As fall begins, students around the country are heading back to school. Just this week, my sister had her first day in medical school. (Proud, gushing brother) My sister, and many millions of others, are taking on new student loans this year. When you get a new student loan, you can choose your provider, and it is important to do the research to find a good fit for your needs.
Denver recently passed an “outdoor camping ban” which, in practice, is simply a law making it illegal to be homeless. This is far from a solution to the homelessness problem, it will just move the homeless to surrounding cities and states. It made me think about actual solutions to homelessness in America.
This weekend, I had the pleasure of watching my sister graduate Summa Cum Lade from the University of Arkansas. While in Fayetteville, I watched thousands of students receive their degrees, but I realized that most did not get a financial education on par with their newly minted degrees.
Here are some top tips for new graduates around the world.
“If you buy a business for less than it’s worth, you’re going to make money.” –Warren Buffet
This year, I made my third trip to Omaha for the annual Berkshire Hathaway shareholder’s meeting. Warren Buffet are Charlie Munger took center stage and shared their wisdom on investing, business management, and the economy to a packed house that included billionaire Bill Gates and rock superstar Bono.
While I will drip some of the wisdom into many posts for months to come, here are some top gems that made me think, laugh, or learn from the Oracle from Omaha.
This post is part of the Yakezie blog swap and was written by SB from One Cent At A Time. If you enjoyed this article, feel free to visit his blog and subscribe to his RSS feed. You can also see my post on the same topic at his blog.
As you enter a new chapter of life, freshmen, this is the perfect time for you to prepare to either change the world or be changed by the world. Only you will decide your course in either of these two directions.
You’re probably out on your own for the first time in your life. Well, enjoy the world with the eyes of a free soul. It’s very easy to get caught up in activities that could make you ashamed later in your life. Don’t get carried away as your identity takes shape in college – the lessons in life take shape in college as well.
Now I am going to present you a few random tips that, if followed, could make you a better human being, a better student, and a successful person.
1. Choose your career according to your passion: Do not choose your career based on the income it can generate. If you don’t like the subjects you’re learning, your education will not be complete and your career will suffer. Find your passion and build your career around it.
2. You cannot be the best at everything: Don’t try to be the best in studies, sports, and music. Choose one of them you are passionate about and try to do your best compared to others in it. Don’t try to be Jack!
3. Remember the Golden Rule: Be good to others, including the fellow you least like in your class or dorm. Treat others well and you will be treated well!
4. Practice punctuality: Your parents are not there to wake you up at 6 o’ clock, so get up at a set time every day, exercise, get yourself clean, go to class, and study.
5. Participate in sports: You are almost getting to your prime in terms of athletic abilities. Sports are a very good means of regaining bodily power and mental energy. You need both in your college days. Your body is still growing and you need stimulus for that brain, which has started accumulating knowledge that should sustain you for decades.
6. Take care of your finances: Learn to live below your means. Your education is perhaps going to put you in debt from the very first day you step out of college. Try to save as much money as you can from your student loans. Walking out of the college debt free is the best gift you can give yourself.
7. Save as much as you can: There are various ways of saving money in college on books, tuition and food. There are ways of earning extra money while in college by means of part time jobs. Find out your options and get going!
8. Don’t miss out on a scholarship: Apply for all the scholarships you can; you might be successful if you apply for many. You will be surprised to know students don’t even apply for many of the available scholarships. You could get lucky by virtue of just applying for them.
9. Share with others: Share your room and furniture and cook with roommates; they save you serious money! You can also get exposed to a different way of thinking, different cultures, and different types of food.
10. Study in groups: Form a study group, share your books. Help others in their study and get help in return. Many tough subjects seem easier to comprehend when discussed in a group.
11. Take no further debt beyond student loan: Get over the temptation of getting credit cards, auto loans, and all other ‘buy-now-pay-later’ schemes.
12. Make friends: You could probably make the best friends of your life this year in college.Watch out for the people your best friend is mixing with; sometimes people act as recruiters for gangs (whatever be the reason of forming gangs, basically gangs are bad!). At the first hint of something “off,” stay away from this new best friend.
