Archive for March, 2010:
I’m Not Talkin ‘Bout Rich, I’m Talkin ‘Bout Wealth
This video from Chris Rock does a pretty damn fine job of showcasing the difference between rich and wealth. Warning: Extremely explicit language. Plug in head-phones or bookmark this post for a later date if you’re located in an office or school.
Obviously, Rock is using the example of the super wealthy (see: Bill Gates) and the super-rich (see: celebrities that could lose their money in a summer with a drug habit).
But the general concept is the same for “middle-class” citizens.
Usually, we use the words “wealth” and “rich” interchangeably. Someone who has a really nice home, car, and job is said to be rich. Likewise, we assume they are wealthy.
But realistically, the two terms don’t mean the same thing. At least, I don’t think they should.
Rich is subjective. My definition of rich might differ from yours. Plus, you can appear to be rich when you’re actually broke. Rich can be taken away or lost in the blink of an eye. This is because the rich are often controlled by other entities like banks and corporations. Or, they squander away their new-found richness (see: lottery winners).
The financial crisis going on over the past few years is proof of this. Tons of people in the U.S. borrowed to “buy” private school educations, fancy cars, and huge homes. They whipped out a credit card to fuel exotic vacations and a nicer day-to-day life.
Then, banks tightened up credit. Credit card interest rates went through the roof. Companies downsized and rightsized. People suddenly found themselves in a big mess.
These individuals may have been rich (by living off credit cards and using their decent income to secure financing) in appearance, but they certainly were not wealthy.
Wealth can’t be faked. Wealth can’t be taken away because of the decisions other people make. Wealth, in its simplest form, is a set of behaviors that lead to financial success.
Some of these factors include:
- Saving a certain amount or percentage from every paycheck
- Refusing to take on debt except when necessary (like a home mortgage)
- Spending less than you earn
These factors aren’t new or exciting. They’re honestly just common sense. If the entire working population (including teens) were to just simply start saving 10% of their pay, millions of people would be better off. And that’s just one small behavioral modification
At the end of the day, remember that you have the power to make wealth happen. Being rich though, is often just a fad.
Five Financial Mistakes I’ve Made in the Past Year
A post last week on The Simple Dollar listed ten financial mistakes the author had made in 2009. I liked the concept and decided to “steal” it. (Hope you don’t mind Trent!)
My list is only five mistakes long because, well, I’m 18 and I’m not involved in enough areas of finance to make more mistakes. 
I quit my job. I started working at a large clothing retailer in November of 2008. Then I quit in March of 2009 because I was supposed to go back to work at my other job. That job never came back into existence.
Solution: Don’t terminate employment until you have actually 100% secured other employment.
I didn’t save much money. This goes hand in hand with quitting my job. Loss of income=less money to save. Still, I could have saved a bit more.
Solution: Once income becomes more predictable, both in amount and timing, setup automatic electronic fund transfers to my ING DIRECT savings account.
I bought an iPhone. First of all, I shouldn’t have dropped $100 on a cell phone. And I had no business purchasing the mandatory $30 per month data connection.
Solution: When my contract is up in the beginning of 2011, I’ll pick up a free (or cheap) cell phone that doesn’t require a data package (unless my income significantly increases).
I waited to start blogging. I had thought about starting a personal finance blog way back in early 2009, but never actually wrote anything until November. Why is a this a financial mistake? Blogs can make a decent chunk of change through advertisements, but it takes time to build traffic. Plus, writing about money has the positive effect of me managing mine better.
Solution: Stop thinking so much about the why and how when new opportunities become known.
I spent too much money on stupid things. While the iPhone was/is too expensive, at least it adds a decent amount of value to my life. Cappuccino, Coca-Cola slushies, Slim-Jims, and the like on the other hand eat away at my checking account but don’t provide any value.
Solution: Define spending priorities with more detail and track spending more closely.
It’s good to reflect and recognize mistakes, but I won’t be loosing any sleep over them. I’m young and none of these are going to significantly harm my future. Live and learn!
Do Not Buy Stuff You Cannot Afford
The following is a clip from Saturday Night Live that explains how to spend less than you earn.
This video is simply awesome. If I was in the business of comedy, this is the type of stuff I’d do. Common sense, yet surprisingly uncommon.
Hilarious and true.
Just remember that you save up money before you buy something. You do not buy something because you think you can pay for it later. You pay for it now, if you can. If you cannot, you don’t buy it.
I just prevented you (and myself!) from ever incurring credit card debt.
You’re welcome.
