Dr. Lee McGaan  

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Some Thoughts on Personal Finance for Post-Graduates by Lee McGaan
last updated 7/25/2009

1. Control Debt.  - Serious debt problems take a big toll on your life emotionally as well as financially.  Money problems often destroy relationships!
    

   1. Check out school loan consolidation (be conscious of rates and terms)
       

   2. AVOID credit card debt. 
       

      1. If you use them pay them off each month!!

      2. If you have cc debt now, pay it off before doing anything else!!

      3. Minimum payments last forever and the interest rates will kill you.
          

   3. Protect your credit rating.  It's more important than ever:
       

      1. Credit affects the interest rate you pay and your ability to finance homes, new businesses, emergencies, etc.

      2. Credit reports are being used to determine insurance rates or even your ability to get various kinds of insurance (e.g. home owners, health, disability, auto).

      3. Potential employers may do a credit check and use that in hiring decisions.
          

      4. What's in your credit report?  Employment  history and salary, current salary, current debt and open lines of credit (limits), all bank accounts, credit accounts and many other accounts, home address (for a number of years back), debt payment information.
          

      5. It takes 5-10 years to repair a bad credit report.
          

      6. What counts against your credit rating?
          

         1. Significant open lines of credit in relation to your income, and especially, credit used (i.e. current debt) as a portion of your debt limit.

         2. substantial debt in relation to your income.

         3. short length of employment with current employer

         4. Late payments (30, 60, 90+ days)

         5. bad checks, etc.

         6. Debts in COLECTION and "write offs"

         7. Multiple credit inquiries (not in a short time period)

         8. bankruptcy

         9. criminal record

         10. application information for $150,000 life ins. and up

         11. law suits,      etc.
              

      7. Get a copy of your credit report if you have used credit. 

      8. Be sure you correct errors (Check on the internet for how to do this).
          

      9. If you haven't used credit in your own name, establish (good) credit ASAP. -- Get a credit card and run small bills you pay fully on time every month.)

      10. Keeping lines of credit open (and paid) for a long time is generally good. It shows stability.
           

2. Pay yourself first.  Start saving right away.  "There are always reasons to postpone starting a savings program, but there are no good ones."  A reasonable amount of savings gives you security and an amazing amount of freedom.  Eventually, esp. if you are married, you should have available cash equal to 3-6 months take-home pay.  If you put a reasonable amount into savings ever paycheck, you won't miss the money and it will really add up.
    

3. Try to avoid buying a car with an auto loan.  Car loans, like credit cards, can keep you paying interest and in debt, forever.  And the rates are too high usually (unless you have great credit).  If you have to borrow money for a car, buy a cheaper but reliable one, and borrow the money from family, if you can.  Over a 40 year working life, buying a car with loans and getting a new car with a new loan when the old one is paid off can easily cost you $150,000 at retirement -- plus it lowers your standard of living all that time.  Save and buy the car with cash!!
    

4. Determine to live within your income (and, in the end, you must).  Beware of the little things that get you.  If you spend $4 a day at Starbucks (vs $.80 at the drive-through) rather than investing that $4 in stocks, over 30 years - you've lost a potential $130,000.  Think about it!!
    

5. Begin investing in your future (a home, retirement, etc.) right away.  Take advantage of 401Ks if your employer has one.  Max it out!!  OR start an IRA as soon as you get a job.  A maxed out IRA will probably make you a millionaire (I'm NOT kidding here) at retirement.  Put your long-term savings in an "Index Fund" or at least a low cost mutual fund.
   
           Remember the power of "compounding" (the doubling rule) by investing where earnings are re-invested automatically.  For retirement and other long-term savings, the first 7-10 years of savings are as important as the entire rest of your career.  READ THIS Short ARTICLE!!! and you'll see some amazing numbers.  Or do your own calculations to see how saving and investing could work for you.
    

6. Develop a budget so you won't get caught unable to pay essential bills (and thus you can avoid bad debt - see above).  Talk to your parents about how their expenses work.  1) allocate to savings first with each pay check,  2) allocate money to upcoming bills, next,  3) spend only what's left after that.
    

7. Don't use money to feed your ego or try to keep up with others (who may be dying under the debt load).  And don't use money to try to buy happiness.  But use savings to try to avoid misery.
    

8. If you need insurance to protect your loved ones, by term insurance first. (Check out TIAA-CREF for good prices.)  Think twice about "whole life" as it is  really a savings plan and maybe not a very good one.

Materials for this page are adapted from the instructor's experience, a variety of places on The Motley Fool financial advice web site (fool.com) and, esp, Fool Staff Writers, "Ten Things to Teach Your Kids About Money."  The Motley Fool.  2002.  <http://www.fool.com/moneytip/2002/tip020926.htm>  (26 September 2002)