Personal Finance Advice

Taking out student loans shouldn’t be your first choice when trying to fund your education.  In fact, student loans should only be used when there are simply no other means by which to pay for your tuition, books, and all the other expenses that come with making your way through school.

Why? The primary reason is because even though student loan interest may be tax deductible, it’s still interest nonetheless.  Would you rather graduate from college debt free and ready to go find a great job in your field or instead graduate saddled with a ton of student loan debt and desperate to find any job so you can start making a dent in your huge balances?

The solution: Work your way through college.

Sure, it’s easier said than done, but unless your parents did a great job of fastidiously saving for your college education then chances are you’re on your own when it comes to footing the bill.  You may argue that your studies are difficult enough and you don’t need the added stress of a job, but the truth is that the stress of a job now will pale in comparison to the stress associated to graduating from college with a huge pile of debt.

What’s worse than financing your college education with student loans? Don’t even think about paying for tuition, books, and housing by pulling out credit cards.  If you must use credit to pay for your college education then you should use student loans because the interest is lower and the terms are much more attractive.

Here are some other options for paying for your college education:

1.  Scholarships and grants

2.  Financial aid

3.  Take only as many classes as you can afford to pay for yourself

4.  Employer tuition assistance

Don’t let the threat of massive debt stop you from pursuing your degree.  If you have no other choice but to obtain student loans in order to pay for your education then do so, but only borrow as much as you absolutely need.  A student loan should pay for the necessities, and not for a cute new wardrobe or a brand new motorcycle.

There are people who make it through college without financial assistance from parents and without taking out a single student loan.  These people are oftentimes exhausted while enrolled in school because they work one or two jobs on the side, but they realize the true benefit when they graduate and don’t have to deal with repaying their college debt.

Fill in the blanks to this statement:  “I would give up _________ to save some money, but I just don’t think I could live without it.”

The truth is that unless you filled in the blank with something like food or necessary medications, you can probably live without it.  If you are truly trying to cut back on expenses and save some money, however, expenses that aren’t necessary should be some of the first to go.  After all, it’s pretty silly to run around your house turning lights off in an attempt to save money on your energy bill if you’re visiting the Starbucks drive-thru twice a day for $5 coffee drinks.

Here are some areas that you should really take a look at when you’re trying to save some money:

Your addictions:  Caffeine, nicotine, and alcohol can all be bad for your wallet and your body.  It’s one thing to occasionally indulge in some wine with friends or a caffeinated beverage with a meal, but if you find that you start to rely on these things to get you through the day or to wind down at night, you have two good reasons to quit: You’re addicted and these things cost money.

Your hobbies:  Start replacing some of your more expensive hobbies with some less expensive ones.  For example, Instead of buying a new set of golf clubs and paying for the membership fee to the local course, take up hiking.  You will still get to walk around outside but you’ll save quite a bit of money with the trade.  If scrapbooking is your vice, then start creating your own decorations instead of buying expensive pre-made decorations at the store.  There’s nothing wrong with having hobbies, but if you’re trying to save some money then it gets harder to justify the expense.

Your habits:  A weekly habit of visiting the mall to buy new releases can be easily replaced with a trip to the library to borrow movies.  Your trip to an expensive fitness center every few days can be replaced with jogs outside or home workouts.  If you take the time to look, you’re probably going to find a cheaper version of the habits you have.

This is not to say that your life should be completely devoid of fun and indulgences, but the problem arises when the indulgences become the norm.  You shouldn’t have to scrimp and save for groceries when you have a cleaning crew come and scrub your house once a week.  In other words, sometimes you have to scale back on your indulgences in order to make the rest of your finances fall into place smoothly.

Figure out what you can live without, and then give it a try.  You may be surprised to find that you can actually live without certain things quite easily, and the money you save may allow you to indulge in something a little less costly.

When I was younger I had a co-worker pull me aside and in hushed tones gave me his secret for financial security.

“Here is what you do,” he instructed me.  “Take some envelopes and mark them for every recurring bill you have, like your mortgage, car payment, utility bills, groceries, and everything else you pay.  Then put enough cash in those envelopes to cover you for an entire month.  Stash the money in a safe and never, ever touch it unless you need to.”

He was always terrified that a bank error might occur and wipe out his savings or that he would unexpectedly lose his job, but as long as he had enough money in his safe to pay everything for one month he felt much more at ease. 

It’s a great idea to always have some cash on hand, although some people may argue that a full month’s worth of expenses would be much more productive sitting in a savings account earning some interest.  Even if you don’t have a couple thousand dollars collecting dust in your lockbox, you should still have a little bit of cash on hand in case you need it. 

Here are a couple of personal examples when having some cash on hand was of great benefit:

1.  After the Northridge, CA earthquake my grandfather had to go scouring through all the convenience stores in an attempt to buy some bottled water.  No credit card terminals were functioning at the time because of the earthquake, but luckily my grandfather had enough cash on hand to purchase water at the ridiculously inflated prices.

2.  A friend was visiting one day and broke down crying about how she didn’t have enough money to purchase groceries for the rest of the week due to her husband’s unexpected job loss.  I had enough cash to give her to tide her over until the month’s end.

There are plenty of other instances when having some accessible cash comes in quite handy.  You never know when a citywide blackout will cause all the ATMs to shut down or when your bank will hiccup and temporarily lose some of the money in your account. 

This is certainly not to say that you should stock your safe with piles of cash.  Money should earn interest if at all possible, so your life savings should not be stuffed into your mattress.  On the other hand, having some cash on hand is a good idea because you can never be quite sure when you might need to get your hands on enough money to buy some food or medicine in the midst of a crisis.

Keep a little cash in your home - not a lot - but enough so that you know you’re covered in case an emergency does arise.