control of your life. It is your future.
2) Debt Compounds Really Fast
A corollary to saving is that you have money to play, or to pay. This is something that I wish that I had learned earlier in my life. Debt is not your friend. Many of you have huge student loans. Some of you planned carefully, while others didn’t fully realize how debt and its friend, interest, really work. Student loans, car payments, or credit cards; it’s all the same. It is always better to pay more to reach a zero balance sooner rather than later. Look at your school loan. If you take the whole term to pay it off, it will be three times what you borrowed. Pay it sooner and you will have to pay less. Even if there are penalties for early payment, do it anyway. If you pay it off early, you will thank yourself later in life.
3) Your Credit Score Describes Your Life
Unless you live in a cave, you have heard of credit scores. It ranges from 300-850 and describes how well and regularly you repay your debt. The lower your number, the less likely a creditor will trust you with a loan. Sometimes it can even affect your hire ability. It is a double-edged sword. You have to use credit to have credit, but don’t get carried away. The banks will give you more credit than you can handle; everyone wants your money. That being said, you can say no to the offers and again, you will thank yourself later in life, when you try to buy a house, for example. Keep your debt about 30-40% below what you can borrow and you will be fine. Remember, it’s all about the choices you make.
4) Pay Your Taxes, Pay Your Taxes, Pay Your Taxes
Taxes aren’t always easy. They can become complicated, but the average person can use the 1040EZ (with its line by line instructions) and get it done with not much trouble. Yes, even a simple tax return takes some time, like about four hours a year, but the effect of not paying them lasts even longer. And have no fear; Uncle Sam will come for his money. The government is the last organization you want to owe money to. The IRS can freeze your checking account, put a lien on your home or fledging business, and some taxes, like unpaid payroll taxes, will follow you even beyond bankruptcy. They are relentless in their collections, and paying your taxes is so easy. Just do it. You say yours are too complicated, so hire an accountant, because not knowing the rules and what to pay doesn’t exempt you from the taxman. So, however you manage it, just do it!
You might wonder at the absurdity of being handed a degree in college and still not know the first thing about credit scores, tax returns, or other basic financial data that are at the core of adult fiscal life, but I see it every day. Take the time to learn these lessons well and your future self will thank you.
Remember, it’s all about your choices.