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Tuesday, August 14, 2007

Past, Present and Future of your Money

I grew up with a very financially conscious father. I learned all about money, debt, staying out of debt and such when I was growing up. My parents also felt it was very important that all their children received a college education and so they provided that for their children so none of us would have to get student loans to be able to pay for it. We are all very grateful for my parents sacrifice and that they were able to afford paying for seven kids to graduate from college. Others are not able to provide this gift to their children for financial reasons or because their parenting strategy is different than my parents. I had a friend in this category.

The friend I wish to speak of was my very first roommate in my very first semester of college. The day we met was the day we became best friends. From this point forward we will call my friend Lindsey. Lindsey’s family did not have much money and they could not completely support her college experience. They paid for a lot of it, but Lindsey had to subsidize what they could not pay. This was not a big deal for Lindsay, she had a job and went to school and things were fine.

We were going to a junior college at the time so we remained roommates for the two years we went to school together. After our sophomore year as we were preparing to graduate, Lindsay decided that she needed to buy a car because she would be driving to a different state to continue her college education and would need the car in this new place. This was not unreasonable at all. She found a used car and she got it for a great deal, but she had to ask her brother for a loan to pay for this car. This was the beginning of her debt.

Lindsey’s parents were no longer able to help her pay for her college schooling so it was now time for her to take out some student loans to pay for school. We both transferred to this new school in a different state, although now we were no longer roommates, just friends. I knew she had no choice but to get a loan and so I offered all the support and encouragement I could as well as some financial advice. She did not handle her money very well and her debt grew because she also used the loan money as living expenses.

After two year of education at this new school she graduated with her Bachelor’s degree and decided to go on for a Masters. She drove her car to a new state to begin her Masters program. This again meant more student loans and a lot more money than her bachelor’s degree had cost her. In her Masters program she was not able to work because of how demanding school was, so she had to get enough of a loan to cover living expenses as well. This just added to the burden.

Recently Lindsey graduated from her Masters program and has been offered a job across the country with a starting salary of $60,000. This is pretty good money straight out of school, and coming from not having a job at all. This is where my financial advice to Lindsey and other’s who are interested in having it begins:

Past Money

When you are in debt all of the money (or lack of money) from your past follows you into your present and future situations. This past money (or debt) will haunt you with interest until you pay it off. In Lindsey’s case this money is student loan debt, in other cases it could be a mortgage, a car, or unwise or unneeded purchases with a credit card. Whatever your circumstance, debt is debt and it’s time to start getting rid of it. Don’t make the minimum payment; pay as much as you can toward the principal amount. The faster you pay down your debt the better. On top of making as big of a payment towards your debt you have to be able to afford living in the Present.

Present Money

Making a budget and sticking to it is a great way to track your money that is needed in the present. Right now is when you need to buy groceries, pay rent, have some entertainment, buy new clothes, and other necessities that arise with daily living. A budget will help you keep track of your money so you don’t increase your debt. You can track where your money is going and so you can compartmentalize where it needs to be. A budget will also help show you how much money you can afford to be paying down your debt. The budget is also a good place to see how much savings you should include in month to month living. This savings is what will protect your future.

Future Money

Only you can guarantee your future. There are programs such as social security in place to help you financially when you retire and get older, but that amount of money won’t allow you to have a standard of living many are used to. Also, that money is not guaranteed to be there for younger generations. The only way to assure that you are financially set in the future, when you are not working anymore, is for you to be the one to take charge and save. Part of your budget that I spoke of earlier should include savings. Personally, my husband I save 10% of our income. This may be hard or impossible for some, but saving anything is worth it. Even if it is just $20 a month, save it, it is worth it. Try to put the money you are saving on your own into an interest bearing account. This will make the interest work in your favor. I heard a quote once that said this “Smart people receive interest, they don’t pay it.” Now this is true with a couple exceptions. It is a wise financial choice to own a home, that is a lot of interest you end up paying, but it is good and does not count as part of the bad interest. Education is also important, and if you need to get loans to do so, you should. Education is invaluable toward helping you the rest of your life. That quote is speaking of the interest you pay with credit cards and unnecessary loans. If your company or employer has a 401K program in place, you should contribute to it. Whatever percentage your employer will match, put the maximum in. That is free money, and you will really appreciate it later in life. You are in charge of your futures financial status and the time to start saving is now!

These three points I have shared with my friend Lindsey over and over again. Only she can decide how she uses the information and advice she receives. I just wanted to make sure that whatever insight and knowledge I have towards money I shared with her, and now you. Consider this some free education. Hopefully many of you already know these things, but in case you did not here you go, and if you did perhaps it is a good reminder. Take this knowledge and better guide the path of your past, present and future money.

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1 Comment:

builderofcredit said...

It's really true that debt is like a ghost that haunts you. And it may haunt your forever if you continue to accumulate debt.

However, the article entitle Avoid Student Credit Card Debt can give you some tips on how to counteract credit card problems.