Everytime someone asks people in their 40's and 50's what they wish they did differently when they were young, they say 'Save money." and they mean it in a very literal, put aside money into bank account type of way, not just couponing, deals etc. The problem is, I'm 21! I have a few thousand dollars of (Still deferred) loans, I'm going to be adding to that for the next two years at least, and I'm working on paying off my first credit card! ($500 max, maxed it in 2 months, almost done paying it back) With all of the complications in modern financial law, I don't see an incentive to have cash in an account somewhere because when I graduate or my loans come out of deferment, it could be counted as an asset and used against me! I understand how compound interest works, and that, If I had a way to make a live able (meager) income, i could save x dollars per year and have a million at 65, but as a college student it just doesn't make sense!
tl;dr how are college students supposed to save for their future when we're already deep in the hole?
All you need to worry about is math. Nothing else. Don't worry about saving just because it feels good. For example, if you assume an average rate of return of 7% (which isn't unreasonable when growth and dividends are accounted for; in fact, it may be a bit modest), then if you don't start saving until you are 30, start with nothing, put $1200 aside each month after that, and retire at 65, you will have $2.1M in assets. I think one can retire on that, especially when combined with social security, assuming it still exists when you are retirement age. The point is, don't rely on moralisms or shame when it comes to money; rely only on mathematics.
Perhaps. But the reason I suggested starting at age 30 is that many people will have decent incomes by that age, and perhaps be married, as well. Also, I'm counting total assets, not just cash. For example, many employers have savings match plans, which it's probably a good idea to max out, since it's extra money for nothing. Anyway, the broader point isn't to have $2M to retire on; it's that it's a good idea to define early what you think you need to retire on, and to then make a plan to have that much money. The specific number is arbitrary.
This helps a lot. Honestly, I'm just terrified of ending up like my parents, and other extended family (With one notable exception) with a bunch of children, no way to adequately prepare them for the future, a marriage that I tolerate because my religion tells me to, unsatisfied with my life.
Do yourself a favor - every once in a while - by remembering that YOU ARE NOT YOUR PARENTS. That little acknowledgement will make it easier for you to realize that the life you decide to lead is of your own design, not inherited. The fact that you say you're terrified is already enough to tell me that you're on the right track :) Now then, about the debt. I think pseydtonne hit the nail on the head with the whole pay down on the interest while your loan is still in deferment thing because the juice is flowing on that money right now, and it's compounding right now. If there is any ONE thing that I can recommend, it'd be that. A savings account would draw what, 2-3% max earned interest? While your student loan is costing probably 6.8%, and your credit card is... gulp ....11-15%? There's the math right there. Which costs the most? Knock out that credit and then start paying regular monthly on the student stuff. Focus on the principle amount and try to get that down, because interest doesn't build on principle that isn't there. The added benefit of paying monthly on the student debt while simultaneously living off of that loan is that you're closer to that money. Meaning you'll become more aware of your current spending habits and how they are directly affecting your future. Good luck. And don't let money control your life.I'm just terrified of ending up like my parents
I would ask "what are you studying" before doling out that advice. It may make more sense to get to his true earning potential more quickly than "painting houses" for a year to pay off a small amount of debt. I would also suggest that not many, if any of the people I know "saved" money when they were 21. OftenBen, put together a plan and stick with it. If you need to borrow money for 2 more years, do it responsibly and with a plan. Then, you may need to take 4 years to pay that off. Then, voila you are 26 years old and with zero debt. Dude, that's a good place to be. Now you can start saving aggressively, because ideally your earning potential is starting to rise. By the time you are 30 you can take some of the money you saved and invest it responsibly (but slightly more aggressively). -There are a number of ways to do so. It's smart of you to be concerned about your debt, you should be. But you shouldn't be "saving" right now. You have nothing to save. These are your learning years, they are expensive. Your payback years follow, then your earning years, then your investing years then your retirement years then your singularity download your consciousness in to an avatar years. -best save for that one. Good luck.
As a finance student myself I am well aware! But I have to somewhat disagree with the rest of your post. The learning years don't have to be expensive -- leaving school with debt is an automatic, acceptable thing for gen Y, and it pisses me off. Terrible, irresponsible mindset; not their fault. It's just what's done. But the fact that OftenBen is making a post like this means that his "learning years" can become saving years. Why not? Maybe life will be a bit harder for a while, but those are the times we live in. Your post makes perfect sense but -- why not start now? Start the plan from today instead of from post-grad and already a bit farther behind. It's hard though to hand out fiscal advice on the internet because every single situation is a little bit different.I would ask "what are you studying" before doling out that advice. It may make more sense to get to his true earning potential more quickly than "painting houses" for a year to pay off a small amount of debt.
My degree is going to be "Interdisciplinary Studies in Social Science with a focus on Human Capital and Logistics" and, if I get the job I want I'll be working for the Cardiac Research Unit for a major university. (Don't really want to say where, too hypothetical still) The job there isn't directly research, it's data coordination and management, making sure everyone's data is going where it's supposed to go, in the right format, organizing the outreach and schedules to patients that are part of the research unit. The position is currently vacant because of budget restrictions but will be coming back part-time my last semester of college, and full time shortly after that.