Weekly Roundup – Spring Break Edition
This weekend is shaping up to be nice and relaxing. It marks the start of my spring break, so I’m pumped for that. Hoping to enjoy sleeping in, hanging out with friends, and writing more blog posts! After spring break, graduation is only two short months away. I’m ready to finish this thing!
Here are some of my favorite personal finance articles from the past week or two.
What Exactly Is “Wasted Time” (or “Wasted Money”)? is something that’s different for everyone. We all have our own interests, so your definition of wasted time is going to be different than mine.
College Scholarships – Murky Waters for Students and Parents dicusses how not all scholarships are created equal. Speaking of which, I need to send in some more applications! I’ve really been slacking lately…
Barriers Behind Throwing Out Stuff & How-to Overcome Them is something I deal with often. I’m horrible at throwing things away and often let things like candy wrappers or empty water bottles clutter up my desk. I’m also trying to get better at putting clothes away, but it’s a struggle.
Financial Plan Writing is a great exercise to do. I’ve been meaning to write my own, but just haven’t sat down to really think about where I want to be financially in a few years.
Postpone College In Order to Pay For It With Cash? looks at the possibility of delaying college until you can pay for it without taking out loans. Personally, I’d whether take out some student loans in order to get started right away. But I’m sure some people feel that debt should be avoided at all costs, so it’s legitimate question to ask.
Some Thoughts on Predicting the Future really resonated with me. There are so many things in life you can’t control, but it doesn’t make sense to worry about them. Plan for them? Definitely. Worry? Never. For us youngins’, avoiding obscene amounts of debt (I’m looking at you, student loans) is a fantastic way to plan for the worst.
Comparing Financial Aid Awards and Figuring Out Total Cost of Attendance
After weeks of waiting, I’ve finally received my financial aid awards from the colleges I’ve applied to.
The award letter you receive will probably have different types of aid. Some of this has to be paid back, while some of it does not. Also, your award letter won’t include scholarships that you applied for by yourself, independent of the university.
But all this information can be confusing. The award letter won’t tell you specifically how much you’re going to owe versus how much you’ve been given. To figure this out, follow the steps below:
1. Get out a sheet out notebook paper, open up Excel, or use this handy worksheet from American Student Assistance. In columns, write down the total cost of attendance for each school you’ve been accepted to. This number can be found by going to the university’s website. Remember not to include costs like books or travel expenses, since these costs will vary by school. We want as close to an apples to apples comparision as possible.
2. Below that number, write down any financial aid you’ve received that you don’t have to pay back. Things like Pell grants, state grants, college scholarships, work-study, and any independent scholarships that aren’t limited to just one university. Total up all of this aid and record it on your piece of paper (or spreadsheet).
3. Now we’ll look at aid that does have to be paid back. These includes Stafford loans (both subsidized and unsubsidized), Perkins loans, other loans. Total up all of this “aid”.
4. Currently, you’ve figured out how much financial aid you have to pay back and how much you don’t. Add these two numbers together. This is your total award amount. Your award letter probably already did this for you, but we aren’t done yet.
5. Subtract the total amount of financial aid (found in step 4) from total cost of attendance (found during Step 1). The resulting number is how much you and/or your family (see: parents) are responsible for. This amount must be earned or borrowed in some way.
6. Final step! Add your family’s responsibility to the total amount of aid you have to repay (found during step 3). This number represents the total amount of money that the university will cost.
Once you’ve completed this exercise, you should have a much better understanding of your financial aid. Also, you’ll realize just how much money you’ll need to borrow or earn in order to pay for college. Keep in mind that the absolute total amount is going to change (see: increase) once interest is calculated on any loans you take out.
If you’re interested, you can click here to see my worksheet. I’ve only filled out one school so far though.
How Much Does It Cost to Prevent Pregnancy and STDs?
Quick!
Think of something more personal than sex.
Can’t, can you?
No, I haven’t sold The Financial Student to some sleazy Internet video company.
Interestingly enough, sex is very personal. And it can have a lot of financial implications.
Until abstinence only education starts working, many teens and young, unmarried adults will engage in sexual intercourse with their partner(s). But this um, activity, can come with some significant financial consequences if you aren’t careful. Babies are expensive and nobody wants to waste hard earned cash on antibiotics for a preventable condition.
Below, I’ve listed some common forms of birth control and STD prevention (I chose these primarily on how accessible they are to teens.)
1. Condoms (A.K.A. rubbers, love gloves, and raincoats)
Pros: cheap, quite effective in preventing both pregnancy and the transmission of STDs, doesn’t require a prescription
Cons: not as effective at preventing pregnancy as the pill, can interrupt the “passion”, latex condoms are damaged by oil based lubricants, some individuals have a latex allergy (condoms made out of polyurethane are available)
Costs: Around $1.00 per condom. Significant savings can be realized by buying in bulk. For example, here’s a package of 100 for 15 dollars
2. “The Pill” (A.K.A. the combined oral contraceptive pill, containing both oestrogen and progestin.)
