Personal Money Management 101?

The Truth About Money by Ric Edelman is a big book, but it really gives you a good idea of how things work.

The Money Book for the Young, Fabulous and Broke by Suze Orman would be good to check out. I suggest flipping through these at the bookstore before buying anything to see if it suits you. Good Luck.

One big piece of advice: Don’t get a credit card. You will manage your money much better if you pay as you go.

No books, but I recently graduated college and am still learning. Here are a couple great tips (that work for me):

-Use a balance sheet. You are more aware of your spending and savings if you have it written down

-Open credit cards to build credit, but only a few good ones that you know you will keep for a long time (since closing cards may hurt your credit score)

-Open a credit card with which ever bank you have checking and or savings. This way, it’s really really really easy to pay it off without putting forth much effort.

-Leave your credit cards at home, the temptation to use them will occur alot less if it’s not with you when you think about using it.

-Use the card, BUT pay it off immediately. On that note, if you don’t have the money in the bank to pay for something, you don’t NEED it.

Just a few thoughts from the peanut gallery :)

If you do get a credit card, try to get one with lower than 79.9% interest…

Just because your parents don’t speak English doesn’t make them stupid. Have you not even asked them this question? If they raised you and got you to a point where you can be going to college, then they must have something on the ball.

Personally, I think having and using a credit card is an excellent idea, as long as you treat it as “convenience only” and not “free money”. That is, pay off the full account balance in full and on time each month.

My internet is buggy…

Your Money or Your Life by Robin and Dominguez was super influential for me in my 20s.

There’s another book called Personal Finance in Your 20s and 30s. I think it’s by Beth Kobliner.

I also recommend Personal Finance for Dummies by Tyson.

@davidbetterman Holy horsecocks!

@jerv LOL..It was news a couple of weeks ago.

@davidbetterman The price I pay for not wasting my money on TV….

TV is free for me! But saw this on yahoo news.

Start by going to your nearest bank and meet with a banker. They can expertly explain the things you need to know about managing your money. You can also get a debit card which will introduce you to the power of plastic.

Just because you’re interested enough to ask this questions means you’re way ahead of many of your new college student peers.

I respectfully disagree with @janbb‘s advice that you not get a credit card. Getting a credit card and paying off your balance EVERY MONTH is a good way to start establishing your credit history. My father signed me up for my first credit card just before I went to college at age 15, told me to always pay my balance in full, and monitored my statements for the first few years. I was a very responsible kid; this would not be the right idea for every family or every teen. However, the upside was that, when I needed to sign the lease on my first apartment at age 18, I could do so because I had a bit of credit history. If you wait until you’re 22 to start using any credit products, you’ll be stuck depending on your parents co-signature for a much longer time. Not necessarily a problem, but I was very independent and it was meaningful to me to be able to sign my own leases ASAP.

Finding the right credit card is important. Start with just one, and wait a long time (years, please) before you start using multiples for the different reward programs. As previous posters have mentioned, you should try to get the lowest interest rate possible, just as a matter of practice. You shouldn’t ever plan to incur that interest rate though: PAY OFF YOUR CREDIT CARD BALANCE EVERY MONTH, NO MATTER WHAT! Capitalone has a number of good products for students, or at least they did eleven years ago when my dad was shopping around for a card for me. (Full disclosure: I do NOT work for any financial company.)

Talking to a banker is good, but take every bit of advice with a grain of salt. Many banks do view you as a cash cow, and an unscrupulous banker is just as bad as an unscrupulous credit card pitch man at your student center. See if you can also talk to someone at a local credit union, to see the difference between that and a traditional bank.

Initially, I would recommend avoiding investment products entirely in favor of building up a good base of savings. Find a good high-interest checking or savings account, like an ING Electric Orange account or something with an ever better interest rate than that.

If you are interested in starting to invest, a good way to get ready for that may be to follow the advice of my high school pre-calculus teacher, who told all his students that the number one thing he wanted all of us to remember was to open a Roth IRA as soon as we turned 18 and to contribute the max to it every year. I’ve followed his advice, and I think it was decent advice. However, don’t feel in a rush to start investing that Roth IRA until you’re good and ready. I contributed to my Roth for several years before I felt like I understood investment enough to start investing it (funds remained in a money market until then—I know that’s low return, but keep in mind that you can also use those Roth funds for other things besides investment, so it’s not all bad for it to stay cash for a while). I (and later my husband) settled on a very conservative index fund portfolio with dollar-cost-averaging purchasing strategy, and that’s working just fine for us. We make our money from our business, not from trying to beat the market, and that’s what most people should do.

