Friday, April 28, 2006

When Times Are Tough, Part II

In Part I we gave an introductory background to how to work through those tough times where you have the college degree but find it tough to make ends meet, with loans and credit card debt to boot. What to do in this situation in an area like NYC? Well, tough times will require some tough decisions, and it depends largely on your mindset and your fervor to get to higher ground.

When times are tough, you have to make some highly unpopular decisions. You may have to take a job that you don't necessarily like—with the base mindset that higher ground is the ultimate plateau you have to reach, no exceptions. You may have to learn to go to grocery stores to buy and cook your own food rather than eating out all the time. You will have to make smarter buying decisions regarding how you buy clothes, managing your hair and eliminating subscriptions to magazines you don't read. You may have to spend more time in the bookstores in the City reading up and sharpening your knowledge in your field. It will involve reducing your cable bill to the necessary options only.

But it's not all gloom and doom and no fun. Ever heard the expression "there's power in numbers"? Consider having in-house chill sessions rather than being tempted to spend money in the City. It's hard I know, but which goal is higher—getting off the paycheck-to-paycheck bandwagon or $20 plus-nights-on-the town? Are you into 24, Grey's Anatomy, House or Reality TV? You can have TV-viewing parties on weekends with friends or card and game nights. It's cheaper than bar and club-hopping and it's more money in your pocket.

Take note—everyone who is decent with money knows that a written plan is the best-kept secret, as it helps you see your progress and will embolden you to work to meet your goal of spending more responsibly and saving better. My written plan is set up month-by-month and I have broken it up further week-by-week. This will allow me to see future expenses for the month and allows me to spend (within reason, of course). In short, remember that in the last 30 years, America has been courted with extreme intensity that to "enjoy life," you have to drive this car now, wear this product now, get this CD now, or use this card now, or Life Will Suck for You. Unplugging from the (and watch how I say this) the over-consumption culture takes discipline. It's OK to buy things, lots of things if you so desire, as long as you can pay for it upfront without putting yourself at risk and running a debt position and you are helping your community regularly.

But what if you're already living close to the bone with your spending? It's time for another income upgrade. If you are on a salary try walking into your boss's office and finding out how you can position yourself for a better income. You should, of course, make sure you're going the extra mile already. You should also work aggressively to find other places to work. Easier said than done? Of course! But I never said this would be easy. You know that already.

As always I would love to continue this topic if anybody has any questions or comments!

Thursday, April 20, 2006

When Times Are Tough, Part I


I wanted to open this entry with a comment left by one of the Anonymous posters that opens up a very interesting debate:

"So alot of what you talk about is kind of from the stance of having a decent career type job. Do you have advice for those coming out of college who just land the $8-15/hour jobs? or is your advice get a real job that makes your degree worth it.... a lot of my friends have degrees and still end up getting these kinda of jobs and so they are stuck tryin to make it in NYC on this salary while paying back [loans], etc etc and it's driving them into debt(and bad credit)..."

Anonymous brings up a very good point. Sometimes its difficult to find work in certain industries that pay for your degree. This can hurt especially if you have loans. Because your degree may not be in high demand it can be discouraging to find employment. Or perhaps you may not have the desire to work for the large companies who are willing to pay more. How can we tie all this together?

Well, the first thing I would say is that when it comes to living on a modest income in NYC, its especially important to watch every penny until you can find higher ground. The road will be tough, but it won't be impossible. I will use a middle-of-road example to try and determine how we can work through this. If some of you who peruse the site would like to contact me directly, you can reach me by e-mail.

Let start with a "sample profile." Take John Q. Worker, who has graduated with a degree in graphic design and is currently making $12 an hour, and he works 40 hours a week and does not currently work any overtime.This equates to roughly $875 after taxes every two weeks. So how can we work this and loans?

First, you should be very aware of where your dollars are going. All of them. John would probably start by listing in writing the basic outgoing expenses on paper, Microsoft Excel, whatever makes you comfortable. Let's take a look at John's "sample" expenses for one month:


Monthly Expenses (Outgo)
Rent: $750
Electric Bill: $50
Gas Bill: $54
MetroCard: $76
Food/Grocery Bill: $250
Hair/Clothes: $200
Student Loan: $100
Credit Card: $50
Entertainment: $50
Cable/Internet: $100
Cell Phone: $50
Total Expenses: $1680



Next, its time to determine all sources of income:
Monthly Money Earned (Income)
Salary: $1750

Then we find the difference: $1750 - $1680 = $70, a slim margin to work with here, but its above zero. If it was below zero, we would then have a problem, because he would be trending negative each month. If he doesn't mind his expenses, he could easily fall into the red very quickly. That's why monitoring and a written spending plan is very important . Many people feel that budgeting is for those who don't know better, or they can keep it in their heads or check their banking account online "to make sure everything is all right. But until YOU do it, it will be very difficult. Why? Because knowing how your money is being spent establishes control. Millionaires keep a written budget, and they're "rich". Why shouldn't the rest of us?

Part II: Next Week.

Tuesday, April 11, 2006

What I Wish I Did with Money in College



So recently I have begun a partnership with Exceptionally Excellent , a community-based financial literacy group dedicated to informing college students at Columbia University (and other schools) about preparing for their financial future. They invited a financial analyst from Fidelity Investments to speak about the importance of managing your finances. Overall, I think the brother did an excellent job covering the “big picture” of building a financial plan: developing a budget, establishing an emergency fund, and beginning a 401(k), Roth IRA, and 529 Savings Plans.


However, there was a golden opportunity missed near the end of the meeting when a young lady asked a question to the effect of:

“This forum seems to be directed at those entering the job market. What can I as a freshman/sophomore do to prepare for my future?,”

To which he responded (and I’m paraphrasing): “You’re young, so it may not necessarily apply to you right now—but it’s important to stay informed about these things.” [Emphasis Mine].