Pros: extremely effective at preventing pregnancy since less than 1 out of 100 women will get pregnant each year if they always take the pill each day as directed, doesn’t require an interruption, can reduce acne, cuts risk of certain cancers
Cons: prescription is needed, no STD protection, certain medications (like antibiotics) can interfere with the pill’s effectiveness, must remember to take it everyday
Costs: $15-$50 per month. Many insurance companies will pay for “the pill”.
3. Spermicide (Works by stopping sperm’s movement before they can fertilize the egg.)
Pros: relatively cheap, no prescription needed, okay to use with condoms or the pill for additional protection
Cons: not extremely effective compared to other methods, no STD protection, interrupts the “passion”, messy, slight risk of irritation
Costs: About $8. Refills range from $4 to $8.
4. Abstinence (A.K.A. the not touching each other method)
Pros: 100% effective in preventing pregnancy and the transmission of STDs when used all of the time, allows for upholding certain religious and moral beliefs
Cons: relies completely self control, partner may not be on board
Costs: free
My hope is that this list provides a good overview of some of the most popular methods to prevent a pregnancy or STD. I’ve left out methods like the patch or the shot because they work in similar ways to the pill.
While all of these methods have similar financial costs, each has different medical and social issues involved, so it’s important to make an informed decision on what’s right for your body. For more information, check out Planned Parenthood’s excellent website.
Thoughts On Health Care Reform H.R. 3590 Patient Protection and Affordable Care Act
In case you hadn’t heard, the United States of Representatives passed a health care reform bill on Sunday. You might think that this legislation doesn’t affect you, but there are actually a couple of key points that are important to young people.
I’ve included the actual facts that go along with the bill, along with my own thoughts and opinions. Feel free to ignore my personal opinions.
Effective 6 Months From When President Obama Signs the Bill
1. Young adults can stay on their parents’ insurance plan until they are 26 years old. Currently, many insurers kick off dependents when they turn 19 or finish college.
My thoughts: Good move. While it’d be great if we lived in a perfect world and colleges graduates got a job with benefits ASAP, we simply don’t. This should provide a good safety net for young adults.
Effective Starting in 2014
2. Insurance companies are prohibited by denying people coverage based on pre-existing conditions.
My thoughts: Another good move. Before, someone could be diagnosed with a chronic illness during their childhood, and then not be eligible for insurance once they were removed from their parents’ plan.
Without diving too much into my opinions, I will say that I’m glad health care reform is finally going somewhere. The current system is ridiculous in so many ways. I’m hoping this bill leads the way for smarter, cheaper, and better healthcare for all.
How I Saved Up for My Own Car
Rusty Car by dandeluca on Flickr.
There are lot of theories on what’s the best way for a new driver to get a car. Some think the parents should pay for it all while others prefer a 50/50 split. Still others think the best way is for the child to save up all the money himself. I’ll admit I’m not sure which is the best policy. But I explain how my own came to be in my possession.
My state is the home of the 4-H program. If you haven’t heard of this before, I’d encourage you to check out the Wikipedia entry here. Basically, it’s a youth organization that for me, always had an agricultural center. Through this program and participating county fairs, you purchase and raise animals (dairy feeders, steers, pigs, goats, turkeys). At the end of the fair, you sell the animal through an auction style market.
I was able to buy a car through the selling of these 4-H “projects”. There are other projects that deal with other fields of agriculture like soil quality and crop growing along with science and civics. I took dairy feeders (what most people would call cows) and pigs during my 4-H career. At first glance, this might seem like I was just earning all this money by myself. But that’s not the case. You have to remember that:
Caring for livestock is not cheap. You have to buy the animal, feed it, shelter it, and transport it. All of this costs money. My dad covered most of these expenses. In later years, I was responbile for buying the animal. If my dad had not covered these costs, then 4-H would not have been nearly as financially lucrative as it was for me. But it was lucrative in another way…
It taught me that sometimes you have to do stuff you don’t want to.
I was never huge fan of 4-H. There were meetings to go to. I had to feed my animals. I had to walk my animals. Pulling a 400 pound dairy feeder around my yard was not fun. I never really wanted to play the role of farmer. The months of work were rewarded by one week of fair. But it was pretty much the only option I had to make enough money to buy a car someday. So I joined and participated for four years. After those four years, I quit because I didn’t want to do it anymore and I figured I had enough money for a semi-decent automobile.
