How many clichés have you heard about money like “money is the root of all evil”, “a fool and his money are soon parted” and “he who pays the piper calls the tune?” There must be several hundred of them and they’re all true. Money has always played a large part in every society all the way back to the Mesopotamian era.
While you may think you know about debt and money there are four tips you should know by now but probably don’t.
All college degrees are not created equal
If you’re typical you graduated from college owing money and maybe a lot of money. In fact, this past year’s graduates have an average of more than $36,000 in debt. The ideal is that you’d now be able to earn enough to pay for your basic expenses without getting any further into debt. But this all depends on whether you chose the right degree. If your degree was in healthcare or computer engineering you’re going to earn considerably more over the course of your career than if you majored in, say, art history or music theory. This is just the way the world works. Of course, if you’ve already graduated and have a degree in some low-paying area, there’s not much you can do to change that. One thing you could do is look into getting a master’s degree in a discipline that would pay better. While this would, of course, increase your student debt it would also raise your income significantly.
Don’t buy a house
Your parents may have told you that it’s a smart investment to buy a house and it makes more sense to pay on a mortgage then to keep paying a landlord. This advice is based on the idea that buying a house will help you build a lifestyle and give you excess cash flow. However, the cold, hard truth is that buying a home is really a horrible investment that produces lower returns than just about anything else you could invest in.
So, instead of buying a home, look for areas to live with a cheaper cost of living than where you now live. Remote and virtual teams have become very commonplace these days so that you no longer necessarily have to live in an expensive city to have a great career. If you could move to a smaller city but still earn a big-city wage this alone could be enough to get your finances on the right track.
Pay yourself first
Do you have you $1000 in a savings account? A recent study revealed that the majority of Millennials don’t. Were you taught to think of saving as your earnings less debt, taxes and your discretionary spending. The problem is that for too many people this equates to zero dollars or worse due to the scarcity of jobs that pay well while the cost of living continues to rise. Another cliché about money, “pay yourself first”, has endured for so many years because it’s true wisdom. If you reprioritize your finances, it’s likely that you could save 10% to 15% of your income while still enjoying a decent lifestyle.
Buy only stuff you can afford to pay for up front
It’s important to only buy things you can afford to pay for up front regardless of how much you’re earning and saving. This is true even if you do decide to make a major purchase such as a car or house. Don’t fall for one of those $0 or low down payment plans. The more you pay up front, the less the purchase will cost you. This means you’ll not only save money on interest but you’ll also spend less time later paying it off.
In addition, when you pay for purchases upfront this simplifies your financial life. If you put a major purchase on a credit card or get a loan to pay for it, then you’re creating a debt that will hang over you for years or even decades. You and another person with identical salaries could be in very different financial situations just because of how you paid for major purchases.
It’s the old way of doing things
If your parents drilled into your head that it’s critical to get a college degree and buy a house, just keep in mind that’s the old way to do things. If this really was the answer, the average US household debt would not be $132,158.