I disagree. College is a place of discovering independence in thinking and umm, ‘behavior’, but if I were to speak with that young lady (I didn’t out of respect for the presenter), I would tell her that it was very important (at the very least) to start setting aside 10% of every dollar that crossed her bank account and put it into high-interest savings, and not spend it unless a true emergency were to come up. The online banks are FDIC-secured, have no minimum balances, and no fees. Find more details here.

The point being that it teaches responsibility early on and gets people into the habit of saving now so that by the time you do enter the workforce, it will be second nature. Most people will realize that you can live off of 90% of your income just as easily you could 100%. Besides, isn’t it your right to keep some of the money you’ve worked hard to earn? Heck yeah!


When you get your check, Uncle Sam gets a piece, the cell-phone company gets a piece, Papa Johns, Best Buy, Macy’s, etc. all come to the table. And if you run out of money, your rich Uncle Citibank and Uncle Chase are there to bail you out, for a price of course.


But what about you? How much of the money can you keep? These guys won’t tell you. It’s a choice you have to make for yourself. I had quite a bit of student refund money looking back. If I had followed the 10% plan back in college, I probably would’ve had more money to speak about, and less would’ve gone to Wing Zone!

Comments, Criticism, or Questions? Hit up the comments section and let’s rap.

Sunday, April 09, 2006

Step Three: Eliminate Debt, and Ultimately Credit Cards

Recently, someone wrote to me and said "Charles, the advice you give is on point, but you can't say that all credit card use is bad. There is such thing as responsible credit card use. "

Yes, I will concede that it exists. I touched upon it in our Credit Cards and Kool-Aid article, but I didn’t go in depth to show where it actually is responsible to use a credit card. Each of these suggestions should be followed on the whole and with consistency, else it is not responsible credit card use. Hopefully, you won’t need to ever use a credit card, I can understand if it comes to that.

To stay consistent, let me open by saying that I did open a credit card account about a year ago, two actually, and carried a balance up until now. Officially, at the end of this month, I will have them all paid off in full, 2 months ahead of target. Many will tell you that was way too slow and I agree. Thank you, Lord. Thank you, Dave Ramsey. And thank you, Internet.

So step 3—elimination of negative debt is presented below. "Negative" debt, of course, is debt owed on a possession that is consistent or declining in value (like a car). Positive debt goes up in value (like a home), but should still be eliminated as quickly as you can.

1a. Don’t Carry Balances. Ever.
There are those of you out there that are convinced that credit cards should be used as long as you can pay of the balance in full so that you can build up your credit. I concede that this may be a good option, but it’s not the best—somewhere along the line, you’ll fall in if you don’t have a significant back up source (read: cash). As a college student, you should avoid credit cards but I can understand if you don’t choose to—but don’t get into the "i'll pay it when I graduate" mentality if you are not aggressively committed to doing so. However, those of you using credit cards "just in case of an emergency" are setting yourselves up for failure. This is the fastest way to set up a revolving balance, which brings in interest and finance charges that will entrap you if you don’t know what you’re doing.


1b. But if You Do…Set a Definite Payoff Goal
I graduated and came to New York in June 2005 with a balance of 2,200 in credit card debt after I left school. Luckily, I had no school loans. My goal was to eliminate all of my credit debt "as soon as possible" and made $100/month (the minimum payment was $20.) However, that’s not a specific goal. Setting a specific goal (of say 8-12 months) forces you to make the proper payments upfront and you can eliminate debt faster. Once I set up a payoff day of April1, 2006 I could then back track to determine how much to pay off and when. Things are still looking to be on track there.

2. If Your Emergency Fund is funded, eliminate the Card...
But don’t close the account. Just stop using the card. The number one reason people say they keep a credit card is because of emergencies. But once you’ve built three to six months’ worth of emergency expenses in a high-interest savings account, why use the card? Keeping the account open can help improve your credit score, and because you no longer have the cards, you won’t lose the temptation to use it again. However, if you've already bought a home and have a car with good insurance, a credit report is not all that necessary to care about, becuase you'll no longer need to borrow. And we know who borrowers are slaves to, right?



3. No one gets rich from "Rewards" Cards
Seriously. Ask Bill Gates, Warren Buffet, or your local liquid millionaire. Ask them if they use those rewards cards much. You be pretty surprised at the answers. You’d have to spend more the get more rewards/miles/cash back. Sometimes they advertise this as "the more you buy, the more you save!" Credit users spend 12-18% more than credit and debit users. Keep that in mind. What could you do with 12-18% more money per year?


4. Work on Those Student Loans
I cannot speak from experience, but I do think its important to pay off those student loans in the same way as you would your credit loans. My girlfriend has taken on 4,000 in graduate student loan debt and will begin paying in 2008. The payments will be about $60/month, which is asking for trouble. If you make significant income (over 50,000), try to pay off your debt within 2 years. This will eliminate drags on your returns form investments, which we shall cover later. $60 a month will not get you there. Eliminate the debt so that you can put that money towards better uses as your income rises.


5. Lastly, Remember your Income will Not Save You
The general consensus is that if left unchecked, income will always rise to meet expenses. It’s human nature. We get a raise at work, we think of ways to spend that raise. However, many fail to realize that their pay raise often translates to less than what they think. Few people think "I got a raise, so that’s more money I can save." I talk to my friends here in the City and I guarantee you saving is the last thing on their minds. And why shouldn’t it be? The City has many places who want your money, and your bank account is perhaps the last spot for it.
Bottom line, you have to discipline yourself. Your income won’t do it. Sure you worked hard for your money, and you deserve to spend. But understand that even millionaires follow written spending plans. It’s a responsibility that income will not eliminate, no matter how much you make.