13. Don’t be hesitant in seeking help: Seek advice from parents, siblings, aunts, uncles, grandparents… Basically those to whom you used to go for help so far in your life. Call them up whenever you need advice. You are not matured enough to tackle every problem in your life alone; there’s no shame or harm in seeking help out.
14. Let it loose some days, sometimes.: When being good gets boring, it feels good to let go occasionally. Late night parties, beers (if law permits) and members of the opposite sex can make your college life memorable. Many such parties and nights will give you something to brag about in the future.
15. Okay, you partied last night, you’re happy, now be good again: At least for a few more days. No more partying today, you are in college for only one purpose, that is..to learn! Partying is just to take time off and rejuvenate your energy level.
Image by apasciuto.
You all know that I have worked in banking and finance, but I have not told you very much about my more humble beginnings. Long before my MBA, years before my BSBA, I worked at a Boy Scout camp and a Target Store.
Boy Scout Camp
I spent seven summers on staff at the local Denver area Boy Scout camp. I started when I was 15 as a Counselor in Training (CIT) getting paid a whopping $5 per week. The $50 I made over the entire summer was not enough to pay for the uniform. Over the following summers, I had a range of jobs. I was (in order) a Program Counselor, First Year Camper Director, Assistant Director of Dining and Equipment, Camp Store (we had 3) Director, Order of the Arrow Director, and Assistant Business Manager.
What I Learned
You don’t have to make a lot of money to love your job. My favorite summers were early on when I made far less than $100 per week. During those summers I made great friends and had wonderful experiences. I did not always like giving up summers in Denver to be away working, but living in a tent, sleeping under the stars, and helping thousands of scouts learn and play made it worth it.
The Real Benefit
Aside from the networking aspect, I was part of a scholarship program for camp management. My entire undergraduate college experience (four years at the University of Colorado) was paid for by the Boy Scouts with matches by CU and another company.
I started at Target as a sales floor associate. I was one of those people that made sure shelves looked nice throughout the day, helped customers find things, answer questions, stock products that were running low, and “other duties as assigned.” I was a sort of jack of all trades.
The schedule did not work well for me as a high school student, so I moved over to the cashier side of the store. I spent most of my two years at Target on the registers. I was also occasionally assigned to run the snack bar (.25 per hour pay differential!) or help the cart guy on a busy day.
What I Learned
When you have a boss, you have to do what they say. However, if you are a hard worker, do a good job, and perform well, they are willing to work with you on your needs. It is a two way street. Do your part and you will be treated well and respected regardless of your age.
The Real Benefit
I had to pay for car insurance, so I was there for the money. I also got a $1,000 Target Employee Scholarship for my first year in college.
You Are Not Too Good For Any Job
The most humbling part of working in a retail store and a camp is that you start at the bottom. I cleaned bathrooms and latrines, I scrubbed kitchens and offices, I built tents, I cleaned up from a virus outbreak, I taught archery, I was a trained lifeguard, I taught kids to swim, I carried heavy boxes to cars for old ladies. I did it all.
In today’s economy, people are often not willing to take a job that is “not good enough” for them. It is only not good enough if you are too good for money. Suck it up.
Your First Job?
What was your first job? What did you learn? How did it help you moving forward in life? Please share in the comments.
Photo by kevindooley.
Unemployment rates are one of the top economic measures used to measure the economy. The general mindset is that low unemployment is good and high unemployment is bad. While there are many truths to that statement, most people ignore the good parts of a high unemployment rate.
Good for Businesses
Companies generally try to avoid layoffs to keep their workers employed and producing. Large, widespread layoffs are bad press and bad for the individual workers. Companies usually lay people off for one of two reasons: cost cutting or efficiency increases.
If a company cuts costs, it increases profits. Increased profits mean that the company has more free cash flow to invest in expanding the business or will return a higher profit to investors. Either way, no one can argue that increased capital investment and profitability is bad for the economy.
Investors and politicians are hung up on employment data, but they are ignoring that many companies are posting major profits. In many cases, companies are posting record profits or have returned to pre-recession levels.
While some may argue that education is not good intrinsically, I argue that it is. Coming from a family of educators, I think furthering your education is one of the best decisions anyone can make.