Signing up for an account at Mint.com to link all your bank accounts and credit cards together is a good way to make reconciling your accounts every month easier. I wish Mint had existed when I was starting out! Mint will also expose you to a lot of financial product marketing, for credit cards and brokerages, so be very leery of all that too. Same problem as the unscrupulous banker; who knows what advertising deals Mint has with all its advertisers!

I wouldn’t read just one book or follow just one person’s advice. You have to decide on a financial strategy for your life that reflects your own values and your own beliefs about the financial system. Don’t be fooled by anyone who tries to tell you that there’s a simple way to manage your finances that takes everything into account. There’s not. Part of your college education will be starting to learn about all the complexity in our world and making decisions for yourself about what you think is true and what you think is the right thing to do.

@maudie I agree that if you have the discipline to pay off your credit card balance every month, it is a good idea. However, I don’t think most 18 year olds do and often get into trouble by ignoring the discrepancy between what they are putting on the card and the money that they have. I feel you can establish a good credit rating when you are a bit older, but I take your point.

Sorry for the late response guys; we lost power over here.

@maudie: I’ve read briefly about the Roth IRA before but I believe you can only contribute to it if you’re working, right? I may not have a job until after college, depending on how the campus jobs are.

@janbb: I see your logic in not getting a credit card, but like maudie mentioned, it’s important to me to have some credit history, especially since I’ll be living across the country and it’d be a massive pain to get my parents to cosign anything. ;)

@CyanoticWasp Sorry if I gave you the wrong impression. I adore my parents and consider them to be near-geniuses…just not at everyday things like credit cards. My dad’s actually the quintessential eccentric but genius inventor that doesn’t pay much attention to boring things like money management. He even sometimes bolts straight up during dinner, shouts “Eureka”, and rushes to the nearest pen and paper.

Anyway, I’m so clueless about credit cards that I don’t even know how you “pay them off”...with checks? transferring money from a bank account? do you do this ASAP after making a purchase or do you do it at the end of the week?

Speaking as somebody who never bothered getting a credit card until they were in their mid/late-20s, I have to say that being a ghost in the system is a bad thing. I prefer to deal mostly cash, so the credit agencies really don’t know enough about me to trust me with a credit limit of even $500, and there is no chance of me getting a loan if I need one. My wife and I tried to get a mortgage and we could only get approved for $66k, or less than half of what houses were going for in that area at the time.

Sadly, I know people who have a criminal record full of fraud, bad checks, and such that get more credit offers than I do. I guess even criminally bad credit is better than no credit!

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As for paying them off, I generally just log onto my card-issuer’s website and set up an electronic payment from my checking account to saves me a stamp. Your billing period is generally about a month; your statement will tell you your exact billing date.
You only really have to pay them once a month, and so long as they get at least the minimum balance due before the billing date, which may be 3 weeks away, you’re fine.
Of course, you want to pay more than the minimum unless you like getting ass-raped by interest…

@shared3 That’s correct—you have to be both 18 or older AND making income from work to contribute to a Roth IRA.

@shared3 Oh, and most credit card companies give you a few options for paying: direct electronic payment (which can even be automated, with many companies) from a linked personal checking account is the easiest way, but you can also pay by mailing a check or even call your credit card company and pay over the phone by dictating to them your checking account number and routing number.

@maudie: Cool, so my credit card company offers automatic electronic payment, the needed funds will automatically be drawn from my checking account? That seems like the smartest way to do this, by far. What if my checking account has insufficient funds? Will I be contacted?

You will want to talk to your bank about debit cards, credit cards and overdraft charges for insufficient funds. A debit card will deduct the money from your account as the charge is incurred; credit card bills are presented for payment usually once a month. If you don’t have enought money in your checking account and you have overdraft protection, you will be covered but there will be a hefty charge added on. You want to be very careful about payment on time for credit card charges and have enough money to cover your bill.

