Managing money is generally not taught in elementary school. About 17
states require students to take a personal finance course in high
school, but only a handful require testing on the topic, according to
the Council for Economic Education.
When it comes to money, it's
better to learn from other people's mistakes than to make your own.
Follow these tips when you're young to avoid financial hardship in life.
1. Go to college
You
may want to do something that doesn't require a college degree, such as
playing professional golf. But give serious consideration to enrolling
in college anyway. Yes, it's a major investment, but if your parents are
unable to help you pay for it, make it happen yourself, even if it
means taking out loans. Just don't get in over your head; try to borrow
no more than the amount you expect to earn the 1st year after
graduation. That way you can pay off the loans within 10 years. One way
to save on costs: Go to a community college first; then transfer to a
4-year university after 2 years.
It's easier to get a degree when
you're young than when you have a home, family and all the attendant
adult responsibilities. Your earnings potential increases significantly
with a college degree -- which will come in handy if your other dreams
don't materialize. Plus, you will likely experience a love of learning
that you will never outgrow.
2. Find your purpose
If
you're having trouble figuring out what you want to do with your life,
look within. You were born with certain talents and natural abilities.
You know which subjects you excel in and which ones you struggle with.
Choose a career that enables you to maximize your gifts in a way that
fulfills you or helps others. As you grow, your career may change along
with your desires. But for now, gravitate toward a field that feels like
home.
3. Begin retirement planning with your 1st job
This
tip is so important. If the company you work for offers a 401(k) plan,
sign up at your 1st opportunity. If there's no such plan, divert some of
your paycheck into an IRA. Believe it or not, if you're lucky, one day
you'll find you are older, so it's best to be prepared. Setting up
automatic contributions to either one of these retirement vehicles at a
young age will help you build wealth painlessly.
Naturally, the
more you earn, the more you can stash. Sock away at least 7% of your
earnings in the beginning, and increase it each year until you're
diverting 15% a year.
4. Place a value on money
It doesn't
buy happiness, but it can certainly make you comfortable. Just
understand what it's worth. Money is what you earn in exchange for your
time in some productive pursuit. Let's say you earn $20 an hour at your
job, and you're considering purchasing a TV for $500. You may calculate
that you spend 25 hours, or about 3 days, earning that money. It's worth
it, you may think. But that's not an accurate value estimate. If you're
single, you're in the 25% tax bracket, so you actually spend about 33
hours earning the net income required to make the purchase. It still may
be worth it, but there may be competing demands for that money, such as
rent and car payments, not to mention your retirement fund. Each
purchase represents a trade-off. Make these decisions wisely.
5. Use the credit card sparingly
This tip is also really vital. It's easy to spend now with plastic and much harder to pay later. Use credit responsibly. Comparison-shop for your card.
Remember that you'll be relying on your future earnings to pay for
today's credit card purchases. And if you keep a running balance, you'll
also be paying interest, sometimes at usurious rates. Don't fall into
this trap. Instead, save money to meet financial goals.
6. Follow the golden rule
Contrary
to popular belief, the duplicity and craftiness of Machiavellian
tactics won't really help you survive. Instead, they'll engender
mistrust in your relationships. Treat others fairly, the way you wish to
be treated. No one looks good when trying to make others look bad. When
you're on the job, avoid gossip. Beware that when someone takes you
into his or her confidence to point out someone else's foibles, it's
only a matter of time before your foibles come to light.
7. Select your partner wisely
Choose
someone whose values match your own -- not just where money is
concerned, but more importantly, ethical and moral values. Get to know
your soul mate over the course of at least a year. Passion is important,
but trust even more so. Make sure you are free to be yourself. If you
hook up with an angry or overly critical partner, you will be subjected
to hostility and may lose your sense of self. Conversely, if you're the
one with anger issues, resolve them before they poison a perfectly good
relationship. Learn to make decisions with your heart, along with your head.
8. Be prepared for the unexpected
Someday
you may lose a job through no fault of your own. Prepare today by
stashing money into an accessible emergency fund. The easiest way to do
this is to automatically divert a portion of your earnings into a
savings account in addition to the amount you're contributing to a
401(k) plan or IRA.
Try not to use that 401(k) money for
emergencies. It will cost you plenty, between income and penalty taxes.
For instance, if you have $10,000 in your account and you're in the 25%
tax bracket, you'll lose $2,500 to taxes, plus pay another $1,000
penalty for breaking into the money before you reach age 55. (For IRAs,
the early withdrawal penalty applies up to age 59 1/2, with certain
exceptions.) Bottom line: Your $10,000 dwindles to $6,500. Worse, you
will have lost the opportunity for that money to compound and build
wealth for your retirement.
9. Learn about investing or hire help
It's
not rocket science; in the beginning you just need to overcome fear and
select 1 or 2 good, cheap mutual funds. After you've amassed some
wealth, it may be time to hire someone. If you do, you will obviously
have to pay for the service. Get referrals and then check out the
qualifications and credentials of a prospective financial adviser or
broker.
Make sure you understand the fee structure of the
services. Is it commission-based or do you pay an hourly fee or a
percentage of assets or some combination of these fees? Ask for a
complete breakdown. Also, check with the appropriate authority to see if
any disciplinary actions have been taken against a certified financial
planner or broker before you initiate contact. If you're confident
enough to choose your own investments, you might find that going with a robo-adviser is the best bet.
10. Be thankful for your good fortune
It's
not all about money. If you work at it, you will have abundance --
through strong family ties and solid relationships, as well as monetary
assets. Take some time out each day to reflect on the good in your life.
Spend at least 1 day a week in a recreational activity or hobby that
you enjoy, and take a minimum 1-week vacation annually if you possibly
can so you can totally unplug and unwind. Again, save for the trip.
If
you have children, spend as much time as you can with them when they're
still young and dependent on you. Before you know it, they'll be old
enough to get a driver's license, and you'll see less and less of them
from that point on.
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