I worked FT well going to two year school FT. It was a tough two years, and it was a grind at times, but it was totally worth it. Working in between years, or during, can help a lot. Problem is at that point in life, fresh out of the parents house and no responsibilities, many kids seem to want to say that's "too much", but some people work two jobs and have kids and do that their whole life. It can be done, most people just don't want to make that sacrifice. They want to be young, have free time, play video games, or party with their friends. They tell themselves they need those things, hell I did for awhile. Turns out I laid the foundation for my work ethic that has gotten me to where I am today. Now a 70 hour week here or there doesn't phase me and has me asking for more, and getting raises and promotions. Though obviously that lifestyle isn't for everyone. For me, I got through it by knowing it was temporary and for a greater good. And I still had a lot of fun during those two years, those few nights or random days I did have off, I didn't sit around wasting them, I took full advantage of them and cherished them. Made me appreciate being motivated, and really get away from my lifestyle of pot and video games and being enjoyment of being "lazy". But like others have said, depends on what you're studying too. If it's a really intense major like law, medical or engineering, this probably won't work. But if you're a business major or something along those lines, you can swing working during school.
I have two jobs and I study full time, but the lifestyle like you say isn't for everyone. I'm hesitant to even suggest something like that because if you aren't the sort of person who can/want to handle it it'll set you back a long time. Great point, though, I appreciate the free time so much. I derive as much pleasure from having an evening where I can read for pleasure without guilt as I would from a full-blown vacation.
I had a similar experience during those times. A night where I could just drink a couple beers, and read a book or catch up on a TV show might as well have been a week long vacation. Oddly, it prepared me for my current lifestyle of a busy career, home ownership, and marriage. To this day I appreciate the free time I have so much. Being bored isn't really something I've experienced in a long long time. But yeah, definitely not for everyone.I derive as much pleasure from having an evening where I can read for pleasure without guilt as I would from a full-blown vacation.
As a very general piece of advice, I'd suggest living a lifestyle one step below what you can currently afford, then save and invest the difference. When you do start to earn, keep your spending at a level at least one raise behind you. You are young, so don't worry too much about your particular situation, but minimize any more debt at every opportunity. Time is on your side. In your situation, I'd say: My goal is to be free of this debt by 30, and I am going to see if I can do it sooner. Debt is dangerous, because the costs are often greater than numbers alone. Therefore it should be taken with caution.
I can offer a few ideas from my life. I grant that I am 38 and not in your same straits. However I have had to dig myself out a couple times and am finishing a third dig in two months. · Overpaying debts is as valuable as sinking money into savings. In a certain way it's better because it's not an asset (which goes back to your own statement). The more you pay against a debt, the less you pay later in interest -- we're talking about saving hundreds of dollars as little as a year down the road. · Make payments while a loan is in deferment. This will shrink the principle. Even if you can only pay $50 a month while you work a junk job, your principle will be $300 less before it gets interest. · When a loan or credit card is bearing interest, pay as soon as you get the statement each month. They calculate next month's value based on a daily average of APR, not based on the amount right before the due date. Thus you can wind up saving money with each month. That savings may only be $10 a month on a $500 monthly payment, but that's still half a pizza each month. · If you aren't a TV addict, cancel the TV part of your cable. Even though internet-only cable is usually $15 more per month, the TV starts around $60 with a non-DVR box. There's $45 more to pay down your deferred loan. · Drinking costs money. Junk food also costs money. Every meal you eat at home is at least a $7 savings. Every night you skip at the bar is about $30 to $50 back in your pocket. · A tank of gas is roughly $40 these days. If you take mass transit to work (I'm not sure where you are so that may not be an option), you can save yourself one or two of these each month. · Make your debt reduction a competitive process. I got fascinated with building spreadsheets to figure out exact statements for several months. Use it as a chance to learn more about how money works. My parents were... sorry, ARE... terrible about their finances. In turn I pulled together scholarships for college (because their home equity was far less than they thought) and went to state university. While no one can do that retroactively, one can get savvy about the future.
Yes, this is what you do. Paying down debt (starting with the highest interest rates, like your credit card) is the best "savings" you can do. As stated, the secret is to stop or slow down the amount of digging you do. Then you can start piling up a little bit of proper savings. Good advice is to start a savings or money market account (once you're out of credit card debt) and get that up to about 1 to 2 months worth of income, as a safety buffer, which is kept for true emergencies. Not spending is the key to being able to save. Live within or below your means at all times. Don't binge or have benders. As for retirement savings, start by maxing out your 401k or equivalent once you're fully employed. By that I mean defer at least the amount that maximizes any company match, then as much as you can afford to up to the federal limit. Good luck.
Attempt to take as little loans as possible as you can. Work more, go to school less if need be, just don't get loans if you can help it. They are what turn people into debt slaves. As long as you have debt, you don't save money. It's not financially wise. If you have a loan at 5% interest, then in order to make more money by saving it you'd need to be making at least 5% return on your money. Otherwise you'd save more money by paying off your loans. Your credit cards are your safety net in the event of an emergency until you're debt free. Our current system gives many college students huge amount of debts because of retarded tuition costs in order to force them to work at any job they can find. 53% of graduates are either unemployed or underemployed. I myself worked a job that had nothing to do with my degree for years. http://www.theatlantic.com/business/archive/2012/04/53-of-re.../
Hopefully you will learn from others and do not take out loans no matter what. It is faaar better, even though not as lazy, to work and save up money than to take loans. It's better to stop going to school for a year or two if need be and do this. Do not take out loans!