@shared3 Unfortunately, most banks have an incentive NOT to tell you when you’re close to a zero balance, because then they can charge you overdraft fees. If you try to pay your credit card with an overdrawn checking account, you may also get hit with fees from them. The best bet is to monitor your finances at least once a month using something like Mint.com (or go old-school with QuickBooks, QuickBooks Online, Quicken, or even spreadsheets, or even – gasp! – pen and paper), to make sure you keep a healthy padding of cash in your checking account that’s more than enough to pay your monthly credit card bill. Mint, unlike your bank, can be set up to warn you when you’re reaching a low balance in your checking account.

Account structure
On a very, very basic level make sure you have three accounts.
1) Primary checking:
what you spend from. Pick an amount for your personal minimum balance (mine was to never go below $100 in college) and stick to it. This helps prevent overdrafts. Nothing sucks worst than a $30 snickers bar.

2) Bills checking:
money should be sent here for bills each time you get paid. Only spend from here when you’re paying bills (from cell phone to gas money to a credit card). By bills, I mean set amounts (groceries is not usually a set amount). This account should basically wash out. What you put in is what goes out. If you have the money, a bit extra for a buffer is good too, but so long as your on top of things you should be fine.

3) Savings account:
at a minimum, this should have around $500, if not more, in it. Depends on your situation. If you have a car, you need at least your deductible. As a student, add on one semester’s worth of books. Basically, emergency money. They say 3 months worth of bills is good too, but you can up it if you feel the need.

If you have the money, another savings account is nice to save up for a new computer, tv, furniture, etc.

Budget
Make a budget. Make sure you can live off of what you’ve budgeted, and still have some left over (this of this as your net profit. Income – expenses = profit. Its hard to get anywhere in life without being able to put extra away). If you can’t, you’ll need to cut back on somethings. If you can, make sure to include fun money in your expenses. It is super hard to save money if you don’t allow for fun.

Sticking to a budget can be hard and time consuming. The point of making one is to make sure that yes, it is possible to live off of what you’ve got. Then, if you find yourself struggling, you can look back and see what you’ve either been overspending or didn’t budget enough for, and fix it. How you handle finances will be different from me, so trial and error will help you learn your habits so you can be successful (which means a good emergency fund is super important when starting).

Really, basic ‘what to spend money on’ advice depends on your own situation. If you can live as cheaply as possible, go for it, more money for your savings. Hell, even try being healthy. You don’t need soda, etc, so start drinking water more. If that gets boring, buy powder mixes to add flavor. Tap water is cheap.

Credit cards
As for a credit card, make sure you have the will power to use it responsibly. If not, don’t even think about it. If so, then first look up the changes they’ve made to the industry, supposed to be implemented last month.

Make it a gas card or something. Only use it to get gas. Gas is something that can easily be budgeted (you pretty much know how much gas you use a month), so you can put that amount in your bills account so you don’t have to worry about not being able to pay it off every month. Don’t be spendy with it; remember, if you can’t pay off you balance each month, whatever you used it to buy just cost more. You’d be basically ripping yourself off.

Automatic payments / Direct deposit
Now, determine if you want things done automatically or not. I recommend your paycheck be put in your account automatically. It is probably helpful to have it split up, and whatever you need for bills automatically goes into bills, a bit into savings, and the rest in to your primary checking.

As for bills… I prefer not to. First, it makes it difficult to switch banks, or even accounts for that matter. Second, should something happen where you don’t have the money for bills, or you lose your source of income, you’re going to be either paying bills with money you don’t have, plus fees, or not paying them and still getting returned transaction fees.

How I pay bills
For me, only the bills that are forced to be automatic (netflix, for example), are the ones that get to be taken out automatically. I take half the amount for bills from husband’s paycheck and stick it in the bills account each time he gets paid. He gets paid on the 15th and 30th, so at the end of each month I have enough to pay the bills. I pay them all on the 1st of the following month. I don’t have to keep track of what I have/haven’t paid, or when to pay it or anything. Bing, bang, boom, done.

Now, even better, none of my bills are actually due until after the 15th of each month. This means that if something happens, we still technically have an extra paycheck of his (not to mention mine) to keep us on our feet.

If you’d like help making a budget, I’d be happy to help. Two things I love, spreadsheets and math.

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