Looking back now though, I realize my dad was a reward-child-for-hard-work genius. It was made clear in my family that if you didn’t participate in 4-H (or figure out another way of earning money), you would not be receiving a car as a gift. This motivated me during the few years I participated. Now I wish I would have continued with the program until at least the beginning of high school. I could have accumulated much more in savings and possibly even purchased a nicer car.
I sure didn’t realize the benefits of this type of system at the time. But I really think it did a great job of teaching me that “Stuff” requires work and thanks to my dad’s help, my work really paid off. I’d encourage you to try this type of deal with your parents. Maybe they could match your earnings from a part time job up to a certain amount. It might just be the motivation you need.
Looking At When Spending Money Can Actually Improve Your Finances
One of many personal finance commandments I hear is “spend as little money as possible”. On the surface, this is a good rule to live by. After all, the less money you spend, the more money you have to save or invest.
But there are certain situations when, financially, it makes sense to spend money even when you weren’t planning to do so.
For example, I recently received a letter from ING Direct notifying me of a promotion they have going on. The letter told me that if I opened an Electric Orange checking account with them, and made 3 signature based transactions (those that do not involve entering my PIN) within 45 days, then my account would be credited $50 dollars.
At first glance, it might seem counter-intutitive to make three purchases just to make 50 bucks.
But if you look a little closer, you’ll notice that there’s no minimum purchase amount. So, my plan is to go to Walmart or Meijer and buy three packs of gum or possibly something even cheaper. My local Meijer even has self-checkout lanes, so I won’t have to look like an idiot by going through a lane three separate times.
$50 bucks for spending a few dollars sure seems like a win to me.
But the concept of spending money to make money doesn’t stop with promotional offers from banks.
Let’s say you purchase a book about personal finance. You implement a few of the ideas after reading it. Those ideas could easily save you hundreds, if not thousands of dollars.
Or maybe you decide to spend a reasonable amount of money going to college. You might be spending thousands of dollars, but the degree is worth the cost because it allows you to get a job that can pay more. Or at a least a job with better benefits and working conditions.
Lastly, you could decide to purchase a more expensive, but also more reliable and fuel efficient car instead of a cheap and low quality vehicle. You might be paying more upfront for the nicer car, but you’ll save money over the long run by spending more cash to begin with.
The take home point is that spending money can be a viable way to actually boost your income or increase your savings. Many things in life cost money, but they can also improve your bottom line.
Leaving Facebook’s Privacy Settings Unchecked is Dangerous: Here’s How to Fix It
As I use Facebook more and more, I notice that a lot of people don’t have any restrictions on who can view their profile. Facebook itself doesn’t always help matters either. A few months back they changed the way privacy settings work. A lot of people were confused, and as a result, ended up leaving information exposed without realizing it.
This is dangerous.
The reason why this is so important is because the employers of today and the future will be checking out your page. Check out the story of this woman who was fired because of her status. Even more important, though, is your physical safety. You strong>do not want strange, random, or shady individuals commenting on your pictures or showing up at your house.
With that said, let’s dive into Facebook’s privacy features:
First, click on “Account“, located in the upper right hand corner. A menu will drop down. Select “Privacy Settings“.
A new page will load with four options, click “Profile Information“.
Once you’ve clicked “Profile Information“, you’ll be taken to a page with about a dozen separate privacy settings:
As you can see from the screenshot above, I’ve kept my settings ridiculously simple. All of them are set to “Only Friends“. I recommend you do the same. Allowing networks might be okay also, depending on how large your networks are.
Important: When Facebook says “Everyone”, they really do mean everyone. Anybody who goes on Facebook can access your data if you set it to “Everyone”. Bosses, exes, parents, stalkers, murderers, etc.
Now that we’ve got our profile information nice and secure, it’s time to lock down contact information. This is arguably even more important than the previous settings.
Go back to the previous page by clicking:
From there, select “Contact Information“. A new page will load:
This page controls how your accessible your sensitive information is. Things like your address, phone number, IM screen name, and email address. There’s no reason why anybody who I haven’t confirmed as a friend should be seeing any of those, so strangers are blocked.
I don’t even let all of my friends see my street address. There are some Facebook “friends” that I’m just not close to, so I don’t see a need for those people to know exactly where I live.
I do, however, let anybody request me as a friend or send a message. Changing this setting will make it harder for people to find you and add you as a friend.
There you have it! Some simple instructions on how to keep your Facebook information out of others’ hands.
One thing that’s important to keep in mind is that anything you allow your “friends” to see, can be printed out and shared with others offline. I have a friend on Facebook who recently posted a picture of his bong. Probably not the best picture to upload!
Be careful out there on the interwebs!