While the cause for the motivation is not great, any motivation to increase your job skills and educate yourself should be welcome. The unemployment rate for people with business and engineering degrees is lower than other areas and the unemployment rate for people with advanced degrees is much lower than people with less education.
A lot of people are going back to school during their unemployment. Those skills will ultimately raise the standard of living of those going through the programs and will increase their productivity when they re-enter the work force.
I know that this is the optimist look at a bad situation, but it is important to focus on the major benefits to companies after layoffs. As long as the quality and quantity of work is not compromised, there is no reason to keep the extra expense.
Image by Ryan Q.
Remembering games in elementary school, when the ball went out of bounds, my friends and I would yell, “Do over!” and get another shot. That is fine for the playground but obviously doesn’t cross over into financial choices. Thinking back over my financial life, there are a number of instances where I wish I could call for a “do over!”
If I had my life to do over, I would have finished college before having kids. I would have started saving and investing earlier, taking advantage of the awesomeness that is compounding interest. I would have bought a house before the bubble. But the number one financial choice I wish I could do over: I would have started budgeting sooner!
For too many years, I spent money like water, letting it flow in and out of my life but not making any real choices about how I used it. I cringe to think of how much money I wasted in my 20′s due to irresponsible overspending and overdraft fees. I can’t do over those years, and that money (which could be compounding as we speak!) is gone forever. It’s never too late to change habits and stop the damage, though.
It took a drastic pay cut and brush with food stamps to get my butt in gear and start really managing my money. I had to budget out of necessity. What a revelation! Making a budget meant becoming aware of my spending, which wasn’t in line with my income, and made me reevaluate what I considered needs. I started using cash envelopes. I made an envelope for each budget category so I couldn’t overspend. I couldn’t overdraw our account. Financial responsibility became a habit. In a little over a year, I was able to turn our situation around, even with a low income. I saved a quarter of our income, dropped the food stamps, and returned to college to finish my degree. I will graduate debt free.
Without becoming aware of my poor money habits and making deliberate choices about how I would manage our money, I would still be wishing for the do over. I can be glad that I’m making good choices now, and try not to kick myself over the choices I didn’t make sooner.
Image by Gamma Man.
A long time ago in a galaxy far, far away… I mean, more like ten years ago about twenty minutes south on I-25, I took my first business and economics classes. Those classes changed my life and my outlook.
Roots in Business
I set my business roots at an early age. Investing and finance has run in my blood for generations. [Insert Jew joke here] My Grandfather was a marketing professor and started teaching me about the stock market, personal finance, investing, and money management at a young age.
My Grandpa Joe grew up during the Great Depression and earned money the old fashioned way. He worked hard, lived a thrifty lifestyle, and built up significant savings and investments during his life.
My Dad was in the business world my whole life as well. When I was younger, my Dad was involved in merchandise management and retail. That path led him to purchase a video store when I was about six. We had that store for nearly ten years.
I grew up exposed to the entrepreneurial world and the investing world, but I did not realize the impression it left on me until high school.
Boy Scouts and FBLA
You know those Boy Scouts that sell popcorn, Gold C books, and Entertainment books? I was the best.
I don’t mean to brag… well, yes I do… but I was the top seller in my troop every year that I put in my best effort. I would go pick up five cases of books and sell every single one. Those book sales paid for my summer camp, ski weekends, and other Scout activities.
Again, I never realized the significance of this until later in life.
My junior year at Cherry Creek High School, I took my first business class. Students were required to take either fine arts or business credits to graduate, and I spent my three semesters in the business side of the world.
My first business class, appropriately named “Introduction to Business Management,” gave me a basic view of business fundamentals. I learned about income statements and balance sheets and real life business situations that impacted the development of the business environment in the United States. From there, I went on to join the school’s Future Business Leaders of America club, compete in the district and state competitions, and became Treasurer of the club.
Selling My Soul
It was around that time that I took Mr. Kraft’s class. That teacher, with a different tie every single day of the school year, left more of an impression on me than my fashion sense. We learned about competitive advantage through examples involving pizza, robots, and widgets. We learned about labor markets and management incentives. We discussed the Milton Friedman version of business. Friedman, of course, is famous for his view that the purpose of business is solely to create value for its shareholders.
