This is a guest post from Jeff Rose, an Illinois Certified Financial Planner(TM) and co-founder of Alliance Investment Planning Group. He is also the author of Good Financial Cents, a financial planning and investment blog. You can also learn more about Jeff at his website JeffRose Financial.
Turning the age of 30, I now reflect back at some of the key choices that I made to put me and my wife in the prime financial situation that we’re in. As a college student, I started to walk down the path as many of my peers accumulating student loan and credit card debt at ease. Luckily, I stumbled into a career as a financial planner and was able to see the error of my ways. When I look back, I can attribute five things that I did that made a huge difference into where I’m at today. These are five things that anyone can do as long as they have a willingness and discipline to do so.
1. Avoid Debt Like the Plague
Most college students graduate with a combination of student loan and credit card debt. Most of us are just kind of brain washed into thinking this is just the way it is, that everybody should graduate college with student loan debt. Luckily, with the aid of the Illinois National Guard and the realization that my student loans were mounting, I was able to graduate college with no student loan debt and very minimal credit card debt. Doing so was a huge relief in starting my career of not having to worry about making those loan payments back.
2. Don’t Buy a House Immediately
I know a lot of people that once they start their first job, they start searching for their first home. I, on the other hand, continued to share rent with some of my buddies in the house that I lived in while I was in college. I did this for a few years in my working career to help ease the monthly payment. Reflecting back I realize now that that put me in such a financial position to be able to be able to buy the first that we really wanted.
2. New Ride Equals No Savings
I don’t know how many of my former college classmates that I knew that were going to buy a brand new car once they graduated. I remember talking to a girl in one of my accounting classes about how she’d already picked out the car of her dreams. I remember telling her, “If you wait just a year or two to buy that car, you can invest that $400 a month payment into your Roth IRA. That will make such a huge difference for you down the road”. She did not listen and went out and bought her car and, as far as I know, was unable to contribute to any retirement plans including the Roth IRA.
I, on the other hand, continued to drive my champagne colored 1998 Chevy Lumina that was a hand me down from my grandmother (Pictured below, isn’t it sweet?) . Although it wasn’t the car that I had envisioned driving once I graduated college, it had very low mileage and, most importantly, was reliable. Also, by not having that $300 to $400 a month car payment, I was able to contribute to not only my 401(k), but also my Roth IRA on a systematic basis. That has allowed me sock away a considerable amount in both my retirement plans.
4. Big Screen Looks Sweet, But It Can Wait
I don’t know how many times I visited Best Buy while I was in college and drooled over the new flat-screen HD TV’s that were out. I wanted one so bad I could taste it. So many times, I pondered doing the 0% interest promotion that they always advertised. I mean it’s only like $20 bucks a month, right? Thank goodness I didn’t buy into that philosophy. By postponing some of those major purchases such as the big-screen TV, I was able to, once again, put away money in my retirement account and not worrying about following into debt trap that most people find themselves in.
Do I own a flat screen today? Of course I do. The best part by waiting, I was able to receive it as a wedding gift from my mother. Now I have my flat screen TV and no payment.
5. Invest, invest, and invest some more.
All the things I listed above allowed me to invest my retirement accounts. I’ve been able to sock away a good chunk into my 401(k) s while I was with my previous employer, and also been able to max out my Roth IRA for the last five years. That has been a huge blessing to getting me into my path into financial independence. Anybody can follow these same steps. You just have to have a little will power.
This is a guest post from Jeff Rose, an Illinois Certified Financial Planner(TM) and co-founder of Alliance Investment Planning Group. He is also the author of Good Financial Cents, a financial planning and investment blog. You can also learn more about Jeff at his website Jeff Rose Financial.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
I have some of my own tips
1. SHOP ONLINE. You avoid paying taxes on purchases when you buy from out of state merchants and you can often get a better base price than anything sold in brick and mortars.
2. Learn to cook, this one is so obvious no explanation is necessary.
3. For those of us living in New York, take the Subway. I have so many friends who for some reason think taking the subway is beneath them and will hail a cab at every opportunity. The monthly pass on the subway is economical and can save big dollars over time.
4. Join a gym. At first glance this may not seem like a money saving activity but going to the gym for me takes up a lot of spare time that I would otherwise be using to spend money. Not only that but you get in shape and generally feel good about yourself as you lose the extra weight you have accumulated around the mid section.
5. Live with your girlfriend, great way to see if you are compatible before taking the leap and you can split expenses like rent, food etc. Plus what better and cheaper form of entertainment is there than sex?
all these frugal/cheap a** blog talked about ira and 401k and all these crap.. how are they doing now? how much did you lose?and forget about sticking around for the long run. This generation is lost
Well, I waited over 3 years before I actually purchased my 50 inch LCD and was able to buy it for such a bargain. Really well worth the wait. Invest, invest, invest in your future but don't forget to live in the present as well.
Hey now. That was my baby for several years. That car has been long sold and now drive something much more presentable. It's not my dream car per se, but it's definitely in my top 5.
Plus, if you think that car was bad, you should have seen the one I drove before it :)
Being a current student let me tell you that we would have definitely got along if we were in school at the same time. Finance is not my major but I take a finance course here and there. I just assumed that people that dealt with money would be good with money, this is actually pretty false. Some of the things that my fellow students tell me leads to me just shaking my head. I just can't figure out why people that are in school full time need a new car, new jeans, or a new tv. Don't get me wrong I'm a very social guy and the type you could definitely run into at a party, but this can all be done without spending a ton of money.
@ Travis It's amazing what a little bit of sacrifice at the time can put you far ahead later on in life. Even though you weren't "as frugal" then, it still made a huge impact.
@ Tom. Only two months to be debt free is great. Think of the vast majority that have years ahead of them before they can say the same. You're almost there! Congrats!
@ Ken I'd go a step further and say Personal Finance 101 should be in high school or even junior high. Hope you come by to visit my blog and visit often :)
If only students in college were required to take Personal Finance 101. Kudos to you for being patient and saving for the future. I'll definitely come visit your site.
thank you for this post because it touches on so many important points.
College debt is a huge issue nowadays. i was fortunate enough to have my parents setup an education fund that paid for most of my education so I had almost no debt.
I did however accumulate debt from buying a car and other dumb little things. And I am about 2 months away from being debt free.
Save all you can.
If you can't save a lot, save as much as possible and in the meantime find ways to make extra income, such as start a business, online business usually.
I lived with my parents for 4 years after graduating college. All the way up till I got married. I managed to save enough money to pay for the wedding and our Caribbean cruise honeymoon. In hindsight I probably should've been able to save more, but I wasn't as frugal back then.
@ Craig. The TV was so tough. Reflecting back, I don't know how I didn't buy it.
@ Thomas. It definitely does make it sweet when you know you really have earned something.
Yup, this is the year of financial discipline. The world's economy is extremely bad and this year has been predicted to be the worst of this phase.
I was fortunate enough to graduate college with no debt whatsoever. I also took advantage of living at home for a year to build my savings and establish a vacation fund (I love traveling). I have to admit though I couldn't resist the new TV or computer. I save for about 6 months for computer and 9 months for TV, did my research, waited for price to come down and paid in full. Was it the smart move? Prob not, sure I prob should have put that in savings or IRA like you suggest, but I do love my TV watching and like to think that I went about it the right way. Many younger people don't and don't realize the debt adds up.