I recently guest lectured about personal finance for a class of
non-finance majors at Rutgers University. Below are ten key “evergreen”
recommendations that I shared with the students:
Develop a Spending Plan (Budget)- Tweak income and expense numbers until
positive cash flow is achieved. Include savings for future financial goals
and/or emergencies as a “fixed expense.” Use apps like mint.com to keep track
of spending.
Don’t Spend What You Don’t Have- Avoid costly debt by living below your means.
Shop inexpensively for clothing and home furnishings at thrift shops and look
for “deals” with online coupons and promo codes.
Pay Yourself First- Save early and often and do it automatically,
if possible, through an employer-based credit union or tax-deferred retirement
savings plan. If your employer matches your savings, save at least the maximum
match amount.
Appreciate the Awesome Power of
Compound Interest- Compound
interest is your BFF if you are investing money and building wealth over time.
It is your worst enemy if you are making minimum payments on credit cards and
paying interest.
Make the Most of a Precious
Resource: Time- Save for
multiple financial goals concurrently, instead of sequentially, so that
retirement savings begins in your 20s instead of waiting until after you pay
off student loans and/or buy a house.
Protect Your Identity- Shred documents with sensitive personal
identification information (e.g., bank and credit card account numbers), keep
credit and debit cards in sight at all times, and limit the amount of personal
data that is shared online.
Build an Emergency Fund- Try to save 3 to 6 months expenses, even if it
takes several years to build up to this amount. In the meantime, any savings
for emergencies is better than none.
Keep Track of Your Net Worth- Calculate your net worth (assets minus debts)
regularly. It is not uncommon for students with college loans to have a
negative net worth. Over time, it will increase with regular savings and debt
repayment.
Write Down Your Financial Goals- Include an estimated cost (e.g., $8,000 for a
“new used” car) and a time deadline (e.g., December, 2021). Then “do the math”
to calculate the savings required each month or pay period.
Never Stop Learning About Personal
Finance- Devote at
least 15 minutes a day, or longer on weekends, to learning something new about
money management. Information sources include web sites, Twitter chats,
seminars, and mass media.
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