I went on to receive and undergraduate finance degree led by those principles. The purpose of business is to make money. The purpose of charity and non-profits is to make the world a better place.
In my MBA program at the University of Denver, known nationwide for its emphasis in sustainability and responsible business management, we were given a different twist on the business world. In the feel good world of the “Triple Bottom Line,” where we focus on profit, people, and the environment, more comes into focus than just making money.
The Middle Ground
At the end of the day, I am still a follower of Friedman’s philosophy. If a business is not making money, it goes out of business. If it makes more money than another business, the other one goes out of business. Survival of the fittest is a concept that goes far past nature.
That is why I have no problem owing stock in oil, tobacco, and other controversial industries. Someone is going to be making money; it might as well be me.
However, business does not have to be bad for the world. Corporations have solved many of the world’s biggest problems and make a major contribution to society. Walmart installed skylights and tested rooftop wind turbans on a handful of stores. The skylights have been adopted nationwide. They save electricity and make a major impact on fossil fuel use and greenhouse gasses, but also save the company millions of dollars per year in energy bills. That is a win-win. I am a proud Walmart shareholder.
There are dozens of examples like this. At the end of the day, a company’s first responsibility is to its shareholders. At the same time, however, that company can do amazing things for the planet and society. From small acts like adding recycle bins to major campaigns to cut carbon emissions and production waste, companies can make more money by “doing the right thing.”
But the next time you see a protest against a company’s policies, remember its roots. Even Walmart started as a small drug store across the street from city hall in Bentonville, Arkansas. Berkshire Hathaway was an investment fund started by an ambitious young man named Warren. Dell came from a dorm room. Amazon used to be headquartered in a garage.
Every business started somewhere. They came from an idea in the pursuit of profit.
One reader sent me an e-mail about his student loans. He asks:
“I’ve had bad financial education in the past and now trying to fix all of these errors which I’ve made. Currently I have 4 loans from Sallie Mae which are total to $30000. Two of these loans have APR of 7.75%, one loan has 9.25% and one has 10.25%. This is quite ridiculous in my opinion, and I need some advice on how to fix it. What would you suggest?”
Loan 1: $4,988.61, 10.25%, $57.30 per month
Loan 2: $8,351.01, 9.25%, $90.85 per month
Loan 3: $11,878.93, 7.75%, $118.82 per month
Loan 4: $6,730.09, 7.75%, $67.32 per month
Total: $31,948.64 owed, $334.29 monthly payments
Option 1: The Debt Snowball
The debt snowball is the most popular debt repayment method around. In the debt snowball, make your minimum payment on every loan to maintain a good credit score. Any extra cash at the end of the month should go to the highest interest loan to pay it off as quickly as possible. In this case, an extra couple hundred dollars each month could mean paying off the most expensive loan years sooner than the minimum payment alone.
The loan balance does not matter in the debt snowball. The 10.25% loan is the smallest in dollars owed and payments, but each dollar costs more than the other loans.
If you were paying the minimum plus about $200 per month, you are putting $257 into Loan 1 per month. Once it is paid, put that $257 plus $90.85 per month into Loan 2 as you are already used to living without that $257 per month. Paying $348 per month into Loan 2 will increase the payoff speed greatly, as the extra $200 did in Loan 1. After Loan 2 is paid off, put the extra $348 per month into Loan 3 or Loan 4 (it doesn’t matter which, they have the same interest rate) until they are all paid off.
Option 2: Refinance
You are allowed to refinance student loans once over their lifetime. If you have not done that yet, it might save you a bunch of money. The current federal subsidized Stafford loan rate is 6.8%. You can only take a Stafford loan if you qualify for financial aid after filling out the FAFSA. At this point, assuming you are out of school, you probably can’t get 6.8%. You can probably beat 10.25% and 9.25% though. Do a little shopping around and try to do a debt consolidation refinance to lower your interest rate.
Do not just consolidate for the sake of it. Consolidating generally makes your payoff period longer and raises your monthly payment for the life of the loan unlike with the snowball.
Option 3: Collateralized Refinance
If you have a mortgage or other valuable asset that can be used as loan collateral, you can refinance the student debt as a secondary lien on that asset, or a mortgage loan if the asset is already paid for. This is the most cost effective method, but it has risks.
The best part of this method is that you will surely get a lower interest rate. If you use a car as collateral, you may be able to get a loan rate around 5%. However, your car has to be worth more than you consolidate. If you own a car worth more than $13,000 outright, I would seriously consider consolidating Loan 1 and Loan 2. If you own a house that has $30,000 in untapped equity, you can refinance the entire amount as a second mortgage or wrap up the old mortgage and student loans into one big mortgage payment. There are fees and costs, but it could save you money in the long run.
The biggest risk to a collateralized refinance is that you are putting your asset on the line. If you stop paying the loans, the bank can take the car or house (or boat, etc). Think seriously about your ability to pay before taking this step. You have to pay either way, in the long run, so it could be a good idea to save money by refinancing with collateral.
The Bottom Line:
Each person’s situation is different. Anyone can do a debt snowball, so it is the logical best option for the average person. If you can, doing a student loan refinance can save you money on interest but only works if you have a bank, or the Department of Education, that is willing to work with you. If you are far enough in life that you have a valuable asset, you can save interest costs but have to risk an asset for that savings.
Now it is time for the readers to chime in: Would you rather take option 1, option 2, or option 3? Did I miss something completely? Please help our student loan debtor make the best decisions to get out of debt.
If you are about to head to college or have a future student in the house, it is a good idea to understand all of the extra fees you might be getting yourself into. This is no surprise too me, a six year student (four undergrad, two grad), that college costs a lot more than the sticker price.
Smart Money did a great report on the topic. One fee that you might not expect is a student activity fee. At CU, I had to pay some pretty steep fees. You can see a schedule of fees at the bursar’s website. Here is what Smart Money found:
Student activities: $270
The extracurricular activities on campus look free, in that students don’t have to pay to attend them. Instead, there’s a student union fee tacked on to tuition bills to help pay for the student newspapers and activities like dances. At the Massachusetts Institute of Technology and the University of Maryland, it’s $272 for the year. At California State University, Fresno, it’s up to $109 per semester to pay for the recreation center, plus a $34.50 student body fee for support of on-campus student organizations.
The verdict is in, I know what my student loan minimum payment is going to be going forward. The way student loan payments are determined is kind of cryptic, so I thought I would break it down for all of you.
The standard repayment plan for current Stafford Loans is a monthly payment for 10 years amortized at 6.8%. That means that you pay 6.8% on the outstanding principal balance. Each payment covers the interest and a portion of the principle. That is standard for all loans. There are exceptions for longer payment terms or deferrals, but each of those situations is unique. You will have to consult with your lender to get details on those payment plans.
Generally, students are given the option to make no payment, interest only payments, or any larger payment on loans while in school until six months after graduating. My six month date was last week. While in school, I managed to pay off the entire non-subsidized (interest accumulates while in school) portion while leaving most of the subsidized loan for payment after the grace period ended. Roughly one third of the loan was subsidized and two thirds were unsubsidized.
At the end of your grace period, the bank amortizes your balance over the next ten years. It does not matter if you have been making payments or not. It does not matter what portion is subsidized. All that matters is the total balance. If you want to try an amortization calculator that has been tailored to student loans, try the Excel file here.
I will use my loans as an example of how this works. Of my total student loan at Citibank, I have $5,441.42 in outstanding principle remaining as of the end of my grace period. At Great Lakes, a processor for the department of education, I have $8,029.97. Each lender has a separate payment, so I have to pay $62.56 each month to Citi and $92.32 each month to Great Lakes.
If you only want to make one payment, you can do a loan consolidation, but you can only do a student loan consolidation one time, and unless it is financially beneficial, I would recommend you just make multiple payments.
Debt Snowball Plan
I have been paying $250 per paycheck into my student loans since I paid off my car loan in February. I have decided to continue the debt snowball plan. I have decided to pay $5o per paycheck to my Great Lakes to cover my minimum payment of $92.32 each month. The remaining $200 per paycheck will go to my Citibank loans. With that payment, the Citibank loan should be paid in less than 14 months. I should have both loans paid off completely in less than two years, as I plan to put my tax refund and bonus 100% into my student loans.